600 / HEALTH AND WELFARE

Item 4100

Health and Welfare. Agency
STATE COUNcil ON DEVELOPMENTAL DISABILITIES AND
AREA BOARDS ON DEVELOPMENTAL DISABILITIES

Item 4100 from the Federal
Trust Fund and Item 4110
from reimbursements

Budget p. HW 1-3

Requested 1986-87 ......................................................................... .
Estimated 1985-86 ........................................................................... .
Actual 1984-85 ................................................................................. .
Requested decrease $246,000 (-5.9 percent)Total recommended reduction .................................................. ..

$3,895,000
4,141,000
3,951,000

None

1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
4100-001-890-State Council on Developmental
Disabilities-Support-Community program development-Allocation to area boards
4100-001-001-Area Boards on Developmental
Disabilities

Fund
FederalAmount$3,895,000(866,000)(909,000)(2,120,000)
Reimbursements

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS

1. Conversion of Temporary-Help Funds. Recommend thatrequest to use $25,000 in temporary-help funds for a new
permanent clerical position be denied.

Analysispage

601

GENERAL PROGRAM STATEMENTThe State Council on Developmental Disabilities operates pursuant to
the provisions of the Lanterman Developmental Disabilities Services Act(Ch 1365/76) and related federal law. The council is responsible for planning, coordinating, monitoring, and evaluating the service delivery system for persons with developmental disabilities.
There are 13 Area Boards on Developmental Disabilities that operate
pursuant to Ch 1367/76. Area boards are regional agencies responsible forprotecting and advocating the rights of developmentally disabled persons,promoting the development of Ileeded services, assisting the state council
in planning activities, and conducting public information programs.
The state council and area boards are authorized 50.1 positions in thecurrent year.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes an appropriation of $3,895,000 from federal funds
for support of the state council and area boards in 1986-87. This is areduction of $246,000, or 5.9 percent, below estimated current-year expenditures. This reduction, however, is somewhat misleading. During thecurrent year, the state council and area boards carried forward certain
1984-85 federal funds on a one-time basis. These funds, which were used
for community program development, may not be available in the budget

Item 4100

HEALTH AND WELFARE / 601

year. If these funds are deducted from current-year expenditures, thelevel of funding proposed in the budget for 1986-87 is the same as theamount appropriated in the Budget Act for the current year.
Table 1 displays how federal funds are allocated to the state council,
community development, and area boards in the past, current, and budget
years.
Table 1
State Council and Area Boards
Budget Summary
Federal Funds
1984-85 through 1986-87(dollars in thousands)

Expenditures
Personnel-Yeilrs
Prop.
ActualActuill
Est.
Progmm1984--85 1985-86 1986-87 1984-85
12.6
State council ........................ 10.4
12.6
$799
1,298
Program development ......
Area boards .......................... 37.7
37.5
1,854
- 37.5$3,951
Totals .............................. 48.1
50.1
50.1

Est.
1985-86
$831
1,278
2,032
$4,141

Percent
Prop. Chilnge from1986-87 1985-86
$866
4.2%
-28.9
909
2,120
4.3
$3,895-5.9%

The budget proposes a total of 50.1 positions for these programs in
1986-87, consisting of 12.6 for the state council and 37.5 for the area boards.
This represents no change from the current year.
The budget contains $83,000 to fund employee compensation increases
for the state council and area boards in 1986-87, which caused a commensurate decrease in available program development funds. The budget
does not include additional funding for merit salary adjustments or inflation adjustments to operating expenses and equipment. We estimate thatthe state council and area boards will have to absorb approximately$63,000 in such costs.
ANALYSIS AND RECOMMENDATIONS
Proposed New Position is Not Justified by Workload

We recommend that the Legislature reject the proposal to use temporary-help funds for a permanent clerical position because workload does
not justify a permanent position at this time.
The budget proposes to fund a new clerical position, effective March 1,
1986. The money needed to support this position-$25,000-would comefrom the temporary-help blanket included in the base budget.
The state council maintains that it needs the additional position because(1) it has filled two vacant professional positions and (2) it has assumed
additional reporting responsibilities.
Currently, three clerical positions support nine professional staff, including the executive director. Our analysis indicates that the request foran additional clerical position should not be approved for the following
reasons:• There is no numerical workload data to support the need for therequested position.
• The current ratio of one clerical to three professional positions isapproximately average for agencies of this type.
• Part of the existing clerical workload is not ongoing. This is the workload associated with the preparation of a March 1986 report.

602 / HEALTH AND WELFARE

Item 4120

STATE COUNCIL ON DEVELOPMENTAL DISABILITIES AND
AREA BOARDS ON DEVELOPMENTAL DISABILITIES-Continued• Newly installed data processing equipment can be upgraded to increase efficiencies in office typing. Currently, material that is typed
on three personal computers by professional staff must be retyped byclerical staff on a word processor. Integration of the personal computers and the word processing equipment should reduce clerical typing
workload.
For these reasons, we recommend that the Legislature reject the
proposed use of temporary-help funds for a permanent position. The statecouncil should continue using temporary-help funds to meet peak workload requirements until office data processing equipment can be integrated so as to reduce typing workload.

Health and Welfare Agency

EMERGENCY MEDICAL SERVICES AUTHORITY

Item 4120 from the General
Fund

Budget p. HW 4

Requested 1986-87 ......................................................................... .
Estimated 1985-86 ........................................................................... .
Actual 1984-85 ................................................................................... .
Requested decrease $231,000 (-14.4 percent)Total recommended increase .................................................... ..

$1,377,000
1,608,000
1,335,000
145,000

1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
4120·oo1-001-Support
4120-oo1-890-Support
4120-101-oo1-Local assistance
4120-101-890-Local assistance
Reimbursements
Total

Fund
GeneralFederalGeneralFederalAmount$602,000(178,000)
754,000(1,685,000)
21,000$1,377,000

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS

1. Disaster Preparedness Staff. Augment Item 4120-001-001 by

AWllysis
page603$145,000. Recommend an augmentation of funds to restore three positions needed to maintain the state's ability
to respond to a medical disaster.
GENERAL PROGRAM STATEMENTThe Emergency Medical Services (EMS) Authority operates under theprovisions of the Emergency Medical Services System and the Pre-hospital Emergency Medical Care Personnel Act (Ch 1260/80). The authority
is responsible for reviewing local emergency medical services programs
and for establishing statewide standards for training, certification, andItem 4120

HEALTH AND WELFARE / 603

supervision of pre-hospital personnel classifications, including paramedics.
The authority is also responsible for (1) planning and managing medical
response to disasters, (2) administering contracts that provide GeneralFund support for the operating costs of certain rural EMS agencies, (3)administering the portion of the federal preventive health services block
grant allocated for the development of regional EMS systems, and (4)developing regulations and reviewing local plans to implement trauma
care systems.
The authority has 15.8 positions in the current year.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes an appropriation of $1,356,000 from the GeneralFund for support of the authority's programs in 1986-87. This is a decreaseof $128,000, or 8.6 percent, below estimated current-year expenditures.
The decrease results primarily from the expiration of three limited-term
positions in the disaster medical services program.
The proposed appropriation from federal funds is $1,863,000, which is adecrease of $80,000, or 4.1 percent, below current-year expenditures. Thisdecrease reflects the fact that $80,000 in federal funds that were carriedover from 1984-85 to 1985-86 will not be available in the budget year. The
authority indicates the decrease will affect primarily funds granted to local
agencies for special projects.
The budget proposes to reduce the authority's staffing to 12.8 positionsin 1986-87-a reduction of 3 positions.
The budget does not include additional funding for merit salary adjustments or inflation adjustments to operating expenses and equipment. We
estimate that the department will have to absorb approximately $14,000
in such costs.
Table 1 shows positions, expenditures, and source of funds for the years
1984-85 through 1986-87.
Table 1
Emergency Medical Services Authority
Budget Summary
1984-85 through 1986-87(dollars in thousands)

Exeenditllres
Est.
1985-86$3,551

Prop.
1986-87$3,240Reimbursements ..................................................... .

$1,325
1,988
10$1,484
1,943
124$1,356
1,863
21

-8.6%
-4.1
-83.1

Personnel-years ....................................................... .

13.9

15.6

12.6

-19.2

Actwli
Program
1984-85
Administration ....................................................... . $3,323

Percent
Change from1985-86-8.8%

Funding source

CeneTil1 FlInd ..................................................... .
Fedeml Trust FlInd ........................................... .

ANALYSIS AND RECOMMENDATIONSDisaster Medical Services Staff Discontinued

We recommend un augmentation of $145,000 General Fund and threepositions needed to maintain the state's disaster preparedness.
The budget proposes to discontinue three limited-term disaster preparedness positions.
The Budget Act of 1984 appropriated $161,000 from the General Fund

604 / HEALTH AND WELFARE

Item 4120

EMERGENCY MEDICAL SERVICES AUTHORITY-Continued

to support three professional staff in the Disaster Medical Services Sectionof the authority. The three positions were to accelerate planning activities
related to disasters involving mass casualties. Because the work plan submitted by the authority projected that most of the work would be completed in two years, the positions were established on a limited-term basis.
The authority's most recent work plan shows that the following activities would have been assigned to these three positions in 1986-87:• Development of a disaster medical records system.
• Development of guidelines for volunteer disaster medical assistanceteams.
• Participation in the northern California earthquake preparedness exercise.
• Updating and testing the on-line medical information and resource
management system to be used in the event of a disaster.
• Development of a medical response plan for hazardous waste emergencies.
• Implementation and testing of the intercounty disaster medical services communications plan.
• Refining and testing strategies for citizen disaster preparedness andself-help capability.
• Developing and testing strategies for private-sector involvement indisaster medical planning.
The authority indicates that because the positions will not be extended,these activities will not be performed in 1986-87. Our review indicates thatthe reductions may significantly reduce California's ability to respond toa medical disaster. Consequently, we recommend an augmentation of$145,000 General Fund and three positions in order to improve disastermedical preparedness.
Long-Range Plan Has Not Been Received

The Supplemental Report of the 1985 Budget Act required the authority
to submit to the Legislature by December 1, 1985, a long-term programassessment, setting forth the authority'S goals over the next five years,
projected General Fund and federal block grant funding needs, and an
estimate of the staff necessary to accomplish the authority's goals. At thetime this analysis was prepared (January 1986), the Legislature had notreceived the report.

HEALTH AND WELFARE / 605

Item 4i30

Health and Welfare Agency
HEALTH AND WELFARE AGENCY DATA CENTER

Item 4130 from the Health andWelfare Agency Data Center
Revolving Fund

Budget p. HW 5

Requested 1986-87 ......................................................................... . $42,384,000
Estimated 198~6 ........................................................................... . 34,449,000
Actual 1984-85 ................................................................................. . 32,912,000
Requested increase $7,935,000 (+23 percent)None
Total recommended reduction ................................................... .
SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS

1. Reconciliation of Health and Welfare Data Center(HWDC) Budget Proposal. Recommend that, prior tobudget hearings, the Department of Finance reconcile thebudget proposal for the HWDC with costs identified in thebudget proposals of the Data Center's user departments.
2. Workload Estimate. Recommend that, prior to budget
hearings, HWDC advise the Legislature how additional user
department projects will affect the Data Center's workload.

Analysis
page

606

607

GENERAL PROGRAM STATEMENTThe Health and Welfare Data Center (HWDC) is one of three majorstate data processing centers authorized by the Legislature. The center
provides computer support to. the Health and Welfare Agency's constituent departments and offices. The center also provides occasional support
to other state offices, commissions, and departments. The cost of the center's operation is fully reimbursed by its users.
The HWDC has 212.3 authorized positions in the current year.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes an appropriation of $42,384,000 from the Healthand Welfare Agency Data Center Revolving Fund to support the Data
Center's operations in 1986-87. This is an increase of $7,935,000, or 23
percent, above estimated current-year expenditures.
The budget does not include additional funding for Merit Salary Adjustments or inflation adjustments to Operating Expenses and Equipment.
We estimate that the Data Center will have to absorb approximately $1.2
million in such costs.
Table i identifies the significant changes in the center's expenditures
proposed for 1986-87.

Item 4130

606 / HEALTH AND WELFARE
HEALTH AND WELFARE AGENCY DATA CENTER-Continued
Table 1
Health and Welfare Agency Data Center
Proposed Budget Changes(dollars in thousands)

Dllta Center
Revolving FUIld
1985-86 expenditures (revised) ..........................................................................
Proposed changes:
1. Cost adjustments
a. Full·year cost adjustment ..........................................................................
b. Salary and benefit adjustment ..................................................................

$34,449$1,049447
1,496

2. Program adjustments
a. Increase user program cost ........................................................................
b. Increase dedicated equipment ................................................................
c. Data center efficiencies..............................................................................
d. Increase teleprocessing support ..............................................................
e. Equipment for new CALSTARS users....................................................

$3,681
2,893
-277
87
55
6,439

1986-87 expenditures (proposed) ..................................................................... .

$42,384

Change from 1985-86:
Amount ................................................................................................................. .
Percent ................................................................................................................. .

$7,93523%

ANAL YSIS AND RECOMMENDATIONS

We recommend approval of the following program changes shown in
Table 1 which are not discussed elsewhere:
1. A decrease of $277,000 in personal services resulting from departmental efficiencies.
2. A decrease of $9,000 in operating expenses and equipment reflecting
the redirection of funds from HWDC to the Department of Mental Health(DMH) for an office automation project. (This amount is included withinthe "User Program Cost" in Table 1.)
3. An ihcrease of $55,000 in communication and data processing costs toaccommodate new users of the CALSTARS accounting system.
4. An increase of $30,000 in operating and equipment costs to provide
support to the Department of Health Services for an occupational hazard
surveillance data system. (This amount is included within the "User Program Cost" in Table 1.)
HWDC's Budget Is Not Consistent With the Budgets of User Departments

We recommend that, prior to budget hearings, the Department of Finance reconcile the budget proposal for the HWDC with the budget
proposals of the center's user departments.
The Data Center is funded solely through reimbursements from departments that receive services from the center. Thus, the Data Center'sbudget should be equal to the expenditures that have been earmarked for
it by the user departments.

Item 4130

HEALTH AND WELFARE / 607

We have reviewed the budget proposals submitted by the Data Centeras justification for the new services that it intends to provide to some ofits user departments; We have compared these proposals with information
provided to us by the user departments themselves. We estimate that
there is a discrepancy of approximately $436,000 between the Data Center's proposed budget and the funds identified by the user departments
for the center. The Department of Finance acknowledges this discrepancy and indicates that it is working to reconcile the differences. We
recommend that, prior to budget hearings, the Department of Financereconcile the budget proposal of the HWDC with the budget proposals of
its user departments and report its conclusions to the fiscal committees.
No Allowance Made for Potential Increased Workload

We recommend that, prior to budget hearings, the HWDC advise theLegislature how the increased demand for services from the user departments will affect its workload and staffing requirements.
The HWDC has advised us that several departments have submitted
budget proposals which understate the cost and staffing impact of thedemands that they will be placing on the Data Center. These proposals
include the following:• The Department of Health Services (DHS) is requesting the Data
Center to assist in modifying the Los Angeles Medi-Cal Eligibility
Data System.
• The DHS is also requesting the Data Center to provide assistance in
expanding the central data base for the Statewide Automated Welfare
System.
• The Employment Development Department is requesting the Data
Center to provide support for expanding its Tax Accounting System.
Although the Data Center has indicated that it anticipates a need forincreased personnel related to these budget proposals, it does not have an
estimate of the additional number of staff or the amount of funds needed
to cover the increased workload. Because the potential need for additional
staff will result in additional costs to the Data Center, we recommend that,prior to budget hearings, the Data Center provide the Legislature with anestimate of the funds and staff needed to accommodate fully the increased
workload identified by the user departments.
Legislatively Required Reports

The Supplemental Report of the 1985 Budget Act required the Healthand Welfare Agency Data Center to report to the Legislature by January
1, 1986, on the use of contracts to perform services formerly performed bytemporary state staff. The Data Center has submitted the report and wehave reviewed it. The report contains information on (1) the cost ofcontractual services as compared to temporary state staff and (2) the
quality and efficiency with which the contraCt staff are providing these
services. The report concluded that the contract amount of $2,879 forspecified services was 23 percent less than it would have cost to use temporary state staff. The report also concluded that the work was done efficiently and according to contract specifications.

608 / HEALTH AND WELFARE

Item 4140

Health and Welfare Agency
OFFICE OF STATEWIDE HEALTH PLANNING AND
DEVELOPMENT
Item 4140 from the GeneralFund and various other funds

Budget p. HW 8

Requested 1986-87 ......................................................................... . $20,196,000
Estimated 1985-86 ........................................................................... . 23,628,000
Actual 1984-85 ................................................................................. . 16,401,000
Requested decrease $3,432,000 (-14.5 percent)Total recommended reduction ................................................... .
71,6001986-87 FUNDING BY ITEM AND SOURCE
Item-Description
4140-001-001-Support
4140-001-121-Support
4140-001-143-Support
4140-001-518-Support
4140-001-890-Support
4140-10l-001-Local assistance
Reimburse'ments
Total

Fund
GeneralHospital Building Account,
Architecture Public Building
California Health Data andPlanning
Health Facilities Construction Loan Insurance
FederalGeneralAmount$1,037,000
9,693,000
5,627,000
693,000(1,570,000)
2,880,000
266,000$20,196,000
Anillysis

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. Technical Budgeting Issue. Reduce Item 4140-001-143 by$71,600. Recommend the reduction to reflect the actual
savings resulting from the elimination qf the Certificate-ofNeed program.
,.
2. Seismic Safety Workload.
Withhold recommendation
pending receipt and review of additional information. Further recommend that the office '(I) ~ubmit its oveid)..le report on seismic safety program workload, (2) explain why
the mandated report has not been submitted, and (3) sllbmit a staffing proposal adequate to m~et 1986-87 work:load
projections.

page
611

612

GENERAL PROGRAM STATEMENTThe Office of Statewide Health Planning and Development (OSHPD)
administers five major programs:
1. The Health Planning Division works with the state's 12 health systems agencies to develop a State Health Plan. This plan establishes priorities for the financing and delivery of health services within California.
2. The Certificate-ai-Need Division administers the state's certificateof-need law (Ch 854/76), which requires state approval of major capitaloutlay projects proposed by health facilities. The office will cease to perform this activity January 1, 1987, pursuant to Ch 1745/84 (SB 2061).

Item 4140

HEALTH AND WELFARE / 609

3. The Health Professions Development Division administers the SongBrown Family Physician Training program and the Health Professions
Career Opportunity program.
4. The Facilities Development Division conducts plan reviews for, andsite inspections of, health facilities construction projects to assure that they
conform with federal, state, and local building requirements, and reviews
health facility applications for construction loan insurance.
5. The Health Facilities Data Division is responsible for collecting
health cost and utilization data from health facilities. Chapter 1326, Statutes of 1984, shifted responsibility for collecting data from the California
Health Facilities Commission (CHFC) and the Department of HealthServices to the office, effective January 1, 1986.
The office is authorized 253.6 positions in the current year.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes an appropriation of $3,917,000 from the GeneralFund to support the Office of Statewide Health Planning and Development in 1986-87. This is a decrease of $918,000, or 19 percent, below
estimated current-year General Fund expenditures.
This decrease primarily reflects the deletion of one-time funds available
in the current year-$777,000 carried over from 1984-85 for the SongBrown Family Physician Training program and $200,000 for hospital assistance. When these one-time funds are deducted from current-year expenditures, the level of funding proposed for OSHPD's ongoing programs in
1986-87 represents an increase of $59,000, or 1.2 percent, above currentyear expenditures.
Expenditures for support of the office from all funds are proposed at$21,766,000 in 1986-87. This is a decrease of $3,351,000, or 13 percent, below
estimated current-year expenditures. Table 1 displays the office's personnel-years, program expenditures, and funding sources for the prior, current, and budget years.
Table 1
Office of Statewide Health Planning and Development
Budget Summary
1984-85 through 1986-87(dollars in thousands)

Expenditures
Personnel-Years
Actual Est. Prop.
Progrmn
Health planning ......................................
Certificate of need ................................
Health professions development ........
Facilities development and financing
Health facilities data ..............................
Other ........................................................
Totals ....................................................

Actual

Est.

Prop.

Percent
ChangeFrom

1984-85198fHi61986-87 1984-85 198fHi6 1986-87 198fHi6

24.7
21.8
25.4
71.8
39.6
183.3

29.3
15.8
12.8
104.7
35
41.8
239.4

17.6
4.3
12.8
88.5
61.1
40.1
224.4

322
$18,028$2,508
1,630
4,728
13,5702,143
538$25,117$2,070892
4,005
10,386
4,060
353$21,766-17.5%
-45.3
-15.3
-23.5
89.5
-34.4
-13.3%$3,985
9,185$4,835
12,899-19.0%

662
1,627
2,596

671
1,489
5,223

$3,917
9,693
5,627
693
1,570
266

$1,829
1,547
4,433
9,897

Funding Source

Genenll Fund ......................................................................................
Hospital Building Account, Architecture Public Building Fund
Ollifomia Health Data and Planning Fund ............................... .
Hel/lth Facilities Construction Loan InsuTimce Fund ..............
Fedenll funds ......................................................................................
Reimbursements ................................................................................

-24.9
3.3
5.4
-94.9.

\

Item 4140

610 / HEALTH AND WELFARE

OFFICE OF STATEWIDE HEALTH PLANNING AND DEVELOPMENT-Continued

The decrease in total expenditures from all sources also is due to thepresence of certain one-time expenditures in the current-year total. These
one-time expenditures include (1) a $777,000 carry-over for the SongBrown Family Physician Training program, (2) $1,501,000 for expiring
limited-term positions, and (3) a $3,496,000 deficiency appropriation forthe seismic safety program. The corresponding reductions in budget-year
spending are partially offset by (1) an increase of $1,645,000 to fund thefull-year cost of CHFC staff transferred to the office and (2) an increaseof $1,297,000 for the conversion of 27 limited-term seismic safety program
positions to permanent positions. If both the one-time expenditures andthe proposed program changes are deducted from the totals, the proposed
budget is $519,000, or 2.1 percent, below estimated ongoing current-year
expenditures.
Table 2 identifies the major budget changes proposed for 1986-87.
Table 2
Office of Statewide Health Planning and Development
Proposed 1986-87 Budget Changes(dollars in thousands)

GenerulFund
1985-86 expenditures (Budget Act) ..................................................................... . $4,026
Baseline adjustments, 1985-86:
1. Employee compensation increase ................................................................... .
2. Carry-oyer appropriation for Song-Brown Family Physician Training
program ................................................................................................................... .
3. Deficiency appropriation for seismic safety program ................................. .

1985-86 expenditures (reyised) ............................................................................. .
Baseline adjustments:
1. Employee compensation increase ................................................................. .
2. Merit salary adjustment ................................................................................... .
3. Inflation adjustment for operating expenses and equipment ................. .
4. Pro-rata adjustment ........................................................................................... .
5. SWCAP adjustment ........................................................................................... .
6. Overhead adjustment ....................................................................................... .
7. Expiring limited-term positions ..................................................................... .
8. One-time cost reductions:a. Hospital assistance ......................................................................................... .
b. CHFC consolidation costs ........................................................................... .
c. One-time contracts ....................................................................................... .
9. Full-year cost of CHFC ..................................................................................... .
10. Elimination of carry-over for family physician training program ......... .
11. Deficiency appropriation for seismic safety program ............................... .

All
Funds
$20,320

32

524

777
$4,835

777
3,496$25,117

$27

8435
456
-38

-16

-2

-1,501

-200

-200
-420
-156
1,645

-777

-777
-3,496

Program change proposals:
1. Administrative support for Health and Welfare Agency ........................... .
2. Implementation of Ch 832/85 ........................................................................... .
3. Elimination of Certificate-of-Need program ................................................. .
4. Reduction of two clerical positions ................................................................ ..
5. Establishment of 27 permanent seismic safety positions ........................... .
1986-87 expenditures (proposed) ......................................................................... .

$3,917

105
50
-706
-45
1,297
$21,766

Change from 1985-86 (revised)
Amount.. ................................................................................................................... .
Percent ..................................................................................................................... .

-$918-19.0%-$3,351-13.3%

50

Item 4140

HEALTH AND WELFARE / 611

The budget proposes a total of 224.4 personnel-years for the office in
1986-87. This is a decrease of 15 personnel-years from the current-yearlevel. The decrease primarily reflects the sunset of the Certificate-of-Need
program, the termination on June 30, 1986, of 32 limited-term positions
added administratively for the seismic safety program in the current year,
and workload consolidation resulting from transfer of the California
Health Facilities Commission staff to the office.
The budget does not include additional funding for merit salary adjustments or inflation adjustments to operating expenses and equipment. We
estimate that the office will have to absorb approximately $384,000 in suchcosts.
ANALYSIS AND RECOMMENDATIONS
We recommend approval of the following significant funding and staffing changes proposed for 1986-87 that are not discussed elsewhere in thisanalysis:• An increase of four positions and $105,000 in reimbursements to continue providing support services to the Health and Welfare Agency.
• A reduction of two clerical positions, for a savings of $45,000 in reimbursements, to eliminate duplication created by the transfer to theoffice of functions and staff from the California Health Facilities Commission, pursuant to Ch 1326/84 (SB 181).
• A reduction of 10.1 temporary-help positions and an increase of$104,000 for a contract with California State University, which will
provide student help to process peak workload consisting of technicalreviews of financial, statistical, and utilization reports submitted byhealth facilities.
• A $50,000 General Fund augmentation to implement the Health Manpower Education program, pursuant to Ch 832/85. This measure directed the office to establish a health manpower education contract
fund for health promotion and health risk education projects, and toseek an appropriation ranging from $40,000 to $80,000 in 1986-87.
Savings UnderestimatedWe recommend that the Legislature reduce by $71,600 reimbursements
to the oFFice in order to reflect actual program sl1vings that result Fromelimination of the Certificate-oF-Need program.
The budget proposes the elimination of 20.7 positions, for a savings of$706,000 in reimbursements, to reflect Ch 1745/84 (SB 2061), which eliminates the state's Certificate-of-Need (CON) program, effective January 1,
1987. The reimbursements represent fees paid by the facilities inspectedunder the CON program.
Our analysis indicates the office has underbudgeted the savings from
eliminating these positions. The $706,000 assumes that all positions currently are filled at the first step of the salary range: In order to avoid
overbudgeting, the savings should be calculated using the same salarylevels used when the positions were initially budgeted.
Therefore, we recommend that the Legislature reduce reimbursements
by $71,600 in order to reflect the actual savings resulting from the elimination of the CON program.

612 / HEALTH AND WELFARE

Item 4140

OFFICE OF STATEWIDE HEALTH PLANNING AND DEVELOPMENT-Continued
Proposed Seismic Safety Staffing Cannot Accomplish Mission

We withhold recommendation on the seismic safety budget pending
receipt and review of additional information. We further recommend thatprior to budget hearings, the office (1) submit an overdue report on its
seismic safety program workload for 1986-87, (2) explain why the mandated workload evaluation was not completed on time, and (3) provide theLegislature with staffing and funding recommendations that are adequate
for projected 1986-87 workload.
The budget proposes to make permanent 27 limited-term positions thatare due to expire June 30, 1986, at a cost of $1,297,000 to the Hospital
Building Account, Architecture Public Building Fund. The proposal
would increase, from 57 to 84, the number of permanent positions in theseismic safety program. The budget would, however, reduce the total
number of positions available to the seismic safety program from 116 to
84. This is because the budget does not propose the continuation of 32
additional limited-term positions added in January 1986.
In addition, the budget document (Health and Welfare Section page 10,line 60) states:"The Office of Statewide Health Planning and Development with theassistance of a private consultant is currently reviewing the ongoing
purpose and associated staffing needs of its hospital seismic safety activities. Pursuant to this review, legislative or other program changes may
be proposed as the budget is being reviewed by the Legislature."
The Supplemental Report of the 1985 Budget Act required the office tosubmit to the fiscal committees and the Joint Legislative Budget Committee by December 15, 1985, an evaluation of seismic safety program workload. At the time this analysis was written, the evaluation had not been
submitted. Without this evaluation, the Legislature does not have an adequate basis for projecting the seismic safety program's workload and staffing needs for 1986-87. Our preliminary review of the workload backlog
and a consultant's study completed in October 1985, however, strongly
suggests that the proposed staffing level is inadequate.
Background. Chapter 303, Statutes of 1982, designated the office as
the state agency responsible for enforcing hospital and health facility
building standards. The measure preempted local agency enforcement of
hospital construction standards and required the state to assume all plan
reviews, inspections, and administrative duties from local entities.
There is a significant backlog in the office's seismic safety program, andour analysis indicates that seismic safety workload will continue to increase.
Consultant's Study. The office initiated a consultant study of workload in the seismic safety program in response to 1985 supplemental report
language. The consultant's study estimates that there may be as many as
10,000 hours of backlogged work that must be cleared before plan review
times will decrease to more acceptable levels.
We have reviewed the consultant's study and found its workload estimates and recommendations to be generally sound.
Current-Year Augmentation. The OSHPD currently expects workload, as measured by the value of seismic safety projects, to reach $1.2
billion in 1985-86. This is 50 percent greater than previously estimated.
This growth in workload led the Department of Finance to add 32 new

Item 4140

HEALTH AND WELFARE / 613

limited-term positions, as well as overtime and temporary-help funds, to
the OSHPD budget in the current year. On December 27,1985, the Director of Finance notified the Legislature that using the authority granted by
Section 27 of the 1985 Budget Act, he had authorized the office to expend
on a deficiency basis $3,496,322 from the Hospital Building Account, Architecture Public Building Fund to finance these additional resources. The
Director justified the augmentation on the basis that the 1985 Budget Act
does not adequately provide for the increases in the seismic safety program workload. Table 3 shows the elements of the augmentation.
Table 3
Seismic Safety Program
1985-86 Augmentation
32 new limited· term positions ......................................................................................................... .
Overtime ............................................................................................................................................... .
Temporary help ................................................................................................................................. .
Services including fees payable to State Architect and State Fire Marshal ....................... .

$740,522
55,500107,500
2,592,800

TotaL ............................................................................................................................................. .

$3,496,322

The fees payable to the State Architect and State Fire Marshal also are
directly tied to workload increases. Both the State Architect and State Fire
Marshal are reimbursed on the basis of a fixed percent of the value of
construction projects that are reviewed.
Governor's Budget Underestimates 1986-87 Staffing Requirements.
The OSHPD anticipates that the value of seismic safety projects in 1986-87
will be $1.27 billion-slightly above the current-year level. The budget for
1986-87 does not contain adequate staff resources to handle this workload.
Nor does the budget provide adequate funding for the services of the State
Architect or the State Fire Marshal.
The budget proposes to make permanent 27 limited-term positions that
the Legislature authorized in the Budget Act of 1985. The budget, however, would allow to expire the 32 additional limited-term positions thatwere authorized mid-way through the current year by the Department of
Finance.
There is no question that the 27 limited-term positions should be madepermanent. The issue facing the Legislature is whether the 32 other limited-term positions will still be needed in the budget year.
As Table 4 shows, workload in 1986-87 is projected to increase by anadditional 8.8 percent over the 50 percent unanticipated workload growthfor 1985-86. It was this unanticipated increase that prompted the Directorof Finance to add the 32 temporary positions in the current year. Now,
with workload expected to be greater still, the administration proposes to
let these positions expire.
Table 5 shows that the consultant study cited earlier justifies an evenlarger staffing increase than the temporary increase authorized by the
Director of Finance for the last six months of 1985-86. This increase added
19 review and inspection positions and 13 clerical and other support positions. The consultant study indicates the need for an additional 4 review
and inspection positions but does not address the need for additional
clerical or other support positions.

-.----- - - - - -Item 4140

614 / HEALTH AND WELFARE

OFFICE OF STATEWIDE HEALTH PLANNING AND DEVELOPMENT-Continued
Table 4
Seismic Safety Program
Review and Inspection Workload Projections
1985-86 to 1985-87

Project Work Categories:'\e\\' facilities: structural changes
Large projects ..................................................................................
Medium projects..............................................................................
Small projects ..................................................................................
l\'ew facilities: no structural changes..............................................
Existing facility alterations................................................................
Other facility alterations ..................................................................
Equipment anchorage pre-approvals ............................................
Total workload ....................................................................................

Est.
1985-86

Projected
1986-87

765
1,500
737
2,860
1,565
45
10
7,482

810
1,625
804
2,926
1,918
45
15
8,143

Percent
Change from1985-86

5.9%
8.3
9.1
2.3
22.6
50.0
8.8%

Derived from October 1985 consultant study.

Table 5
Seismic Safety Positions
Comparison of Actual 1985-86 Augmentation to Consultant's Findings

Mechanical Electrical Structllml Construction
Architects Engineers Engineers Engineers SlIpen'isors
Actual augmentation ......................
2
2
10
1
4
Consultant's findings ...................... - 441
86
Difference ................................
(2)
2
2
2
0

Totals19
23
4

The consultant estimates that more than 139,000 hours of plan review
and state inspection staff time will be required in 1986-87 to processincoming seismic safety program workload. Table 6 displays these projections. Table 6 also shows that a total of 91 review and inspection positions
would be required to process the projected workload_ The budget currently authorizes 63 review and inspection positions-28 fewer than workload
projections justify. Furthermore, the staffing requirements shown in Table 6 do not include any additional clerical or management personnel, any
staff to process backlog carried over from 1985-86, or any allowance forhiring lags or for exceptionally large or complicated projects.

Item 4140

HEALTH AND WELFARE / 615
Table 6
Seismic Safety Program
Workload Hours and Staffing Projections
1986-87

A. Hours of workload
Tottil person-hours required ............
B. Position requirements
Person-years required @ 1,768 hrsl
py ....................................................
Supen'isory staff ..................................
Professional review and inspection(R&I) staff required ..................
Currently authorized R&I stoff... .....
Additional staff required ....................

Architects,\fecl!.
Eng.

Elec.
Eng.

Struc.
Eng.

Const.
SLIp. II

Totul

33,14016,318

10,134

31,624

48,296

139,782

19.00
2.25

9.00
1.25

6.00
1.25

18.00
2.25

27.00
5.00

79
12

21.25
15.25
6.00

10.25
6.25
4.00

7.25
5.25
-2.00

20.25
11.25
9.00

32.00
25.00
7.00

91
63
28

Derin'd from October 1985 consultant study

Turnaround Times Will Remain a Problem. Table 7 compares theoffice's goals for completing reviews with our estimates of what turnaround times would be with 28 additional review and inspection staff.
Our estimates of turnaround times are based on data provided in the
October 1985 consultant study and are probably minimum estimates because no allowances were made for coordination delays between reviewers, delays between the office and the State Architect or State Fire
Marshal, or any workload put aside to accommodate cyclical fluctuations
in construction projects.
Table 7
Seismic Safety Program
Comparison of Review Turnaround Time

Large projects ......................................................................................
Medium projects ..................................................................................
Small projects........................................................................................

Office'sGoul
6 to 8 weeks
3 to 4 weeks
1 to 2 weeks

Anulyst's
Estimate"
11 to 12 weeks
4 to 5 weeks
9 days"Derived from October 1985 consultant study. AiHllyst's estimate is based on a review staff of 91, or 28
more than proposed in the budget.

Our analysis indicates that under the proposed 1986-87 budget, theseismic safety program cannot adequately fulfill its mission. Therefore, wewithhold recommendation on the seismic safety budget and recommendthat prior to budget hearings, the office (1) submit its overdue report on
seismic safety program workload, (2) explain why the mandated workload
evaluation could not be completed on time, and (3) submit to the Legislature a seismic safety program staffing and funding proposal that is adequate for projected 1986-87 workload.
Affirmative Action Reports Late

The Supplemental Report of the 1985 Budget Act required (1) the officeto submit a report on its affirmative action policy and (2) the State Personnel Board (SPB) to submit a report on the hiring and promotional policies
for women at the OSHPD. Both reports were due by January 1, 1986. The
reports had not been submitted at the time this analysis was prepared.

Item 4170

616 / HEALTH AND WELFARE

Health and Welfare Agency
CALIFORN,IA DEPARTMENT OF AGING

Item 4170 from the GeneralFund and various funds

Budget p. HW 16

Requested 1986-87 ., ....................................................................... . $45,616,000
Estimated 1985-86 ........................................................................... . 45,042,000Actual 1984-85 ................................................................................. . 24,034,000
Requested increase $574,000 ( +1.3 percent)Total recommended reduction ................................................... .
3,222,000
RecoPlmendation pending ........................................................... .
1,500,000
1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
4170·001·001-Support
4170.00l·890-Support
4170·101·001-Local Assistance
4170·101·890-Local Assistance
Reimbursements
Total

Fund
GeneralFeqeralCeneralFederalAmount$7,197,000(2,379,000)
28,110,000(75,659,000)
10,309,000$45,616,000

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. Multipurpose Senior Services Program (MSSP)-"Prudent
Reserve." Withhold recommendation regarding $1.5 million proposed as a prudent reserve for MSSP site contracts
and feasibility study report (FSR) implementation, pending
receipt of specified information.
2. MSSP-Research.
Recommend that prior to budget
hearings, the department provide the fiscal committees
with specified information regarding its research contract
with the University of California, Berkeley.
3. MSSP-Variations in Local Site Costs .. Recommend that
the Legislature adopt supplemental report language requiring the department to submit a report that explains thedifferences in costs among MSSP sites.
4. MSSP-Proposed Position Reductions. Recommend thatprior to budget hearings,·the department provide the fiscal
committees with specified information regarding the
proposed MSSP staffing reductions.

5. Linkages and Health Insurance Counseling and Advocacy
Program (HICAP). Reduce Item 41'70-001-001 by $129,000
and reduce Item 4170-101-001 by $3,093,000. Recommend
the Legislature add an item to the Budget Bill reappropriating funds remaining from Ch 1637/84 apd Ch 1464/84 andreduce the General Fund appropriations proposed for Lipkages and HICAP to reflect the availability of these funds.
6. MSSP-Management Information System. Recommendthat prior to budget hearings, the department provide thefiscal committees with specified information regarding
MSSP's Management Information System.

Anlliysis
pllge

621

624

625

626

627

629

Item 4170

HEALTH AND WELFARE / 617

7. Adult Day Health Care (ADHC). Recommend that prior to budget hearings, the department provide the fiscal
committees with a timetable for implementing its uniform
data collection system.
8. Brown Bag Program. Recommend that prior to budget
hearings, the department provide the fiscal committees
with information regarding the transfer and expansion of
the Brown Bag program.

630

631

GENERAL PROGRAM STATEMENTThe California Department of Aging (CDA) is the single state agency
charged to receive and administer funds allocated to California under thefederal Older Americans Act (OAA). In addition, the Legislature has
designated CDA as the department principally responsible for developing
and implementing a comprehensive range of noninstitutional services forolder Californians and functionally impaired adults. In order to carry out
these two mandates, the department uses federal and state funds to support a variety of services, including local social and nutrition services,senior employment programs, long-term care services to the elderly andfunctionally impaired adults, and related state and local administrative
services and staff training.
The department delivers Older Americans Act services through local
agencies on aging, other public and private nonprofit organizations, andservice providers. At the center of the local network for delivery of services are planning and coordinating bodies called Area Agencies on Aging(AAAs) , often referred to as "triple As." In California, there are 33 AAAs;
one in each Planning and Service Area.
In addition to the AAA network, the CDA began in 1984-85 to contract
directly with a variety of long-term care service program providers inorder to begin building a system of community-based long-term care. The
programs within this system are the Multipurpose Senior Services Program (MSSP), Linkages, Adult Day Health Care (ADHC) , and Alzheimer's Day Care Resource Centers.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes $45,616,000 from the Geneml Fund and reimbursements for support of CDA's activities in 1986-87. This is an increase of$574,000, or 1.3 percent, above estimated current-year expenditures.
Total program expenditures by the CDA are proposed at $123,654,000
in 1986-87. This is an increase of $557,000, or 0.5 percent, over current-year
expenditures. Table 1 presents a summary of the department's funding
and expenditures for the prior, current, and budget years.
Virtually all local assistance funding for Older Americans Act (OAA)
programs has been "straight-lined" into the budget year. As a result, thebudget does not reflect the decrease in nutrition funding which is anticipated to occur due to a reduction in USDA reimbursements. This
reduction is effective retroactive to October 1, 1984.
The 52 percent decrease in state administration shown for the budget
year is largely due to a technical change in how the department budgets
for MSSP. Prior to 1985-86, MSSP was accounted for in state operations.
In the budget year, the department has moved $13.7 million in local site
costs for MSSP from state operations to local assistance.

Item 4170

618 / HEALTH AND WELFARECALIFORNIA DEPARTMENT OF AGING-Continued
Table 1
California Department of Aging
Budget Summary
1984-85 through 1986-87(dollars in thousands)

Prognlm
State administration .............................................. ..
Older Americans Act (OAA)
Programs
Local Assistance:
Congregate meals ..................... ;;..................... .
Home delivered meals .................................. ..
Employment services ..................................... .
Social sen'ices ................................................... .
Ombudsman .................................................... ..
Special projects ............................................... .
Subtotals, OAA .................................................... ..
Long-Term Care Programs
Local Assistance:
YISSP .................................................................. ..
Linkages! Alzheimer ...................................... ..
Adult Day Health Care ................................ ..
Subtotals, Long-Term Care .............................. ..
Total, all expenditures ...................................... ..
Unexpended balance(estimated savings)" ...................................... ..
Balance available insubsequent year b ........................................... .
Funding Source

General Fund ................................................... .
Fedeml funds ................................................... .
Reimbursements ............................................ ..

Percent
Ch<lllge
From
1985-86-52.0%

Actlwl1984-85Est.
1985-86Prop.
1986--87$12,042$26,876$13,032$38,728
16,3404,736
29,620(858)
995$90,419$43,857
15,0894,965
25,606(1,953)
2,070$91,587$43,857
15,0894,995
25,606(1,953)2,140$91,687

3.4
0.11%

$275
$275
$102,736$3,800834$4,634$123,097$13,706
4,200
1,029$18,935$123,654

10.5%
23.4
308.6%
0.5%( -$6,248)(-$44)( -$1,627)( -$3,671)( -$2,389)(-34.9%)$20,583
78,702
3,451$34,732
78,055
10,310$35,307
78,03810,309

1.7%

0.6

NMF

"The unexpended balance includes funds from the 1985 Budget Act and from legislation funding the
Health Insurance Counseling, Ombudsman, and Linkages programs.
b The balance available in subsequent years includes unexpended Title III funds and funds available
without regard to fiscal year for the ADHC, CCFD, and Alzheimer's programs.
:'I:~F means not a meaningful figure.

The budget does not include any funds for the estimated cost of Merit
Salary increases or inflation adjustments for Operating Expenses andEquipment. We estimate that the department will have to absorb approximately $215,000 in such costs.
Table 2 identifies, by funding source, the significant changes in expenditure levels proposed for 1986--87. Several of these proposed changes are
discussed later in this analysis.

Item 4170

HEALTH AND WELFARE / 619
Table 2
California Department of Aging
Proposed Budget Changes
1986-87(dollars in thousands)

GenenllFund
1985-86 expenditures (re\'ised) ............................................ .. $34,732
1. Cost adjustments:a. Increase in existing personnel costs .......................... ..
$152

Federal ReimFunds bursements Total$78,055$10,310$123,097
$94

$38

$284

-66

-5

-$66

65
$60

-453
400
143
$90

2. Workload adjustments:a. One-time only expenditures ........................................ ..
b. Full-year cost of new / expanded programs .............. ..
c. Financial legislation ......................................................... .

-382
400
78
-Total workload adjustment ................................................. .
$96

3. Program change proposals
a. Ombudsman program efficiencies .............................. ..
b. ~1SSP program efficiencies .......................................... ..
c. OLTCA program efficiencies ....................................... .
d. Senior Bond Act indirect support augmentation ... .
e. Data Systems and Management Analysis reduction
f. Brown Bag program expansion .................................... ..
g. ADHC program expansion (Ch 1305/85) ................ ..
Total program change proposals ...................................... ..
1986-87 expenditures (proposed) ........................................ ..
Change from 1985-86:
Amount .................................................................................... ..
Percent .................................................................................... ..

-$27
-52
-62
64
-55
263
196
$327
$35,307

-52
-62
-45

-$45
$78,03815-$99$10,309

-$17

-$1

$575
1.7%

-$27
-104
-124
64
-100
263
- -211$183
8123,654$557
0.5%

Table 3 presents a summary of personnel-years for the department in
the prior, current, and budget years_ The size of the decrease in personnelyears for long-term programs in 1986--87 is somewhat misleading, because
two positions in this division are being redirected to administration. Taking this redirection into account, the total decrease in personnel-years forlong-term care is 3.4, or 9.3 percent. We discuss a portion of this decrease
later in this analysis.
Table 3
California Department of Aging
Person nel-Yea rs
1984-85 through 1986-87

PrognlIll

Actual

Est.

Prop.

Percent
ChangeFrom

1984-8519~6

1986-87

19~6

76.7
19.3
15.2
111.2

80.1
22
36.7
138.8

77.1
20.6
31.4
129.1

Administration ............................................................... .
Older Americans Act Programs .............................. ..
Long-Term Care Programs ...................................... ..
Totals ........................................................................... .

-3.7%
-6.4
-14.4
-7.0%

ANALYSIS AND RECOMMENDATIONS

We recommend approval of the following program changes which are
not discussed elsewhere in this analysis:• Adjustments for One-Time Only Expenditures (-$453,000). This
includes moving expenses, communications, equipment, and otherprogram costs.

620 / HEALTH AND WELFARE

Item 4170

CALIFORNIA DEPARTMENT OF AGING-Continued• Adjustments for the Full-Year Costs of New/Expanded Programs($400,000). The department requests funds to cover the full-year
cost of three Linkages programs added by the 1985 Budget Act.
• Financial Legislation ($143,000). This reflects increases in expenditures in the Community Care Facility Demonstration Project
and the Adult Day Health Care program.
• Long-Term Care Ombudsman (-$27,000). The department proposes to reduce one-half of a position due to completion of projects
and workload efficiencies.
• Office of Long-Term Care and Aging (-$124,000). The department proposes to merge this office with administration of the longterm care division. Of its four positions, the department proposes to(1) redirect two positions to long-term care administration, and (2)delete two positions as a result of efficiencies in the long-term caredivision.
• Senior Bond Act Positions ($64,000). The department proposes topermanently establish two positions that it administratively established in the current year in order to implement the Senior Bond Act.
These positions perform accounting and contracting activities.
• Personnel Branch. The department proposes to redirect one position from the Budget and Fiscal Systems Development Section to thepersonnel branch to provide for increased personnel services.
• Administrative Efficiencies (-$100,000). The department proposes to eliminate two administrative positions due to efficiencies andcompletion of developmental activities.
• Senior Employment. The department proposes to reduce one position due to decreased administrative reimbursements from the federal government. The funding for this position ($30,000) will betransferred to local assistance.
• Adult Day Health Care Program Expansion ($211,000). The department proposes to begin spending the funds appropriated in
Chapter 1305, Statutes of 1985, in order to expand the program. Witha portion of these funds, the department proposes to add one positionin order to fulfill increasing program responsibilities associated withthe growing number of sites.
DIVISION OF LONG· TERM CARE PROGRAMS

On January 1, 1985, the department established its Long-Term Care
Division. The· division was established to reflect enactment of Chapter
1637, Statutes of 1984 (AB 2226), and Chapter 1600, Statutes of 1984 (SB1337). This legislation designated CDA as the principal department responsible for developing, implementing, and integrating communitybased long-term care programs for older and functionally impaired adults.
When the department took over this responsibility last year, it was
responsible for 45 local programs that provided a variety of long-term careservices to approximately 3,900 clients. As of December 1985, the department was responsible for approximately 83 sites and 6,500 clients. At theend of the budget year, the department estimates this responsibility will
have expanded to 103 local programs and 11,400 clients. This represents
an increase of 130 percent in the number oflocal program sites and almost
a 200 percent increase in the number of clients served since the department established the division in January 1985.

Item 4170

HEALTH AND WELFARE / 621

Table 4 presents a summary of eligibility requirements, services provided, number of sites and clients, and expenditures in CDA's long-termcare division.
.
In the 1986--87 Budget: Perspectives and Issues we review, and makerecommendations for improving, the effectiveness and efficiency of thestate's community-based long-term care system. On the following pages
we present our analysis and recommendations regarding specific longterm care programs. In general, our analysis addresses two areas: (1) the
operation of long-term care programs and (2) the Management Information Systems (MIS) of these programs.
OPERATION OF LONG-TERM CARE PROGRAMSIn Perspectives and Issues we point out that while MSSP improves thequality of life for its clients, it does so at a cost which is higher than thecost of institutional care. In addition, we note that the type of care MSSP
provides-case management-serves as the model for other communitybased long-term care programs. Thus, it is important for the Legislature
to review the operations of MSSP, as well as the other long-term careprograms, in order to ensure that they are managed as efficiently as possible. In the following issues, we identify ways in which the Legislature can
improve the efficiency of these programs or reduce their costs.
MSSP Costs in the Budget Year are Uncertain
We withhold recommendation on $1.5 million ($750,000 in Item 4170-

001-001 and $750,000 in reimbursements) proposed as a "prudent reserve"
for MSSP site contracts and feasibility study report (FSR) implementation, pending the receipt of further information regarding these two
proposals.
Currently, the CDA contracts with 18 local sites in order to provide
MSSP services to frail Californians who are 65 years of age and older. The
department allocates funds to these sites based on an estiIIlate of how
many individuals each site will serve monthly.
In the current and budget years, CDA has set aside a "prudent reserve"of lO percent of the total site contract funds. The department advises thatthe purpose of this reserve is to pay for (1) potential increases in service
costs at local sites and (2) a new Man~gement Information System (MIS).
This reserve amounts to $1.3 million iTl the current year and $1.5 million
in the budget year. At the time we prepared our analysis, the CDA was
unable to advise us what portion of the reserve was for site contracts andwhat portion was for FSR implementation. 'Two uncertainties make it difficult for us to determine the extent towhich MSSP might utilize the reserve in the budget year.
First, the extent to which MSSP site expenditures might increase in thebudget year is unknown. In the past several years, sites have been unable to spend all of their contract funds. For example, in 1984--85, sites did
not spend $1.1 million, or 13 percent, of their funds.
Because the sites did not spend all of their funds in 1984--85, the department reduced site contracts in 1985--86 and set aside a "prudent reserve"
equal to lO percent, or $1.3 million of the total contract amounts. The
department estimates that the sites will not spend $600,000 of this reservein the current year.

,.nTable 4
California Department of Aging
Long-Term Care Programs
Eligibility, Services, Centers, Clients, and Expenditures
1985-86 and 1986-87

ProgramMultipurpose Senior
Services Program(MSSP)

Community Care
Facilitv D~mon­stratio;1 Project"
Adult Day HealthCare (ADHC)

Eligibili~1" Requirements

Sen 'ices PrOl'ided

1. Medi-Cal eligible without
share of cost
2. Certified or certifiable for
SNF,ICF3. 65 years of age or over
4. Generallv able to be served
at a cost ;10 greater than 95%
of the cost of institutionalization
Same as MSSP, but must qualify
for placement in a board andcare facility
1. Medical condition requiring
treatment or rehabilitationprescribed by a doctor
2. Physical/mental impairments that handicap activities of daily living but do
not require institutionalization
3. High potential for deterioration or institutionalization
without ADHC

Case management and purchase of services

Number ofCenters
E~timu ted
12/85 6/87
18

22

r-

:n

0
Z

."
N
N

":I:

";; >
a
rn

t;

:I:

,. >

.Vumber ofClients
Estimu ted
12/85
6/87

Expenditures
1985-86
1986-87

3,900$19,341,000

5,400 "t'l'V

$19,258,000"

Z"...~ ::Et:1

rn

t'l
t"'

... ~
Z

,.
0

"'1'1

!:J:j

t'l

Q

Z

Q

Case management and purchase of personal care services
only
Health, social, therapeutic, nutritional, and transportation
services in a day care setting

nI

..

(2)

(2)

(40)

(120)

285,000

415,000

:s
So
c

45

60

2,200

3,150

7,973,000

10,290,000

a.

0

CD

.....
CD

3

.....
"'"

-l

o

......
.....
(1)
Linb/(es1. Age 18 or O\W, excluding
those eligible for programs
prO\'ided under the jurisdiction of the state Departments of Rehabilitation,
Developmental Sen'ices, orMental Health
2. At-risk of institutionalization,
but not "certified" or ':certifiable"
3. Clinical judgment
Alzheimer's Dar Care Alzheimer's disease patientsResource Center Pilot and their families
Project

TotalsFour In'els of sen'ices:
1. Information
2. Securing services
3. Short-term counseling
4. Case management12

1. Health, social, nutritional,
therapeutical, and transportation services in a day caresetting
2. Outreach, education, andsupport for families of patients

8

8

130

250

542,000

544,000

83

103

6,500

11,400$31,949,000$34,729,000

13

270

2,600

3,808,000

4,222,000

:3
~

'""'

~

0

" Estimat('ei c1i('nts anei ('xp('neiitur('s eio not rC'l1('ct pot('ntial incrcas('s as a r('sult of th(' waiv('r r(,lI('wa!.
h Cli('nts anei sit('s aT(' incluei('ei in ~fSSP's figur('s.

::r::
t"l
:>

~

:>
z
ti
~

t"l
t""

)2

::1:1
t"l

.......

e624 / HEALTH AND WELFARE

Item 4170

CALIFORNIA DEPARTMENT OF AGING-Continued

In the budget year, the CDA is proposing to set aside a "prudent reserve" of $1.5 million for the MSSP sites. Based on the sites' inability tospend these funds in the past, it seems unlikely that the entire "prudent
reserve" will be spent in 1986-87. There are, however, several factors
which could increase site expenditures above those proposed in the 1986
Budget Bill. Most importantly:• Federal Waiver Renewal May Increase Costs. The department
has submitted a waiver renewal request to the federal government
which, if granted, could result in a substantial increase in its caseloads
and costs above the amounts proposed for 1986-87.
• MSSP Will Serve More Clients in the Budget Year. Even if
MSSP's caseload remains stable in the budget year at the program's
maximum (5,400 clients), it will still be larger than the caseload
served in the current year. This is because MSSP served fewer than
5,400 clients in 1985-86.
Second, FSR implementation is unknown. The CDA anticipates that
it will modify its MIS during the current and budget years. (We discuss
this issue later on in this analysis.) Because the department has been
unable to submit an acceptable FSR to the Department of Finance(DOF), we cannot determine whether CDA will implement a new computer system in the budget year and therefore whether it will need thefull amount of funds in the reserve.
We anticipate that more complete information regarding both oftheseissues will be available prior to budget hearings. Accordingly, we withholdrecommendation regarding MSSP's "prudent reserve."
Future MSSP Research Needs Direction

We recommend that prior to budget hearings, the department provide
the fiscal committees with an expenditure plan covering funds earmarked
for the department's research contract with the University of California,
Berkeley.
Research has been an integral part of the MSSP since the project began
in 1977. This is because MSSP was designed to test the impact of casemanagement in preventing unnecessary institutionalization of the frail
elderly. Infact, both the state and federal governments require the department to demonstrate MSSP's cost-effectiveness by comparing the
public costs associated with MSSP services to the costs of institutionalization.
In order to perform this research, the department has contracted witha number of outside agencies. These contracts fall into two major categories of services:• Management Information System (MIS). The MIS for the program consists of a central mainframe computer which is used in conjunction with a distributed network of minicomputers. The
department contracts with (1) the Teale Data Center for use of its
mainframe computer, (2) the "Four Phase" company in order topurchase, lease, and maintain minicomputers at the local MSSP sites,and (3) California State University, Sacramento, for programming,
data management, and operations support for the MIS.
• Impact Analysis. The department contracts with the University ofCalifornia, Berkeley (UCB), to provide an analysis of the impact thatMSSP services have on costs and client functional levels.

Item 4170

HEALTH AND WELFARE~/ 625

As a result of these contract services, the department has provided theLegislature with valuable information regarding the costs and effectiveness of MSSP services. This information, however, has come at a price. In
1983-84, the MIS and research costs accounted for $110 per client permonth, or about 11 percent of the total cost of care per client. In 1984-85,
MSSP's costs at the Teale Data Center averaged approximately $42,000 per
month.
The MIS portion of these costs is more expensive than the researchrelated costs. Currently, the department, in conjunction with the DOF isin the process of redesigning the MIS so that it is less costly and more
responsive to local site needs. (We discuss this issue later in this analysis.)
In both the current and budget years, the department's contract with
UCB will cost $372,000. The Department of Finance's review of the MIS
does not include a review of the research contract with UCB.
The department advises that in the current year, UCB will prepare an
impact analysis similar to the one submitted in July 1985, which includes,
among other things, a description of clients, their functional changes, andan analysis of Medi-Cal and Medicare utilization. The department is unable to advise us how UCB will use its contract funds in the budget year.
We believe that the UCB's research should address different issues eachyear, and that the Legislature should have the opportunity to review andcomment on the proposed areas of research; This review will enable theLegislature to direct the research to those policy and fiscal areas which aremost important to the Legislature. We note, for example, that in 1984-85,
UCB devoted a significant portion of its research to the impact of MSSP
services on the functional levels of clients. The UCB found that, on average, MSSP services have no significant impact on a client's functional
level. It seems unlikely that UCB could provide the Legislature with any
more meaningful information about this issue in the future. We believe
there are a number of other issues, however, that UCB could explore
which would assist the Legislature in making policy and funding decisions.
In this regard, it would make more sense for UCB to concentrate on issues
such as targeting of clients, rather than work on issues about which theLegislature already has a great deal of information.
So that the Legislature will have an opportunity to review CDA's plansfor contracting with the UCB in the budget year, we recommend thatprior to budget hearings, the CDA provide the fiscal committees with an
expenditure plan regarding research contract funds with UCB.
MSSP Sites Have Widely Varying Expenditures

We recommend that the Legislature adopt supplemental report language requiring the department to submit a report by December 1, 1986,
that explains the differences in service and administrative costs among
MSSP's sites and describes what the state might do to minimize thesedifferences.
The most recent annual report to the Legislature on MSSP identifies
service and administrative costs incurred during 1983-84 by the eight
original MSSP sites. The report identifies costs for four specific categories:• Existing serl'ices, such as In-Home Supportive Services (IHSS) and
Supplemental Security Income (SSI). The existing service costs include most of the public costs of keeping MSSP clients in their own
homes .
• MSSP services, which are the additional health and social services thatMSSP can purchase with Medi-Cal funds as a result of its federal
Medicaid waiver.

626 / HEALTH AND WELFARE

Item 4170

CALIFORNIA DEPARTMENT OF AGING-Continued• Local site administration, which includes case management services
and site support services, such as salaries and operating expenses.
• State administration, which is divided equally among all the sites, andincludes state support, MIS, and impact analysis costs.
The report shows that there are wide variations among local sites regarding expenditures per client for services and site administrative costs.
For example, existing service costs ranged from $398 per client month to$734 per client month. The MSSP service costs ranged from $6 to $1l0,
while site administrative costs ranged from $203 to $403. The department
advises that these differences in service costs result largely from differences in the local service areas which are not easily controlled. For example, counties award different amounts of IHSS hours for clients withsimilar disabilities, resulting in different costs per clients. In addition,utilization of existing Medi-Cal services varies with the local health caremarket. Generally, more doctors in an area mean higher costs per client.
On the other hand, differences in site administrative costs such as indirect service charges and staffing costs, result from factors that may be
more easily controlled by the department.
We believe that in some cases, the department may be able to minimize
the differences in costs among sites in the following two categories, thereby trimming site costs:• Service Costs. In the current year, the department is contractingwith the UCB to develop a uniform method which MSSP sites could
use in awarding IHSS hours to clients. While this method has not yet
been utilized by the sites, it has the potential for ensuring that clients
receive the appropriate level of services given their disabilities.
• Administrative Costs. The CDA could award a flat indirect cost
rate to MSSP sites, rather than reimburse sites for whatever amountthey request. In addition, CDA could better standardize staff-to-client
ratios among sites.
Because there may be efficiencies to be gained from minimizing thecost differences among sites, we recommend that the Legislature adopt
supplemental report language requiring the department to submit a report to the Legislature explaining differences in MSSP site costs.
The following supplemental report language is consistent with this recommendation:"The department shall submit a report to the Legislature by December
1, 1986, regarding differences in the service and administrative costs
among Multipurpose Senior Services Program sites. Specifically, the report should (1) explain why the differences in service and administrative
costs occur among sites and (2) describe the steps the department willtake to minimize these differences as well as the potential fiscal effect ofeach."MSSP Personnel Reduction May be Inappropriate

We recommend that prior to budget hearings, the department provide
the fiscal committees with specified information regarding the MSSP staffing reductions.
Currently, the department has 14 staff assigned to MSSP. These staff
provide a number of different services which include:• Site contracting, reimbursement, support, and quality control.

Item 4170

HEALTH AND WELFARE / 627• Generating and tracking client cost information necessary to meetstate regulations and federal Medicaid waiver requirements.
• Billing for federal reimbursements.
• Developing the Community Care Facilities Demonstration Project(AB 3900).
The budget proposes to eliminate $104,000 and the following two positions from MSSP: (1) a staff services manager (SSM) and (2) a management services technician (MST). According to the department, the SSM
is being deleted because the research and administrativelfiscal functions
are being consolidated within the MSSP unit. The MST is being reduced
due to:• The increased involvement in quality control and data coordinationby the MIS contractors (California State University, Sacramento[CSUS)).
• The decreased state role in the review of local site data, such asprovider rates and units of service.
• The automation of MSSP site contracts through CALSTARS.
The department has not provided the Legislature with adequate information justifying its proposal to eliminate the MST position. We believe
there are three issues concerning the department's proposal which require further clarification. First, CDA has not provided us with documentation showing that the increase in CSUS's quality control and data
coordination activities will be more cost-effective than performing these
activities with state staff. Second, MSSP has not been able to tell us what
the impact will be of decreasing the state's involvement in reviewing local
site data. Finally, MSSP has not documented the decreases in workload
which it claims have resulted from increased automation through CALSTARS.
Accordingly, we recommend that prior to budget hearings, the department provide the Legislature with the following information:• The cost of using departmental staff to perform the quality control
and data coordination functions, relative to the cost of having CSUS
performing these functions. The cost estimates should be accompanied by an estimate of the level of service that the contractor will
provide, and how this level compares to the level of services currently
provided with state staff.
• The impact of reducing the state's efforts in reviewing local site data.
Specifically, the department should address the potential increase inprogram costs as a result of the state reducing its scrutiny of site data.
• The decreased workload resulting from the automation of MSSP site
contracts.
Linkages and Health Insurance Counseling and Advocacy Funding
Still Available

We recommend that the Legislature (1) add an item to the Budget Bill
which reappropriates funding for the Linkages and Health InsuranceCounseling and Advocacy programs available through Ch 1637184 and Ch
1464/84 and (2) reduce the funds earmarked for these programs in the
Budget Bill by a corresponding amount, in order to reflect the amountavailable through reappropriation. (Reduce Item 4170-001-001 by $129,000
and Item 4170-101-001 by $3,093,000.)
Chapter 1637, Statutes of 1984, appropriated $3,475,000 in 1984-85 toimplement the Linkages program. Of these funds, $3.0 million was to be628 / HEALTH AND WELFARE

Item 4170

CALIFORNIA DEPARTMENT OF AGING-Continued

allocated to the local Linkages sites and $475,000 was to be used for stateadministration. Chapter 1464, Statutes of 1984, appropriated $425,000 to
CDA to implement the Health Insurance Counseling and Advocacy Program (HI CAP). Of these funds, the department budgeted $57,000 for state
support and $368,000 for local assistance.
Because the CDA implemented both programs later than when theLegislature had originally anticipated, a considerable portion of the funds
appropriated by these measures was not spent during 1984-85 and is stillavailable. Specifically the department did not spend $2,842,000 of thefunds appropriated for the Linkages program including (1) $117,000 of
the $475,000 appropriated for state administration and (2) $2,725,000 of
the $3.0 million appropriated for local program administration. Of thefunds appropriated for HICAP, the department did not spend (1) $12,000of the $57,000 earmarked for state administration and (2) none of the$368,000 earmarked for local assistance. Thus, the department did not
spend a total of $3,222,000 of the funds available for these programs in
1984-85.
These unexpended funds are available for expenditure in the budget
year if reappropriated by the Legislature. If the Legislature reappropriates these funds it would free up $3,222,000 from the General Fund, whichit could use for its priorities in this or other program areas during 1986-87.
To secure this increased flexibility, we recommend that the Legislature(1) add an item to the Budget Bill which reappropriates these funds and(2) delete an equivalent. amount in General Fund support allocated in the
Budget Bill for the Linkages and HICAP programs in 1986-87. Thesebudget changes would not reduce services in either program.
The following Budget Bill language is consistent with this recommendation:"4170-890-Reappropriation, California Department of Aging. As ofJune 30, 1986, the unexpended balance of the appropriation made forthe Linkages program by Ch 1637/84, is hereby appropriated for transfer to the items and the amounts as follows: In augmentation of Item
4170-001-001, $117,000, and in augmentation of Item 4170-101-001,$2,725,000. As ofJune 30, 1986, the unexpended balance of the appropriation made for the Health Insurance Counseling and Advocacy Programby Ch 1464/84, is hereby appropriated for transfer to the item and in theamounts as follows: In augmentation of Item 4170-001-001, $12,000, andin augmentation of Item 4170-101-001, $368,000."
MANAGEMENT INFORMATION SYSTEM (MIS) AND REPORTING ISSUES

Last year in the Analysis, we raised several issues regarding the LongTerm Care Division's MIS. Specifically, we expressed concern regarding
the following issues:• The lack of coordination between the MISs for MSSP and the Adult
Day Health Care (ADHC) program.
• The potential for overlap among MIS staff in the different long-termcare programs and in the division's Evaluation and Information
branch.
• The lack of information regarding a planned expenditure of $100,000
for an MIS consultant.
To address these concerns, the Legislature adopted language in the 1985
Budget Act and the Supplemental Report of the 1985 Budget Act which

Item 4170

HEALTH AND WELFARE / 629

required the CDA to report on the development and expenditure of funds
for a coordinated MIS.
.
.
At the time we prepared this analysis, we had no evidence that thesituation had changed significantly since last year. The required report
had not been submitted, and as far as we can determine, the department
has not improved the coordination of its various management information
systems.
Moreover, there are still data collection problems within programs. The
following two issues address MIS and cost reporting issues within the
MSSP and ADHC programs.
Problems with the MSSP Management Information System
May Affect Services

We recommend that prior to budget hearings, the department provide
the fiscal committiJes with specified information regarding the MSSP's
Management Information System (MIS).
The department's MIS for MSSP was designed to collect information
regarding the program's impact on clients and its cost-effectiveness. In
order to determine this impact, the MIS provides information regarding
the following:• CHent management, which covers all aspects of ciient care.
• Site management, which includes administrative functions such as
monitoring and reporting.
.
• State management, which includes monitoring and reporting of siteand program activities.
The Teale Data Center (TDC) supports the MIS and is linked to a
distributed network of minicomputers which are located at the eight
original MSSP sites, the CDA, the DCB, and the CSDS.
In July 1985, the department submitted an FSR to the Office ofIriformation Technology (OIT) within the DOF, which proposed to substantiallychange the MIS for MSSP. The FSR identified two principal problems withthe existing MIS:
• Costs. In 1983-84, MIS costs accounted for 19 percent of the total
MSSP admiriistrative costs per client month.
• Hardware Limitations. The current configuration is not able tosupport additional terminals or printers beyond the original eightsites.
In order to address these and other problems, the FSR considered four
alternative systems for MSSP. Of the four alternatives, the FSR recommended a system of ininicomputers located at each MSSP site with atelecommunications link to a central minicomputer at CDA.
In November 1985, OIT rejected MSSP's FSR, on the basis that it failed
to demonstrate thatthe proposed solutions were technically, operationally, or economically feasible. Specifically, OIT stated that (1) the FSR had
poorly defined and doqumented the MIS's principal problems and (2) had
recommended an alternative that OIT considered to be far too risky forthe department to implement. The OIT suggested that the department(1) determine if moving MSSP's system to the Health and Welfare Data
Center (HWDC) would reduce costs in the short run and (2) resubmit the
FSR in order to come up with a long-term solution.
We agree that the FSR did not do a good job of documenting either the
problems of or solutions to the MIS. For example, there are other alternatives which the FSR failed to consider, such as the system currently used

630 / HEALTH AND WELFARE

Item 4170

CALIFORNIA DEPARTMENT OF AGING-Continued

by the Linkages sites. Under such a system, MSSP sites would have personal computers at the local site, without a telecommunications link ,to acentral computer. This type of system is less complicated and potentiallycheaper and less risky than the alternative proposed by the FSR. In addition, CDA should be considering MIS options for all its long-term careprograms which are compatible with one another.
We note that while further delay in modifying the MIS may be inevitable, such delay may raise MSSP's costs and pose problems for its clients.
Specifically:• MSSP's High MIS Costs May Jeopardize Renewal of the State's Federal Medicaid Waiver, Which is Scheduled to Expire June 30, 1986.
In a November 1985 letter to the department concerning extensionof the federal waiver, the Regional Director of the Health Care Financing Administration expressed concerns about MSSP's high administrative costs, particularly those related to the MIS and research.
If the federal government does not extend the waiver, the MSSP willterminate.
• MSSP Sites May Experience Inefficiencies in Running Their Programs
Without Computer Capability. Ten of the 18 sites have no computer capability at all, which may result in excessive administrative
costs. This is because MSSP must contract for, bill, monitor, and tracka large number of services. Sites cannot perform these tasks efficiently
without computer capability.
Because problems with the MIS may significantly affect the operationof the MSSP, we recommend that prior to budget hearings, the department advise the fiscal committees regarding the extent of these problems
and what state staff can do to ameliorate them while a new FSR is being
developed. Specifically, the department should advise the fiscal committees regarding:• The status of the state's request for renewal of the federal waiver tocontinue MSSP and the extent to which federal approval of the waiver
request is contingent on reducing the MIS costs.
• The department's timeline for resubmitting the FSR to OIT.
• The problems the state and the sites will experience as a result of
having an inadequate MIS, and what the state can do to alleviate these
problems.
• The advantages and disadvantages of redesigning MSSP's MIS so that
it is similar to the Linkages program's MIS.
Adult Day Health Care Data Collection System Is Nonexistent

We recommend that prior to budget hearings, the department provide
the fiscal committees with a timetable for implementing its uniform datacollection system for the Adult Day Health Care program.
The Adult Day Health Care (ADHC) program provides an alternative
to institutionalization for older and disabled individuals. The purpose of
the program is to enable individuals to remain at home by providing themwith appropriate health, rehabilitative, and social services in a day caresetting. The ADHC program also assists families and other caregivers byproviding them with respite while the clients participate in the program.
The cost of providing these services is supported in part by General Fundstart-up grants, client contributions, and Medi-Cal reimbursements.

Item 4170

HEALTH AND WELFARE / 631

Chapter 1624, Statutes of 1984, required the Department of HealthServices (DHS) to develop by January 1, 1986, a methodology for setting
rates for ADHC centers. (We discuss this issue as part of our analysis of
the DHS's budget.) It is important for the DHS to establish rates thatreflect the actual costs for ADHC because the Medi-Cal program is the
single most important ongoing funding source for ADHC programs. In
spite of Medi-Cal's importance to ADHC centers, the DHS has not examined ADHC costsfor the purpose of Medi-Cal reimbursement since March
1982.
Chapter 1624 also required the CDA to develop by January 1, 1985, a
uniform data collection system for ADHC in order to facilitate the collection of cost data. The CDA, however, has not implemented this uniform
system as required by Chapter 1624. Based on our review, we conclude
that the lack of a uniform data collection system has made it more difficult
for the DHS to prepare a rate methodology for the ADHC program. Thisis because the cost reports from the various centers which DHS must use
in order to develop the rates are not comparable. For example, ADHC
sites include different costs within the same cost items.
In order to facilitate rate development for the ADHC program, werecommend that prior to budget hearings, the CDA provide the Legislature with a timetable for implementing its uniform data collection system.
Brown Bag Proposal Has a Few Loose Ends

We recommend that prior to budget hearings, the department provide
the fiscaJ committees with information regarding the transfer and expansion of the Brown Bag Network.
Chapter 1345, Statutes of 1980, established the Brown Bag Network Act.
This program utilizes older volunteers to provide harvested or donatedfresh produce and other foods to low income older individuals. Currently,
the program consists of 32 contracts with nonprofit senior organizations
that distribute food at 925 sites in 26 of the 33 AAAs through the state, ata cost of $460,000.
In the budget year, the department proposes to increase funding for the
program by $320,000 by (1) requesting an additional $263,000 from theGeneral Fund and (2) transferring $57,000 from state operations to local
assistance. These additional funds will be used to fund the following program changes:• Expansion of the program statewide by providing contract funds tothe seven Planning and Service Areas (PSAs) that currently have no
Brown Bag program ($140,000).
• Increase the base contract amount from approximately $15,000 to$20,000, in order to allow programs already in operation to purchaseneeded capital equipment ($180,000).
• Transfer from the state to the AAAs funding responsibility for contracting with program providers.
In the AnaJysis of the 1983-84 Budget Bill, we presented our review andrecommendations on the Brown Bag program. We found that the program was worthwhile and warranted continuation. While our views regarding the program have not changed, we have the following concernswith the department's proposal:• The department has not provided the Legislature with a plan to train
AAAs to contract and monitor these programs, and to ensure that no
disruption of service provision will occur as a result of the transfer.
21-80960

632 / HEALTH AND WELFARE

Item 4170

CALIFORNIA DEPARTMENT OF AGING-Continued• The department has not, documented that the AAAs can monitor the
program with an equivalent or decreased level of funding. Currently,
the department contracts and monitors all local Brown Bag programs
using one state staff person and $57,000.
In order to ensure that the AAAs are able to monitor this program as
efficiently and effectively as the state, we recommend that prior to budget
hearings; the department provide the fiscal committees with the following
information:• A plan to train AAAs to contract for and monitor these services so thatno disruption in services will occur as a result of the transfer.
• Documentation that the AAAs can monitor these programs with thesame or fewer resources than the state.
Departmental Reporting Requirements

The Supplemental Report of the 1985 Budget Act and the 1985 Budget
Act required the department to submit three reports to the Legislatureduring the current year. At the time we prepared our analysis, none of therequired reports had been submitted. Without these reports, the Legislahue is unable to determine the extent to which the department is achieving the goals of the Legislature, particularly in the areas of nutrition andsocial services.
ReportDllte Dueto the Legisluturel\'utrition Priorities

December 1, 1985

Long-Term Care
Coordination
Transfers of Title I1IB
Funds and Social
Services Expenditures

December 1, 1985
February 1, 1986

Required By
Supplemental Report of the 1985
Budget Act
Supplemental Report of the 1985
Budget Act
1985 Budget Act

CALIFORNIA DEPARTMENT OF AGING-REVERSION

Item 4170-495 to the General
Fund

Budget p. HW 16

ANALYSIS AND RECOMMENDATIONS

We recommend approval.
Chapter lx, Statutes of 1983, appropriated $85,000 without regard to
fiscal year for a pilot project to serve congregate meals to elders in a public
housing project. The California Department of Aging (CDA) contractedwith a local entity to carry out the project for a three-year period. At theend of the contract period, $706 remained unspent. We recommend that
this amount be reverted to the General Fund.
Chapter 10, Statutes of 1985, appropriated $208,500 to the Office of theState Long-Term Care Ombudsman to fund local ombudsman programsin order to provide additional services on behalf of nursing home residents. The budget contains $208,500 to continue this level of effort inItem 4180

HEALTH AND WELFARE / 633

1986-87. The department estimates that $9,848 of the funds appropriatedby Chapter 10 will not be spent at the end of 1985-86. In order to avoid
double-budgeting these funds in the budget year, we recommend thisamount be reverted to the General Fund.

Health and Welfare Agency
COMMISSION ON AGING

Item 4180 from the GeneralFund and various funds

Budget p. HW 25

Requested 1986-87 ........................................................................ ..
Estimated 1985-86 ........................................................................... .
Actual 1984-85 ................................................................................ ..
Requested decrease $20,000 (-3.4 percent)Total recommended reduction .................................................. ..

$563,000
583,000
382,000

None

1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
4180·001·001-SlIpport
4180·001·890-SlIpport
4180·001·983-SlIpport
Total

Fund
GeneralFederalCalifornia Senior's

Amount$238,000(209,000)
325,000$563,000

GENERAL PROGRAM STATEMENTThe California Commission on Aging (CCA) is mandated to act in anadvisory capacity to the California Department of Aging (CDA) and toserve as the principal state advocate on behalf of older persons. The CCA
is composed of 25 members appointed by the Governor, the Speaker ofthe
Assembly, and the Senate Rules Committee.
The CCA also sponsors the California Senior's Legislature (CSL). The
CSL is composed of 120 seniors who hold an annual legislative session todevelop legislation that addresses the needs and concerns of older Californians. The CSL in turn, seeks enactment of its legislative proposals
through the State Legislature.
The 1985 Budget Act authorized 6.6 positions for the CCA in the current
year. The CCA proposes to maintain the same number of positions in thebudget year.
ANALYSIS AND RECOMMENDATIONS

We recommend approval.
The budget proposes an appropriation of $238,000 from the GeneralFund to support the CCA in 1986-87. This is a decrease of $20,000, or 7.8
percent, from estimated current-year expenditures.
Total program expenditures in the budget year are projected at $772,000, This amount includes $238,000 from the General Fund, $209,000 infederal funds, and $325,000 from the California Senior's Fund (CSF). The
total is $10,000, or 1.3 percent, less than estimated current-year expendi-

Item 4180

634 / HEALTH AND WELFARE
COMMISSION ON AGING-Continued

tures. Table 1 shows CCA funding for the prior, current, and budget years.
Table 2 shows proposed budget changes.
Table 1
Commission on Aging
Budget Summary
1984-85 through 1986-87(dollars in thousands)

Actuul1984-85

Progralll

Est.

Prop.
1986-87$447
325

Percent Chlllge
Frolll 1985-1986

Commission..................................................
Senior Legislature ......................................

$365
204

1985-86$457
325

Totals ....................................................

$569

$782

$772

-1.3%

$178

$258
199
325

$238

-7.8%

209

5.0

-2.2%

Funding Source

General Fund..............................................
Fedeml funds ..............................................
California Senior s Fund ..........................

187

204

325

Table 2
California Commission on Aging
Proposed Budget Changes
1986-87(dollars in thousands)

GenendFundFedemlFunds

SeJliors
Fund

Total

1985-86 expenditures (revised) ................................. .

$258

$199

$325

8782

1. Cost adjustments
a. Increase in existing personnel costs ............... .
h. Operating expenses and equipment ............. .

21
-41

6
4

1
-1

28
-38

1986-87 expenditures (proposed) ............................. .

$238

$209

$325

$772

Change from 1985-86:
Amount.. ....................................................................... .
Percent ......................................................................... .

-$20
-7.8%

$10
5.0%

-$10
-1.3%

The proposed decrease in General Fund support shown in Table 1 issomewhat misleading. This is because the 1986 Budget Bill contains language that would reduce the $41,000 requested for the CSL by an amountequal to one-half of any private contributions made to it in excess of$33,000. This language is identical to language contained in the 1985
Budget Act. The commission estimates that the CSL will receive $325,000
from its tax check-off donations in 1986-87. In anticipation of this revenue,
the administration reduced $41,000 from CSL's budget. This reduction
appears to be reasonable.
The budget proposal does not include additional funding for Merit Salary Adjustments or inflation adjustments to Operating Expenses andEquipment. We estimate that the department will have to absorb approximately $8,000 in such costs.

HEALTH AND WELFARE / 635

Item 4200

Health and Welfare Agency
DEPARTMENT OF ALCOHOL AND DRUG PROGRAMS

Item 4200 from the GeneralFund and various funds

Budget p. HW 27

Requested 1986-87 ......................................................................... . $84,785,000
Estimated 1985-86 ........................................................................... . 84,728,000
Actual 1984-85 ................................................................................. . 78,797,000
Requested increase $57,000 (+0.1 percent)None
Total recommended reduction ................................................... .
198CH17 FUNDING BY ITEM AND SOURCE
Item-Description
4200-OO1-001-Support
4200-001-890-Support
4200-001-139-Support
4200-001-243-Support
4200-101-001-Local assistance
4200-101-890-Local assistance
Reimbursements
Total

Fund
GeneralFederalDrinking Driver Program
Licensing
Methadone Program
Licensing
GeneralFederalAmount$7,138,000(2,800,000)
240,000
339,000
71,952,000(30,876,000)
5,116,000$84,785,000
Analysis

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. School! Community
Primary
Prevention
Program(S/CPPP). Recommend that (a) beginning in 1986-87,
the Department of Alcohol and Drug Programs (DADP)
and State Department of Education (SDE) begin facilitating information sharing among counties and (b) the Legislature adopt supplemental report language requiring thedepartments to submit a report describing the assistancethey have provided to counties.
2. School/Community Primary Prevention Program. Recommend that the Legislature adopt supplemental report
language requiring DADP to report on the development ofcomparable prevention program performance measures.
3. School! Community Primary Prevention Program. Recommend that, prior to budget hearings, DADP and SDE
provide the fiscal committees with a plan for improving thefunding requirements for S/CPPP.
4. School! Community Primary Prevention Program. Recommend that the Legislature adopt supplemental report
language which requires DADP, SDE, and the Office of
Criminal Justice Planning to submit a plan for coordinating
drug prevention program funds.
5. Financial Management and Audit Staff. Increase Item
4200-001-001 by $157,000; Increase Item 4200-001-890 by$59,000; Increase reimbursements by $31,000; Reduce Item
4200-101-001 by $157,000; and Reduce Item 4200-101-890 by

page

641

643

644

645

646

636 / HEALTH AND WELFARE

Item 4200

DEPARTMENT OF ALCOHOL AND DRUG PROGRAMS-Continued

Recommend that the Legislature (a) restore 9.5
positions in the Financial Management and Audit Section ona limited-term basis because without workload data it ispremature to eliminate these positions and (b) adopt supplemental report language which requires the DADP to
submit a report which documents changes in the audit
staffs workload.
6. Resource and Economic Development Staff. Recommend that, prior to budget hearings, the department submit
to the fiscal committees information regarding the impactof eliminating its resource and economic development position.
7. Audit Repayment Trust Fund. Recommend that, prior
to budget hearings, the DADP advise the fiscal committees
how it plans to use funds from the Audit Repayment Trust
Fund.
8. Methadone Licensing Trust Fund. Recommend that,prior to budget hearings, the department advise the fiscal
committees on its plans for this fund's reserve.
$59,000.

648

649

649

GENERAL PROGRAM STATEMENTThe Department of Alcohol and Drug Programs (DADP) is responsiblefor directing and coordinating the state's efforts to prevent or minimize
the effect of alcohol misuse, narcotic addiction, and drug abuse. The department is composed of the Divisions of Alcohol Programs, Drug Programs, and Administration.
The 1985 Budget Act authorized 175.5 positions for the department in
the current year. The department has administratively established 3.5
positions, bringing the total to 179 positions.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes an appropriation of $79,090,000 from the GeneralFund for the DADP in 1986-87. This is an increase of $211,000, or 0.3
percent, over current-year expenditures. The proposed General Fundappropriation of $7,138,000 is for support of the department and $71,952,000 is for local assistance.
The budget proposes total expenditures from all funds of $118,461,000
for alcohol and drug programs in 1985-86. This includes $79,090,000 fromthe General Fund, $33,676,000 from federal funds, $579,000 from the
Drinking Driver and Methadone Program Licensing Trust Funds, and$5,116,000 in reimbursements. Total expenditures proposed for 1986-87
are $965,000, or 0.8 percent, less than estimated total expenditures in thecurrent year. Table 1 shows total expenditures for the prior, current, andbudget years, by funding source.
The budget does not include any funds for the estimated cost of GeneralFund Merit Salary increases or inflation adjustments for Operating Expenses and Equipment. We estimate that the department will have toabsorb approximately $255,000 in such costs.
Table 2 shows, by funding source, the significant changes in expenditurelevels proposed in the budget for 1986-87. Several of these proposedchanges are discussed later in this analysis.

Item 4200

HEALTH AND WELFARE / 637
Table 1
Department of Alc<ohol and Drug Programs
BUdg,et Summary
1984-85 through 1986-87(dollars in thousands)

Persollllel-Years

Ereenditures

Actual ,Est.
ActualProp.
1984-85 1985-86 )9lJ6..,97 1984-85
Alcohol~Local As~istance ............
41.1
47.3
$46,161
43.9
Drugs-,Local Assistance ..............
45.2
38.4
54,338- - 41.3
Subtotals, Local Assistance ..
86.3
88.6
82.3 $100,499
State Operations..............................
89.3
81.5
70.6
$9,845
Totals.......................................... 175.6 170.1 152.9 $110,344
ProgramEst.
1985-86$49,287
58,776$108,063$11,363$119,426

Percellt
Challge
Prop.
From
1986-87 1985-86$48,545 -1.5%
58,863
0.1$107,408 -0.6%$11,053 -2.7%$118,461 -0.8%$78,879
34,698
233
330
5,286

$79,090
33,676
240
339
5,116

Funding Source

Gelleral FUlld ..........................................................................
Federal fUllds ..........................................................................
Drillkilig Driver Program Licellsillg Trust FUlld ..........
Methadolle Program Licellsillg Trust FUlld ....................
Reimbursemellts ......................................................................

$75,420
31,547
3,377

0.3%
-2.9
3.0
2.7
-3.2

Table 2
Department of Alcohol and Drug Programs
Proposed Budget Changes
1986-87(dollars in thousands)

Gellerul
FUlld
1985-86 expenditures (revised) ............ .. $78,879
Proposed changes:
1. Cost adjustments
a. Employee coinpensation adjustments ................................................. .
b. Limited-term/one-time onlv
funds .......................... ,..............:........ ..
c. Reduction in reimbursement authotitv ....... ,....................................... .
2. Workload adjustments
a. Friday Night Live, Youth Coordination, EDD Interagency
Agreement ....................................... .
3. Program changes
a. Audit program reduction ............ ..
b. SSI program reduction ................ ..
c. Administration, alcohol, anddrug reductions .............................. ..
d. Increase to local assistance .......... ..

1986-87 expenditures (proposed) ........ ..
Change from 1985-86:
Amount .................................................. ..
Percent .................................................. ..

Federul
FUllds$34,698

Reimburse- Special
melltsFUllds$5,286$563

Totul$119,426

$234

$105

$19

-23

-100

-361

-484

-15

-15

218

218

-31

-247
-1,027

816

-157

-59
-1,027-73
230$79,090-28
87$33,676$5,116$579-81,022
-3.0%

-$170
-3.3%

816
2.8%

$211
0.3%

$374

-101
317
8118,461
-8965
-0.8%

638 / HEALTH AND WELFARE

Item 4200

DEPARTMENt OF ALCOHOL AND DRUG PROGRAMS-Continued
ANALYSIS AND RECOMMENDATIONS

We recommend approval of the following program changes which are
not discussed elsewhere:• Social Security Income (SSI) program. The budget reflects discontinuation of a contract with the Social Security Administration(SSA) under which the department monitors the treatment of SSI
recipients. The SSA can contract for this service with a private firm,
as it does for the drug program .
.. Departmental staff development and training. The department
proposes to delete its training coordinator, based on efficiencies it has
achieved as a result of computer applications.
• Drug program county review unit. The department proposes todelete one position in the county review unit by reviewing county
administration every 18 months, rather than eVery 12 months.
• Criminal justice function. The department proposes to delete its
criminal justice coordinator position, because the Department of Corrections is pursuing these activities on its own.
• Drug program clerical and business services positions. The department proposes to delete one-half of a clerical position in the Drug
Division and one position in its Business Services Unit as a result ofdeleting other positions within the department.
THE SCHOOL/COMMUNITY PRIMARY PREVENTION PROGRAM

The Supplemental Report of the 1985 Budget Act requires our office toreview the performance of the School/ Community Primary Prevention
Program (S/CPPP). The S/CPPP was established by Chapters 1002/81(SB 283) and 1285/82 (SB 1409). The purpose of the program is to help
prevent drug abuse among youth through the joint efforts of the local
schools and drug program administrators. While counties operated drug
prevention programs for youth in the past, there was no single state program with ajoint school-community focus prior to the establishment of the
S/CPPP.
.
What follows is our assessment and recommendations regarding the
S/CPPP. Our analysis addresses the following questions:• How does the S / CPPP operate at the state and local levels?
• What is the S / CPPP funding history and what are S / CPPP funds usedfor?
• How can the administration of the S / CPPP be improved?
How Does the S/CPPP Operate at the State Level?

For the most part, we found this program characterized by enthusiasm
and commitment both at the state and local levels. Virtually all of the
program participants we spoke to-including parents, teachers, school
administrators, cominunity members, and young people-described thisprogram as very successful. Examples of program strength include community commitment, the development Of innovative local programs, andthe extensive use of volunteers .
. At the state level, the State Department of Education (SDE) and theDepartment of Alcohol and Drug Programs (DADP) are jointly responsible for monitoring all 25 local S/CPPPs. The SDE is responsible for supervising 12 county programs and DADP is responsible for the remaining 13

Item 4200

HEALTH AND WELFARE / 639

programs. The departments monitor these programs quarterly, based on
information submitted by the counties. Local programs are required to set
forth objectives to be achieved each quarter, and report to the state during
the following quarter on whether or not they achieved those objectives.
In addition, DADP and SDEvisit the counties approximately twice a year
in order to determine the performance of the local programs.
How Does the S/CPPP Operate at the Local Level?

Local programs are jointly administered by the county office of education and the local drug program administrator. In general, counties arefree to design their drug prevention services in a manner that they believe
is most appropriate for the community. Because program administrators
have different theories about what types of prevention activities work bestin their communities, each S / CPPP has a unique configuration of services.
There are, however, several components that are common to mostcounty programs. These components are summarized in Table 3 and discussed in deta.il below.
Table 3
School-Community Primary Prevention Programs
Primary Program Components

CI"ssroolll
ClirriclIllIlll
COlln(rillld Tri/ining
Dept. of Alcohol illJd Drug Prognlllls
Colusa..................................
Contra Costa......................
Fresno..................................
Lassen..................................
Los Angeles........................
Mendocino ......................... .
Plumas ................................
Sacramento ........................
San Bernardino ........... ,.. ..
San Mateo ..........................
Santa Barbara .................. ..
Santa Cruz ......................... .
Tulare..................................

X

Other
COllnseling. Pi/rent/Collllllllni(r .\fini·Gnmts
Tei/cherlPi/rent/ Peer: COllnseling.
Grollps, oror Other
Stlldent Tnlining or "Helping" Adl isory BOi/rds
Prognlllls
X
X·· X
X

X
X
X
X

X
X

X
X

X
X
X
X
X
X·

X
X

X

X
X

X

X

X

X

X

X
X

X

Stilte Dept. of EdllCili-iOlJ
Alameda ............................. .
Butte .................................. ..
. Madera................................
Monterey............................
Nevada................................
Orange ................................
Placer ..................................
San Diego ......................... .
San Francisco .................. ..
Santa Clara ........................
Sonoma ............................... .
Tuolumne ......................... ..

X
X
X
X
X

X

X
X

X
X

X
X
X
X
X
X

X
X

X
X
X

x

X

X
X
X

• Classroom Curriculum and Training-This is one of the most widelyused program elements. These programs mostly utilize "affective education," which evolved from the theory that children and adults
abuse drugs because they lack certain kinds of living skills and values.

64e) / HEALTH AND WELFARE

Item 4200

DEPARTMENT OF ALCOHOL AND DRUG PROGRAMS-Continued

Thus, the curriculum focuses on helping children develop (1) decision-making skills, (2) means of coping with problems, and (3) anappreciation for themselves as worthwhile human beings. Children
also are provided with information about legal and illegal drugs andalcohol, and are provided with opportunities to examine their attitudes about these substances and how they are influenced in using
them by other people and events.
..
.
• Other Teacher or Pare~t Training-In addition to training for a specific curriculum package, many counties offer training for other kindsof skills. For example, parenting classes provide parents with information about the signs of drug and alcohol abuse by their children, how
to deal more effectively with their children who are abusing substances, or how to help prevent their children from abusing substances.
• Cpunseling, Peer Counseling, or "Helping"-In general, certain
youth in junior high school and high school are given training thatenables them to provide guidance, help, or be a role model for otheryouth their own age or YOl,1nger children who have not yet developed
attitudes about drugs or alcohol. Sometimes these peer helpers arechosen because they themselves are considered to be "at-risk" ofabusing drugs or alcohol. Other times they are chosen because they
have been identified as children that other students would talk to if
they had problems. In a few counties, adult counselors are available
to work with childrell' parents, or teachers.
• Parent/Community Groups, or Advisory Boards-The extent of community involvement in the S/CPPP varies widely among counties.
Generally, community groups support the school-based portion of the
program and try to educate and involve other portions of the community in preventing substance abuse.
• "Mini-Grants" and Other Programs-There are many examples ofprograms that do not fit neatliinto the first three categories.
-Three counties have a system of "mini-grants" whereby they gran,tsmall amounts of money to many different organizations in thecommunity to conduct different activities. One county funded 29
differen,t projects, among them an after-school education programfor "latchkey" childrell and a resume writing class for single mothers.
-A few counties use puppet shows, improvisational theater, or othertypes of dramatic presentation to convey information on drugs andalcohol and their abllse. .
-Other unique program elements include a mobile substance abuse
information van, a corporate board of reference which provides
in-kind assistance and publicity to the program, and safe rides programs.
Program Funding

Fundillg for the S/CPPP has increased from $500,000 in 1982-83 to $1.1
million in 1985-86, as shown in Chart 1. These funds were appropriatedfrom the General Fund by various budget acts and Ch 952/83 (AB 1983).
Twelve counties have been funded since 1982-83, following the passage of
Ch 1285/82 (SB 1409). Thirteen additional Programs were funded in January 1984, following the passage of AB 1983.

Item 4200

HEALTH AND WELFARE / 641

Chart 1

School/Community Primary Prevention Program Expenditures
1982-83 through 1985-86 (in millions)$1.2

AB 1983c::::J

Budget Acts ~

1.0

0.8

0.6

0.4

0.2

How Do Counties Use Their S/CPPP Funds?
Counties actually spend their money more uniformly than one would
suspect, given the diversity of their program elements. For the most part,
counties use their funding to pay for two major categories of expenses:• Personal services, of which the largest portion pays the salary of the
project coordinator.
• Operating expenses, of which the largest portion often purchases
curriculum and/ or consultants who provide a variety of different
services, such as training parents and teachers.
Some counties also use a portion of their funds for teacher stipends, andto pay the costs of substitute teachers while other teachers are being
trained to provide drug abuse prevention education.
The S/CPPP makes extensive use of volunteers. These volunteers include parents, students, and other members of the community. Because
counties do not uniformly report the number of volunteers utilized, it isdifficult to estimate the actual number and dollar value of the volunteers
statewide.
Information Sharing May Help Counties Establish Better Programs

We recommend that the Legislature adopt supplemental report language which requires SDE and DADP to (1) provide technical assistanceto and facilitate information sharing among counties and (2) submit areport that describes the type of assistance provided to counties.

642 / HEALTH AND WELFARE

Item 4200

DEPARTMENT OF ALCOHOL AND DRUG PROGRAMS-Continued

The primary goal of the S/CPPP is to prevent drug abuse among youth.
The DADP and SDE, however, were unable to provide us with documentation that S/CPPPs reduce the incidence of drug abuse among program
participants. This is primarily because these departments evaluate thelocal programs through the use of the following three types of process,rather than outcome, measurements:• Whether or not programs achieve self-set objectives.
• How many people were reached, materials produced, and activities
scheduled.
• How favorably participants evaluated the program activities.
The departments could measure the effect of the S/ CPPP in preventing
drug abuse among youth if they established a research project where someyouth received S/CPPP services (experimental group) and some youth
did not (control group). The cost of such an experiment, however, might
exceed the cost of the current program, and would be difficult to design.
Although there is no information available regarding the effectivenessof the S/CPPP, the evidence suggests that different types of prevention
program designs may be more effective than others. For example:• While much of the research that has tested the impact of a schoolbased curriculum on children's substance abuse is inconclusive, thebest-designed experiment found that such curriculums had no significant effect on reducing drug abuse among youth.
• Evidence regarding smoking prevention programs suggests that the
programs which work best are those that (1) teach children how todeal with social pressures that lead them to experiment with different
substances and (2) incorporate a broad base of community support.
Notwithstanding these findings, research regarding prevention programs is generally inconclusive. It appears that the success of a particular
program element is probably most dependent on the community in which
it is implemented and the program design. To the extent this is so, counties
can improve the effectiveness of their programs by adopting those design
features that have been found to work under similar circumstances. The
departments, however, have not provided counties with information on
those types of programs which may be most successful in preventing drug
abuse among youth. During our visits to S/CPPP's, we found that, for themost part, local programs operate without information on the effectiveness of different types of prevention programs. Many of these counties
stated that they could benefit from having access to such information.
There are several forms of assistance that SDE and DADP could provide
to the counties. For example, they could provide the counties with research findings and information about model programs. They could alsooffer counties a forum for sharing their own experiences, such as a statewide conference.
Because S/CPPPs may improve iflocal program administrators are provided with information about other successful programs, we recommendthat the Legislature adopt supplemental report language which requires
the departments to (1) facilitate information sharing among the counties
beginning in 1986-87 and (2) submit a report to the Legislature by December 1, 1986, describing the types of assistance provided to counties.
The following language is consistent with this recommendation:"The Department of Alcohol and Drug Programs and the State Department of Education shall· (1) facilitate information sharing among coun-

Item 4200

HEALTH AND WELFARE / 643

ties which participate in the School! Community Primary Prevention
Programs (S/CPPPs) and (2) submit a report to the Legislature by
December 1, 1986, which describes the types of assistance provided tothe counties. This assistance may include providing counties with research findings regarding model programs, or providing counties withforums through which they can share their experiences in administering
S/CPPPs."
Measures of the S/CPPP's Success Are Not Well-Defined

We recommend that the Legislature adopt supplemental report language which requires DADP to submit a report to the Legislature describing its efforts to develop comparable prevention program performancemeasures.
As we indicated above, DADP and SDE evaluate the performance of
local programs using process measurements. For example, counties are
required to provide the departments with information concerning how
many people receive services, the number of materials produced, and thenumber of activities scheduled. Many of the measurements the state uses
to evaluate local programs, however, are not well defined and do not lendthemselves either to measuring individual program success or to facilitating comparisons among programs. For example:• A "direct person served" can mean: (1) a child receiving an hour per
week of classroom education for six months, (2) a person receiving a
one-on-one counseling session or sessions, (3) a parent attending asingle community meeting, or (4) a teacher attending an intensive
three-day training session .
• An "indirect person served" is supposed to measure the number ofpeople with whom a "direct person served" has contact. Based on ourreview, we conclude that these figures are simply a guess on the partof the person filling out the reporting form. Because these terms are
not well defined, it is impossible to compare programs in order todetermine if the state is "getting its money's worth."
We recognize that it is not unusual for prevention programs to lackcomparable definitions of units of services. This is because the field isrelatively new and comparable units of service have not been developed.
In the past, the DADP has taken some steps to develop standard units ofservice, but its efforts have not been successful. As a result, it is impossible
to compare performance among any prevention programs.
In order to improve the comparison of program performance, we recommend that the Legislature adopt supplemental report language which
requires the DADP to report by December 1, 1986, regarding the steps it
is taking to develop comparable prevention program performance measures. The following language is consistent with this recommendation:"The Department of Alcohol and Drug Programs shall submit a reportto the Legislature by December 1, 1986, describing the steps it is taking
to develop comparable prevention program performance measures.
This report should include, but not be limited to, steps being taken by
the drug program, the alcohol program, and the Alcohol and Drug
Program Administrators' Associations. The report should also identify
steps being taken by other states to develop such performance measures."-- -----------------

644 / HEALTH AND WELFARE

Item 4200

DEPARTMENT OF ALCOHOL AND DRUG PROGRAMS-Continued
DADP and SDE Should Change The Funding Requirements For The S/CPPP

We recommend that, prior to budget hearings, DADP and SDE provide
the fiscal committees with a plan for improving the funding requirements
for S/CPPP. Specifically, the plan should provide for the following: (1)a new competitive review of proposals submitted by counties, (2) county
or school district matching requirements, and (3) county funding based on
objective need standards.
Funds for the S/CPPP were awarded to counties for the first time in1982. The DADP and SDE awarded the funds as a result of a competitive
review of proposals submitted by counties. In general, the counties wererequired to include in their proposals a description of the types of services
to be provided, a statement of goals and objectives, and a budget. Counties
could request any amount of funding they deemed appropriate and were
not required to provide a match to the state funds.
Since 1982, the departments have continued to fund the same programs
and have not solicited competitive proposals. Moreover, the initial allocations of funds to several of the programs have been increased significantly.
We have the following concerns with the process used to allocate funds
available for S/CPPPs:• The absence of a competitive review process prevents counties whic'
currently do not have S/CPPPs from applying for state funds. A
number of other counties in the state have expressed an interest inreceiving S/CPPP funding. There are at least 13 counties which responded to the department's request for proposaUn 1982.
• Counties are not required to provide a local match in order to receive
S/CPPP funding, even after the program has been established.
Currently, counties receive either full funding for their S/CPPPs or
no funding. Those counties receiving state aid are not required tocontribute toward program costs. One way of enabling more counties
to participate in the program would be to require participants to help
support their S / CPPPs. This would allow the appropriation to go
farther.
It is logical to assume that the participants would be willing toprovide a local match of the state grant. Presumably, in the absenceof data documenting the effectiveness of S/CPPPs, the persons best
able to evaluate the success of individual programs are those who are
involved in running the programs on a day-to-day basis. If, after having had an opportunity to gauge the effectiveness of their own programs, these persons are unwilling to provide a local match, there is
no apparent reason why the state should continue to fund the program at the expense of others.
In fact, most programs provide significant in-kind matches throughparent volunteers, or corporate support for activities. Our review
indicates, however, that the schools and school districts in which S/
CPPPs are implemented generally do not provide matching support
to these programs. For example, the S/CPPP, not the school district,frequently pays for teacher time, curriculum materials, and substitutes while teachers are being trained. Because the S/CPPP is largely
implemented in schools, we believe that school districts should provide some support for these local programs. If school administrators
believe that S/CPPP works, they should be willing to contribute fi-Item 4200

HEALTH AND WELFARE / 645

nancially to its support. Generally, local school districts have the ability to support a portion of the costs of the S/CPPP through a reallocation of their baseline operating funds.
• The departments do not allocate funds to counties based on an objective measure of need, but rather on the basis of what counties tell the
department they need to run their programs. As a result, percapita funding for these programs varies a great deal, and is not
related to any objective measure of drug abuse in the county. The
departments could allocate funds to counties based on a more objective assessment of need by using one of several different formulas. For
example, funds could be allocated to counties using the current "5030-10-10" formula that determines county drug program allocations.
This formula allocates funds to counties for drug programs based on
population (50 percent), poverty (30 percent), drug arrests (10 percent), and minority population (10 percent). Alternatively, the funds
could be allocated on a per capita basis. In either case, the funds would
be allocated based on an objective standard of need.
In light of these concerns, we recommend that, prior to budget hearings, DADPand SDE provide the fiscal committees with a plan for making
specific changes in the funding of S/CPPPs. Specifically, this plan should
do the following:
1. Require that a new request for proposal be issued so that those counties which do not receive S/CPPP funds have an opPQrtunity to apply
for such funds.
2. Require counties to provide annually an increasing local match fortheir S/CPPP funds from the schools or school districts which participate in the program. In addition, the plan should identify the extent
to which such a match will free-up existing S/CPPP funds which canbe made available to support new programs.
3. Identify the steps necessary to develop a formula for allocating funds
to counties which have applied for S/CPPP grants based on an objective measurement of need.
Separate Prevention Programs Result in Coor~ination froblems and Duplication of Services

We recommend that the Legislature adopt supplemental report language which requires DADP, SDE, and the Office of Criminal JusticePlanning (OCJP) to submit a plan to the Legislature by IJecembcr 1,1986,
for coordinating drug prevention program funds.
There are a number of programs throughout the state that provide
funding for drug prevention programs in schools. For example:• Counties are required to spend 20 percent of their federal block grant
funds on drug prevention activities. In 1985-86, at least $6.2 million
will be spent on alcohol and drug prevention services. Some of thesefunds may be spent to prevent drug abuse among youth.
" Chapter 1306/85 (AB 2126), provides $450,000 from various funds inorder to develop a year-round "positive role Illodel" program foryouth. The purpose of the program is to utilize celebrity athletes inorder to prevent drug abuse among youth.
• The oqP administers the Suppression of Drug Abuse in Schools(SDAS) program. The SDAS program has a slightly different focus
from the S/CPPP program, in that SDAS is jointly administered bycounty offices of education and local law enforcement agencies. In- -..

~-------

646 / HEALTH AND WELFARE

Item 4200

DEPARTMENT OF ALCOHOL AND DRUG PROGRAMS-Continued

practice, however, S/CPPP and SDAS are quite similar at the local
level-both programs attempt to prevent drug abuse among youth
through the use of curriculum, peer and adult counseling, family andcommunity groups, and a variety of other approaches. This program
began in 1983-84. The 1985 Budget Act appropriated $1.9 million fromthe General Fund for this program.
.
Although there are a number of different funding sources avaihtble tocounties to combat substance abuse in the schools, the state departments
which administer these funds do not coordinate their allocation of funds
to counties. The SDAS and S/CPPP are good examples ofthis. As a result,funding is concentrated in several counties while other counties receive
no or few funds. Moreover, within counties funding is concentrated incertain areas, leaving other areas with relatively little funding. This resultsin duplication of services and inefficient use of funds.
For example, one county has received a $26,950 S/CPPP grant for theentire county for a 16-month period. At the same time one high school
within the same county has received a SDAS grant for $68,786 per year.
Additionally, another county has a S/CPPP grant for $31,239 for a 16month period. One city and one school district within that county have
SDAS grants amounting to $229,000 for an 18-month period. In fact, almost
every county that has a S/CPPP grant also has a SDAS grant, which leaves
quite a few counties completely unfunded. Coordinated efforts withincounties and cOJIlmunities would improve the overall impact of prevention in the community, as well as make funds available for other counties
which currently do not receive funding.
In order to maximize available funds, we recommend that the Legislature adopt supplemental report language which requires DADP, SDE,
and OCJPto submit a report describing how they will ensure better
coordination of all funds earmarked for drug prevention activities among
youth. This plan could involve redistributing funds among counties ortargeting future prevention funding among counties, taking into accountexisting prevention funding in those counties. This report should also
discusshow DADP and SDE take other sources of ptevention funding into
account when granting S/CPPP funds to counties.
The following language is consistent with this recommendation:"In order to better coordinate prevention funding among counties; theDepartment of Alcohol and Drug Programs, the State Department of
Education, and the Office of Criminal Justice Planning shall submit areport by December 1, 1986, which describes a plan for ensuring better
coordination of all funds earmarked for drug abuse prevention among
youth. The plan shall include, but not be limited to, a discussion ofredistributing funds among counties or targeting future prevention
funding among counties, taking into account already existing prevention funding. The Department of Alcohol and Drug Programs and theState Department of Education should include in this report how theytake into account other prevention funds within counties during the
S / CPPP allocation process."
OTHER DEPARTMENTAL BUDGET ISSUES
Impact of Single Audit Act on Departmental Workload Is Unclear

We recommend that the Legislature (1) restore 9.5 positions in the
Financial Management and Audit Section on a limited-term basis and (2)adopt supplemental report language which requires DADP to submit aItem 4200

HEALTH AND WELFARE / 647

report by December 1,1986, documenting changes in the auditprogram's
workload resulting from implementation of the Single AuditAct(SAA)of 1984. (Increase Item 4200-001-001 by $157,000; Increase Item 4200-001890 by $59,000; Increase reimburseinents by $31,000; Reduce Item 4200-101001 by $157,000; and Reduce Item 4200-101-890 by $59,000.)
The federal Single Audit Act (SAA) of 1984 establishes uniform audit
requirements for state and local governments which receive federal financial assistance. Under the SAA, local governments and service providers
that receive more than $25,000 in federal funds are required to contract
for a single financial and compliance audit covering the expenditure of all
funds received from the federal government. Accordingly, state agencies,
like DADP, which pass through these federal funds and which have performed these financial and compliance audits in the past, would no longer
do so in the future. The state, however, is still ultimately responsible for
ensuring that county and service providers comply with the federal auditing requirements.
In order to implement the new federal audit requirements, the department proposes to eliminate 9.5 audit staff in the budget year-approximately 36 percent of the staff in the Financial Management and Audit
Services Section. The department also proposes to contract out audits ofexpenditures involving potential fraud and abuse of state and federal
funds.
The department estimates that its proposal will free up $247,000 forother uses. Specifically, the department proposes to redirect $216,000 of
the savings to counties to support local alcohol and drug programs and use$30,000 to purchase five personal computers for the remaining audit staff
within the department.
Enactment of legislation is necessary in order to implement the SAA as
the department proposes.
.
The DADP advises that the remaining audit staff would:• Review approximately' 1,078 annual audits of county and provider
programs.
• Monitor the progress of counties and independent auditors in implementing the SAA.
.
• Provide compliance guidelines to county and independent auditors.
• Provide follow-up on audit findings and corrective action plans.
• Provide limited audit assistance to county auditors and public accountants.
The DADP staff would continue to perform internal audits of the department and maintain the audit appeal function until all outstanding
disputed issues are resolved.
We believe that it is premature for the department to eliminate 9.5 audit
positions as a result of implementing the SAA.
.
The department could not provide us with any workload data substantiating the proposed reduction in audit staff. The department acknowledges that the proposed reduction of 9.5 positions is a"best guess"of the number of positions which will no longer be needed as a result of
implementing the SAA. Our review indicates that because local governments have not yet begun doing single audits on a widespread basis, it is
impossible to estimate what state staffing levels will be required to ensurethat local agencies are complying with the federal regulations.
Moreover, the state's three major audit agencies-the State Controller,648 / HEAl-.TH AND WELFARE

Item 4200

DEPARTMENT OF ALCOHOL AND DRUG PROGRAMS-Continued

the Department of Finance, and the AQditor General-have indicatedthat the state should not reduce its audit coverage while the SAA is being
implemented. The State Controller stated in a March 1985 report, that "noelimination of current audit coverage should take place until we haveassurances that the local entities are performing single audits and there isadequate audit coverage to meet the state's fiscal responsibilities." This isbecause the state must ensure that counties and local program providers
are meeting the federal auditing requirements in two ways: (1) if an audit
finds that a local entity is not complying with federal regulations, the statemust ensure that action is taken to correct the problem, possibly involving
extra audits and (2) if a county or local provider does not perform a single
audit of all federal funds, the state is responsible for determining whether
or not that entity is conforming to federal law.
We believe that implementation of the SAA eventually will result insome change in the department's audit workloild. We do not believe,
however, that it is prudent for DADP to reduce its audit staff until it has
gained some experience in implementing the SAA. For these reasons, werecommend that the Legislature (1) reject the department's proposal andrestore the 9.5 positions on a limited-term basis through June 30,1987, and(2) adopt supplemental report language which requires the DADPto
submit a report to the Legislature by December 1, 1986, documentingchanges in the department's audit workload as a result of implementing
the SAA.
The following language is consistent with our recommendation:"The Department of Alcohol and Drug Programs shall submit a reportto the Legislature by December 1, 1986, which documents changes in
its audit workload as a result of the Single Audit Act. If appropriate, thereport shall include recommendations regarding chal}ges in the staffing
level of the Financial Management and Audit Section based on thElse
changes in workload."
Third Party Payments are a Funding Source for L~cal Programs

We recommend that, prior to budget hearings, the department submit
to the fiscal committees information regarding the impact Qf eliminating. .
its resource and economic development position.
The Resource and Economic Development Program (REDP) within
the department plans, organizes, and implements strategies aimed at reduci l1g the dependence of public sector alcohol programs on government
funding. Currently, the department has one position performing these
activities. In general, this position assists counties and service providers indey-eloping third-party paymel1ts. Third-party payments are payments toprograms by insurance companies on behalf of insured individuals receiving services from the program. Therefore, these payments supplant publicfunding.
The department proposes to eliminate this position in 1986-87 because
it believes that the position has not been effective in stimQlating thirdparty payments. The department believes that (1) the success of the
program is dependent upon highly motivatea providers, not the department's involvement and (2) local providers lack the motivation to seek
third-party payments because state and federal funds provide them witha stable funding source.
We have two problems with the department's proposal. First, the de-Item 4200

HEALTH AND WELFARE / 649

partment could not provide us with information documenting the ineffectiveness of the third-party payment program. In fact, our review indicatesthat counties have been receiving a significant amount of third-party
payments, some of which may be attributable to the activities of thedepartment. Specifically, in 1983-84 county alcohol programs received
approximately $384,000 in third-party payments, and in 1984-85 they received approximately $233,000. While these amounts are small when compared to the total federal and state funds provided to counties, they areapproximately 10 times greater than the cost of the position the department is proposing to eliminate. Second, the department could not document its claim that elimination of this activity will have minimal impact
on the counties and program providers.
For these reasons, we cannot adequately assess the department's proposal for 1986-87. Therefore, we recommend that, prior to budget hearings, the department submit to the fiscal committees information
documenting (1) its assertion that the position has not been effective instimulating third-party payments and (2) that eliminating this position
will have minimal impact on the counties and program providers.
Audit Repayment Trust Funds Are Available to Support Local Programs

We recommend that, prior to budget hearings, the DADP advise thefiscal committees how it plans to use funds in the Audit Repayment Trust
Fund.
Chapters 1328 and 1329, Statutes of 1984 (AB 3872 and AB 3873), established the Audit Repayment Trust Fund within the State Treasury. The
purpose of the fund is to receive repayments of funds from counties andlocal providers due to audit exceptions. The funds can only be allocatedby the DADP pursuant to an appropriation by the Legislature.
Although there is approximately $63,000 in this fund, the DADP has not
requested that the money be appropriated nor has it indicated how it
would use these funds if they were made available by the Legislature.
Because these funds could be used to support local drug or alcohol
programs, we recommend that, prior to budget hearings, the department
advise the fiscal committees what it proposes to do with these funds.
Methadone Licensing Fund Reserve is Too HighWe recommend that, prior to budget hearings, the department advise
the fiscal committees what its plans are for reducing the reserve in the
Methadone Licensing Trust Fund.
State law requires DADP to license all methadone programs in the stateand monitor the compliance of the programs with state regulations. Statelaw also requires the department to charge sufficient fees to methadone
programs to offset its monitoring costs. In order to comply with theserequirements, the department charges an annual license fee to private
for-profit methadone programs. These fees are deposited in the Methadone Program Licensing Trust Fund.
State law limits the amount of reserve in the fund to 10 percent of thetotal licensure fees collected during the preceding fiscal year. Moreover,
it requires the department to annually rebate to licensees funds which
exceed this limit.
In the current year, the department is maintaining a reserve of $155,000,
which is equal to 66 percent of the fees it collected in the preceding year.
In the budget year, the department proposes to maintain a reserve of$116,000, which is equal to 46 percent of the fees it anticipates collecting
in the current year.

650 / HEALTH AND WELFARE

Items 4200-4220

DEPARTMENT OF ALCOHOL AND DRUG PROGRAMS-Continued

The proposed reserves are far in excess of the 10 percent maximum set
in current law. For this reason, we recommend that, prior to budget
hearings, the department advise the fiscal committees on how it plans to
reduce this reserve in the budget year.
.

DEPARTMENT OF ALCOHOL AND DRUG
PROGRAMS-REVERSION

Item 4200-495 to the General
Fund

Budget p. HW 27

ANALYSIS AND RECOMMENDATIONS

We recommend approval.
The Budget Act of 1976 appropriated $1 million to establish research
centers to study the primary biomedical or social causes of alcoholism. The
Department of Alcohol and Drug Programs contracted with the University of California, Los Angeles to perform this research from September
1977 to April 1983. At the end of the contract period, $7,168 of the $1
million had not been spent. We recommend that this amount be reverted
to the General Fund.

Health and Welfare Agency
CHILD DEVELOPMENT PROGRAMS ADVISORY COMMITTEE

Item 4220 from the General
Fund

Budget p. HW 34

Requested 1986-87 ......................................................................... .
Estimated 1985-86 ........................................................................... .
Actual 1984-85 ................................................................................. .
Requested increase $11,000 (+6.4 percent)Total recommended reduction ................................................... .

$182,000
171,000
144,000
None

GENERAL PROGRAM STATEMENTThe Child Development Programs Advisory Committee is responsible
for providing policy recommendations to the Governor, the Superintendent of Public Instruction, the Legislature, and other relevant state agencies concerning child care and development. The committee also reviewsand evaluates the effectiveness of child development programs and theneed for children's services.
The 25-member committee consists of representatives from various
state agencies, public members (representing private education, healthcare, child welfare, child care, and community action interests), and par-

Item 4220

HEALTH AND WELFARE / 651

ents of children served by child care progams. The committee is staffedwith an executive secretary, an analyst, and clerical support,for a total of
3.3 authorized positions in the curent year.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes a General Fund appropriation of $182,000 for the
support of the Child Development Programs Advisory Committee in 1986
~7. This amount is $11,000, or 6.4 percent, more than current-year total
expenditures.
The proposed increase in the committee's expenditures would fund (1)the reclassification of the executive secretary position and (2) salary andbenefit increases called for by the memorandum of understanding agreed
to in 1985.
Table 1 displays funding for the committee for the prior, current, andbudget years.
Table 1Child Development Programs Advisory Committee Funding
19114-85 through 1986-87(dollars in thousands)

Actuul19~

General Fund....................................................................
Federal funds....................................................................
Totals ..........................................................................
Personnel-years ................................................................

Est.
1985-86

$144
58
$202
3.8

$171
$171
3.3

Percent
Prop.
Chmge from1986-87
1985-86
$182
6.4%

$182
3.3

6.4%

ANALYSIS AND RECOMMENDATIONS

We recommend approval.
The amount requested would provide an appropriate level of support
for the committee's activities in 198~7. Accordingly, we recommend
approval of $182,000 in General Fund support for the committee.
Child Care Task Force Results Are Disappointing

In 1984, the Legislature passed SB 1718 (Hart) which would have provided $100 million for child care services to school-age children. The
Governor vetoed this legislation, but noted in his veto message the needfor a comprehensive review of all child care programs in the state. Subsequently, the Governor issued Executive Order D 38-84 which established
the Child Care Task Force. The task force was charged with (1) reviewing
statewide child care availability and usage patterns and (2) evaluatingcost-effective alternatives to meet child care needs in California. The
results of the task force's efforts were submitted in a report to the Governor on March 31,1985. The preparation of this report cost $100,000 (paidfor from the Health and Welfare Agency budget), of which $88,000 was
expended on a survey by the Gallup organization to assess child careavailability and usage patterns.
Several of the task force's recommendations ·related specifically to theoperations of the Child Development Programs Advisory committee.
These recommendations are as follows:• The role of the Child Development Programs Advisory Committee
should be officially expanded to encompass oversight and coordination of all child care programs statewide.

65~ /HEALTH AND WELFARE

Item 4220

CHILD DEVELOPMENT PROGRAMS ADVISORY COMMITTEE-Continued• Oversight and coordination should include, but not be limited to (1)development of a long-range plan for child care, (2) independent
review of the programmatic and administrative issues of child careprograms in the State Department of Education (SDE), and (3)development of the statellocal processes to allocate monies from a
proposed new state fund-the Child Care Fund.
• Additional funding to reflect the Advisory Committee's expanded
role should be allocated.
Although the task force recommended expansion of the committee'srole in oversight and coordination, its report did not document any specific problems in these areas. Nor did it specify the number of new staff orthe amount of additional funding that it believes is warranted for thecommittee.
In addition to those recommendations relating to the Advisory Committee, the Task Force report made two recommendations regarding themanner in which child care services are provided in California:• The state should establish a Child Care Fund, with "new money," tobe available to local communities for planning and implementing
local child care services. Access to the funds would be based on local
needs assessments and feasibility studies, which, according to the Task
Force, "would encourage a public-private sector partnership to identify resources and methods to meet the local child care needs."• "An independent review of both the administrative and programmatic aspects of SDE's child care programs should immediately be undertaken to determine the cost-effectiveness and efficiency of service
delivery and program administration."
Here again, the task force's recommendations generally were not supported by any specific findings in the report. For example, the task force
did not specify (1) the amount of additional funding required for the
proposed Child Care Fund, or (2) the types of programs that would beoffered with this funding. Nor did the report describe how establishmentof a new funding source would encourage "public-private sector partnerships."
With respect to the administration of child care programs, the task force
provided no evidence that the current structure is not cost-effective or
efficient. Instead, it based its recommendation for an independent review
on a cost comparison of two funding mechanisms: the Alternative Payment program-a "voucher" system which provides basic child care services-and the standard reimbursement rate for all other childdevelopment programs administered by SDE. Because the latter programs, which provide additional services beyond basic child care, tend to
be more expensive per child, the task force concluded that they must be
inefficiently administered.
Finally, although the task force was charged with the responsibility ofevaluating cost-effective alternatives for providing child care services inthe state, its report failed to provide such an evaluation.
In sum, we do not find the task force's report to be helpful in shedding
more light on the availability and effectiveness of child care services. It
would appear that the Governor has reached a similar conclusion since the
1986-87 budget does not reflect any of the recommendations made by his
task force.

Item 4260

HEALTH AND WELFARE /653

Health and Welfare Agency
DEPARTMENT OF HEALTH SERVICES

Item 4260 from the GeneralFund and various funds

Budget p. HW 35

Requested 1986-87 ........... .". .......................... .". ................................ $3,708,524,000
Estimated 1985-86 ........................................................................ ,... 3,695,929,000
Actual 1984-85 .".."..". .. .".."..".."..".."..".."..". .."..".."..". ..". .."..". .......................... .". ...... .". ... 3,270,087,000
Requested increase $12,595,000 (+0.3 percent)Total recommended reduCtion ...... .". .... .". .......... .". ..................... .".... $12,417,000
Recommendation pending ...... :.................................................... $2,495,768,000
1986-87 FUNDI~G BY ITEM AND SOVRCE
Item-Description
4260-001-001-Department support
4260-o<ii-014-Department suppor!
4260-001-044-Department support
4260-001-2P3-Dei>artment support
4260-001-335-Department support
4260-001-455-Department support
4260-001-490-Department support
4260-001-71O-Department support
4260-OO1-900-De!>artment support
4260-020-445-DepartJ11ent support
4260-101-001-Medi-Callocul assistance
4260-iOl-036-Medi-Ctillocal assistance
4260-105-001-~1edi-Cal abortions
4260-106-001-~1edi-Cal cost-of-living adjustments(COLAs)4260-111-OO1-Public health local assistance
4260-116-001-Public health COLAs
Health and Safety Code §25330.5
Welfare and Institutions Code §16707
Ch 1594/82
Ch 376/84
Ch 23/85-Reimbursements-Family repayments
Subtotal
4260-001,890-Department support
4260-005-890-Department support
4260-006-890-Qepartment support
4260-101-001-Provision 1
4260-101-890-Medi-Callocal assistance
4260-106-890-~1edi-Cal COLAs
4260-111-890-Public health local assistance
ChI440/85
Total

Fund
Genen!lHazardous Waste Control
State Transportation
Genetic Diset!se Testil)g
Sanitllrian Registration
Hazardous Substances
Hazardous Waste Injection
Well .
Hazardous Substance Cleanup
Local Health Capital Ex,
penditures
Hazardous Substance
GeneralSpecial Account for Capital
OutlayGene;alGeneralGeneralGeneralHazardous Waste Operations and Maintenance
COI~nty Health Services
GeneralGeneralGeneralFederalFederalFederalCountyFeder;,lFederalFederalFede~alAmount8124,649,000
24,032,000
323,000
18,135,000
98,0009,525,000
120,00(l5;820,000
168,000
942,000~,311,861,ooO

18,902,000
13,137,000
12,100,000 •
1,104,449,000
16,108,000
55,0002,20(),000
1,819,QOO
5,000,000
4,600,000
33,661,000
820,000
83,708,524,0Q0(897,348,000)(193,263,000)(32,605,000)(2,500,900)(2,455,211,000)(12,101,000)(23,460,000)(650,000)(86,525,662,000 )654 I HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued
Amllysis

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS

pllge

Departmental Administration.

1. Administration Division Proposals. .Withhold recommendation on reductions of $2,501,000 ($497,000 General Fun<;l),pending the receipt of additional information.
2. Budget Schedule Changes. Recommend adoption of supIe mental report language requiring additional changes inthe budget schedules.
3. Operating Expenses and Equipment. Withhold .recommendation on $140 million requested for operating expenses
and equipment, pending the receipt of additional information.
4. Salary Savings Increase. Recommend that the Departments of Finance and Health Services report on the reasonsfor increased salary savings and explain how the higher rate
will be achieved.

664
665
665

666

Licensing and Certification·

5. Survey Backlogs. Recommend that the department explain during budget hearings how it intends to· reduce backlogs in licensing and certification activities.
6. Licensing Fees. Withhold recommendation on licensing
and certification fees, pending receipt of a fee schedule.
7. New Workload. Reduce Item 4260-001-001 by $14,000 and
Item 4260-001-890 by $37,000. Recommend deletion of$51,000 and 2.7 positions in Medi-Cal field offices that are notjusitified by worklo~d.
8. Reduced LicensiQg Visits. Augment Item 4260-001-001 by$175,000 and Item 4260-001-890 by $354,000. Recommend
augmentation of $529,000 and 8.5 positions to maintain current licensing visitations schedule beca.use the department
does not know what the effect would be of the proposed
reduction in visits.
9. Licensing Staffing Standards. Reduce Item 4260-001-001 by$291,000 and Item 4260-001-890 by $591,000. Recommend
reduction of $882,000 and 8.5 licensing positions because thedepartment's staffing standards may be too high. Further
recommend adoption of supplemental report language requiring a study of the staffing standards.
10. Nurse Certification Contract. Recommend restorationof 2 positions that are proposed for elimination in favor ofcontracting-out.
11. Demonstration Program. Recommend that the department explain how it intends to fund the second year of ademonstration program for chronically and terminally ill
children.

669
670
671

672

673

674
674

Item 4260

HEALTH AND WELFARE / 655

Public Health

12. Transfer of Certification Responsibility. Recommend 681
that the Legislature restore one position because contracting for public health nursing certifications would not resultin any identifiable benefits.
13. California Children's Services. (CCS) Budget Estimates. 682
Recommend the department explain how it intends to increase the accuracy of CCS budget estimates.
14. County. Health Services Population Adjustments.
683
Reduce Item 4260-111-001 by $3,500,000. Recommend
reduction because the budget overestimates the population increase funding adjustment for the AB 8 program.
15. Maternal and Child Health. Reduce Item 4260-111-001 by 684$111,000. Increase Item 4260-111-890 by $611,000. Recommend reduction because federal funds will be available.' .
to substitute for General Fund support.
16. Medically Indigent Services (MIS) Reporting System. 684
Recommend the department submit a legislatively mandated report that includes (a) a discussion of system goals
and objectives, (b) cost estimates and implementation information, and (c) .a discussion of alternative MIS reporting systems.
.
17. Acquired Immune Deficiency Snydrome (AIDS) Budget.
Recommend the department provide the Legislature withinformation regarding:a. Use of proposed augmentations for surveillance activi- ·688
ties.
b. Expenditure plans for AIDS demonstration and re- 690
search projects.
c. Reasons for (1) delays in letting information and educa- 691
tion contracts and (2) diversion of $481,000 appropriated for AIDS information and education to otheractivities.
d. Reasons for delays in implementation of sole source con- 693
tracts for AIDS research and assistance to local AIDS
programs.'.
e. Plans to increase participation in and assure accessibility 694
to local AIDS alternative test site programs.
f. Problems in hiring AIDS staff.
696
18. Birth Defects Monitoring. Reduce Item 4260-001-001 by 697$392,000. Recommend reduction because statutory appropriations are available for operation of this program in
the budget year.
19. Birth Defects Monitoring Expansion. Reduce Item 4260- ·698
001-001 by $392,000. Recommend reduction to correctbudgeting errors.
.
20. Cancer Registry Plans. Withhold recommendation on 699$1,015,000, pending receipt of the required .implementation and expenditure plan.
21. Birth Defects Monitoring and Cancer Registry. Reduce 699
Item 4260-001-001 by $307,000. Recommend reduction
to reflect savings achieved by hiring state staff rather thancontracting for services.
22. Pneumoccal Vaccine Purchase. Reduce Item 4260-001-001 701

656 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Conti.nued

by $98,000. Recommend reduction because funds will
not be needed until 1987-88.
23. Polio Vaccine Purchase. Withhold recommendation on$550,000 pending submission of additional information.
24. Tran!ifer of Outer CCintinenhil Shelf Funds. Recommend adoption of Budget Act language requiring $276,000
to revert to the Federal Trust Fund.
25. Children's Dental Disease Prevfmtion Program. Reduce
Item 4260-001-001 by $804,000.· . Recommend reduction
to reflect the program's statutory sunset date.
26. Pesticide Residue Report. Recommend that the department .submit .(1) a proposlill for testing pro.cessed foods .forchemlcal resldues and (2) budget and lmplementatIonschedules for the. proposal.
27. Certification. of Hazardous Waste Laboratories. ReduceHem 4260-001-014 by $194,000. Recommend reduction
because staffing is not needed.

701
702

703
703

703

Toxic Substances Control

28. State Responsibility for Sites.

Recommend the department advise the Legislature of (1) Environmental Protection Agency's planned schedule for deaning up hazardous
waste sites in California and (2) the department's plans toturn over to the federal government responsibility forcleanup at sites on the national priority list.
29. Responsible-Party Policy. Recommend enactment oflegislation reversing the department's policy of exempting
responsible parties from future liability at hazardous waste
sites that are cleaned to levels established by the department.
30. Alte.rriatives to Land Disposal. Recommend that the
department submit to the Legislature its plan fCir stimulating development of alternative waste disposal techniques.
31. Federal Evaluation of State Permitting System. Recommend that prior to budget hearings, the department prepare a report to the Legislature outlining (1) federal
government's assessment of the state's performance, (2)whether EPA needs more time to evaluate the state's performance, and (3) when EPA will grant the state authority
to administer the Resource Conservation and Recovery
Ad.
32. Toxies Permitting and Inspection Workload. Withholdrecommendation on $3;700,000 and 96.3 positions, pending
submission of joint plan with Water Resources Control
Boa~d outlining a~ency. responsibilities,. worklo~d, andstafflng for regulatmg hazardous waste dlsposal PltS.
33. Toxics Fee Collections. Recommend the department
report to the fiscal committee on (1) the effective date of
emergency regl,llations increasing disposal fees, (2) its revised estimate of fee revenues for 1985-86, (3) reasons for
reduced volumns of waste disposed during 1985-86, and(4) potential increase in disposal during 1986-87.
34. Toxics Division Budget. Withhold recommendation on

707

708

709

710

713

716

719

Item 4260

HEALTH AND WELFARE / 657$32,291,000, pending completion of a study on appropriate
funding sources for the division's activities.
35. Bond Act Fund Expenditure Plan. Withhold recom-.
mendation on $5,830,000, pending receipt of department's
revised expenditure plan for site cleanup activities in 198687.
36. Funding Shortfall in Hazardous Waste Cleal1up Program.
Recommend the department submit a preliminary estimate of administrative expenses and potential sources offunding for 1987-88.
37. Up-Front Payment for Responsible-Party Expenses.
Reduce Item 4260-001-455 by $346,000. Recommend
Toxics Division seek responsible-party payment prior toinitiating monitoring or arbitration activities.
38. Abandoned Site Program. Recommend that the Legislature fund the program from Hazardous Substance Account rather than the Hazardous Waste Control Account.
Further recommend that the department (1) explain why
program should not operate like the previous survey program and (2) provide a revised implementation schedule
for searches.
39. Industry Education Program. Recommend the department advise the Legislature of its plans and priorities for
operating the program.
40. Eliminate Investigator Support. Reduce Item 4260-001-014
by $410,000. Recommend reduction because department no longer plans to use departmental investigators to
enforce state hazardous waste control laws.

720

720

721

722

724
724

Medi-Cal Program

41. May Estimates. Withhold recommendation on $4.8 billion ($2.4 billion General Fund) requested for Medi-Cal
program, pending review of revised estimates in May.
42. Medi-Cal Estimates. Recommend that the Departmentof Finance explain how it expects to achieve $233.2 million
in budgeted savings.
43. Expanded Choice. Withhold recommendation on position changes and contract funds proposed for the Expanded Choice program, pending receipt of revised estimatesin May.
44. AB 180/SB 53 Certifications. Recommend the department report on the feasibility of changes in the AB 180/SB
53 wage pass-through certification worksheets.
45. State Hospital Costs. Recommend transfer of $6,336,000
from Item 4260-101-001 to Item 4260-106-001 and $6,336,000
from Item 4260-101-890 to Item 4260-106-890. Recommend transfer of excess funds budgeted for state hospitals
to pay for long-term care rate increases.
46. Long-Term Care Cost of Living Adjustments (COLAs).
Recommend that the Department of Finance include anestimate of the cost of long-term care rate increases in the
May revision.
47. ICFIDD-H Rate Increase. Reduce Item 4260-101-001 by$1,241,000 and Item 4260-101-890 by $1,241,000. Recom-

730
730
736

746
746

747

747

658 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

mend denial of a rate increase for Intermediate Care
Facilities for the Developmentally Disabled-Habilitative
because the increase is not justified.
48. ICF/DD-N Costs. Recommend that the Department of
Finance explain how it expects to fund the cost of Intermediate Care Facilities for the Developmentally Disabled-Nursing.
49. Caseloads Estimates. Recommend that the Departmentof Finance explain the differences in caseloadestimates forrefugees and SSI/SSP recipients made by the Departmentsof Social Services and Health Services.
50. Adult Day Health Care Rate Study. Recommend thatthe department report (1) the reasons for the delay insubmitting an Adult Day Health Care rate methodology
and (2) the steps it is taking to insure the timely establishment of these rates.
51. Asset Clearance Match. Recommend that the department report on savings from the asset clearance program,including the medically needy cases.
52. Retroactive Federal Funds. Recommend that the Department of Finance report on the potential for securing
federal funds for state hospital costs on a retroactive basis.
53. Prepaid Health Plans. Reduce Item 4260-101-001 by $2,350,000 and Item 4260-101-890 by $2,350,000. Recommend
adoption of Budget Bill language directing a revision in
prepaid health plan for a total savings of $4.7 million.
54. Technical Errors. Reduce Item 4260-101-001 by $103,000,
4260-101-036 by $663,000, and Item 4260-101-890 by $766,000. Recommend reduction to correct for technical errors made in calculating funding needs for prepaid healthplans.
55. County Administration Productivity Standards. Reduce
Item 4260-101-001 by $1.4 million. Reduce amountbudgeted for county administration to reflect increases in
productivity.
56. San Diego Dual Choice. Reduce Item 4260-101-001 by$168,000 and Item 4260-101-890 by $168,000. Recommend reduction in funding for dual choice presentations in
San Diego County because these funds will not be needed.
57. Greater Avenues of Independence. Withhold recommendation on costs due to Greater Avenues for Independence, pending review of the May revision.
58. Expanded Choice Program. Reduce Item 4260-101-001 by$44,000 and Item 4260-101-890 by $132,000. Recommend
reduction in checkwriting and postage costs to reflect savings resulting from Expanded Choice program.
59. Change OI:ders. Reduce Item 4260-101-001 by $190,000 and
Item 4260-101-890 by $316,000. Recommend reduction
in support budgeted for unidentified changes in the MediCal claims processing system.
60. Statewide Automated Welfare Systems. Withhold recommendation on funds and position changes pending review of the annual progress report.

749

749

750

750
751
751

752

754

754

754

759

759

761

Item 4260

HEALTH AND WELFARE / 659

61. Permanent Staffing Level. Recommend that the Department of Finance indicate whether it intends to propose a permanent staffing level for the Fiscal Intermediary
Management Division.
62. Medi-Cal Field Office Improvements. Recommend theDepartment of Finance report on changes needed to implement task force recommendations on improved efficiency.
63. Recovery Branch Automation. Withhold recommendation on $405,000 ($202,000 General Fund) and reduction of
13.5 positions, pending the receipt of details for an automation proposal.
64. Third-Party Recovery System. Withhold recommend ation on $5 million ($500,000 General Fund) for an improved Medi-Cal system for recovering funds from liablethird parties, pending receipt of details on the proposal.
65. Preadmission Screening. Recommend the department
report on plans to implement preadmission screening
state-wide in order to prevent unnecessary placement ofelderly in nursing homes.

762

762

763

763

764

Audits and Investigations

66. Financial Auditor Positions. Withhold recommendation
on reduction of $324,000 and 9 positions, pending receipt of
information on pilot hospital audits.
67. AB 8 Audits. Appropriate $388,000 in Item 4260-001-810.
Recommend a $388,000 augmentation from County Health
Financing Authority funds to support further audits. Further recommend the department explain why no action
has been taken to (1) recover AB 8 funds identified in past
audits and (2) complete suspended audits.
68. Provider Utilization Review. Recommend the department report on the advisibility of expanding "special
claims review," and using "abbreviated utilization review
programs. "69. Pharmacy Audits. Recommend that the department
present a plan for more effective pharmacy audits.
70. Beneficiary Utilization Review. Augment Item 4260-001001 by $7,500 and Item 4260-001-890 by $7,500. Recommend augmentation to provide a computer for improved
monitoring of Medi-Cal beneficiaries' use of services.
71. Toxic Investigations. Recommend that the department
explain why it terminated criminal toxic investigations.
72. Asset Clearance Match. Recommend that the department report on the feasibility of using asset clearance
match for medically needy Medi-Cal beneficiaries.
73. Regional Reorganization. Recommend that the department report its reasons for combining the management of
the division's two southern regions.
74. Medical Review Contract. Augment Item 4260-001-890 by$44,000. Recommend restoration of two positions and$44,000 that would be deleted in favor of contracting for
medical consultants and duplicating.

767

768

771

772
772

774
775
776

776

660 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued
Department of Health Services
Table of Contents:l.lwiysis

General Program Statement ....................................................................................................................... .
O\'en'iE'IY of the Budget Request ............................................................................................................... .
:\nalysis and Recommendations ................................................................................................................. .
1. Department Support ................................................................................................................................. .
2. Licensing and Certification ..................................................................................................................... .
3. Public Health ............................................................................................................................................. .
A. Family, Rural and Community Health Ser\'ices ......................................................................... .
B. Pre\,enth'e \Iedical Sen'ices, Environmental Health and Di\'ision of Laboratories ......... .
4. Toxic Substance Control ......................................................................................................................... .
A. O\'en'iew ............................................................................................................................................... .
H. The Bond Program ............................................................................................................................. .
C. The Hazardous Waste Management Program ............................................................................. .
D. Current-Year Fiscal Issues ............................................................................................................... .
E. Budget-Year Fiscal Issues ................................................................................................................. .
5. \Iedical Assistance Program (Medi-Cal) ............................................................................................. .
A. Health Care Ser\'ices ......................................................................................................................... .
B. County Administration ....................................................................................................................... .
C. Claims Processing ............................................................................................................................... .
D. State Administration ........................................................................................................................... .
6. Audits and Im·estigations ......................................................................................................................... .

Page
660
660
661
661
668
675
682
687
704
704
707
710
716
718

725
736
752
755
760
765

GENERAL PROGRAM STATEMENTThe Department of Health Services has responsibilities in two major
areas. First, it provides access to health care for California's low-income
population through the Medi-Cal program. Second, the department administers a broad range of public health programs, including (1) programs
that complement and support the activities of local health agencies controlling environmental hazards, preventing and controlling disease, andproviding health services to populations that have special needs and (2)state-operated programs such as those that license health facilities andcertain types of technical personnel.
The department has 4,193 authorized positions in the current year.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes expenditures of $6,525,662,000 from all funds forsupport of Department of Health Services programs in 1986-87. This is anincrease of $102,409,000, or 1.6 percent, above estimated current-year expenditures.
Table 1 shows the proposed budget, by program category, for 1986-87
and the two previous years.
The largest budget changes proposed for 1986-87 are (1) an increase in
Medi-Callocal assistance of $162 million and (2) a decrease of $91.7 million
in state support reflecting allocation of Hazardous Substance Cleanup
Bond Act funds in the current year.

Item 4260

HEALTH AND WELFARE / 661
Table 1
Department of 'Health Services
Expenditures and Funding Sources

1984-85 through 1981Hl7(dollars in thousands)
Actual"Est.
Pro/<rwll
1984-85
1985-86
State operations ..............................................
$248,240$392,537
Special projects ................. ;..............................
159,882
209,619
Public health local assistance ......................
1,003,217
1,135,115~1edl-Cal local assistance ..............................
4,375,206
4,685,982
Totals. ........ ,................................................ $5,786,545 $6,423,253
Funding source
General Fund .•............................................ $3,076,815 $3,507,376
Federal funds ..............................................
2,516,458
2,727,324
Hazardous Substance Cleanup (Bond)
94,169Hazardous Substance Accoimt ................
16,303
18,412
Hazardous Waste Control Account ........
12,3408,230
Genetic Disease Testing Fund ................
10,22918,003Special Account for C,ipital Outlay ......
5,000
County Health Services ............................
2,200
2,317
Local Health Capital Expenditure Account ..........................................................
2,689
6,245
Reimbursements ........................................
147,769
33,740
Other funds ..................................................
1,625
2,554

ChangeFrom 1985-86
Prop.
Amount Percent
1986-87$300,860 -$91,677 -23.4%
18,293
227,9128.7
1,148,856
13,741
1.2
4,848,034
162,052
3.5$6,525,662 $102,409
1.6%$3,586,904
2,817,138
5,820
15,46724,032
18,135
18,902
2,200

879,528
89,814-88,349-2,94515,802132
13,902

2.3%
3.3
-93.8
-16.0
192.0
0.7
278.0

168
33,661
3,235-6,077
-79
681

-97.3
-0.2
26.7

"The amounts shown here for 1984-85 Medi-Cal expenditures are those reported in the Governor's
Budget, but they are not accurate. The department has been unable to provide the correct amount.

ANALYSIS AND RECOMMENDATIONS
1. DEPARTMENT SUPPORTThe budget proposes expenditures for department support of $300,860,000 (all funds) in 198fH37. These expenditures account for 3.8 percent of
the department's budget.
The department proposes to support 4,170 positions in the budget year
(excluding those assigned to special projects) , a decrease of 22.3 positions
from the number of positions authorized for the current year. Table 2
shows the positions and expenditures proposed for department support,
by major program category. The largest increase in positions is proposed
for toxic substances control activities. The largest increase in total support
expenditures is proposed for Medi-Cal.
The budget includes $1,700,000 for merit salary increases but no funds
for inflation adjustments for operating expenses and equipment. We haveno estimate of what these adjustments will cost.
Table 3 illustrates the main components of the increases proposed in thedepartment's support budget for 198fH37, excluding special projects. The
request for 198fH37 is 16.2 percent above the amount appropriated in the1985 Budget Act, but 22.3 percent less than revised 1985-86 costs, whichreflect substantial one-time expenditures of hazardous substance clean-up
bond funds.

Item 4260

662 / HEALTH AND WELFARE
DEPARTMENT OF HEALTH SERVICES-Continued
Table 2
Department of Health Services
Positions and Expenditures
198~5 through 1986-87(dollars in thousands)
ActuulEst.
Prop.
1984-85
1985-86
1986-87

ChungeFrom 1985--86
Amount Percent

I~\p{'nditures

Public health ................................................
Toxic substances control. ...........................
~fedical assistance ......................................
Licensing and certification ......................
Audits and investigations ..........................
Administration and Director's office ......
Totals ..........................................................
PositionsPublic health ................................................
Toxic substances controL .........................
~fedical assistance ......................................
Licensing and certification ......................
Audits and investigations ..........................
Administration and Director's office ......
Totals ..........................................................

$70,344$106,538
31,687140,879
56,02555,39014,44017,986
19,123
18,209 .
57,53552,621$248,240$392,537$105,332
37,25664,556
18,34919,19856,169$300,860-$1,206-103,623
9,166
363
75
3,548
-$91,677

-1.1%
-73.6
16.5
2.0
0.4
6.7
-23.4%

1,407.0
336.5
985.7
254.4
450.8
758.6
4,193.0 h

1,381.3
425.0
948.5
261.4
428.8
725.7
4,170.7 h

-25:7
88.5
-37.2
7.0
-22.0
-32.9
-22.3

-1:8%
26.3
-3.8
2.8
-4.9
-4.3
-0.5%

1,126.2
211.0
918.1
189.6
398.9
875.5
-3,719.3 "" 191>4-85 amounts represent personnel-rears.
h Excludes oartial-"ear adiustments. shown in

thf' budgC't.

Table 3
Department of Health Services
Department Support
Proposed 1986-87 Budget Changes(dollars.in thousands)

1985-86 expenditures (Budget Act) ................................................................... .
Baseline adjustments:
1. Increase in existing personnel costs:
Salary and benefit increase ............................................................................. .
2. Iilcre'ase in operating expense and equipment:
Postage ................................................................................................................. .
3. One-time adjustmentsa. Expiration of limited-term positions ....................................................... .
b. Elimination of funds for private well monitoring ............................... .
c. Elimination of contract funds for Fairchild studv ............................... .
d. Elimination of contract funds for establishment' of drinking water
standards ............................................................................................... .
e. Expansion of Birth Defects ~1onitoring program ............................... .
f. Reductions in support costs paid from special funds ......................... .
g. Increase in support costs paid from federal funds ............................. .
h. Reduction in contract funds available for toxic site cleanups ......... .
i. Increased federal funds for interagency agreements ......................... .
j. Reduction of federal matching funds associated with current-year
support reductions ............................................................................... .
k. Reduction in contract funds available for site cleanup ..................... .
l. Adjustments to AIDS program base funding ....................................... .
m. Reduction in Board of Control fee collection costs ........................... .
n. Hazardous site cleanup bond repayment, Ch 376/84 (SB 1465) ..... .
o. Decrease in estimated federal fund refugee reimbursements ......... .
p. Increase in site operation and maintenance fund ............................... .

All

GenemlFund
Slll,945

Funds$258,923

8,718

17,013

85

415

-325
-553
-731

-1,224-553-731-3,542
1,766-40-3,542
1,766
-501
1,000
-782
2,630

1,700

-1,570
-501
1,700
-268
5,000

568
55

Item 4260

HEALTH AND WELFARE / 663

q. Continuation funding for AIDS alternative test site, Ch 23/85 (AB488) .....................................................................................,.................. ..
r. Continuation funding for a study on marine pollution, Ch 1440/85(AB 1024) ............................ ,................................................................. ..
s. All other changes ................................................................................. "..... ..
Budget Change proposals:
1. Administration .................................................................... "''''''''''''''''''''''''''''''''
2. Audits and investigations ................................................................................. .
3. Licensing and certification ............................................. ,.............................. ..
4. Public health ." ................................................................................ ,.................. ..
5. Medical assistance ......................................................................... ,.................. ..
6. Toxic substances control .................................,................................................. .
1986-87 expenditures (proposed) ...................................................................... ..
Change from 1985-86:
Amount ......................................................................................................... "...... .
Percelit.. ................................................................................................................ ..

Table 4 shows the position changes which the budget proposes for 198687. Of the 180.2 new positions funded in the budget, 94.5 positions, or 61
percent, are proposed for various toxic 1iubstances control activities. Of the149.3 positions proposed for reductions (1) 52 percent take account ofidentified workload decreases and administrative efficiencies, (2) 34 percent are due to contracting proposals, and (3) 14 percent are ,due toautomation.
Table 4

Department of Health Services
Proposed Position Augmentations and Reductions a
1986-87

Position Reductions
Position
Jugmen- Efficiencies Jutomation
tations and Workload Proposals
Executive and Administration
Audits and Investigations ........
Licensing and Certification ....
Toxic Substances ControL ......
Preventive Health Services ....
Medical Assistance ....................
Totals ....................................

3.8
1.0
10.0
94.5
20.8
50.1

-180.2

Contnlct
Propos;ds

Ercess.Ifi/lwger/
Staff
Ratio

-10.0
-19.0
-1.0

-6.0

-11.0
-2.0
-2,0

-10.5
-31.3

-1.0
-14.5

-36.0 h

-1.0
-2.0
-1.0

-28.0
-21.0
-3.0
-1.0
-49.5
-46.8

-71.8

-21.5

-51.0

-5.0

-149.3

--

-1.0

Tot;d
Reductions

a Changes shown in this table do not correspond to changes shown in Table 2 because the latter includes

changes due to midyear adjustments and expiration of limited-term positions.
h This includes a reduction of 35 positions due to automation of Child Health and Disability Prevention

claims processing.

Proposed Changes Which Should Be Approved

We r~commend approval of the following support changes that are notdiscussed elsewhere:• $350,000 ($88,000 General Fund) to install new data linkage equipment for the Medi-Cal Eligibility Data System (MEDS).
• A reduction of $31,000 (General Fund) and one position due to decentralization of the department's word processing center.
• A net reduction of $30,000 (General Fund) and three data processing
positions due to the completion of one-time projects.
22-80960

664 / HEALTH AND WELFARE

Item 42{)Q

DEPARTMENT OF HEALTH SERVICES-Continued• A reduction of $91,000 ($45,000 General Fund) and three accounting
positions due to introduction of new automated accounting systems.
• A reduction of $48,000 (General Fund) and one position due to efficiencies and workload transfers in the department's budget office.
• A proposed increase of $91,000 (General Fund) and one position to
implement changes in the personal needs allowance for residents oflong term care facilitif" required by Ch 1161/85 (AB 1353).
• A reduction of $110,00v (General Fund) and two positions due to areorganizatioh of the Office of External Affairs.
• An increase of $78,000 (Hazardous Waste Control Account) to compile and publish ll:lws relating to hazardous materials, as required by
Ch213/85 (AB296).
Proposed Changes on Which We Withhold Recommendation

We. withhold recommendation on the following support changes totaling $2,501,000 ($497,000 General Fund) that are not discussed elsewhere:• $1,159,000 in reimbursements and 3.7 positions to enhance the Standardized Automated Welfare System (SAWS) central data base. We
withhold recgmmendation on this request, pending receipt of theannual progress report: due in March.
• $700,000 ($175,000 General Furid) to purchase replacement equipment for the Los Angeles County MEDS system. We withhold recommendation on this request, pending the department's evaluation of analternative proposal submitted by Los Angeles County.
• A reduction of $125,000 (General Fund) and four positions resulting
from a proposed consolidation and move of Los Angeles and Berkeley
business offices to Sacramento. We withhold recommendation on thisrequest, pending further evaluation of the proposal.
• A net increase of $96,000 (General Fund) and a reduction of fivepositions related to two contraCts for security guard and janitorialservices at the department's Berkeley laboratory facilities. We withhold recommendation on this request, pending receipt of informationon contract costs expected in May.
• An augmentation of $246,000 (Hazardous Waste Control Account) for
increased office space for the toxics division in southern California.
We withhold recommendation on this request, because the proposal
is being revised.
• A proposed reduction of six positions in favor of contracting out fordata entry services. We withhold recommendation on this request,
pending receipt of information on contract costs.
• A proposed reduction of $148,000 ($74,000 Geheral fund) and threepositions due to automation of the administrative appeals system. We
withhold recommendation on this request, pending the completionand preliminary evaluation of the system.
• A proposed reduction of $26,542 (General Fund) and one supervisory
position due to (1) the elimination of data entry personnel throughcontracting and (2) a mandated supervisory/staff reduction. We
withhold recommendation on this request, pending the receipt ofadditional cost information expected in May.

Item 4260

HEALTH AND WELFARE / ·665

Technical Budget Preparation Shows Marked Improvement

We recommend that the Legislature adopt supplemental report language requiring the department, under the direction of the Departmentof Finance, to make needed schedule changes in the 1987-88 budget.
The Supplemental Report of the 1985 Budget Act required the department, under the direction of the Department of Finance, to reformat the
1986-87 budget so as to include schedules of program requirements, byfund, for local assistance and support. The 1986-87 budget includes these
new schedules. The schedules separately detail support and local assistance expenditures by program and by fund. This has made the budget
more easily understandable and accessible to the Legislature.
The department was also required to (1) identify all reimbursements,
by program, in the summary by object and (2) identify all savings by
program in the reconciliation with appropriations. These changes, however, were not reflected in the 1986-87 budget document.
Overall, the department's budget shows great improvements in internal
numerical consistency and in the amount of useful program information.
Nevertheless, the two additional changes required by the supplemental
report are needed to provide the Legislature with a complete picture of
the department's budget. Consequently, we recommend that the Legislature adopt the following supplemental report language requiring the department, under the direction of the Department of Finance, to makethese two additional format changes:"The department, under the direction of the Department of Finance,
shall reformat the schedules in the 1987-88 Governor's Budget to (1)identify all reimbursements by program in the summary by object and(2) identify any savings by program in the reconciliation by appropriations."
Operating Expenses Need Explanation

We withhold recommendation on $140,020,000 proposed for operating
expenses and equipment, pending receipt of (l) more complete information on current spending and (2) final schedules for equipment and consultant and professional services.
A review of the department's final operating expense and equipment(OE&E) schedule for 1984-85 shows that actual expenditures exceeded
the budgeted amount for several OE&E categories. These include communications, postage, facilities operations, utilities, and data processing.
The department indicates that internal fund transfers from other OE&E
items were necessary to cover these expenses.
The 1984-85 shortfalls occurred despite the fact that the budget included funds for price increases.
The 1985-86 budget did not include funds for any price increases withthe single exception of postage. Nor does the 1986-87 budget include funds
for price increases, even though the prices which the department must
pay for some items are certain to increase. For example, the department's
facilities operations costs are expected to increase by $550,000, due to an
18.5 percent rate increase in state office space rates. Besides the known
cost increase in facilities operations, each 1 percent increase in OE&E
expenditures results in costs of $922,000 ($461,000 General Fund). We areunable to determine how the department will fund these increases.
It is possible that, without funds to compensate for the effects of inflation
on purchasing power, the department may not be able to comply with666 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

ongoing program requirements. If funds are not sufficient to keep the
department's employees in the field, essential departmental tasks relating
to licensing, Medi-Cal utilization control, and health facility auditing could
suffer.
We withhold recommendation on the amount proposed for OE&E expenditures, pending receipt of information showing the current level ofoperating costs and how the department plans to operate during 1986-87
without further increases in funding for these costs. To assist the Legislature in determining the correct funding level for operating costs, werecommend that the department provide, by April 15, the following information:
1. A comparison of 1984-85 budgeted and actual costs for each OE&E
category, the reasons for any differences, and an explanation of how cost
overruns were funded.
2. An update on 1985-86 OE&E expenditures, by category, as of March
1, 1986, a projection of full-year costs including adjustments for payment
lags and seasonal variations, and the department's plans to meet any shortfalls in the budgeted amounts.
Finally, at the time this analysis was prepared, we had not received finalschedules either for consultant and professional services or for equipment.
We cannot recommend approval ofthe amounts budgeted for these items
without knowing what the department intends to do with the requested
funds.
Change in Supervisor-to-Staff Ratios is Arbitrary

We recommend approval.
Department of Finance letter 85-12 requires departments to maintainthe same supervisor-to-staff ratios in 1986-87 that existed in March 1984.
The department's calculation of the allowable ratio resulted in a reductionof five manager / supervisor positions. In our discussion of state support, wewithhold recommendation on the elimination of one data processing
supervisory position, and we recommend approval of an additional position reduction in our discussion of the Medi-Cal budget.
The department proposes to achieve the remaining three reductions by
reducing one supervising communicable disease specialist position thathas been vacant since July 1985 and two office services supervisors-one
in preventive medical services and one in the toxics division-on the basisthat reorganizations will reduce the need for supervisory personnel.
The arbitrary supervisor-to-staff ratio standard, which is the reason forthese reductions, does not provide the Legislature with adequate justification for the reductions. Nevertheless, we have no basis on which to challenge the department's assertion that it can operate adequately without
these supervisors. We therefore recommend approval of the proposed
reductions.
Positions Authorized For Nursing Home Oversight and.Toxics Will Have to Be
Kept Vacant

We recommend that during budget hearings, the department and theDepartment of Finance (1) report on the reasons for the proposed increase in the 1986-87 salary savings rate and (2) explain how this new rate
will be achieved, particularly in the licensing, Medi-Cal operations, andtoxics programs.

Item 4260

HEALTH AND WELFARE / 667

The 1986-87 budget proposes a 9.9 percent salary savings rate for the
department. This is 14 percent higher than the salary savings rate estimated for 1985-86----8.7 percent.
The term "salary savings" refers to personal services costs for authorized
positions that are not incurred. Routine salary savings can arise for two
reasons. First, the cost of salaries and benefits may be "saved" because
authorized positions are vacant, due to unintended delays in filling vacated or new positions and delays in implementing new programs. Second,salary savings may result when positions are filled with personnel who arepaid lower salaries than their predecessors received.
Salary savings can also be forced. This occurs when an agency must
consciously hold authorized positions vacant in order to achieve an arbitrary "savings" target.
Background. The department currently anticipates a 1985-86 salarysavings rate of approximately 8.7 percent-well below the 9.7 percent rate
contemplated by the 1985 Budget Act. The reason why the department
is able to maintain a lower salary savings rate is that during the course of
the year, it discovered that it had overbudgeted for salaries by $1.5 million.
The department indicates that the Department of Finance will allow it to
use the $1.5 million to reduce its high vacancy rate.
Table 5 shows that other departments of state government have salarysavings rates varying from 3.9 to 7.8 percent, which are well below the 9.9
percent that is proposed for the Department of Health Services in 1986-87.
Table 5
Variations in Salary Savings Rates
For Various Departments

SalaryDepartment
SUI"ings Rilte
Employment Development ..................................................................................................................
3.9
Finance ......................................................................................................................................................
4.4:\1ental Health ..........................................................................................................................................
4.8
Education ..................................................................................................................................................
4.9
Rehabilitation ..........................................................................................................................................
5.6
General Sen·ices......................................................................................................................................
6.1
Justice ........................................................................................................................................................
7.0
Social Sen'ices ..........................................................................................................................................
7.1
De\'elopmental Services........................................................................................................................
7.8

Our analysis indicates that the department's current salary savings requirements may be artificially high, and that the savings may have to beforced. The purposes of the salary savings adjustment is to avoid overbudgeting, not to artificially reduce expenditures and personnel-year counts.
Consequently, we believe the salary savings amount should be based on
the best available estimate of normal position vacancies.
We have no basis for determining what the "normal" vacancy rate is forthe department. This rate will tend to vary over time as personnel system
requirements change, as private-sector jobs become easier or more difficult to obtain, as state salaries become more or less competitive. The
department's normal vacancy rate, however, appears to be lower than thecurrent salary savings requirement.
The department indicates that its salary savings rate will be forced
upwards, from 8.7 to 9.9 percent in the budget year, due to (1) the Department of Finance's decision not to provide $1,701,000 for merit salary increases for current employees and (2) the fact that 1986-87 budget change

668 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

proposals were budgeted at a 9 percent salary savings rate.
Table 6 shows how the department plans to distribute vacancies amongits major programs to achieve its salary savings goal. As Table 6 indicates,
the percent of authorized positions that are vacant is expected to increase
in all but three program categories in 1986-87. Increases are especiallylarge in the Medi-Cal Operations Division, which is responsible for utilization control and contract monitoring; Licensing and Certification, whichis responsible for nursing home oversight; and Toxics, which is responsible
for toxics substances control. We cannot determine why the budget proposes to increase vacancy rates in these crucial activities.
Perhaps the Departments of Health Services and Finance can. We recommend that the departments explain during budget hearings (1) the
reasons for the increase in the 1986-87 salary savings rate, (2) how DHS
proposes to achieve this higher rate, and (3) the specific reasons why theadministration has chosen to force larger salary savings in licensing, MediCal operations, and toxics programs.
Table 6
Estimated Salary Savings Rate Based on Budgeted Personnel-Years
By Major Program Category
1985-86 and 1986-87
PrograIll
1985-86
Administration ..................................................................................................................... .
6.6%
Famil\" health ....................................................................................................................... .
6.5
Progr;1I1l de\'elopment ....................................................................................................... .
7.7
Program administration ..................................................................................................... .
6.3
Audits and in\"estigations ................................................................................................... .
7.6
Toxic substances .................................................................................................................. ..
6.9
Laboratories .......................................................................................................................... ..
8.0~Iedi-Cal policy ................................................................................................................... .
9.8
Rural and communi tv health ........................................................................................... .
8.2
Fiscal intermediary ~anagement ................................................................................... .
9.1
Director's office ................................................................................................................... . 12.4
En\'ironmental health ......................................................................................................... .
9.4
Pre\"enth'e medicine .......................................................................................................... ..
9.8
Licensing and certification .............................................................................................. ..
12.5~Iedi-Cal operations ........................................................................................................... .
11.9

1986-87

2.2%
7.7
8.5
8.6
8.8
9.0
9.2
9.3
9.4
9.9
10.3
10.5
11.5
13.8
14.8

2. LICENSING AND CERTIFICATIONThe Licensing and Certification program develops, implements, andenforces state standards to promote quality health care in approximately
3,400 hospitals, clinics, long-term care facilities, home health agencies, andadult day health centers. In addition, the program performs certification
reviews for the federal government at facilities that seek to qualify for
Title XVIII (Medicare) or Title XIX (Medi-Cal) funding. Program activities related to Medicare certifications are 100 percent federally funded.
Activities related to Medi-Cal certifications are approximately 67 percent
federally funded.
The budget proposes expenditures of $21,704,000 ($10,353,000 GeneralFund) for support of the Licensing and Certification program in 1986-87.
This is an increase of $488,000, or 2.3 percent, above current-year expenditures.

Item 4260

HEALTH AND WELFARE / 669

Vacancies Fall But Backlog Persists

Werecomrriend that, during budget hearings, the department explain
how it intends to reduce existing backlogs in licensing and certification
activities in order to meet statutory requirements for processing workload.
Primarily as a result of chronic understaffing, substantial backlogs havedeveloped in the Licensing and Certification Division in all the major
functions that licensing surveyors perform. Since inid-1984, the division
has experienced. unusually large numbers of vacancies, particularly insurveyor positions.
As bf December 1985, the division's vacancy rate had declined to 13
percent of authorized positions, whi~h was substantially lower than the 39
percent rate experienced in November 1984. Many of the division's licensing surveyors, however, are inexperienced. In fact, 38 percent of those
employed as licensing surveyors in December 1985 had less than one yearof experience. The problem of inexperienced field staff worsened when
the department filled four new complainant hearing positions with experienced su.rvyyors from the field. Subsequently, the new complainanthearing positioris were reassigned to headquarters support staff whenantic~pated coniplaint hearing workload did not materialize.
Baoklog in .Federal Certification. The department places its highest
priority on surveys of facilities whose. federal certification under Medicare
and Medi-Cal ~s due to expire. The federal government will allow only one
60-daycertifib:ltion extension. Without certification, the facility cannot be
reimbursed with federal fUIids.
Table 7 shows the illimber and percentage of facilities whose certification survey date was past due in November 1985. Of the 2,718 facilities
certified for Medicare reimbursement, 580, or 21 percent, were past due
for recertification inspections.
Table 7
Licensing and Certification Division
Backlogs in Federal Certification Visits(December 1985)

TotlllFlIcilities
Stlltewide
FlIcility l)pe
Skilled nursiilg facilities ............................................................. . 1,154
Intermediate care faCilities ....................................................... .
87
131
Institutions for the retarded .................................................... ..
Hospitals ......................................................................................... .
542
Psychiatric hospitals ................................................................... .
38
Home health agencies .............................................................. ..
Others ............................................................................................. .
Totals ...................................................................................... ..

368

398
2,718

FlIcilities
With i'isits
PlIst Dlie
133
35
20
88
21
122
161
580

Pe,cent
Pi/st Dlie
11.5%
40.2
15.3
16.2
55.3
33.2
40.5
21.3%

Source: Department of Health Services.

Backlogs in State Surveys. Because state licensing surveys need not
be completed for a facility to renew its license, substantial backlogs in statesurveys can occur without interrupting the facilities' operations. As a result, the department places a lower priority on the completion of state
licensing surveys than on completion of federally required surveys. A
substantial number of facilities have remained unsurveyed for periods
well beyond those set by state law. Table 8 shows that the survey backlog

670 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

is particularly acute among primary care, community, and Short-Doyleclinics.
Table 8
Licensing and Certification Division
Backlogs in State-Mandated Surveys(December 1985)

Totu}
Fucilities
Sun·e.\" t.lpe
Stlltewide
Selective provider surveys ................................ 258
Chemical dependency hospitals ......................
632
Adult dav health centers....................................
Referral ·agencies..................................................
10
Primary care and community clinics.............. 527
Short-Doyle clinics .............................................. 355

Fucilities
With Pust-Due
Surveys
33
4
1
1
209
129

Percent
Pust Due
12.8%
66.7
3.1
10.0
39.7
36.3

Al'eruge
MonthsPust Due
1

2
1
1
19

14

Source: Department of Health Services.

New Reviews Add to Backlog. The department has undertaken 27"enhanced enforcement effort" investigations since April 1985. These special reviews result in substantial demands on staff time and. divert resources that otherwise would be used to reduce existing backlog.
Complaints. The department has experienced significant increases
in the number of complaints that it receives about facilities. Between thefirst quarter of 1984-85 and the first quarter of 1985-86, complaints about
facilities increased by 40 percent (from 831 to 1,161). The department did
not investigate 34 percent of the complaints received in November 1985
within the lO-day period required by state law. The department indicatesthat it will address the issue of timeliness of complaint investigations in areport to the Legislature that it expects to complete by the end of February.
No Proposal to Decrease the Backlog. The department acknowledges that there is a serious backlog in the division's workload. Based on
the department's workload standards, elimination of the backlog would
require the addition of 15 full-time surveyors for one year. Yet, the budget
makes no provision for the resources needed to eliminate the backlogs. We
recommend that the department report during budget hearings on thesteps it plans to take in order to eliminate the accumulated backlogs inlicensing and certification activities.
Licensing Fee Proposal Overdue

We withhold recommendation on licensing and certification fees for
1986-87, pending receipt of a fee schedule from the department.
Current law requires the department to provide by January 17 an annual report describing the cost of the Licensing and Certification Divisionand calculating a fee level that will result in revenues sufficient to reimburse the General Fund for the costs of the division. The department has
notified us that the required report will not be completed until February
28, 1986. Until the department completes this report, we are unable to
make any recommendation regarding the fees for health facility licensing
and certification.

Item 4260

HEALTH AND WELFARE / 671

Enhanced Enforcement Effort Justified

We recommend approval.
The budget requests $240,000 ($92,000 General Fund) for 5.5 new positions and the redirection of $51,500 in current-year overtime funds for the"enhanced enforcement effort."
This program was initiated in 1985 on a pilot basis and provides forfacility inspections at irregular hours. To date, teams of investigators,
auditors, and health facility evaluators have made unannounced visits at
10 facilities. These visits resulted in the issuance of 43 citations, closure of
2 substandard facilities, and license revocation proceedings for a third
facility. The pilot program has shown the effectiveness of unannounced
inspections of health facilities at irregular hours.
Therefore, we recommend approval of the positions and funds required
to support this activity as a permanent feature of the Licensing and Certification program.
Workload Does Not Support All New Positions

We recommend that the Legislature delete $51,000 ($14,000 GeneralFund) and 2.7 of the 4.2 new positions requested for the Medi-Cal Field
Services Branch that are not justified by workload estimates.
The budget requests $507,000 ($162,000 General Fund) for 7 new licensing and certification positions and 4.2 new Medi-Cal field office positions
as a result of legislation that increased the division's workload.
Chapter 1496, Statutes of 1985 (SB 851), established a new category oflicensed health facility-the intermediate care facility for the developmentally disable d.-nursing (ICF/DD-N). This category of facility will
provide residential care for developmentally disabled clients who require
more nursing services than can be provided at community care facilities
licensed by the Department of Social Services. This new facility category
will increase the workload in (1) the Licensing and Certification Division,
which surveys and approves new and renewal licenses, and (2) the MediCal field offices, which review treatment authorization requests so that
services to Medi-Cal eligible clients can be reimbursed.
Using the department's estimate of facilities to be licensed in 1986-87
and the Department of Finance's workload standards, we estimate that
the Medi-Cal field offices require 1.5, rather than 4.2, new positions.
Therefore, we recommend a reduction of $51,000 ($14,000 General Fund)and 2.7' positions.
Major Changes in Licensing and Certification Program Proposed

The budget proposes a series of major and minor changes in the Licensing and Certification program, which would have the net effect of reducing 3 departmental positions, adding U.5 licensing positions in Los
Angeles County, and transferring workload to the Cooperative Personnel
Services program. The net cost of the department's proposal is $292,000($96,000 General Fund).
In the following section, we summarize the individual elements of the
proposal, point out shortcomings where they exist, and make recommendations where they are appropriate. In sum, we conclude that the proposal
is premature and that more data should be collected and analyzed before
most of the proposed changes are made.
The department's proposal has four components. Specifically, it:
1. Reduces the frequency of licensing visits to long-term care facilities,

672 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

thus reducing the need for state personnel.
2. Adds 20 positions to increase base staffing required to perform stateand federal licensing and certification activities.
3. Transfers responsibilitles related to certification of nurses assistants
and home health aids to another agency.
4. Eliminates a departmental support position.
Long-Term Care Facilities Would Be Licensed ~ess Often

We recommend t~at the Legislature reject the department's proposal toreduce the frequency of comprehensive licensing reviews of long-termcare facilities and augment the budget by 8.5 positions and $529,000($175,000 General Fund) because the department does not know what
effect its proposal would have on the quality of care in health facilities.
The budget proposes to eliminate 8.5 licensing positions and $529,000($175,000 General Fpnd) as a result of less-frequent inspections of longterm care facilities (skilled nursing and intermediate care facilities) andhome health agencies.
.
Fo! those long-term care facili.ties that do not receive. c~tati0!ls in the
prevIOUS year, the department mtends to reduce admmIstratIvely thefrequency of comprehensive licensing reviews from once a year to once
every twO years. Currently, the department conducts a comprehensive
annual review that takes 80 staff-hours to complete. The review includes
activities required for both federal certification and state licensure. Under
the department's proposal, most facilities would continue to be reviewed
annually for federal certification under the Medicare and Medicaid programs, but the annual federal reviews would be shortened from 80 to 35
hours per facility. The department would c()mplete the full 80-hour review every other year for facilities that had no citations in the previous
year. The department also indicates it will request legislation changing thelicensing schedule for home health agencies from once a year to once
every three years.
The department's proposal to lengthen the time between licensing surveysmay have merit. It may be possible to extend the time between
licensing visits and still maintain appropriate levels of surveillance overlong-term care facilities and home health agencies. However, the department has been unable to produce information that the Legislature needs
to gauge the effect of the proposal. Specifically, the following informationis needed to evaluate the proposal:• What percent of facilities would not require annual licensing reviews?
The department calculated the effect of the proposal based on theassumption that two-thirds of long-term care facilities wou~d not require an annual comprehensive review. However, this figure is outdated. During 1985 the department has issued 53 percent morecitations than in 1984. The department should review its records tolower its estimate of the percent of facilities that will not require acomprehensive annual review,• What percent of facilities would currently receive citations in thefollowing year? . Certain deficiencies might not be detected during the course of an abbreviated survey that would currently be detected. The department should provide an estimate of how manycitations fall into this category.
• What tasks will not be completed in the abbreviated federal certifica-

Item 4260

HEALTH AND WELFARE / 673

lion surveys? The proposal will reduce from 80 to 35 the numberof person-hours spent on annual federal certification surveys. The
department should identify the specific tasks that will not be completed under the proposal.
We cannot recommend approval of the department's proposal without
this basic information concerning its effects. It is premature to makepermanent changes in the division's staffing without better informationon the potential effects of the reductions. We therefore recommend that
the Legislature reject the department's proposal.
Staffing Standards May Be Too HighWe recommend that the Legislature delete 20 new positions proposed
for the Licensing and Certification program and $882,000 ($291,000 General Fund). We further recommend that the Legislature adopt supplemental report language requiring the department to conduct a study todetermine staffing standards for use in developing the 1987-88 budget.
The budget proposes the addition of 20 new positions, at a cost of$882,000 ($291,000 General Fund), to conduct licensing and certification
reviews required by federal and state statutes. Of the 20 new positions,11.5 would go to the Los Angeles County licensing program through augmentation of the existing contract, and the remaining 8.5 positions would
be allocated to the department's Licensing and Certification Division.
Our review indicates that the workload standards used by the department in formulating its request for the additional positions may not accurately reflect the department's real staffing needs. The department
calculated its staffing needs using staffing standards that, for many categories of surveys, exceed the staff time actually spent per survey. Actual
productivity data for the division would justify an addition of up to 14
positions, rather than the 20 requested.
Although some increased staffing may be justified, we cannot recommend approval of the requested increase in staffing at this time because
it is based on workload standards that differ, in some cases by a substantial
amount, from the actual time spent by surveyors in facilities. We recommend that the Legislature delay any permanent staffing changes until the
department can reconcile its standards with the actual time spent conducting surveys. Although the reconciliation will delay a staffing augmentation, the department currently has 17 surveyor vacancies that can be
filled. Furthermore, the lack of experienced surveyor staff in the division
limits its ability to absorb and train more new staff. Therefore, the department is able to tolerate a delay without adverse consequences.
We therefore recommend that the Legislature delete the 20 proposed
new positions and $882,000 ($291,000 General Fund). We further recommend that the Legislature adopt supplemental report language directing
the department, in cooperation with the Department of Finance and theLegislative Analyst, to conduct a study of the division's activities to determine workload standards based on historical workload data. These standards would be available for preparation of the 1987-88 budget for thedivision. Our recommended supplemental report language is as follows:"The Department of Health Services, in consultation with the Legislative Analyst and the Department of Finance, shall design and conduct
a workload study of the licensing and certification functions and develop staffing standards for use in the 1987-88 budget process. To theextent feasible, the department shall rely on data from the time report-

674 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

ing system used by the Licensing and Certification Division as a basis
to establish the standards."
Contract Premature

We recommend that the Legislature restore two positions proposed for
elimination as a result of a proposed contract.
The budget proposes to eliminate two positions and redirect $60,000 insalary and benefits savings ($20,000 General Fund) to fund a contract with
Cooperative Personnel Services.
Currently, the Licensing and Certification Division certifies nurse assistants and home health aides and approves school programs for nurse
assistants. Under the department's proposal, these functions would be
performed by Cooperative Personnel Services under a contract with thedivision.
Our review indicates that it is not certain that the contract envisionedby this proposal will be executed. We therefore recommend that theLegislature restore two positions proposed for reduction so that the authority exists to continue the positions in the event that the contract is not
executed.
Deletion of Administrative Position

We recommend approval.
The budget proposes to delete one associate government program analyst position that supports the deputy director of the Licensing and Certification Division, for a savings of $60,000 ($20,000 General Fund).
We have no basis to challenge the department's claim that it can function effectively without this administrative position.
Demonstration for Chronically or Terminally III Children Not Funded

We recommend that, at the time of budget hearings, the Department of
Finance explain to the fiscal committees how it intends to fund the second
year of a three-year demonstration project for chronically and terminallyill children.
Chapter 1473, Statutes of 1984 (AB 3005), established a three-year demonstration program to license and supervise a facility in Sacramento County that provides respite care for chronically or terminally ill children. The
facility? designated as an intermediate care facility for chronically or terminally ill children, provides care for children requiring more medicalcare than is available in community care facilities but less care than provided in acute care hospitals. The act included a $250,000 appropriation for
the first year of the project.
At the time the bill was under consideration, the department expected
the costs of the three-year project to be $250,000. Following enactment of
the bill, the department contracted with Children's Respite Care, Inc., toestablish the demonstration facility, at a cost of $228,000 in 1985-86.
The budget request for 1986-87 does not include funds for the extensionof the contract beyond 1985-86. We therefore recommend that the Department of Finance, at the time of the budget hearings, explain to thefiscal committees how it intends to fund the second year of this three-year
demonstration project.

Item 4260

HEALTH AND WELFARE / 675
3.

PUBLIC HEALTH SERVICES

The Public Health Services program provides state support for California's public health programs. To administer these public health programs,
the department maintains five divisions with the following responsibilities:
1. The Preventive Medical Services Division is responsible for (a) preventing and controlling infectious and chronic disease, (b) conducting
epidemiological studies, including examining the health effects of toxics inthe environment and the workplace, and (c) identifying unmet publichealth needs.
2. The Family Health Services Division addresses the special needs ofwomen and children through the Family Planning, Genetically Handicapped Persons', Maternal and Child Health, California Children's Services, Genetic Disease, and Child Health and Disability Prevention
programs.
3. The Rural and Community Services Division (a) distributes funds
appropriated by AB 8 (Ch 282/79) to local health agencies, (b) distributes
funds to counties for care of medically indigent persons, (c) administers
state and federal subvention programs that provide funds for the supportof local public health activities, (d) distributes funds for capital outlay
projects to local health agencies, and (e) provides technical assistance infunding matters to local health departments.
4. The Laboratory Services Division maintains two state laboratories
that provide assistance to state programs which require specialized laboratory services. In addition, the division regulates other public and private
biomedical laboratories to ensure the provision of high-quality services
within the state.
5. The Environmental Health Division operates programs to protect
public health by controlling food, drugs, water supplies, vectors, noise, andunnecessary exposure to ionizing radiation.
In addition, public health services staff administer a number of special
projects. These projects, which are shown separately in the budget, arestudies or demonstration projects that are 100 percent funded by thefederal government, other state agencies, or other organizations.
Budget Proposal

Local Assistance. The budget proposes $1,148,856,000 (all funds) inlocal assistance for public health services in 1986-87. This represents anincrease of $13.7 million, or 1.2 percent above estimated current-year
expenditures. Table 9 presents local assistance expenditures, by program,for 1984-85 through 1986-87.
The increase proposed for local assistance primarily reflects the following changes:• A $20.8 million (General Fund) increase for AB 8 county health services programs to provide a 3.95 percent cost-of-living adjustment(COLA) and funding for utilization increases.
• A $7.5 million (General Fund) increase to maintain the current levelof services provided by the Maternal and Child Health program.
• A $7.6 million ($86,000 General Fund, $7.5 millon special funds) reduction in support for local health capital outlay projects.
• A decrease of $5.0 million (special funds) in funding for county hospital equipment purchases.
• A decrease of $1.1 million (General Fund) in funding for the Medically Indigent Services (MIS) reporting system.
• An increase of $9.5 million reflecting caseload adjustments in several
programs.

676 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued
Table 9Department of Health Services
Public Health Local AssistanceExpenditures and Funding Sources
1984-85 through 1985-86(dollars in thousands)

ProgTilm
I. PRE\,E\TI\'E ~IEDIC:\L SERnCES ..........
:\. hnmunir"ltion Unit ......................................
B. TB Control ......................................................
C. Prel'ellth'e Health Care For the Aged ..
D. Lupus Erythmatosus Research ..................
E. Dental Health ................................................
F. :\Izheimer's Disease ......................................
2. F.nIILY HE:\LTH ............................................
A. Family Planning ............................................
B. ~[aternal and Child Health
Infant Dispatch ..............................................
Perinatal Access ............................................
High Risk Follow-Up ....................................

Perinatal Health ............................................
Perinatal hnprO\'ement ..............................
:\dolescent Family Life ..............................
Primary Care Clinics ..................................
~[CH Grants ..................................................

Flmd
GeneralGeneralGeneralGeneralGeneralGeneralGeneral:\11

GeneralGeneralGeneralGeneralFederalGeneralGeneralFederalGeneralFederalGeneralGeneralFederalC. California Children's Sen'ices
Genetically Handicapped .......................... All
Persons' Program
GeneralRepayments
California Children's Sen·ices.................... All
GeneralFederalRepaymcnts
D. Child Health and Disability Pre\'ention General
E. Genetic Disease Pre\'ention
Sickle Cell ...................................................... General
Prenatal Testing ............................................ General
Tar Sachs ........................................................ General
G. Lo'ng-Term Care and Aging ...................... General
3. RURAL :\\0 Cm[~IU\ITY HE:\LTH ...... :\11:\. Priman' Health Care
Rural Health .................................................. General
Primarr Care Clinics .................................. General
Indian 'Health ................................................ General
Fanll\rorker Health .................................... General

Actuul1984-85(85,236)
1,395
441
1,238
645
1,517

Est.
1985-86(87,703)
2,629
452
1,303
772
1,608
939

ChungeFrom
1985-86
1986-!J7 Amount Percent(88,206)(8503)
6.5%
2,590
-39
-1.5
922
470
104.0
1,303
772
1,680
72
4.5
939

(8107,710)
28.982(8135,850)
34,155(8140,167)
34,155

220
820
779
200
1.496

233
844
811
200
1,52.jProp.

(84,317)

3.2%

967
241
16,143

16,754

233
844
811
200
1,52.5
1,666
3,734
2,260
2,650
1.011
4,667
11,.j87(84,178)
4,064
114(86,482)6,412
70(87,2.j8)
7,188
70(8776)
776

12.0
12.1

(45,828)
40,6494,704
475(50,428)
44,9744,704
750(54,090)
48,636
4,704
750(3,662)
3,662

7.3
8.1

6,230

11,418

11,797

379

3.3

518
627
467
14

539
654
486

539
654
486
(88,921)0.9%(8890,778)
3,741
422
2,881
998

5,400
1,082
3,828
1,011

(8991,562) (81,000,483)
3,862
448
2,996
1,038

3,862
448
2,996
1,038

1,666
-1,666
1,178-1,178

100.0
-30.9
108.9
-30.8

4,667
-5,167

100.0
-30.8

Item 4260
H. Count\' Health Sen'ices
Local 'GO\'ernment Relief (AB 8) ............
Count\' Public ................................................
Health Projects (S:\AP) ..............................
County Hospital ............................................
Equipment......................................................
Public Health Sub\'ention ............ "............
Local Health Capital Expenditure ..........
~Iedically Indigent Sen'ices ......................
~IIA Program ........................... ,....................
~II:\ Data S\'stem ..........................................

Count\' ~Iedical ............................................
Sen:ices Program
TOTALS ................................................................
Funding Sources
General Fund ......................................................
Federal funds ......................................................
Family repayments ............................................
County Health Sen'ices Fund ........................
LHCE.-\. ..................................................................
Ch 1594/82 ............................................................

HEALTH AND WELFARE / 677
General
CHSF

384,3152,200

399,802
2,200

Other
General681
Federal
466
LHCEA
3,042
GeneralGeneral492,032
GeneralGeneralGeneral
Ch 1594/82
81,003,724
All

5,000
737
585
7,520
86

81,135,ll5976,366
21,513
589
2,200
3,042

1,094,545
31,471
820
2,200
6,079

523,435
1,100
42,753

420,6102,200

20,8085.2-5,000-100.0-7,520-86-100.0-100.0-1,100-100.01,819
813,741

100.0
1.2%

27,453-8,01l2.5-25.5-7,520
1,819

-100%
100%

737
585

523,435
42,753
1,819
81,148,856
1,120,557
23,460
820
2,200
1,819

Table 10 reflects proposed budget changes affecting local assistanceexpenditures in 1986-87.
Department Support. The budget proposes $118,641,000 for department support attributable to public health programs in 1986-87. (Thisamount excludes funding for special projects.) The requested amount is$842,000, or 0.4 percent, less than estimated current-year expenditures for
department support.
The budget proposes a net reduction of 23.7 positions authorized for
public health programs in 1985-86. This is a reduction of 1.8 percent.
The major increases proposed in the support budget would be used to:• Expand current immunization pngrams for children and the elderly($1.4 million General Fund).
• Track the incidence of birth defects in 32 counties pursuant to recently enacted legislation ($397,000 General Fund).
• Expand the cancer registry program to 26 additional counties consistent with recent legislation ($1,0l5,000 General Fund).
• Increase staffing by 15.8 positions at the state laboratories due to avariety of departmental initiatives ($943,000 from the Hazardous
Waste Control Account).
The major reductions in department support reflect the administration's proposals to:• Eliminate $3.1 million (General Fund) in one-time contractual services budgeted in 1985-86 for the purpose of assessing the health threat
from a variety of potentially hazardous materials.
• Eliminate 44.5 positions and $466,000 (General Fund) for various reasons.

Item 4260

678 / HEALTH AND WELFARE

DEPARTMENT OF HEA~TH SERVICES-Continued
Table 10Department of Health Services
Preventive Health Local Assistance
Proposed 1986-87 Budget Changes(in thousands)
GenemiFund
1985-86 estimated expenditures (Budget Act) ....................... . $1,093,104
Baseline adjustments, 1985-86: Capital projects ..................... .

Other
Funds
$34,491
7,520$42,011All
Funds$1,127,595
7,520$1,135,115

1985-86 expenditures (revised) ................................................... . $1,093,104
Baseline adjustments, 1986-87:
1. Delete one-time immunization augmentation ................... .
-$180
-$180
-$8,011-8,011
2. Delete one-Ume MCH federal fund augmentation ......... .
3. Delete one-time county hospital equipment augmenta-5,000
tiOlT ................................................................................................ .
-5,000-7,520-7,5204. Delete local health capital expenditure ............................... .
-1,100-1,1005. Delete ~lIA data system funding ......................................... .
1,819
1,819
6. Ch 1594/82 (C~SP) ................................................................. .
-86 - - -86
7. Delete Ch 111/85 reappropriation ....................................... .
-$6,366-$13,712-$20,078
Subtotals ................................................................................... .
Caseload adjustments:$766
1. Genetically handicapped persons' utilization program ... .
8766
2. California children's services utilization increase ............. .
3,662
3,662
379
379
3. Child health and disability prevention utilization increase
4,700
4,700
4. Local gO\'ernment relief population increase ..... ,............. .
$9,507$9,507
Subtotals ........ ;.......................................................................... .
Cost-of-living adjustment:
County health services (3.95 percent) ................................. .
816,108
816,108
Program change proposals:$141
1. Immunization augmentation ................................................... .
$141
2. TB control augmentation ......................................................... .
470
470
3. Dental health redirection ....................................................... .
72
72
4. General Fund augmentation to replace federal MCH
funds ............................................................................................. .
7,511
7,511
Subtotals ................................................................................... .
$8,19488,194$28,299$1,148,856
1986-87 expenditures (proposed) ............................................... . $1,120;557
Change from 19&Wl5 (revised)$27,453-$13,712
Amount ......................................................................................... .
$13,741
Percent ......................................................................................... .
2.5%-32.6%
1.2%
Table 11
Department of Health Services
Public Health Support
Positions and Expenditures-All Funds
1985-86 and 1986-87(dollars in thousands)
Positions
Erpenditures
Prop. Percent
Est.
Prop.
Percent
Est.
1985-86 1986-87 Changes 1985-86 1986-87 Changes
216.7
214.7
-0.1 % $29,378$32,802
11.7%
Preventive medical services ..................... .
225.4 -12.8
19,186
18,512-3.5
Familv health ............................................... .
258.4
217.4
-0.5
12,083
Rural'and community health ................... .
12,592
4.1
222.9
407.1
422.9
3.7
32,18534,008
5.4
Laboratories ................................................... .
300.9
26,651
20,727 -22.3
301.9
Environmental health ................................. .
-1.8% $119,483 8118,641-0.7%
Subtotals ................................................. . 1,407.0 1,381.3
13.5
209,619
227,912
8.0
327.1
378.8
Special projects ............................................. .
1.5 $329,102 $346,553
5.3%
Totals........................................................
1,734.1 1,760.1

Item 4260

HEALTH AND WELFARE / 679

Table 11 displays staffing and operating support for each public healthprogram in the current and budget years.
Table 12 details the budget changes proposed for each public healthprogram in 1986-87.
Table 12
Department of Health Services
Public Health Services Support
Budget Changes. 1986-87(dollars in thousands)

Prel'entil'e .\1edic<ll Services
hnmunization initiative ....................................................................... .
Dental health ......................................................................................... .
Birth defects monitoring ..................................................................... .
Toxic information center ..................................................................... .
Disaster medical planning ................................................................... .
Cancer registry ....................................................................................... .
Indoor asbestos contamination ........................................................... .
Occupational health and disease ....................................................... .
Indoor asbestos standards ................................................................... .

Positions
-2.0

2.0

2.0

GenemlFund

Funds$1,363
-72
397
16
169
1,015
41
486
30

$1,363
-72
397
16
169
1,015
41
486
30

-160
49
-89
100

-322
49
-89
100

-74
-62

-74
-62

All

Fwnil!' he<llth
CHDP/CHIC contracting out ........................................................... .
Family planning automated data ,system ......................................... .
School therapy program ..................................................................... .
Infant mortalitv ..................................................................................... .

-30.0
-1.0
-2.0

Ruml <lnd comm;ll1itl" he<llthPublic health nurse certification ........................................................
Southern region rural health ..............................................................
Countv health services ..........................................................................
L<lbonlt~ries
Hazardous materials ..............................................................................
Facility permitting .................................................................. .............
SUT\'eilhlllce and enforcement implementation ............................

-1.0
-2.0
-2.5
4.0
6.9
4.9

193
393
457

EllI"ironment<ll he<llth

-2.0

-94
49
49
-65

-94
49
49
-65

-23.7

$3,148$3,869Reduction of !'Iioise Control program................................................
Milk processing plant inspections ......................................................
Radioactive materials ........................................................................... .
Manager/Supervisor Ratio........................................................................

-2.0
1.0

Total budget change proposals ..................................................,....

Public Health Program Position Reductions

The DHS proposes to eliminate 44.5 positions and $466,000 (GeneralFund) to reflect a variety of efficiencies and service reductions. Table 13
displays the proposed staff reductions in DHS public health programs.
Not all of the proposed staff reductions result in savings. In some cases
the savings are redirected to purchase additional services.
Many of the position reductions are characterized by the department
as program efficiencies. The remaining reductions would result in a lower
level of service provided by the department. The following section reviews the various departmental proposals that would result in position
reductions.

680 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued
Table 13
Department of Health Services
Public Health Programs
Proposed Staff Reductions
1985-87

Positions
Program consultants........................................................................................
6.0
Rural health and family planning................................................................
3.0
County health services ..................................................................................
2.5:\ursing certification ................................................................ ,.....................
1.0
Supervisory ratio" ............................................................................................
2.0
CHDP claims processing................................................................................ 30.0 h
Totals .......................................................................................................... 44.5

Generui Fund
SlIIings$183,000
123,000
62,00065,00033,000$466,000" Th('s(' position reductions are discuss('d with similar supervisory staff reductions und<:>r lll(' dcpartm('nt's
Administration Di\'ison.
h ":xclud('s 5 data processing positions in the Administrati\'(' Division.

Effect of Elimination of Consulting Positions Unknown

The department proposes to eliminate six program consultants thatprovide technical assistance to local agencies. Specifically, the department
proposes to eliminate two consultants from each of the following programs: the California Children's Services (CCS) medical therapy unit, theDental Health Disease Prevention program, and the Noise Control program. The budget would redirect $72,000 in savings from the position cuts
to local agencies for the dental program. It does not propose to make any
additional funds available to local agencies for the CCS or Noise Control
programs.
. The department could not indicate how the elimination of the six positions would affect the operation oflocal programs. Presumably, local agencies operating CCS therapy units or noise control programs that needtechnical assistance would either have to support additional technicalassistance costs using local funds or do without the service.
Without an assessment of how the position reductions would affect local
programs, we are unable to make a recommendation on the proposed
reduction.
Efficiencies Make Sense

The department proposes to eliminate three positions due to specified
efficiencies in the operations ofthe Rural Health program (two positions)and the Family Planning Branch (one position). These reductions would
be achieved by:• Closing a regional office. The Rural Health program maintains a
regional office in Los Angeles in order to provide assistance and oversight to nine rural health clinics in the southern half of the state. By
redirecting to Sacramento one of the three positions now assigned to
the Los Angeles office and adding $25,000 in travel funds, the DHS
could maintain the existing level of services while eliminating two
positions .
• Increasing use of an automated system. The Family Planning

Item 4260

HEALTH AND WELFARE / 681

Branch proposes to eliminate one position by increasing its use of an
existing computer system that processes specified claims and information, at a net cost of $49,000. The department advises, however, thatthe automated claims system provides other benefits-such as auditing contractor claims-which justify the additional expense.
Because our review indicates that proposed improvements in officeprocedures are worthwhile, we recommend that the position reductions
be approved.
.
Reductions Require Statutory Changes

The department proposes to reduce staffing for the County HealthServices program by 2.5 positions as a result of proposed efficiencies inprogram operations. Specifically, the department proposes to (1) consolidate five reports on county health services into one annual report (1position), (2) revise the procedure for reallocating local health service
funds during the middle of the year (0.5 position), and (3) reorganize
program staffing to reduce supervisory needs (1 position). The DHS advises that eliminating four reports and revising the allocation methodology would require statutory changes. If no statutory changes are made, thereduction of 2.5 postions would be made in other areas.
We requested workload data documenting that the proposed staff reductions could be made by consolidating activities as the department
proposes. The department indicated, however, that no workload data
were available.
Transfer of Certification Responsibilities is Premature

We recommend that the Legislature restore one nursing position because the department's proposal to contract for public health nurse certifications would yield no identifiable benefit and would be disruptive given
the further changes contemplated for this program.
The budget proposes to (1) eliminate one nursing position that currently processes applications for public health nursing certificates and (2)redirect $25,000 to purchase similar services from the Cooperative Personnel Services (CPS) agency that are needed to certify public health nurses.
The DHS plans to revise the way public health nurses are certified. At
the present time, nurses have only to successfully pass specified courses
at accredited schools. In the future, the department wants to require thatapplicants pass a standardized examination in order to receive certification. The DHS plans to begin writing the test during 1986-87 and hopesthat the Board of Registered Nursing will take over the testing and certifying of public health nurses within one to two years. In the interim period,
the department proposes to contract with CPS for the current certification reviews.
Our analysis indicates that transfer of certification responsibilities to
CPS would yield no identifiable benefits. No savings are anticipated fromthe proposed change. Services to applicants are not expected to improve.
Moreover, since DHS plans to permanently transfer certification responsibility to the Board of Registered Nurses within one to two years, interimtransfer of the responsibility to CPS would seem to be unnecessary, as well
as disruptive. For these reasons, we recommend that the Legislature restore one position so that the department can continue certifying publichealth nurses directly.

682 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued
Contract Proposed for Child Health and Disability Prevention Program

We recommend approval.
The budget requests $900,000 ($293,000 General Fund) to support acontract with Electronic Data Systems Federal (EDSF) for processing
claims submitted under the Child Health and Disability Prevention(CHDP) program. The budget also reflects a corresponding decrease of$1,000,000 ($326,000 General Fund) in state support costs due to the elimination of 30 positions in the CHDP Branch and 5 positions in the Administration Division that process CHDP claims.
The department has signed a contract with EDSF that would be activated if the Legislature approves the necessary funds. The department's
schedule calls for the transfer of the existing system to EDSF beginning
July 1986. EDSF would assume responsibility to process all claims arriving
after September 1986, and state staff reductions would begin at that time.
The department's estimates indicate that the proposal will reduce costs
to the state. At the same time, the contract requires EDSF to meet or
exceed the department's current performance standards in accuracy andtimeliness of claims processing. It also requires EDSF to establish a provider relations unit to assist providers with billing problems.
We recommend that the Legislature approve the proposal because thecontract is likely to provide the same or an improved level of service ata lower cost to the state.
Family, Rural, and Community Health Services
California Children's Services (CCS) Budget OverestimatedWe recommend that the department explain how it intends to improve
the accuracy of the budget Forecast For the CCS program.
The budget proposes $54,090,000 for the CCS program in 1986-87. Thisis an increase of $3,662,000, or 6.8 percent, from current-year estimatedexpenditures. Of the amount requested, $48,636,000 would come from theGeneral Fund and $4,704,000 is from the federal MCH block grant. The
CCS program provides medical assistance to children with disabling diseases.
In recent years, the department has significantly overestimated CCS
funding needs. Table 14 shows the expenditure estimates for the programas proposed in the Governor's Budgets for recent years, as well as theactual expenditures for these years. The table shows that although thedepartment's forecasts for 1982-83 through 1984-85 anticipated constant
growth in expenditures, there was almost no growth in actual expenditures.
While the most recent estimate of expenditures. in the current year
shows a $4,600,000 increase from the May 1985 estimate (from $45.8 million
to $50.4 million), it is still $6,020,000 less than the amount proposed in the
1985-86 Governor's Budget. Moreover, the department indicates there isa good chance that the May (1986) revision of 1985-86 estimates will show
yet another downward revision of estimated spending in the current year.
Even if actual expenditures in the current year hit $50 million, we
believe the level of expenditures budgeted for CCS in 1986-87 is too
high-perhaps by as much as $4 million.

Item 4260

HEALTH AND WELFARE / 683
Table 14
Department of Health Services
California Children's Services
Budget Estimate and Actual Expenditures
1982-83 through 1986-87

Proposed
Fiscal Year
Erpenditllres
1986-87 ........................................................................... . $54,090,000
1985--86 ........................................................................... .
56,470,000
1984--85 ........................................................................... .
53,371,000
1983--84 .......................................................................... ..
45,205,000
1982--83 ........................................................................... .
44,908,000

Actllill
Erpenditllres

Difference$50,428,000 "
45,828,000
45,041,000
46,267,000$6,042,000
7,543,000
164,000(1,359,000)" '.1ost recent estimate of current-year expenditures, !'\O\'ember 1985.

The department's program staff agrees that its model for estimating
CCS costs may have an upward bias. They are hesitant, however, to makea full-scale revision in the model because they are not convinced that a
new trend has emerged.
If expenditures in the budget year are overestimated, it would unncessarily tie up a significant amount of state funds-funds that could be used
to achieve other legislative priorities. Because the department will havean opportunity to revise its CCS caseload projections for the May revisionof expenditures, we see no point in recommending a reduction in theappropriation for CCS at this time. We recommend, however, that the
department report to the fiscal committee prior to budget hearings on thesteps it is taking to improve its estimating model so that its forecasts ofexpenditures under the CCS program are more accurate.
Population Adjustment Overbudgeted

We recommend that the Legislature reduce by $3.5 million the amountbudgeted from the General Fund for county health services because thebudgeted amount far exceeds the amount needed to adjust for the expected increase in population.
The budget proposes a $4.7 million General Fund increase for county
health services (AB 8). This increase is intended to compensate for theincreases in the counties' population.
The Legislature began providing assistance to counties in 1979 so as topartially offset the loss of local property tax revenues resulting from
Proposition 13 (1978). The Department of Health Services distributes
these funds to help support local health services. State law requires AB 8
grants to be adjusted to account for population increases. According to thedepartment, local grants to counties increase approximately $1.2 million
for every 2 percent increase in population.
An augmentation of $4.7 million would provide for an 8 percent population adjustment. During the last five years, however, population increases
have averaged about 2 percent. The department indicates that it does notexpect any unusual population increases during the budget year.
Based on recent population trends, we estimate that an increase of $1.2
million should be adequate to fund the statutory population adjustment
for AB 8 grants in 1986-87. Accordingly, we recommend that theLegislature reduce the General Fund appropriation for county health services by$3.5 million.

684 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued
Federal Funds Available to Supplant General Fund Support

We recommend that the Legislature (1) reduce the General Fund appropriation For maternal and child health programs by $111,000 and (2)increase Federal Funds by $611,000 (For a net augmentation of $500,000)
because unexpended Federal Funds can be available to support the program.
The budget proposes $32.2 million for maternal and child health programs in 1986-87. This amount includes a $7.5 million General Fund augmentation to maintain the program at approximately the current-year
funding level.
The federal Maternal and Child Health (MCH) block grant supports
local programs aimed at reducing infant mortality and providing needed
medical assistance to children. The 1985 Budget Act used one-time federal
funds to increase support for these programs by $9.3 million (to $32.7
million). The additional funds were used to support two new programs:
The Perinatal Improvement program (PIP) ($5.4 million) and the Adolescent Family Life program ($3.8 million). The PIP supports a number ofprograms designed to reduce infant mortality. The Adolescent FamilyLife program is designed to help teenage mothers develop "life options"and to ensure that teenage mothers and their infants receive services
needed to maintain their health.
According to the DHS, the $7.5 million General Fund augmentation
requested for 1986-87, together with $1,262,000 in carry-over federal
funds, would allow the department to continue $8.8 million of the $9.3
million 1985-86 legislative augmentation. The department advises that theremaining $500,000 would not be restored, thereby reducing the amountof funds available for local programs and studies.
The budget indicates that the PIP and the Adolescent Family Life
program would be continued at the 1985-86 levels. It is not clear where
the $500,000 cut would occur.
Additional Federal Funds Are A vailable. Our analysis indicates thatan additional $611,000 in federal funds will be available for MCH programs
during 1986-87. This is because the expenditure of federal funds for local
assistance in 1984-85 was $611,000 lower than anticipated, causing thisamount to be carried over into the current year. These funds will not be
spent during 1985-86; they are not included in the department's current
budget.
Since these monies will not be spent during 1985-86, they can be usedin the budget year to maintain the existing level of MeH programs andreplace $111,000 in General Fund support. Accordingly, we recommendthat the Legislature delete $111,000 from the General Fund appropriation
for maternal and child health programs and increase federal funds by$611,000 for a net augmentation of $500,000.
Information on Medically Indigent Services (MIS) Reporting System Needed

We recommend that in the Forthcoming report on the Medically Indigent Services reporting system, the department (1) include a clear discussion of system goals and objectives, (2) present cost estimates and otherinFormation related to system implementation, and (3) address the costand benefits of alternative MIS reporting systems.
The budget proposes no additional funding for design or implementa-

Item 4260

HEALTH AND WELFARE / 685

tion of a computerized reporting system for county medical services provided to indigent persons.
Background. The Budget Act of 1984 appropriated (1) $250,000 forthe design of a data collection system for the Medically Indigent Services
program and (2) $1 million for county implementation of the system. The
Budget Act also required that the system be designed in consultation with
the Legislative Analyst's office, the County Supervisors' Association of
California, and the California Association of Public Hospitals.
The following year, the Budget Act of 1985 appropriated an additional$100,000 for system design and reappropriated funds for county implementation. In addition, the 1985 Budget Act required the department
to begin implementation of the system and prepare a status report for theLegislature by January 1, 1986.
Department Unable to Meet Deadlines. The department· has notbeen able to meet the Legislature's January 1, 1986, deadline for either the
status report or the start of the implementation phase. The department
has, however, contracted with the Western Consortium for the HealthProfessions for system design and development. The consultant has' studied current county capabilities and methods of collecting and analyzing
data related to indigent populations and has made recommendations to
the department.
.
The system recommended by the contractor would allow the department to compile and compare (1) an unduplicated count of inpatient,oq,tpatient, and other services, (2) the average length ofinpatient stay, (3)the average expenditure per user for inpatient, outpatient, and otherservices, (4) charges by type of provider (including contract or noncontract hospital), (5) the type of providers within a specified geographic
area, (6) the volume of, and charges for, emergency care, (7) a demographic user profile (age, sex, and race), (8) a demographic expenditureprofile, and (9) the charges to patient and/ or county by specific provider.
These data would allow for a variety of comparisons to be made involving
similarities and differences between county health delivery systems, andprovide better information for use in developing fiscal impact studies,budgets, and cost estimates for proposed legislation.
Implementation Costs Uncertain. The contractor preliminarily estimates that implementation of the recommended reporting system would
cost $1,310,000. This estimate, however, probably understates implementation costs because neither Los Angeles nor SaIl Francisco-the two counties with the largest indigent caseloac;ls which also have relatively
unsophisticated systems for recording patient-specific information- responded to this survey. In addition, the survey did not distinguish between
one-time alld ongoing costs or specifically ask counties to estimate theirimplementation costs. The department currently is working with the contractor to develop a new survey that seeks to remedy these problems.
The department has not yet responded to the contractor's recommendations and consequently has delayed issuance of the January 1, 1986,
status report to the Legislature.' One of the factors delaying formulationof a department position on the design of the MIS reporting system is
opposition by some counties to the relatively comprehensive reporting
system envisioned by the consultant.
County opposition to a compreheIlsive data reporting system appears to
be based on two considerations: (1) the potential cost of the system and(2) the fact that to date MlS funds have been made available on a block
grant basis, and the counties have not had to account for how they use the686 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

funds. The counties desire for maximum local discretion and the Legislature's need for a reliable and objective data base that can be used todetermine county funding needs appear to be in conflict. This conflict is
at the heart of the current delay in system implementation.
System Objectives Not Clear. Past Budget Acts do not clearly specify what the MIS reporting system should accbmplish. The system could
achieve a variety of objectives. It could (1) project the total amount thatthe state should appropriate for county medically indigent populations,(2) determine the need for individual county MIS allocation, and (3)monitor and compare the effectiveness of county program administration.
The expectations held for the MIS reporting system will determine thekind and amount of data collected and will influence the cost of implementing and operating the system.
Estimation of Statewide MIS Appropriation. If the sole objective ofthe data system is to determine what amount should be appropriated toadequately care for county indigents, the primary decision becomes
whether the appropriation is to cover (1) all county indigents or (2) only
individuals who would be eligible for Medi-Cal as medically indigent
adults if responsibility for this category of beneficiaries had not beentransferred to the counties in 1982.
The recommendation of the contractor who is designing the system is
to collect data on all county indigents utilizing services. The contractor
recommends that the reporting system not attempt to identify individuals
who would have been eligible for Medi-Cal had responsibility for them notbeen transferred to the counties. The contractor believes that the varianceamong the counties' eligibility standards and processes make the collection of comparable data a major undertaking.
Legislature's Needs May Not Be SatisFied. Our review indicatesthat the contractor's recommendations may not lead to the collection ofdata that meets the Legislature's needs, if the Legislature desires a comprehensive data collection system. Data on income, family size and composition, available insurance coverage, share of cost, and employment
status of indigent persons will not be available under the proposed system.
Without these data, the department will not be able to determine:• The value and volume of services provided to individuals who formerly were the responsibility of the Medi-Cal program.
• Which counties provide the most and least complete services toformer Medi-Cal recipients.
.
• What percentage of an individual county's indigent caseload is composed of the working poor.
• How individual county share-of-cost collections from patients vary byincome and working status.
• How effectively individual counties bill insurance companies andother third-party payors.
The cost of collecting the required information would be substantial.
County hospitals currently have staff that determine if patients have insurance, Medi-Cal, Medicare, or other forms of third-party coverage andcollect eligibility information from indigent persons served by the county
health system. Collection of the additional information (e.g., income, employment status, family composition) would significantly increase the average amount of time staff spend with an indigent patient. Given the large
volume of patients, this will lead to higher costs.

Item 4260

HEALTH AND WELFARE / 687

Consequently, the value of the additional information must be weighedagainst the collection and processing costs. The department indicates that
periodic surveys may provide adequate data on these issues if comprehensive data were collected· for each patient.
Legislature Needs Department's Proposal. For two consecutive
years, the Legislature has pla,ced a high priority on developing an MIS
reporting system. It has done so by augmenting the budget and providing
language to direct the department's system development efforts. The
department has employed a consultant to recommend the design of the
MIS reporting system, and the consultant has completed its work andmade a recommendation. Before the Legislature can proceed further withthe development of the system, it needs a recommendation from thedepartment on the system design and more information about the costsof various options.
We recommend that the department include the following informationin its status report to the Legislature and submit the completed report by
April 1, 1986.
• A discussion of the department's goals and objectives for the MIS
reporting system.
• The department's recommendation regarding the kind of information that the MIS reporting system should gather and the type ofanalyses that the system would generate.
• A summary of the MIS reporting system recommended by the consultant, a timetable for implementing the system, and an updated
estimate, by fiscal year of the cost of (1) installing and (2) operating
the system.
• A description of how the department plans to evaluate the funding
requirements for the MIS program for 1986-87 and beyond once the
MIS reporting system is operational.
• An estimate of what the additional cost would be to collect data on
income, family composition, employment status, and third-party
recoveries.
Preventive Medical Services, Environmental Health, andDivision of Laboratories
Acquired Immune Deficiency Syndrome (AIDS) Programs

AIDS is an extremely serious public health problem-one that threatens
many segments of our society. Neither a cure nor a vaccine for the disease
exists; it is almost 100 percent fatal. The number of reported cases isdoubling approximately every 10 months.
.
AIDS also is a major public policy concern, both because of the threat
it poses to public health and because the disease is not well understood by
the public at large. Misinformation about the virus and how it is transmitted is widespread, and fears about the disease have led to. substantial
public concern.
The Legislature has addressed the problem on a variety of fronts byenacting the following measures:• Chapter 1257, Statutes of 1983. (SB 910), which established an AIDS
advisory committee to provide for the advancement of knowledge
about the disease and to provide for research, education, and otherprojects as needed.
• Chapter 22, Statutes of 1985 (AB 403), which protects the privacy,
employment, and insurance coverage of those who submit to the
AIDS antibody tests.

688 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued• Chapter 1519, Statutes of 1985 (SB 292), which protects the privacy,
employment, and insurance coverage of those who participate in
AIDS research projects.
.
• Chapter 23, Statutes of 1985(AB 488), which provides appropriations
to help fund alternative AIDS antibody test sites, the oDjective being
to help protect the donated blood supply from the· AIDS virus .
.; Chapter 767, Statutes of 1985 (SB 1251), which provides funding bothfor treatment and for information and education projects.
• The Budget Act of 1985, which provides funds for additional information and education projects, as well as for additional staffing in supportof the AIDS program.
Release of AIDS Plan Delayed

The Budget Act of 1985 directed the Department of Health Services(DHS) to prepare and present to the Legislature by October 31, 1985, acomprehensive plan for its AIDS programs, including its budgetary needs
for 1986-87. At the time this analysis was written, the plan had not beenreleased. The department indicated, however, that it would release thecomprehensive plan by March 1, 1 9 8 6 . .
.
The comprehensive plan should have a significant impact on the department's budget request for the AIDS program in 1986-87. In its present
form, the budget is incomplete. Moreover, without the plan, it is difficult
for the Legislature to determine what the department has done and what
it hopes to accomplish in its fight against AIDS during the budget year andbeyond.
The department should be prepared to explain to the fiscal subcommittees why the release of the plan was delayed so long.
Our review of the 1986-87 budget and the department's performancein managing the AIDS program has turned up specific pro DIems relatedto:;, The AIDS budgei:. and program.
• The information and education contracts.
• The SB 1251 projects.
• The alternative testing program.
• The staffing of vacant positions.
The analysis that follows will discuss each of these problem areas.
AIDS Budget Needs Clarification

We recommend that prior to budget hearings, the department prepare
a budget change proposal explaining how it intends to use (1) a GeneralFund augmentation of $1,700,000 that appears to be related to the SB 1251
programs and (2) a $377,000 augmentation in federal funds for the surveillance program in 1986-87.
. The budget proposes total expenditures of $16,811,000 (not including
University of California research and Department of Mental Healthfunds) for the AIDS program in 1986-87. This is an increase of $1,385,000,
or 9 percent, above the amount available in the current year.
Proposed General Fund expenditures for the AIDS program in 1986-87
are $11,441,000. This amount is $751,000, or 6.1 percent, below what isavailable in the current year.

Table 15......
......

Department of Health Services
Funding For AIDS Program(dollars in thousands)

3

CD

~

t-:>

Ol

Dolhlr C'lWllgC From

1.98j,%·

1.986...Si
G('/}cml 1'('dcml
1'illld
j'illldl'

Total
Joillld,

8440
8440
82,06082,06085,000 82.456 " 87,456

8449
81,70084,600 "8449
81,70084,60084,692

84,692

84,692

1.98·/-83
GCllcml 1'('dcml Total
j'illld Joillld, 1'illld,(;('/}cml jo('dcml
j'illld
j'illld

Total
1'illldl'

1.98j,~6

GCllrml Frdrml
j'illld
Joilllds

0

Pcrc('/}t C'lWllgC From
1.9~6

Total
Joillld,

Grllrml jo(,drml
j'illld

Joillld,

Total
l'illld,

DC'partnlC'nt of liC'alth S('[\'ic('~:Support for AIDS branch ... .
Sil 1251-\'ariou~ projcct~ ... .
All 488-altC'rnath'C' tC'~t ~ite~Information and education
project~ ................................. .

8263

8263

8737

8737

84,69289(8360)
:\A

-

:\A

89
(8360):\A2%-17%-8% -100%

2%
-17%
-38%

84,21584,215759%

759%

DC'mon~trationl rC'~earch

project~

Suryeillance andepidemiology
Subtotals, D liS
Other agenciC'~:lIniyer~ity Re~earch ............. .
Department of ~lental
lIealthTotal~, all agC'ncie~ ........ ..

8146
8126

----

81,0008272

83,094

8555

8555

8126

8223

8223

81,272 812,192 83,234 81.j,426
83,094----84,0948146

8272

87,200 d

87,2008600

8600

84,366 819,992 83,234

823,226

84,770811,441
87,2008600

84,770

8600
8600
8377
8377
169% 169%---- - - - ---- - - - - ---- ---- - - - 8.j,370 816,811(8351 ) 84,592 84,241
-6%
66%
9%

:r:

87,200

~

>-

8600

- - - - ---- - - - - - - - - ------------

819,241 85,370 824,611(8351) 84,592

84,241

-4%

66%

6%

"TIl(' dl'partn",nt indicatl's that th" fl'dl'ral gOYl'rnmC'nt has ma,k tllt'sl' funds a",.ilabll' to California: thC's" fund~, hO\\'C'\'"r, do not appC'ar on thc schC'dulcs in thC'
eO\'prnor's Budgl'!.
h Funds l'xpl'etpd to bC' carrkd ronnlrd from 85,000,000 appropriated in th" curr"nt y('ar.
,. TIlt' dl'partn",nt indicat<'s that it doC's not kno\\' if it \\'ill again r"cl'i\'l' fl',kml funds for altl'rnath'C' h'st sitC's.
d Consists of 84,900,000 appropriatC'd by thl' Budget ;\ct and 82,300,000 appropriat"d by Ch 767/1l5 (SH 1251).

-5

>7.

ti

~
~

t""

~

~

~

........

enCOCD

690 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

The proposed General Fund appropriation consists of the following:• $449,000 for support of the department's AIDS Branch.
• A $1,700,000 augmentation for community support block grants anda cost-of-care study.
• $4,600,000 in unexpended 1985-86 funds carried forward into 1986-87
for alternative centers that test blood samples for AIDS antibodies.
• $4,692,000 apparently for continuation of AIDS information and education contracts.
The proposed federal fund appropriation consists of:• $4,770,000 for demonstration and research projects.
• $600,000 for surveillance and epidemiology studies.
Table 15 shows total funding available to the AIDS program from 1984~
85 through 1986-87. This table represents our best currently available
information on AIDS program funding. We caution, however, that thefigures on the table may change as more information becomes available.
The budget for AIDS-related programs is not well documented. Consequently, it is difficult to determine exactly how much money is available
and for what purposes these funds can be used.
The budget proposes two significant augmentations for the AIDS program that have not been described or justified in budget change proposals.
One requests $1.7 million from the General Fund for "community block
grant projects" and a cost-of-care study. The other requests $337,000 infederal funds for expansion of surveillance and epidemiological activities.
Budget change proposals (BCPs) are documents that departments must
prepare on all significant changes that are proposed in program budgets.
They are supposed to present background information on the proposedchange, explain and justify the nature of the change, and show the fiscal
effects of what is being proposed.
So that the Legislature can evaluate the department's budget request
and fully understand what the proposed augmentations would fund; werecommend that prior to the budget hearings, the department prepare
budget change proposals explaining and justifying the $1,700,000 GeneralFund augmentation and the $377,000 federal fund augmentation.
Demonstration and Research. Projects Need Explanation

We recommend that prior to the budget hearings, the department prepare a budget change proposal covering $4,770,000 in federal funds, which
explains in detail its expenditure plans for demonstration and research
projects in 1986-87.
The budget proposes the expenditure of $4,770,000 in federal funds for
AIDS demonstration and research projects in 1986-87. This is an increaseof $4,215,000 above the amount available in the current year. Table 16
itemizes federal funding for AIDS-related demonstration and research
projects. As the table shows, $2 million of this amount would be used insome way for the alternative test sites.
We have many questions about how the federal funds would be usedand how the proposed use of these funds relates to the use of GeneralFund appropriations. For example, the budget does not state if the$2,000,000 budgeted for alternative testing is intended to continue thealternative test site program that is being supported with $2,456,000 infederal funds during the current year. Nor does it indicate how the federal
demonstration and research funds proposed for the budget year tie in with
the information and education program.

Item 4260

HEALTH AND WELFARE / 691
Table 16Department of Health Services
AIDS Demonstration and Research Projects
1984-85 through 1986-87(dollars in thousands)

1984-85

Demonstration Projects
HTLV-III alternative test sites ...................................... ..
HTLV-III treatment clinical study ............................... .
Cost study (home care) ................:.................................. .
Information and education ............................................. .
Research Projects
Virology/ AIDS/Kaposi's Sarcoma ................................. .
AIDS \'accine study ........................................................... .
Totals ......................................................................... .
Source: GO\'ernor's Budget

1985-86

$146

$555
$146

$555

1986-87

Chunge From
1985-86$2,000"
500
750
500

$2,000
500
750
500

600
420
$4,77045
420$4,215--" It is not clear what these funds will support. The budget does not state whether these funds will be used
to continue the currcnt $2,456,000 in federal funds for alternative test sites.

We recommend that the department provide a budget change proposal
for the $4,770,000 in federal funds that explains in detail how the funds
would be used and describes the relationship of these proposed expenditures to other AIDS programs.
Information and Education Projects Need Clarification

We recommend that during the budget hearings, the department explain (1) why it has taken so long to implement the information andeducation contracts, (2) why the department allotted approximately$481,000 of the information and education funds for what appear to beother purposes, and (3) why two separate monitoring contracts appear in
the current-year expenditures. We further recommend that by April 1,
1986, the department provide the Legislature with specified informationon the information and education contracts.
The budget requests $4,692,000 from the General Fund for informationand education projects. This is the same amount available in the current
year.
Table 17
Department of Health Services
1985-86 AIDS Program
Information and Education Projects
General Fund

Proposed
PrognlIll Elements
Erpenditllres
28 information and education contracts .................................................................................... $3,712,500
Public Health Foundation contract: ............................................................................................
646,235
1. Laboratory supplies ............................................................................................................
(230,000)
2. Surveillance activities ........................................................................................................
(251,235)
3. Statewide AIDS conferences............................................................................................
(100,000)
4. Monitoring of AIDS contracts..........................................................................................
(65,000)
Contract monitoring ........................................................................................................................
83,534
De\'elopment of an informational videotape............................................................................
150,000
AIDS training for emergency services personnel....................................................................
100,000
Total information and education expenditures .......................................................... 84,692,269

692 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

The 1985 Budget Act provided $4,250,000 in funding specifically for
information and education programs. In December 1985, the department
discovered that an additional $442,000 was available for information andeducation projects. We are unable to determine where the additional$442,000 came from. Table 17 shows how the combined amount available
for information and education in 1985-86-$4,692,000-will be used.
Implementation of Information and Education Contracts. The fundamental objectives of the AIDS information and education program are(1) to make individuals who are at high risk of contracting AIDS awareof the ways in which the AIDS virus can be transmitted from one individual to another, (2) to provide information and training to health professionals involved with AIDS patients, and (3) to provide general
information to the public. The assumption underlying the information andeducation program is that there are many individuals in the high-risk
communities who do not know which sexual practices and drug-taking
practices are dangerous. These individuals need accurate information on
the disease as soon as possible so that they do not jeopardize their wellbeing.
Current law requires an AIDS advisory committee to submit to thedepartment recommendations for using AIDS program funding. Shortly
after passage of the 1985 Budget Act, the committee submitted its recommendations for allocating the $4,250,000 available to fund information andeducation contracts. The committee recommended that the funds be used
to support 28 projects that were proposed in response to an RFP that the
department sent out in March 1985.
It has taken an unusually long period of time to actually fund theseprojects. Negotiations over the contract provisions were drawn out. By
November 1985, all contracts were in the hands of the contractors for
signature or in the hands of the contract management group at the department. By late November, however, five months after passage of the
Budget Act, 11 of the 28 contracts still had not been finalized. Two contracts still were not finalized at the time this analysis was written.
There appear to be three major reasons for the delay in finalizing thecontracts. First, one person, who was inexperienced in contract preparation, was given the responsibility for negotiating all 28 contracts. Second,the contract approval process within state government evidently does notinclude a fast track for expediting urgent contracts. Third, some contractors were slow to return signed contracts, thereby delaying the disbursement of funds.
The department decided to contract for both an AIDS videotape and
AIDS education for emergency service workers (ambulance drivers andparamedics) through a request for proposal (RFP) process. The RFP forthe education of emergency service workers was distributed in December, with a January 1986 deadline for proposals. The department currently
is drafting a notice of award. The RFP for the educational videotape hadjust been distributed at the time this analysis was written. Even so, thedepartment expected to award a contract by the end of February.
Proposed Use of Funds. Table 17 indicates that the department intends to use $230,000 of the 1985-86 information and education funds forItem 4260

HEALTH AND WELFARE / 693

laboratory supplies, $251,235 for surveillance activities, and $148,534 tomonitor information and education projects.
We question (1') why funds appropriated for information and education
projects should be spent dn the purchase of laboratory supplies, (2) why$251,000 should be,~pent from the General Fund for surveillance wh~n$223,000 in federal funds are earmarked for this purpose, and (3) why the
Public Health Foundation needs to expend $65,000 to monitor the contracts when the department also has $83,534 allocated for contract monitoring.
We recommend that the department be prepared to address thesequestions during budget hearings.
Information Needed. Thirty-one AIDS information and education
contracts have been, or soon will be, signed. Before it can even evaluate
the impact of these contracts, tlIe Legislature will need information on thesubstance of the contract services to be provided, as well as information
on how milch is being spent under each contract. The Legislature lilso
needs more information about the Public Health Foundation contract
shown in Table 17, since its compomint parts do not clearly relate to theoverall intent of the information and education program.
Accordingly, we recommend that tbe department prepare and submit
to the Legislature summary infprmation about the 31 information andeducation projects and the Public Health Foundation contract by March
15, 1986.
Implementation of S8 1251 Delayed

We recommend that the department explilin to the Legislature (1) why
it has taken so long to negotiate sole-source contracts, (2) why three of the
projects have not yet been started, and (3) why the RFP process wasdelayed for the three remaining projects.
Chapter 767, Statutes of 1985 (SB 1251), appropriated $2,060,000 for anumber of specific AIDS projects. Table 18 summarizes the individual
projects, the amount of funding provided for each, and the current statusof each project.
. 'Chapter 767 authorized the department to let sole-source contracts sothat the projects funded by the measure could be implemented without
delay. Nevertheless, contracts. for several of the projects have not been
executed. The department indicated that the ~nit~~l respo~ses to ~ts contract propos!lls were not adequate, thereby sIgmfICantly mcreasmg thetime needed to develop usabl~ proposals. At the time this analysis was
written, the department was considering starting the process over using...
.
.
an RFP process.
Staffing for the AIDS information network, assessing the availability qf
support services for persons with AIDS, and developing a clearinghousefor AIDS drug trial information appear to be particularly critical needs.
Yet the depart.ment so far has ~ailed to start the projects, which theLegisr
lature funded m hopes of meetmg these needs. Moreover, the department
has not finalized contracts in three other areas where critical needs exist:
funding for the treatment of in~ravenous dru~ users, ,:ommunitysuPP?rt
block grants, and the evaluatIon of other mformatIon and educahon
projects.
We recommend that the Legislature direct the department to explain
during budget hearings (1) why it takes so long to negotiate sole-source
contracts, (2) why so little progress has been made in implementing threeof the projects, and (3) why the RFP process has been so drawn out.

Item 4260

694 / HEALTH AND WELFARE
DEPARTMENT OF HEALTH SERVICES-Continued
Table 18
Department of Health Services
AIDS Program
Implementation of 58 1251
19~6

Requirement

Appropriution

1. Evaluate the information and education
projects$150,000 a

2. Educate hospital, home health agency,
and attendant care workers about AIDS
3. Community support block grant$250,000$1,000,000

4. Treatment of intravenous drug users withAIDS or AIDS-related conditions
5. AIDS cost-of-care study$400,000

6. Staffing for computerized AIDS information network
7. Clearinghouse on status of AIDS drug trials
8. Assess anlilability of support services for
persons with AIDS

$60,000

Total appropriation$200,000

Stutus• RFP released 1/13/86• Response received 2/14/86• Select contractor in March• Negotiation of sole-source
contract in progress• RFP issued ll! 12/85• Responses rec'ed 12/20/85• Currently negotiating contracts• Negotiation of sole source contract inprogress• RFP released 1/13/86• Responses received 2/14/86• Select contractor in March• Goal is to establish the position by
7/1/86• Project not yet started-subject to staffing• Project not yet started-subject to staffing$2,060,000" This appropriation is separate from the $83,534 and $65,000 appropriations in the 1985 Budget Act forInonitoring information and education contracts.

Alternative Test Site Program Underway

We recommend that the department explain (1) why it is taking so longto adopt a reimbursement rate for the AIDS blood tests, (2) what it isdoing to improve participation in the alternative testing program, and (3)what it is doing to assure accessibility of the test services.
The budget proposes to carryover into 1986-87 $4,600,000 appropriatedfrom the General Fund by Ch 23/85 for the alternative test site program.
This amount is expected to remain unspent at the end of 1985-86 from the$5,000,000 originally appropriated by Chapter 23. The department also
indicates that $2,456,000 in federal funds may be available in 1986-87 tocontinue federal support for alternative test sites.
Once the AIDS (HTLV-III) virus was isolated, a relatively simple blood
test for the presence of AIDS antibody (but not the virus itself) was
developed that blood banks and plasma centers can use to test all donatedblood. Chapter 23, Statutes of 1985 (AB 488), established an alternative
testing program so that people who suspect that they may have AIDS canreceive blood tests at locations other than blood banks or plasma centers.
The intent of the program is both to protect the blood supply from contamination and to assist those who suspect that they have been exposed
td AIDS.
In response to Chapter 23, the department required the 31 counties
with blood banks to establish alternative test sites. The department sent
contracts to the counties in April 1985-less than one month after theItem 4260

HEALTH AND WELFARE / 695

legislation was passed. The contracts provided for a reimbursement rateof $11 per test for the first 90 days of the program. The department statedthat after the first 90 days, it would (1) survey the counties to determine
their actual costs, (2) reconsider the $li reimbursement rate, and (3)adjust the rate on a retroactive basis if a change was found to be warranted.
The department sent the survey to counties in October-approximately
six months after the program was implemented, and three months later
than when the department had originally planned to undertake the survey. The responses to the survey indicate that the counties' costs range
from $15 to $145, with an average of approximately $37. Thus, the average
cost was considerably higher than what the department originally estimated.
We asked the department to explain the significant variance between
its initial reimbursement rate and the counties' reported costs. The department indicated that the higher reported costs were due largely to thefact that counties were providing "counseling" to AIDS patients and not"short-term information and referral sessions." (Chapter 767, Statutes of
1985, however, states that the department shall use the alternative testing
funds to reimburse counties for preventative education provided to individuals who have the AIDS antibody.) The department indicated thatthe survey responses also showed some substantial differences in the costto the counties for the actual laboratory procedure and in the cost of staff
used in the programs.
The department has now concluded that the alternative test sites are an
appropriate location for providing information and education on AIDS,
and has indicated that it will raise the reimbursement rate to approximately $40. At the time this analysis was written, however, the department
could not estimate when the adjustment will become effective.
Since the rate adjustment will be retroactive to when the program
began, the new rate will significantly reduce the amount of General Fundmoney available for alternative test sites in the budget year. The budget
currently proposes to carry forward an unexpended balance of $4,600,000
from the $5,000,000 appropriated by Ch 23/85 (AB 488). The unexpendedbalance, however, would be no more than $3,600,000 if the retroactive
adjustments are made during the current fiscal year. At the time thisanalysis was written, we estimated that at least $2 million would be neededin 1986-87 for support of alternative testing (50,000 tests X $40 per test).
Originally, the department estimated that during the first year of alternative testing, about 75,000 tests would be performed. It later reduced theestimate to 66,000 tests. Actual testing, however, has been occurring at amuch lower rate. Only 25,337 individuals had been tested through the
middle of January 1986. When we project these data forward using thetesting rate that prevailed in early January 1986 (approximately 946 visits
per week), we conclude that about 37,000 visits will take place during thefirst 12 months of the program. Further, if the early January 1986 ratecontinues, approximately 50,000 visits per annum can be expected in the
future.
There are four reasons why utilization is lower than originally expected:(1) those in the high-risk groups initially were concerned about the confidentiality and usefulness of the test results, (2) reliable data regarding thetrue size of the high-risk population are lacking, which allowed overly
optimistic estimates of participation to be made, (3) start-up at the county
level was slow, and (4) there was not adequate public awareness of thesites.
23-80960

696 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

After the first three months of the program, 8 of the 31 counties were
not operating test sites. By the end bf November, however, all but 2 of thecounties had programs in operation; and these 2 got their programs off theground in DeceI]lber.
The most notable delay occurred in Los Angeles County, which did not
begin a program until October (although the City of Long Beach began
testing in June 1985). To put this delay in perspective, Los Angeles County
has approximately one-third of the state's population, has approximately
50 blood banks/pll,lsma centers, and has, by its own estimate, 450,000 highrisk individuals. The delay was, at least in part, due to the county's belief
that the $11 per test reimbursement rate was not adequate.
According to department staff, AIDS-related mass-media programs
probably generate increased visits to the test sites. The department,
however, has no current plans for publicizing the alternative test site
program, despite its belief that use of test sites is increased by publicity.
It would seem that neither evaluating publicity efforts nor developing
plans for making high-risk groups aware of the alternative testing program
have been given a high priority by the department.
Th~ department has not made any effort to determine whether thecomities are providing enough test sites so that the high-risk populations
are adequately served. We have identified considerable disparities among
counties in terms of the number of test sites available. Humboldt/Del
Norte Counties, for example, with only 131,000 people, operate three testsites, while Santa Barbara, with 315,000 people, operates five test sites. In
contrast, Orange County, with 2,072,000 people, has one test site and Los
Angeles County, with over 7,800,000 people, has only three test sites, twoof which are operated by and located in the City of Long Beach. If the
population of Long Beach is excluded, we find that during the first two
weeks ofjanuary, Los Angeles County was providing AIDS tests at a rateof about five tests per 100,000 population. This placed Los Angeles County
in seventeenth place among all participating counties. By comparison, theCity of Long Beach was providing 79 tests per 100,000, and San Francisco
was providing 58 tests per 100,000 people. These rates placed Long Beachand San Francisco, first and second for the period. This disparity in testing
rates is particularly significant in that Los Angeles is considered to be oneof the three most heavily AIDS-impacted areas in the country (New York
City and San Francisco being the other two areas).
Because the lack of sites may hinder the delivery of servic~s to high-risk
individuals, we recommend that the department explain what it is doing
to assure accessibility of test services in each county.
AIDS Section Slow to Staff Positions

We recommend that the department (1) provide an analysis of the
AIDS program workload and staffing plan, (2) explain why it is taking solong to staff the AIDS section, and (3) explain how it intends to use the"salary savings" it has accrued over the first six months of the current year.
Further, we recommend that the department explain why it was unable
to expedite staffing its programs using the California Public Health Foundation (CPHF).
Our review indicates that the department has been slow to implement
some aspects of the AIDS program because of management problems. The

Item 4260

HEALTH AND WELFARE / 697

root cause of these problems seems to be the difficulties that the department has had in staffing the AIDS section. Eight of the section's 28 authorized positions were unfilled for more than six months into the current
fiscal year. Some of the vacancies can be accounted for by employee
turnover. Six of the eight vacant positions, however, have never been
filled. At various times, the department has detailed personnel to the
AIDS section from other programs so that work could proceed whilepermanent staff were being recruited.
Several interrelated factors have contributed to the overall staffing
problem. The AIDS section chief and the AIDS program manager were
not hired until September, over two months into the current year. Moreover, the CPHF delayed accepting the AIDS contracts in September because it was experiencing some difficulty obtaining payment for otherdepartment contracts. This delay set staffing for part of the program backby about one month.
Several contract positions are funded by federal money. Federal funding currently is scheduled to end in April, after several extensions of twomonths each. Some of the positions were not filled at the beginning of the
program, and uncertainty over funding due to the short and repeatedextensions of federal funds has made it difficult for the department to findcandidates willing to accept the positions. Funds made available by Ch
23/85 can be used to pay AIDS-related staff once federal funds have been
exhausted. These funds cannot be used, however, to extend contract employees. As a result, the employee contracts will have to be rewritten at
the time state funds are used, creating additional uncertainty within the
AIDS section.
Finally, challenges to the use of contract positions in lieu of civil service
positions have delayed the filling of positions. Although the State Personnel Board has authorized the contract positions, an employee union requested further investigation of the matter. These challenges took
between two and three months to resolve. The contract positions are now
being filled.
To facilitate legislative oversight of this important program, we recommend that the department provide (1) 1986-87 workload and staffing
estimates for the AIDS program, (2) an analysis of the advantages anddisadvantages of contracting with the CPHF, and (3) recommendations
as to how the AIDS program can acquire and maintain staff it needs tooperate an effective program in the current and budget years.
OTHER PUBLIC HEALTH ISSUES
Statutory Funding Available to Reduce Budget-Year Appropriations

We recommend that the Legislature delete $392,000 requested from theGeneral Fund for the Birth Defects Monitoring program because statutory
appropriations are available to support program operations during thebudget year.
The Legislature enacted two bills during 1985 that appropriated a totalof $1,275,000 from the General Fund to expand the Birth Defects Monitoring program within the state. The proposed budget for 1986-87 shows thatthe department will spend the full $1,275,000 during the current year.
The DHS estimates that only $883,000 of the $1,275,000 will be needed
during the current year to implement these programs. Thus, $392,000 offunds appropriated in 1985 will be available to support the budget-year
operations of these programs. For this reason, we recommend a reductionof $392,000 in the amount budgeted from the General Fund.

698 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued
Birth Defects Monitoring Expansion Overbudgeted

We recommend that the Legislature delete $392,000 requested from theGeneral Fund for the expansion of the Birth Defects Monitoring programin order to eliminate funds that will not be needed for the efficient operation of the program. We further recommend that, prior to budget hearings,
the department submit to the Legislature its plan for collecting birthdefect information in Los Angeles County and other counties that do nothave birth defect registries.
The budget proposes expenditure of $1,770,000 from the General Fundduring the budget year to continue implementation of an 11-county expansion in the Birth Defects Monitoring program that began on January
1, 1986. The budget also requests $397,000 from the General Fund tosupport expansion of the monitoring program to 21 more counties, beginning on January 1, 1987. This second phase of the expansion would bring
the total number of participating counties to 37.
The Birth Defects Monitoring program is designed to track the incidence of birth defects and determine which environmental factors cause
birth defects. In order to track birth defects accurately, the department
gathers data from a variety of sources so that all defects, some of which
may not be evident until more than a year after birth, are detected.
Chapters 1137 (AB 1950) and 1147 (SB 694), Statutes of 1985, require theexpansion of the Birth Defects Monitoring program from 5 to 16 counties.
In addition, Chapter 1137 requires the department to evaluate the needfor future expansion of the monitoring system.
Expansion Request Overbudgeted. We reviewed the department's
funding request for both the statutorily required 11-county expansion andthe 21-county optional expansion. We conclude that the amount requested
exceeds the program's operating needs in 1986-87 for the following reasons:• Salaries for new positions are not budgeted at the minimum step of
the salary range, as required in the State Administrative Manual. As
a result, 1985-86 and 1986-87 personnel costs are overbudgeted by$284,000.
• One-time equipment purchases included in the current-year expansion plans are erroneously proposed for continuation in 1986-87. This
results in a budget-year request that is $75,000 higher than necessary
for the operation of the program.
• Funds for an epidemiologic interviewer and temporary-help are included in the proposed budgets, in case additional research is needed
to identify patterns of birth defects in the newly added counties. Ourreview suggests, however, that these expenses will not be needed
until January 1987 at the earliest. This is because meaningful data will
not be available from the statutorily required expansion of the monitoring program until one year after data collection begins. Withoutdata, additional research will not be possible. Elimination of these
expenditures for the first half of 1986-87 would save $33,000.
In total, the department's budget for birth defects monitoring is overbudgeted by $392,000. Therefore, in order to make funds available formeeting other priority need, we recommend that the Legislature reduceby $392,000 the General Fund request for expansion of the Birth Defects
Monitoring program in 1986-87.

Item 4260

HEALTH AND WELFARE / 699

Future Expansion Plans Unclear. The report on the expansion ofbirth defect monitoring provided by the depar;tment does not address theissue of continued program expansion into additional counties. Los Angeles County, for instance, is not included in the department's expansion
plans, even though the county has one-third of the state's population anda large part of the state's manufacturing industries. Since manufacturing
processes can expose workers to substances that cause birth defects, collecting birth defect information in Los Angeles County could help reducethe incidence of birth defects in the state's most populous county.
To ensure that the Legislature is adequately informed on the department's expansion plans for birth defects monitoring, we recommend thatthe department submit to the Legislature prior to budget hearings its planfor collecting birth defect information in Los Angeles and other counties
without birth defect registries.
Final Plans for Cancer Registry Not Available

We withhold recommendation on $1,015,000 requested from the General Fund for expansion of the cancer registry program, pending the receipt of the department's revised plans. We recommend the department
submit an overdue report containing detailed implementation and expenditure estimates for the revised expansion plan.
The budget proposes a General Fund augmentation of $1,015,000 inorder to expand the cancer registry program to an additional 15 counties.
The Department of Health Services currently collects data on the incidence of cancer in 18 California counties. The cancer registry is designed
to track the incidence of cancers in order to determine whether environmental factors are causing them.
Chapter 841, Statutes of 1985 (AB 136), requires the department toinitiate the expansion of the registry statewide by July 1, 1988. The department's proposal, however, does not anticipate statewide expansion of the
program. The budget, as introduced, does not reflect the passage of Chapter 841.
Chapter 841 also requires the department to submit to the Legislature
an implementation and funding report for statewide expansion of the
program by November 23,1985. The report was not completed at the time
this analysis was prepared. The department indicates that once the overdue implementation and funding report is complete, the program's needs
for 1986-87 will become clear. At that time, according to the DHS, necessary budget revisions will be proposed through the finance letter process.
Because the department is revising its proposal for expansion of thestatewide cancer registry to meet the provisions in state law, we withholdrecommendation on the $1,015,000 requested from the General Fund for
expansion of the system. We further recommend that prior to budget
hearings, the department submit the legislatively required report on implementation and funding plans for the statewide registry.
Department's Contracting Proposals Lack Justification

We recommend that the department hire state civil service employees,
instead of contracting for the Birth Defects Monitoring and Cancer Registry programs for a savings of$307,OOO from the General Fund. We further
recommend establishment of 48 civil service positions and adoption of
Budget Bill language prohibiting the department from contracting for the
expansion of these programs.
.
The budget proposes to expand the Birth Defects Monitoring and Can-700 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

cer Registry programs in 1986-87 by contracting with nonprofit agencies
for the delivery of services. In total, the budget proposes to expend$3,178,000 from the General Fund on contracts that would support approximately 48 additional positions.
Current law establishes guidelines for the types of activities that may be
performed under contracts with nons tate agencies. The general conditions under which contracting is permissible are as follows:• The services are not available within civil service.
• The services are part of a new function.
• The services are temporary or occasional in nature, and timely delivery is critical.
In addition, contracting to achieve savings is permissible under specified
circumstances.
Our review of the birth defect and cancer registry proposals indicatesthat the contracting proposal probably does not meet statutory requirements, because:• Proposed services are available within civil service. New staff will
be used primarily to collect health data and interpret the data bysearching for trends in the incidence of cancer or birth defects. The
department currently employs state staff who perform these functions. In fact, contract personnel would work side-by-side with state
civil servants of the same classification.
• Proposed services would expand on currently provided services.
The budget does not propose new programs, but additions to existing
programs. Therefore, the activities proposed to be contracted do not
represent a new state function.
• The program expansions would increase the state's permanent fulltime workload.
The expanded data collection systems areproposed as permanent additions to state responsibilities. The datacollection and analysis workload is not temporary or occasional innature.
In addition, our analysis indicates the budget does not anticipate administrative savings from contracting. The birth defect monitoring proposal estimates that contractors will charge the state an amount averaging
26 percent of total personnel and operating costs, in order to cover overhead costs. In comparision, DHS overhead costs average approximately 8
percent of program costs. Thus, the state could save approximately$307,000 per year in overhead costs by assigning state staff to operate theprogram rather than contracting for services.
In light of these additional costs, we asked the department to explain
why it believes that contracting is appropriate. The DHS advises us that
contracting would provide "increased flexibility" that would permit increased "program effectiveness." No documentation ofthese benefits wasprovided to us, however. The department also pointed out that Ch 841/85(AB 136), which requires expansion of the cancer registry, allows contracting to collect cancer data. The statute does not, however, require thedepartment to contract for such services.
Because contracting will cost significantly more than if the state employs civil servants to provide the services, we recommend that the Legislature (1) reduce the amount budgeted from the General Fund by$307,000 and (2) authorize 48 new civil service positions for the department. The reduction would not reduce the level of activity under theItem 4260

HEALTH AND WELFARE / 701

Birth Defects Monitoring and Cancer Registry programs, it simply reflects
the savings in overhead to be gained from using state staff to administerthe programs. We further recommend that the Legislature adopt Budget
Bill language prohibiting the department from contracting for the expansion of these programs. The following language is consistent with thisrecommendation:"The Department of Health Services shall not execute contracts for theoperation of any part of the Birth Defects Monitoring program· or theCancer Registry program."
Information on Vaccine Purchases Needs a Shot in the Arm

We withhold recommendation on a proposed $550,000 augmentationfrom the General Fund for the purclJase of polio vaccine pending thesubmission ofadditional information. We recommend .that tke Legislature
reduce by $98,000 General Fund support for the purchase of pneumococcal vaccine because the funds will not be needed until 1987-88.
The budget proposes a $1,504,000 General Fund augmentation for vaccine purchases in the budget year. This augmentation supports the following four initiatives:• $550,000 for polio vaccine-these funds would allow the DRS to purchase the sa.me amount of polio vaccine, in spite of anticipated priceincreases.
• $554,000 for hemophilus vaccine--.these funds would be used to purchase a newly developed vaccine that reduces the incidence of influenza in young children.
• $224,000 for pneumoccocal vaccine-these funds would be used todetermine whether significant numbers of elderly individuals can be
successfully immunized against the pneumonia virus during a twoyear trial period.
,• $1$0,000 for baby track program expansion-these funds would be
used to increase the percentage of basic immunizations to infants whoare born to teenage mothers.
Polio Ftmding Needs Uncertain. Increa~es in the cost of polio vaccine will redu.ce the afuount of vaccine the state can purchase within thecurrent funding level. In addition, the department indicates that supplementalfederal funds for vacCines rriay not be available in 1986.
Our rey,iew indicates that information on the price of polio vaccine andthe avaihibility of federal funding in 198()...;87 is not sufficient to support a
specific ahginentation at this tinie. While the federal govenment indicatesthat vaccine prices will increase in the budget year, the specific price will
not be established until March 1986. Once the price is known, the department can calculate its funding needs more accurately.
In addition, supplemental federal funds may be forthcoming during1986. In the past, the federal government awarded the state approximately$600,000 in supplemental funding for vaccine purchase, which allow~d thestate to stockpile vaccine for the following fiscal year. Although the department does not expect the federal government to distribute supplemental vaccine grants this. spring, more information will be available to
the Legislature by the time of budget hearings.
Accordingly, we withhold recommend;:ttion on the $550,000 GeneralFund augmentation for polio vaccine pending the receipt of updated
information on.~lhe cost of polio vaccine and the availability of federal
funding for vaccine purchase.

702 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

Pneumococcal Trial Needs One-Year Funding. The budget proposes
a $244,000 augmentation from the General Fund for the support of a
two-year trial program to determine whether a newly developed antipneumonia vaccine can be delivered to a significant number of high-riskelderly individuals. At the end of the two-year period, the department
plans to determine whether the program successfully reached the target
group in significant numbers. During the first year of the trial, the department hopes to reach up to 15 percent of the target group; during thesecond year, it hopes to reach an additional 10 percent.
Our review indicates that the 1986-87 budget requests funding for both
years of the project. This would give the DHS sufficient funds to meetlarger than anticipated demand during the first year of the trial.
We recommend that funds for the second year of the two-year program
be provided in next year's budget. As proposed, the budget essentially isseeking contingency funding. Funds for contingencies statewide are already budgeted in another item. Thus, these funds are not warranted inthis item. For this reason, we recommend reduction of $98,000 from theGeneral Fund proposed for the support of the two-year pneumococcal
vaccine trial, making this amount available to fund other legislative priorities.
Marine Pollution Study Awash in Funds

We recommend that the Legislature adopt Budget Bill language reverting to the Federal Trust Fund $276,000 in federal Outer Continental Shelf
Lands Act funds not needed for a study of marine pollution in Santa.
Monica Bay.
The budget proposes to spend $650,000 in 1986-87 to continue a studyof fish contamination in the Santa Monica Bay and Long Beach Harbor.
Chapter 1440, Statutes of 1985 (AB 1024), appropriated $1.3 million infederal Outer Continental Shelf Lands Act funds to support a one-time
study of marine pollution and related health risks associated with eating
contaminated fish. The budget proposes to spend half of this amount$650,000-in 1985-86 and the other half in 1986-87.
The study is intended to shed light on how pollution affects fish in the
Santa Monica Bay/Los Angeles-Long Beach Harbor. The study will measure the levels. of contaminants in fish during different seasons of the year
and will investigate the health effects ona small group of individuals who
frequently eat fish that are caught in polluted waters.
Our review of the department's proposal indicates that the estimatedcost of the study is $1,024,000, or $276,000 less than what is proposed in thebudget. The department advises that $276,000 may be used to support anunknown number of additional marine studies in other areas of the state.
At the time this analysis was written, however, the department had notcommitted these funds to .any specific use.
Since the department has no specific plans to use these funds, the Legislature should revert them.
The Outer Continental Shelf Land Act funds are different than mostfederal funds, because they can be used to support almost any state expenditure, By reverting these uncommitted funds to the Federal TrustFund on July 1, 1986, the Legislature can increase the arn9unt available tosupport its priorities. To accomplish this, we recomm~nd adoption of
Budget Bill language, as follows:.

Item 4260

HEALTH AND WELFARE / 703"The Department of Finance shall, on July 1, 1986, revert to the Federal
Trust Fund $276,000 from the federal Outer Continental Shelf Land Act
funds appropriated to the department by Chapter 1440, Statutes of
1985."
Dental Program to Sunset

We recommend a General Fund reduction of $804,000 to reflect thetermination of the Children '8 Dental Disease Prevention program on December 31, 1 9 8 6 . .
.
The budget proposes $1.6 million from the General Fund for the supportof the Children's Dental Disease Prevention program during the budget
year. This program provides dental education and prevention services tochildren from kindergarten through sixth grade. Current law sunsets the
program on December 31, 1986.
.
Unless legislation is passed to extend the program, the department will
not require funding for the second half of 1986-87. (Senate Bill 111 (Carpenter) would extend the life of the program and expand the scope ofservices.) Such legislation would provide the appropriate vehicle for determining the program's funding requirements in the second half of 198687.
Accordingly,and without prejudice to the program, we recommendthat the Legislature delete $804,000 requested from the General Fund anddefer action on continued funding until it considers legislation extending
the program.
Pesticide Residue Report Due

We recommend that prior to budget hearings, the department submit its
proposal for testing processed foods for chemical and pesticide residues.
We further recommend that detailed budget and implementation
schedules accompany its proposed plan.
Chapter 1243, Statutes of 1984 (AB 2277), required the Department of
Health Services to report to the Legislature by September 1, 1985, on its
program for monitoring processed foods for chemical and pesticide residues. At the time this analysis was prepared, the report had not been
submitted to the Legislature. In additioIl, the budget does not include
funds for the department to monitor pesticide and chemical residues.
According to the DRS, the report would be available in February 1986.
To assure that the Legislature has the information it needs to act on thismatter, we recommend that the department include in its report detailed
budget and implementation schedules.
Additional Staff for Certification of Hazardous Waste Labs Not Needed

We recommend that the Legislature delete four proposed new laboratory positions and $194,000 from the HWCA because additional staffing
will not be needed to inspect private hazardous waste laboratories.
The budget proposes to augment the Laboratory Division's budget by$194,000 from the Hazardous Waste Control Account (RWCA) to provide
staff needed to certify that private laboratories are competent to test
hazardous wastes. With limited exceptions, state hazardous waste law
requires that only certified laboratories analyze hazardous materials. The
statute also requires reassessment of laboratories every two years. According to the department, 150 laboratories have expressed an interest incertification. In order to certify 150 labs in one year, the department
estimates that it needs four additional chemists.

Item 4260

704 / HEALTH AND WELFARE
DEPARTMENT OF HEALTH Si:RVICES-Continued

New Staff Not Needed. Our review indicates that the department
will not need additional staff in the budget year, for two reasons. First, thestate laboratory already devotes two full-time chemists to the certification
program. Accordi~g to the department's workload material, these two
chemists could certify 50 laboratories during 1985-86. Second, only 65
laboratories-not 150-have actually applied for certification as ofJanuary
1, 1986. Therefore, if current staff certify 50 of the 65 existing applications
during 1985-86, only 15 certifications would remain to be completed in thebudget year. Based on the department's own worklo~d statistics, the two
existing positions could easily certify the remaining 15 laboratories, plus
a large number of additional laboratories that might apply for certificationin the last half of 1985-86 and 1986-87.
.
Because additional staff are not justified by the state laboratory's projected certification· workload, we recommend deletion of the four
proposed new positions and $194,000 from the HWCA.
4. TOXIC SUI$STANCES CONTROLA. OVERVIEWThe Toxic Substances Control Division (TSCD) administers programs
that regulate hazardous waste management, clean up sites that have been
contaminated by toxic substances, and encourage the development oftreatment and disposal facilities as alternatives to waste disposal onto land.
Budget Request
Table 19
Department of Health Services
Toxic Substances Control Division
ExpenditurEls and Funding Sources
1984--85 thrqugh 1986-87(doll<Jrs in thousands)

ActualErpellditures
1984-.'J5
Support ............................................................. . $35,034
Special projects ............................................... .
19,2&1
Totals ............................................................. . $54,3l5
FUlldillg sources
General Fund ................................................. .
Hazardous Substances
Cleanup Fund ............................................. .
Hazilrdous Waste Control
Account .............................................,............
$8,800
Hazardous SubstanceAccount..........................................................
14,026
Hazardous Substance Operations and. Maintenance Account ................................
647
Hazardous Waste Injection
Well Account ............................................... .
Federal Trust Fund ........................................
30,842Est.
1985-86$143,945
39,794$183,739

Prop.
1986-87$40,401
32,605$73,006$15,000 "Challge
1986-870\'er
1985-86
Amollllt
Percellt-$103,544-71.9%-7,189-18.1-$110,733-60.3%-$15,000-100.0%91,985 h$3,986-87,999-95.7

4,136 ,.

18,255

14,119341.4

16,71914,036 d-2,683

-16.0

1,325

55

-1,270-95.8

54,574120
36,554120-18,020

100.0
-33.0

" One-time statutory appropriation to clean up Stringfellow site.
h Increase re/lects appropriation of one-time bond act funds.
,. Decrease re/lects one-time availability of federal Outer Continental Shelf Land Act funds.
d Decrease primarily re/lects decrease; in responsibility party collections.

Item 4260

HEALTH AND WELFARE / 705

The budget proposes expenditures of $73,006,000 (all funds) for the
toxics division in 1986-87, including expenditures for program support andspecial projects. This is a decrease of $1l0,733,000, or 60 percent, below
estimated current-year expenditures. The decrease primarily reflects a
one-time appropriation of bond act funding in the current year that istargeted for site characterization and cleanup costs which will continue
into the budget year. These funds were appropriated by Chapter 1439,.statutes of 1985 (AB 129) and, therefore, need not be reappropriated in
the budget.
The budget proposes a total of 425 positions for the division in 1986-87,
which is an increase of 88.5 positions above the 1985-86 authorized staffing
level. This increase reflects the budget's request for 93.5 new positions for
permitting and inspecting hazardous waste facilities and other activities
minus 5 positions that were administratively authorized in the current
year to implement legislative initiatives.
Table 19 displays the expenditures and funding sources for the toxics
division in the prior, current, and budget years.
Table 20 displays the changes proposed in the toxics division support
budget for 1986-87. The net reduction of $103.5 million results from large
one-time appropriations in the current year that are partially offset byincreases proposed for 1986-87. As Table 20 illustrates, the two largest
one-time appropriations made in 1985-86 were (1) $87.8 million in cleanup funds from the November 1984 $100 million bond act and (2) $15.0
million for cleanup of the Stringfellow hazardous waste site.
The increases proposed for the budget year provide for implementationof legislative initiatives, as well as departmental proposals to strengthen
the division's existing programs. Major legislation that is addressed in the
1986-87 budget includes:• Abandoned Site Survey. The budget requests $313,000 from theGeneral Fund to continue searching for additional toxic waste, primarily in industrial facilities that are no longer used.
• Waste Reduction. Chapter 1030, Statutes of 1985, enacted a waste
reduction demonstration program designed to find ways of encouraging business to generate less wastes. The budget proposes $1,000,000
from the Hazardous Waste Control Account (HWCA) to continue thisprogram in 1986-87.
In addition to new legislation, the DHS proposes to augment its budget
in the following ways:• Permitting and Enforcement Staff Increase. The budget proposes
an augmentation of $2,848,000 from the HWCA to fund 84.5 positions
for permitting and inspecting of hazardous waste storage and disposal
facilities in 1986-87.
• Emergency Response Staff Augmentation. The budget proposes
an augmentation of $55,000 from the HWCA and 2 positions to increase the department's ability to respond to emergency spills of toxic
wastes.

Item 4260

706 / HEALTH AND WELFARE
DEPARTMENT OF HEALTH SERVICES-Continued
Table 20
Department of Health Services
Toxic Substances Control Division
Proposed Support Budget Changes(dollars in thousands)

Amollnt$143,945

FUlld"
Various668-1,270

Various
Various-756
80

Various
Various-87,791-15,000-1,265HSCF
GeneralVarious-10,000
10,000-782-2,924923-$108,117

Federal
HWCA
HSCF
HSA

$176
651
2,197
50

5.0
-1.0
93.5

55
1,000
120
313

HWCA
HWCA
HWCA
HWCA
HWCA
HWCA
HWCA
HWIWA
HWCA

$4,573

Various1986-87 expenditures (proposed) ...... ,........................................ .

425.0$40,401

Vurious

Change from 1985-86
Amount ..................................................................................... .
Percent ....................................................................................... .

88.5
26.3%

-$103,544-71.9%

1985-86 expenditures (Budget Act) ............................................
Baseline Adjustments:
1. Salary increases ..................................................................... .
2. Workload adjustments ...................................... :................ .
3. Elimination of one-time
expenditures ..................................................................... .
4. Increase in department overhead ................................... .
5. Elimination of statutory
appropriations
a. Hazardous waste bond act
site cleanup support ................................................... .
b. Stringfellow matching funds ..................................... .
c. Other statutory appropriations ..................................
6. Administratively establishedpositions ..............................................................................
7. Federal funding reduction ............................................... .
8. Deletion of "expenditure reduction" ............................. .
9. Reduction in available bond act support... .................... .
10. Reduction in responsible party support... ...................... .
11. Unexplained adjustments ................................................. .
Total adjustments ........................................................... .
Program change proposals:
1. Decision tree automation ................................................... .
2. Increase RCRA inspection staff ....................................... .
3. Increase RCRA permit staff ...................... ,...................... .
4. Staff recruitment contract ................................................ .
5. Increase in temporary help ............................................... .
6. Hauler registration ............................................................. .
7. Disposal technology grants ............................................... .
8. Regulation of injection wells ............................................. .
9. Abandoned site search ....................................................... .
10. Reduction in supervision ................................................... .
Subtotals ............................................................................. .

Positions
336.5

-3.0
-2.0

-5.0
20.0
64.5

11

2.0
3.0

Vuriousa HSCF-Hazardous Substance Cleanup Fund

HWCA-Hazardous Waste Control Account, General FundIIWIWA-Hazardous Waste Injection Well Account, General Fund
HSA-Hazardous Substance Account, General FundTable 20 shows two adjustments that require additional comment. First,
it shows $10 million being added in the budget year from the HWCA inorder to offset an "expenditure reduction" during 1985-86. According to
the department, this expenditure reduction was caused by a $10 million
statutory appropriation to the account made by Ch 1440/85 (AB 1024). For
some reason, these funds reduced current-year appropriations, rather
than increased revenues to the account as one would expect to be the case.
The department could not explain why the additional funds had the effectItem 4260

HEALTH AND WELFARE / 707

of reducing HWCA expenditures. As a result, however, the budget shows
the department spending - $8.9 million on site mitigation from the
HWCA in 1985-86.
Second, we have included an entry in the table entitled "unexplained
adjustments." This entry reflects our inability to balance the division'sbudget with information made available by the department. We plan towork with the department to resolve this confusion.
B. THE BOND PROGRAM

With the passage ofCh 1439/85 (AB 129), the Legislature authorized thedepartment to spend $87.8 million in voter-approved bond funds·to clean
up hazardous waste sites. Under the act, the department can use funds tocharacterize sites (that is, to determine the type and extent of contamination) and mitigate (clean up) the contamination once a remedial action
plan for that site is developed and approved. In this section, we discuss
three significant policy issues involving the cleanup program. (For a further discussion of the mitigation program, please see The 1986-87 Budget:

Perspectives and Issues, Part III. )State Gives Up Responsibility for Sites on the National Priority List

We recommend that prior to budget hearings, the Department of
Health Services advise the Legislature of (1) the Environmental Protection Agency's schedule for mitigating sites in California that currently areon the national priority list and (2) the DHS plans for turning over to thefederal government responsibility for mitigation activities at sites in California that are on the national cleanup priority list.
The department expects the federal Superfund program to support thecleanup of 53 hazardous waste sites in California. Under the program, thestate can elect to take administrative responsibility for the cleanup of one
or more sites on the federal list. When the state takes the lead at federal
sites, the federal role is reduced to monitoring the state's progress. Should
the state turn down the opportunity to take the lead at any federal site,
the federal government assumes responsibility for the site, and the state
adopts a monitoring role.
New Policy on Federal Sites. Until recently, the state assumed responsibility for cleanup of federal sites in California~ Generally, sites on thefederal list were treated in the same way as sites on the state list. The
source of funding for cleanup activities was the primary difference
between federal and state sites.
The department recently revised its policy toward federal sites, as follows:• The state will not take the lead at any more federal sites .
• The state gradually will return administrative responsibility to thefederal government at those sites where the state currently has thelead. According to the department, this responsibility will be returned to federal government as soon as the current phase of mitigation activities at each site are completed.
The department states that the new policy is designed to maximize theuse of state personnel. The DHS will redirect state staff currently working
on federal sites to activities at state sites. In addition, the department
hopes that the federal government will increase staff working on federal
sites to offset the loss of state staff. The department believes that thischange would maximize total manpower-both federal and state-working on site remediation in California.

708 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

We have two concerns with this new policy. First, by foregoing the leadrole, the state loses control over cleanup schedules. Instead of the DHS
determining cleanup schedules, the federal Environmental Protection
Agency (EPA) will establish the pace of cleanup activities. The DHS could
not advise us when the federal government plans to begin cleanup actions
at most sites. As a result, remedial action at federal sites could be delayed.
Second, removing state staff who currently work on federal sites also
could delay progress at these sites. Due to the complexity of some cleanup
operations, state staff have administered cleanup actions at some federal
sites for a number of years. In the process, these staff have accumulated
expertise in the site mitigation area generally and in the problem thatexists at specific sites. While the federal government can hire experts tocontinue cleanup activities at federal sites, it cannot hire individuals possessing the same site expertise as current state staff. As a result, unless the
DHS carefully plans the transition, the change in policy could seriously
impede future progress at federal sites.
So that the Legislature will be informed of the federal government's
plans to clean up federal sites in California and to insure a smooth transition from the state to federal leadership, we recommend that prior tobudget hearings, the department advise the Legislature regarding (1) the
EPA's planned schedule for mitigating sites in California currently on thenational priority list and (2) the department's plans for turning over to thefederal government responsibility for mitigation activities at sites in California that are on the national cleanup priority list.
Department Fails to Notify Legislature of Changing Site Responsibility

The 1985 Budget Act requires the department to notify the Legislature
whenever a change occurs in lead responsibility for cleanup at a particularsite. According to the DHS, lead responsibility for three state sites has
been transferred to the federal government during the current year. The
Legislature, however, was not informed of this change or the reasons forit. The department should be prepared to explain during budget hearings
why it failed to notify the Legislature.
Responsible-Party Relieved of Fiscal Responsibility

We recommend that the Legislature adopt legislation reversing the department's policy of exempting responsible parties from further liability
at sites that are cleaned up to the levels established by the department. We
further recommend that this legislation require the department to inform
responsible parties that financial liability for remediating hazardous waste
sites does not necessarily end with the successful completion of a cleanup
project which is based on current health-impact data.
Current departmental policy exempts responsible parties from continuing liability for site contamination upon the successful completion of an
approved mitigation plan. The department indicates that since the DHS
sets site cleanup levels, it is only fair to free responsible parties that haveexecuted cleanup agreements from further liability. The policy also encourages responsible parties to pay for site cleanup as a way of limiting
future liability for a hazardous waste release.
The department's policy, however, may transfer future cleanup liability
to the state if it is determined that current cleanup levels do not adequately protect public health. Recognizing this, the federal Superfund program
does not limit responsible-party liability.

Item 4260

HEALTH AND WELFARE / 709

The size of any secondary cleanup liability resulting from the department's policy will depend on (1) whether current cleanup standards turnout to be adequate as additional research regarding the effects of toxic
chemicals becomes available and (2) whether the department actually
can limit responsible-party liability. Most scientists agree that the abilityof science to accurately assess the health risk posed by toxic chemicals is,at best, poor. Indeed, at a recent conference examining the use of risk
assessment in setting cleanup levels, one scientist voiced the general feeling at the conference when he asked, "Considering the great amount of
uncertainty in the process, and its potential for huge error, is it justifiable
to use risk assessment at all?"Given the limited ability of science to assess health risks caused by toxic
chemicals, the department's policy may result in a significant future financialliability to the state.
It is not clear how the department intends to apply its liability exemption. Current cleanup agreements negotiated with responsible parties do
not coritain language either exempting firms or explicitly recognizing
state liability for secondary cleanup. Lack of explicit contractual language
may be interpreted by some firms as an implicit forgiveness of future
liability. Even if the DRS policy is not legally enforceable, responsible
parties would be able to argue that the department's policy misled theminto believing that cooperating with the state would terminate their longterm liability. Under those circllmstances, the Legislature may feel boundto honor the department's policy commitments.
Thus, the department's policy may result in substantial future state
outlays even if the commitments made to responsible parties are notbinding.
.
Because of our knowledge concerning the health effects of most chemicals is limited, the state is taking a large risk in assuming liability forpotential secondary cleanup costs. To avoid this risk, we recommend that
the Legislature adopt legislation reversing the department's policy of
exempting responsible parties from liability at sites that have beencleaned up to the levels established by the department. We further recommend that legislation require the department to include as part of each
responsible party cooperative agreement an enforceable provision statingthat financial liability for remediating hazardous waste sites does not necessarily end with the successful completion of a cleanup project that isbased on current health-impact data.
Alternatives.0Land Disposal Needed

We recommend that, prior to· budget hearings, the Department of
Health Services submit to the Legislature its plan for stimulating thedevelopment of waste disposal techniques that could reduce the need forlanel disposal capacity in the state.
Land disposal-constitutes the primary way of storing society's mosthazardous materials. The land disposal concept is simple-dig a hole andbury the toxic substance, or if the material comes in liquid form, let theliquid wastes evaporate so that only the solids remain in the land.
The future of land disposal for extremely toxic materials is, at best,
uncertain. Federal law banned land disposal of specified types of liquid
wastes' as of May 1985, for example. In addition, the number of landfills
operating in the state has declined dramatically in recent years. Currently,
only two landfills-both located in the northern part of the state-accept
all types of wastes without restriction.
.

710 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

Of the three landfills located in the southern half of the state thatrecently accepted extremely hazardous wastes, one is permanently closed
to hazardous wastes, one is restricted to accepting solid hazardous wastes,
and the third site is accepting limited amounts of all types of hazardous
wastes. As a result of these restrictions on landfill operations in southern
California, large amounts of wastes must be. transported to landfill sites innorthern California or to other states.
Soon there may be no hazardous waste landfills in California to accept
any type of extremely hazardous materials. According to the department,
the remaining landfills that accept all types of hazardous wastes may close
down within the next few years because of (1) leaking that allows theescape of hazardous substances into the environment or (2) public pressure. Indeed, the Legislature expressed its concern regarding land disposal for hazardous wastes in SB 470 (Roberti). The bill, which was vetoedby the Governor, would have prohibited disposal of hazardous wastes byspecified land disposal methods after January 1, 1989.
The availability of adequate disposal capacity is crucial to the state's
cleanup of hazardous waste sites. One of the planned ways to clean up sites
requires the removal of contaminated dirt to an appropriate landfill. If nolandfill capacity exists within the state, however, the success of that strategy depends on either (1) shipping the dirt to a disposal site in anotherstate, (2) treating the dirt so that it could be disposed as nonhazardous
waste, or (3) using alternate disposal or recycling techniques.
The toxics division's alternative technology efforts are not concentrating on alternative disposal techniques. Instead, the division's resources arefocused on reducing the generation of hazardous wastes at the source andrecycling waste for reuse. While efforts to reduce the generation of waste
are extremely important, the need for future disposal methods cannot beignored. In fact, our ability to remediate hazardous waste releases may
depend on the availability of currently unknown or untested disposal ortreatment technology.
Because adequate disposal capacity is so important to business as wellas to the state's hazardous waste cleanup program, we recommend thatprior to budget hearings, the department inform the Legislature of its planfor stimulating the development of waste disposal techniques so that future reliance on land disposal can be minimized.
C. HAZARDOUS WASTE MANAGEMENTState's Permitting Effectiveness Is Under Scrutiny

We recommend that prior to budget hearings, the department preparea report for the Legislature which (1) outlines the federal government's
preliminary assessment of the state's performance, (2) indicates whether
the federal EPA needs more time to evaluate the state's performance in
specific areas, and (3) estimates when the federal government will grant
the state final administrative authority under the federal Resource Conservation and Recovery Act.
The Toxic Substance Control Division administers the federal Resource
Conservation and Recovery Act (RCRA) program to monitor the treatment, storage, transportation, and disposal of hazardous wastes. Under the
RCRA, the department inspects and licenses facilities handling hazardous
wastes in order to insure that contaminants do not escape into the environment. In addition, the DRS tracks the transportation and disposal ofItem 4260

HEALTH AND WELFARE / 711

wastes using a "cradle to grave" manifest system,
The federal government granted California interim authority to administer portions of RCRA law in 1981 and 1983. Authority was not granted,
however, to issue permits to facilities that dispose hazardous wastes onland. Underfederallaw, the state can assume responsibility for administering the entire RCRA program once the federal EPA certifies the state.
The EPA does not automatically certify states. State application to the
EPA for full RCRA authority initiates an evaluation process that takes six
months or more to complete. To receive final authority, the EPA requires
the department to demonstrate that (1) state hazardous substance control
laws are at least as stringent as federal law and (2) state agencies possess
the capability to adequately enforce RCRA statutes. Federal law requires
states to receive final authority approval by January 31,1986. If a state does
not receive final authorization, its interim authority is rescinded by the
EPA.
California Did Not Meet the Federal Deadline. California applied
for final RCRA authority on November 7,1985. Because the certification
process takes at least six months, the state will not receive EPA certification until after the January 31,1986, deadline. As a result, the EPA will be
required to assume administration of RCRA in California. Once the state
receives final authority, the DHS will again act as the lead agency inadministering the law.
In the short run, neither the EPA nor the DHS expects the loss of RCRA
administrative authority to change current operating procedures significantly. Clearly, some changes may occur. Legally, for instance, the DHS
may not be able. to formally issue RCRA waste treatment or disposal
permits. The EPA advises, however, that so long as the state continues
working to achieve certification, state hazardous waste control activitiessuch as inspections and permit reviews-,-will be accepted by the federal
government for the purposes of the RCRA program. .
If the state has not received final administrative authority by June 30,
1986, additional changes may occur. At that time, the EPA could assume
administration of the entire RCRA program in the state. This would mean
the loss of $3.9 million in federal RCRA funds. Under federal administration, the EPA would permit and inspect programs and control the manifest system that tracks the handling of wastes. In addition, to the extent
that state waste control law is more stringent than federal law, the DHS
would be required to set up and administer state-only permitting andinspection programs.
Results of Capability Assessment Due Soon. Neither the state nor
the federal government wants the EPA to permanently rescind the state's
RCRA administrative authority. According to the EPA, however, the statemust demonstrate that its program meets federal standards before thestate will be certified.
A key element in obtaining certification will be convincing the EPA thatthe state is able to adequately administer and enforce the law. A performance test-known as the capability assessment action plan-has been designed to measure the state's administrative capacity.
Preliminary results of the capability assessment should be available
soon. The assessment period covered the first half ofthe state fiscal yearJuly 1 through December 31, 1985. According to the EPA, a preliminary
assessment probably will be made available in mid-March; the final decision on the state's capability will be rendered in June. The agency advisesthat these dates may slip if the state does not meet its assessment goals and------ - - - - -Item 4260

712 / HEALTH AND WELFARE
D~PARTMENT OF HEALTH SERVICES-Continued

an additional assessment period is needed.
RCRA Capability Assessment Status. According to the EPA, evaluating the assessment data involves a two-step process. First, the agency
determines whether the state agencies met the agreed-upon performancegoals. For example, did the department inspeet ~t least 35 major hazardous
waste facilities? Seconq, the EPA evaluates the'quality of the state's performance by determining how thoroughly state inspections reviewed
each facility's hazardous waste ~ontrol procedures. At the time this analysis was written, EPA had not reviewed the state's data for either quality
or quantity.
"
The department did provide us with its own assessment of its performance during the assessment period. Table ~l displays EP1\ performancetargets and the state's actual performance during the capability assessment period. As the table indiCates, the state generally met or exceeded
its performance targets. The state was successful in meeting its targets forrecord reviews, for example.
.
" "During a record review, the DRS checks a facility's on~site documents
to ensure that required information is available and up-to-date. Except forreviewing groundwater monitoring reports, the dep~rtment exceeded its
EPA performance target for record reviews. (Groundwater reports wererio~ due to the EPA at the time this analysis was written.) The state
reviewed 36 closure plans, instead of the required 35, and 62 financial
assurance plans of smaller facilities, inst~ad of the required 50. The statealso exceeded performance targets for permitting of land disposal sites.
Eight land disposal permit applications were reviewed for completenessto ensure that all required information was supmitted and that facility
operations were in accordance with statute. The EPA required only 7. The
capability plan called for the department to reyiew 4 closure plans forcompleteness, and the state actually reviewed 7.
..
Tllble 21
Depllrtment of Heliith Service!!
RCRA Permitting lind Enforcement Progrllm
Stllte Performllnce During Cllpllbility Assessment
Perfonwmce :\lei/sure

EPA T<lrget

Record reviews
Closure plans............................................................................................................
Financial assurance plan reviews
Major Facilities ....................................................................................................
Other facilities ....................................................................................................
Groundwater monitoring reports ......................................................................
Permitting land disposal facilities
Completeness reviews ..........................................................................................
Closure plan completeness reviews ..................................................................
Inspections. Major facility inspections ......................................................................................
Groundwater monitoring at major facilities ....................................................
Federal. disposal facility inspections ..................................................................
Enforcement
Enforcement action pursuant to statewater board inspection report ........................................................................
:'Iiumber of enforcement actions taken
within 75 days of inspection ............................................................................
"Data not complete.
Souree: Department of Health Services.

Actu<li St<lte
Perfonwmce

35

36

30
50
35

32
62
22"

7
4

8
7

35
10
19

46
15
5
2

Item 4260

HEALTH AND WELFARE / 713

In the inspection and enforcement areas, the state experienced moredifficulty in meeting EPA performance targets. The 46 major facility inspections-inspections that require groundwater monitoring-far outstripped the EPA target of 35. Inspections of groundwater monitoring andfederal disposal facilities, however, fell short of the assessment goals (although state activity data covering groundwater monitoring were notcomplete). The state's enforcement record during this time also was
mixed. While the state conducted five enforcement actions based on statewater board inspections, only two of those actions fell within the required
75-day period.
The Department of Health Services believes that the state successfully
demonstrated its ability to administer the federal RCRA program during
the capability assessment. The department also indicated that in light ofthe state's performance, even if the state does not meet all performancetargets, the deficiencies would not be sufficient for the EPA to deny thestate final RCRA authority. More information on the outlook for certification should be available during budget hearings since the federal government is expected to evaluate the state's performance and issue its
preliminary assessment in March.
To keep the Legislature informed on the state's RCRA status, we recommend that the department submit prior to budget hearings, a report that(1) outlines the federal government's preliminary assessment of thestate's performance, (2) indicates whether the EPA will require an additional assessment period to further evaluate the state's performance in
specific areas, and (3) estimates when the federal government will grant
the state final RCRA authority.
Permitting and Inspection Workload Is Not Clearly Defined

We withhold recommendation on the requests for $3.7 million from theHazardous Waste Control Account and 96.3 positions, pending the receipt
of a plan, jointly developed by the department and the State Water Resources Control Board, that outline agency responsibilities, workload, andimplementation timelines for permitting and inspecting of current unregulated hazardous waste disposal pits. We further recommend that the
department account for all of the permitting and inspection positions
authorized by prior budgets when it submits its plan.
The Department of Health Services proposes to add $3.7 million fromthe Hazardous Waste Control Account (HWCA) and 96.3 positions inorder to increase RCRA permitting, inspection, and enforcement activities. This additional support would be divided between the toxics division($2.8 million and 84.5 positions) and the Division of Laboratories ($850,000
and 11.8 positions).
According to the department, 1,300 unregulated hazardous waste disposal facilities were discovered by the State Water Resources Control
Board as a result of a state-mandated notification process initiated in 1984.
These facilities require permits under federal RCRA law and the state
Toxic Pits Cleanup Act enacted by Chapter 1543, Statutes of 1984 (AB3566). The federal statutes are administered in the state by the DHS andthe state water board. Under the state toxic pits program, only the water
board is required to regulate the operation of hazardous waste disposal
ponds. To carry out its responsibilities under the RCRA at the newly

Item 4260

714 / HEALTH AND WELFARE
DEPARTMENT OF HEALTH SERVICES-Continued

discovered 1,300 sites, the DRS is requesting additional staff to permit,
inspect, and enforce hazardous waste control statutes.
Table 22 displays the department's request for additional staff. The
department's proposal for additional staff resources is composed of two
separate requests. First, the department seeks an additional 71.4 positions
and $2,590,000 from the RWCA to increase its permitting capabilities. Of
this amount, 6.9 positions and $393,000 would provide for additional support from the Division of Laboratories for chemical analysis of samples
taken as part of the permitting process. The remaining 64.5 toxies division
positions and $2,590,000 would support processing of operating permit
applications and activities ensuring that site operations conform with stateand federal hazardous waste control laws.
Table 22
Department of Health Services
Proposed Augmentations to the Permitting.
Inspection. and Enforcement Program. 1986-87(dollars in thousands)..J.ctil"it}"Dilision ofLabon/tories
Dollars Positions

Toxic
Substance
ControlDil'ision
Dolhlrs
Positions

Total
Dollars
Positions$2,59071.4

Permitting ....................................
Enforcement andinspections ................................

$393

6.9

$2,197

457

20.0

1,108

24.9

$850

4.9
ll.8

651

Totals ..................................

$2,84884.5$3,69896.3

64.5

Second, the DRS requests 24.9 positions and $1.1 million from the
RWCA in staffing and operating expenses for additional workload associated with inspection and enforcement activities in connection withthe 1,300 unregulated facilities. Of this amount, $457,000 and 4.9 positions
are requested for the Division of Laboratories to supply needed laboratory
analysis of samples taken during inspection and enforcement activities.
The remaining 20 positions and $651,000 would support increased toxics
division staffing levels for these activities.
The additional toxics division staff would greatly expand current manpower dedicated to implementing RCRA law in the state. The addition of
64.5 positions in the permitting area would balloon the department's staffing levels from 70.2 positions to 134.7, an increase of 92 percent. By adding
20 positions to the department's inspection and enforcement capabilities,
the budget would increase its staff from 82 to 102 positions-a 24 percent
augmentation.
Staffing Estimates Need Additional Refinements. After reviewing
the department's proposals for additional RCRA staff, we are convinced
it needs additional manpower. Nevertheless, the DRS requests need additional refinement before the Legislature can determine the specific number of dollars and positions needed. We reach this conclusion for thefollowing reasons:• Adequate Workload Data Are Not Yet Available. The water
board also plans to request additional resources to carry out its duties
under the toxie pits program. According to the budget, however,adequate workload data were not available to permit the water board

Item 4260

HEALTH AND WELFARE / 715

to include a specific proposal for additional staff as part of its 1986-87
budget. According to the DRS, its staffing requests were based on
educated guesses of the workload required by the additional facilities.
The water board is the agency currently reviewing data on the 1,300
unregulated facilities to determine workload requirements. Morereliable staffing estimates would be produced if both the DRS andwater board proposals are based on the most recent water board
workload estimates .
• Potential Duplication Between the DHS and the Water Board.
The state toxic pits program assigns responsibility for regulating thewaste disposal ponds to the water board. Under RCRA, however, the
DHS maintains responsibility for regulating hazardous waste disposal
ponds. We are concerned that the differences between state andfederal law may result in the two agencies duplicating certain activities. From our discussions with the two agencies, it appears that bothare planning to regulate the hazardous waste ponds. In addition, eventhough the water board is charged with determining which facilities
are disposing hazardous materials (which would make a facility subject to both state and federal control laws) , the DRS plans to visit all
1,300 sites to ensure that each facility is not subject to regulation under
RCRA. Because of the potential for duplication, we believe the water
board and the DHS should jointly develop plans for ensuring that the
1,300 facilities are appropriately permitted and inspected under stateand federal hazardous waste control statutes .
• The DHS Cannot Track Current Permitting and Inspection Staff.
In its 1985-86 annual plan, the department indicates that 57.6 positions
currently are funded to conduct RCRA permitting. This plan also
indicates that 63.5 staff members are involved in RCRA inspectionand enforcement activities. Previous budgets indicates, however, thatdepartmental staffing totals 70.2 positions in permitting and 82 positions in enforcement. In total, the department's plan does not accountfor 31.1 positions that originally were added to the budget in supportof permitting and enforcement activities. The department could notindicate where the remaining positions were assigned and why they
were not performing the functions for which they were approved.
The department should account for these 31 positions so that theLegislature can understand how additional inspection and enforcement staff will affect the state's program capabilities in these areas .
• Budget Request Does Not Match Assumption Regarding Implementation. The DHS proposal assumes a 9 percent salary savings rate
for the new RCRA positions. The 9 percent salary savings rate assumes
that the new positions will remain vacant for only one month during
the fiscal year. The proposed implementation schedule for these positions, however, estimates that all new positions will be filled by October 1986. Thus, on average, the estimated salary savings rate does notmatch the department's implementation schedule. Similarly, thebudget proposes that new lab staff would be funded for 11 months
during 1986-87. Yet, the department's implementation schedule
shows that permitting and inspection staff would not be generating
samples for the laboratories until spring of 1987. As a result, additional
laboratory staff would have no work to complete until that time. Thus,
it appears to us that laboratory staff should be phased in, which would
result in additional savings during the budget year.
For the reasons discussed above, we are unable to make specific recom-

716 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

mendations to the Legislature concerning the toxics division's proposals.
In order to full understand the department's staffing needs for permitting
and inspection activity connected with the 1,300 unregulated facilities, theLegislature needs to understand which activities the DHS would be responsible for and which activities the water board would conduct. In
addition, we would expect that staffing requests made by the two agencies
would be generated using the same workload assumptions regarding thenumber of facilities needing permits, the number of facilities undergoing
formal closure, etc. We believe that a jointly developed plan to regulate
the 1,300 facilities under state and federal law would provide the Legislature with a comprehensive picture of the state's implementation plan aswell as the staff levels needed to accomplish that plan.
Therefore, we withhold recommendation on the request for $3.7 million
and 96.3 positions, pending the receipt of a revised proposal based on aplan, jointly developed by the department and the State Water Resources
Control Board, to regulate the additional facilities. We further recommend that the department account for all the permitting and inspection
positions authorized by prior budgets when it submits its plan.
D. CURRENT-YEAR FISCAL ISSUES
Current-year Fee Collections Fall Far Short of Program Needs

We recommend that, prior to budget hearings, the department report tothe fiscal committees (1) the effective date of emergency regulations that
increased Hazardous Waste Control Account (HWCA) fees and (2) arevised estimate of HWCA revenues during 1985-86.
The Hazardous Waste Control Account (HWCA), which is supported
by fees paid by hazardous waste generators, funds the state's hazardous
waste management programs. The budget estimates that current-year
HWCA expenditures will reach $18.2 million. Of this amount, the toxics
division anticipates spending $16.7 million for personnel and operating
expenses connected with permitting and inspecting facilities that handle,transport, or dispose hazardous wastes. Because of the importance of theseregulatory activities, it is essential that the HWCA has sufficient revenues
to support the department's programs.
HWCA revenues for the first quarter of 1985-86, however, were far
short of the amount needed to support the department's programs. According to the DHS, actual HWCA revenues were 31 percent below
budget needs in the first quarter. In addition, current-year expenditures
are $1.9 million higher than budgeted due to (1) $730,000 in employeecompensation increases that were not included in the department's 198586 budget and (2) $1.2 million in statutory appropriations made out of the
HWCA after the start of the fiscal year. As a result of revenue shortfalls
and expenditure increases, the department projeots that planned expenditures will exceed revenues by $6,580,000 during 1985-86.
To increase HWCA revenues to the level necessary for the operation of
its programs, the DRS plans to increase fees by issuing emergency regulations. These regulations, which the department planned to be effective

Item 4260

HEALTH AND WELFARE I 717

February 1, 1986, will increase fees from an average of $ll.25 per ton of
hazardous waste to $34.74 per ton. This represents an increase of 209
percent. According to the department, the revised fee schedule takes into
account recent reductions in the tonnage disposed.
We recommend that the department report to the fiscal committees
prior to budget hearings on the effective date of the emergency regulations. We further recommend that the department provide an updated
assessmen,t of the HWCA revenues that it expects to collect during thecurrent year.
Causes of Revenue Shortfall Not Cle~1r

We recommend that, prior to budget hearings, the department analyze
manifest data and advise the fiscal committees of (1) the reaSOnS for the
reduction in the amoilnt of wasl;~s disposed in the state during 1985-86 and(2) potential increases in the amount of wastes disposed during 198,6-87
due to the reopening of waste disposal sites in southern Calif()rIlia.
At the time this analysis was prepared, the department had no data to
explain why HWCA revenues were declining. Our analysis suggests thata variety of factors may have contributed to revenue reductions, including
the following:• Changing Collection System. Hazardous waste generators currently pay the fees. Until 1985-86, however, hazardous waste disposalsite operators paid the fee. Since generators are not accustomed to the
new fee mechanism, some generators of waste may not be paying thedisposal fee. In addition, due to the change in HWCA collections thefederal government is no longer paying the fee as a generator ofwastes. When fees were collected from site operators, the federal
government paid the f~es as a part of the cost of disposal. Since thefederal government disposes significant quantities of hazardous
wastes, the change in the collection system may result in significant
fee-revenue losses to the HWCA.
• Loss of Disposal Capacity. During the past year, a number ofsouthern California disposal sites stopped accepting hazardous wastes
or restricted the type or amount of wastes that they accept. Consequently, generators may find that disposing some wastes at facilities
outside of the state is their least expensive alternative. Since generators pay fees for only those wastes disposed at facilities located in thestate, their fee payments may have decreased.
.
• Recycling or Treatment Incentives. HWCA fees are lower fortreated wastes than for more hazardous untreated wastes. The fee
system creates an incentive for generators to recycle or treat wastes,
thus reducing the amoun,t and severity of wastes generated. If substantially more wastes are being recycled and/ or treated, fee revenues into the fund should also be declining.
The Legislature needs to understand why fee collections fell so sharply.
Information collected by the department's manifest system tracks theamoupt and toxicity of wastes shipped and disposed in the state. A clear
picture of the amount of wastes being shipped out of state and the amountof wastes being disposed, by type of waste, during the first qq~rter of
1985-86 could be derived by analyzing the manifest data. In addition, ananalysis of manifest data can determine whether the amount of waste
disposed during the first quarter of this year fell qramatically, or \yhether
disposals stayed relatively constant. This information would indicate

718 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

whether some generators were not paying HWCA fees.
So that the Legislature will be aware of the reasons for the revenue
shortfall, we recommend the department analyze the manifest data andsubmit its findings to the budget committees prior to hearings. We further
recommend the department estimate potential increases in the amountof wastes that will be disposed in the state during 1986-87 due to thereopening of waste disposal sites in southern California.
E. BUDGET-YEAR FISCAL ISSUES
Analyst's Lament

We recommend that prior to budget hearings, the Departments ofHealth Services and Finance submit a plan for insuring that the 1987-88
budget for the Toxic Substance Control Division provides the Legislature
with an accurate picture of the division's spending plans.
In each of the last three years, we were critical of the budget for the
toxics division because it contained significant errors or was incomplete.
In our 1983-84 Analysis, we withheld recommendation on $11.5 million
requested from the Hazardous Substance Account (HSA) because theexpenditure plan for the use of the HSA monies was not available. In our
1984-85 Analysis, we withheld recommendation on $38.1 million fromvarious funds because the division had not updated its expenditure plan.
In our 1985-86 Analysis, we withheld recommendation on $21.8 million
from various sources because no expenditure plan was available.
The proposed budget for the division in 1986-87 is no iinprovement overthe previous budgets.
As the reader will see, we found it necessary to withhold recommenda··
tion on almost the entire budget request for the toxics division. Some ofthe problems that we encountered in this budget are as follows:• The department cannot tell us how the majority of the funds budgeted for support will be spent during 1986-87. Specifically, the department indicated to us that it could not provide a breakdown of how$18.3 million from the HWCA and $14.0 million froin the HSA would
be used during 1986-87.
• Major additions to the budget are not documented. The department
proposes to increase HSA expenditures by $2.4 million, for example,
with no explanation of how the money would be spent.
• The budget proposes a different staffing level for the division thanwhat departmental budget documents indicate. The budget requests
an additional 94.5 personnel-years for 1986-87. Departmental records
show the budget-year request for staff totaling an additional 93.5 positions above the current-year level. Since personnel-years do not include portions of positions that are deleted from the budget as a resultof salary savings, the budget request is actually about 10 positions
greater than what departmental records indicate staffing levels
should be.
There is no excuse for the administration's inability to prepare a complete and accurate budget for the division by January 10, when the Governor's Budget is released.
Not only does the absence of a complete and accurate budget prevent
meaningful review by the· Legislature; it leaves the division without agame plan. The budget process is unalterably tied to the planning process.
If the division cannot plan, it cannot develop a budget that accurately

Item 4260

HEALTH AND WELFARE I 719

reflects its program priorities. If the budget cannot communicate a clear
picture of the division's plans, can the division itself know what it wants
to accomplish in 1986-87?
The administration has an obligation to take whatever corrective action
is needed to establish a workllble internal budget process. We doubt,
however, that any procedural changes would improve the results for fiscal
year 1986-87. Wholesale changes in the division's budget at this late datewould only cause confusion. More importantly, restructuring the division'sbudget process needs to be done in a deliberate step-by-step manner.
Accordingly, the administration should seek to restructure the division's
internal process so that its 1987-88 budget accurately reflects the division's
plans. We think the Department of Finance can provide the division withwhatever technical assistance it needs. The Department of Finance has
the authority and the expertise to help the toxics division develop theinternal processes needed to put together budgets in a timely manner (asit did for the Office of Economic Opportunity several years ago).
For these reasons, we recommend that prior to budget hearings, theDepartments of Health Services and Finance submit a plan for insuringthat the 1987-88 budget for the Toxic Substance Control Division will be(1) the result of a well-managed planning process, (2) will be completed
by December 1986, (3) will provide detailed documentation for theamounts requested, and (4) will be accurate and complete.
Toxics Division Budget Is Incomplete.

We withhold recommendation on $32,291,000 requested from the Hazardous Substance Account (HSA) and Hazardous Waste Control Account(HWCA) pending the submission of a legislatively required study to determine the appropriate funding sources for the division's activities.
The budget proposes $32.3 million from the HWCA and the HSA for
support of the department's hazardous waste control and cleanup programs. Of this amount, $18.3 million is proposed from the HWCA and $14.0
million is requested from the HSA. These funds represent 80 percent of
the division's proposed support budget for 1986-87.
In our AnalysiS of the 1985-86 Budget Bill, we withheld recommendation on the toxics division's budget because our review found that
proposed expenditures were not being financed by the appropriate fundsources. (The department proposed, for example, to support all laboratory
services from bond act monies, even though a portion of the laboratory
expenses resulted from specified regulatory activities. In general, regulatory tasks are funded from the HWCA.)
Subsequently, the Legislature adopted language in the Supplemental
Report to the 1985 Budget Act requiring the toxics division to submit areport on whether departmental expenses are being supported by theappropriate fund. The supplemental report also contained detailed descriptions of activities that would be appropriately funded from the
HWCA and the HSA.
At the time this analysis was prepared, the required report was notcomplete. The department advises that any funding adjustments that are
warranted by the results of the department's study will be proposed in a
Department of Finance amendment letter.
Without the report, we cannot review the division's budget request for
1986-87. Therefore, we withhold recommendation on $32,291,000 requested from the HSA and HWCA, pending the receipt of the report of thedivision's funding sources.

Item 4260

720 / HEALTH AND WELFARE
DEPARTMENT OF HEALTH SERVICES-Continued
Expenditure Plan for Bond Act Fund Overdue

We withhold recommendation on $5,830,000 requested from the Hazardous Substances Cleanup Fund, pending receipt of the. department's
revised expenditure plan for 1986-87. We recommend that the DHS revise
its estimate of staff and operating expense needs in order.to reflect
proposed changes in the way the cleanup program will operate.
State law directs the department to prepare an expenditure plan for theuse of bond. act funds, and to submit the plan as part of the Governor'sbudget. At the time this analysis was prepared, the expenditure plan was
not available. According to the department, the cleanup program's general operating plan as described in the 1985-86 expenditure plan wasundergoing potentially major revisions.
The expenditure plan also serves as the basis for the department's request for state staff and expenses to operate the mitigation program. In the
1986-87 budget, the department requests $5.8 million in bond act funds tosupport operational expenses. This am()unt would provide the department
with the same level of staff and operating funds it received in the 1985
Budget Act.
If the department makes substantial changes in the way. the cleanup
program will operate, the department's staffing and operating requirements will change accordingly...
..
Since the proposed budget does not reflect changes in the bon<;l act
expenditure plan that have occurred since submission ofthe 1985-86 plan,
there is no pOint in the Legislature spending time on the budget. Accordingly, we withhold recommendation on $5,830,000 requested from theHazardous Substances Cleanup Fund, pending receipt of the department's revised expenditure plan for 1986-87. We recommend that the
DRS revise its estimate Qf staff arid operating expense needs to reflect any
substantial changes in the way the cleanup program will operate underthe 1986-87 expenditure plan.
Funding Shortfall Developing.

We recommend that prior to budget hearings, the department submit its
preliminary estimate of admini~trativeexpenses for the hazardous waste
cleanup program in 1987-88 and its proposed source of funding for those
cost~.
Chapter 1439, Statutes of 1985, set aside $12.2 million of $100 million inbond funds for DRS administrative support. Of these funds, the Legislature appropriated $6.4 in the 1985 Budget Act and reserved the remaining$5.8 million for 1986-87. The budget requests $5.8 million in bond act funds
for departmental support in 1986-87.
Even though the department has not issued its expenditure plan for
1986-87, it acknowledges that cleanup activities will extend beyond 198687 into 1987-88. Extending the time in which cleanup actions occur implies
that additional administrative support for these actions will be needed in
1987-88. If the remaining $5.8 million in bond act funds reserved foradministration of the cleanup program is expended in 1986-87, the department would need to develop an alternate source of funding for prognim
administration in 1987-88.
Three potential sources of program support are available: (1) bond act
funds that currently are allocated for the cleanup of sites, (2) increased

Item 4260

HEALTH AND WELFARE / 721

support from the HWCA, and (3) unallocated funds in the HSA.
None of these funding sources alone, however, could provide the needed administrative support without necessitating large fee increases or
requiring major changes in how existing funds are used. Redirecting bondact funds clearly is not desirable because it would directly reduce theamount of site cleanup that can be accomplished. The HWCA could increase support for administrative activities by $5.8 million a year, but thiswould require a 29 percent increase in hazardous waste fees. While approximately $4 million from the HSA remains unallocated for 1986-87,
these funds are intended to help repay bond act funding in the event that
responsible-party recoveries are not sufficient to cover annual repayments. If these funds are used instead for administrative purposes, thestate's General Fund would be at risk for the $4 million.
Dividing support between all three sources, however, would spread theburden.
Because a significant shortfall in administrative support for the mitigation program in 1987-88 is developing, we recommend that prior tobudget hearings, the department submit its preliminary assessment ofadministrative expense needs for 1987-88, along with its proposed sourceof funding for those costs.
State Should Seek Up-Front Payment for Responsible-Party Expenses

We recommend that the Legislature adopt Budget Bill language requiring the department to seek reimbursement from responsible parties before
initiating monitoring or arbitration activities. We further recommend that
the Legislature reduce the amount budgeted from the HSA by $346,000 inorder to reflect the policy of prior payment.
Convincing responsible parties to finance cleanups of hazardous waste
sites is a major goal of the mitigation program. Responsible-party cleanups
allow the state to redirect time and resources to other hazardous waste
sites, thereby permitting the state to spend bond act funds on sites where
identified responsible parties cannot or will not cooperate, or where no
identifiable responsible party exists.
Even though responsible parties may finance cleanup efforts, the department still plans to spend its funds in support of responsible-party
projects. Although the department's plan for 1986-87 is not clear, the1985-86 DHSexpenditure plan sets aside $610,000 in bond act funds tomonitor responsible-party remediation projects. According to the department, periodic progress checks and a final assessment of whether the
responsible party achieved the cleanup level specified in the cooperative
agreement are an essential component of a successful effort to ensure
adequate cleanups by responsible parties.
The department also spends state funds to support the arbitration process, which determines responsible-party liability for cleanup costs. The
budget proposes $462,000 from the HSA for the support of state operations
and independent arbiters who ultimately decide responsible-party liability. Since the Environmental Affairs Agency administers the arbitration
program, the DHS provides program support through an interagency
contract.
State law directs the department to recover from responsible parties theadministrative cost, including interest, that can be attributed to theseparties. Currently, the department plans to recover funds from responsible parties in different ways. Monitoring costs will be recovered after thecleanup project is completed. Fifty percent of the arbitration costs will be----------- - - - - -722 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

collected prior to the initiation of arbitration. The department has not yet
decided whether the remaining 50 percent will be collected, or whether
the HSA will support half of the arbitration costs.
Our analysis indicates that a consistent policy of seeking full funding
from responsible parties prior to monitoring and arbitration activities
would maximize the amount of funds available to the state for cleaning up
hazardous waste sites. Recovered HSA and bond act funds are depositedin a special fund created to repay bonds as they become due, these funds
cannot be reused. As a result, by using these funds for oversight andarbitration activities, the DHS prevents their later use for cleanup activities. If the state billed responsible parties for administrative costs as partof cleanup agreements, up to $610,000 could be available for use in remediating sites where no responsible parties will act. This amount could besubstantially larger in the future if large numbers of responsible parties
require monitoring of cleanup projects or arbitration.
While the state has little experience to date in recovering costs from
responsible parties, the DHS indicated that collecting costs prior to initiating monitoring or arbitration activities is a realistic option. In its proposal
to collect half of the arbitration costs prior to beginning arbitration, thedepartment does not anticipate that any responsible parties will refuse to
pay before arbitration begins. This is because, at the point responsible
parties begin cleanups or enter into arbitration, it is clear that the firms
will incur potentially major costs. By comparison, monitoring and arbitration costs are relatively small. If a firm is not willing to pay for a relatively
small monitoring and arbitration fee, it is questionable whether it is committed to executing the cleanup agreements.
To maximize the impact of state funds on site cleanup, we recommendthat the Legislature adopt Budget Bill language requiring the department
to seek support from responsible parties before initiating monitoring or
arbitration activities. We further recommend that the Legislature reduceby $346,000 the amount budgeted from the HSA in order to reflect thepolicy of prior payment. This would leave $116,000, or 25 percent, of thefunds requested for arbitration expenses in 1986-87. These funds would
provide support to the arbitration program in the event that (1) arbitration costs cannot be collected in time to meet program expenses or (2)program costs cannot fully be met with advance responsible-party payments. The following Budget Bill language is consistent with our recommendation:"The Department of Health Services shall seek full reimbursement ofprojected expenses for (1) monitoring hazardous waste mitigation
projects operated under a cooperative agreement with responsible parties, and (2) arbitration of cleanup liability, prior to the initiation of suchactivities. "Abandoned Site Program Scaled BackWe recommend that, prior to budget hearings, the department advise
the Legislature of (1) the reasons why the Abandoned Site program
should not operate like the former federally funded abandoned site survey
program and (2) its revised implementation schedule for beginning thesurveys. We further recommend that the Legislature fund this programfrom the Hazardous Substance Account. (Reduce Item 4260-001-014 by$313,000, increase Item 4260-001-455 by $313,000)

Item 4260

HEALTH AND WELFARE / 723

The budget proposes an augmentation of $313,000 from the HWCA andfive positions to administer the Abandoned Site program required by Ch
1258/85 (SB 972). The program is designed to survey 28 rural counties forabandoned hazardous waste sites. A similar program, funded by the federal government, surveyed 30 counties in the state. The sites discoveredby the federal survey account for 60 percent of the ranked sites currently
on the state hazardous waste site cleanup list. In the current year, the DHS
uses the federal abandoned sites funds to collect additional information onsites that are not currently on the state list.
.
No Documentation for New Operating Plans. The department proposes to administer the new state program differently from the way it
operated the federal program. The federal program obtained information
on abandoned sites from a variety of sources, including old telephone
books, business registers, aerial photographs, and observations made bycounty staff. These sources generated a large number of potential hazardous waste sites. In response to Chapter 1258, however, the department
proposes to check fewer sources for leads. Specifically, the DHS plans to
ask county officials to search official records for possible sites. The department will then meet with local officials and "drive by" identified sites todetermine the danger posed by each site. The budget assumes that an
average of seven counties would be surveyed each year, for four years.
We asked the department why it proposed to check fewer sources tolocate abandoned sites. The department indicated that checking othersources would not be as productive in rural areas as in urban areas, andstated that contact with local officials is the most efficient way to identify
abandoned sites. The department could not, however, explain how it
reached this conclusion.
We believe it is extremely important that the abandoned site survey beas thorough as possible in uncovering potential hazardous waste sites. In
all likelihood, the state will survey each county for abandoned sites only
once. Therefore, the proposed program presents the only opportunity tosystematically search the 28 counties for hazardous waste sites.
If the department's proposed program does not identify most of theabandoned sites, one of two things will happen: the sites that the program
misses will continue to represent a threat to public health and the environment, or a second survey will, at some point, become necessary duplicating much of the survey work proposed in the 1986--87 budget. Bothalternatives should be avoided.
For this reason, we recommend the department tell the Legislature
why it proposes to reduce the scope of survey activities in the 28 unsurveyed counties.
Implementation Schedule Needs Updating. The department's implementation plan shows the abandoned site survey program will begin
operation in March 1986. Funding for the abandoned site survey program,
however, is not available in the current year, according to the department.
During discussions with the department, it indicated that the starting date
for the surveys has not been determined. Since implementation delays in
the current year may increase program workload in the budget year, werecommend that the department provide the Legislature with an updated
implementation schedule for the abandoned site program.
Program Should be Funded From the HSA. The proposed abandoned site program would derive its support from the HWCA. Generally,
the HWCA supports regulatory activities, such as permitting and inspecting hazardous waste disposal facilities. The HSA usually supports sitecleanup workload.

----------------- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - _ .

724 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

As part of the 1985-86 budget, the Legislature adopted 'supplemental
language requiring the department to determine if toxics division activities were funded from the appropriate source. As part of the supplemental
language, the Legislature defined what types of activities should be funded from the two funds. Included among the expenses that may be supported from the HSA are the discovery and evaluation of hazardous waste sites.
The description of appropriate activities supportable from the HWCA
does not include site discovery and evaluation. Since legislative intent
with respect to this matter is clear, it would appear that the department
is requesting support for the abandoned site survey from the wrong fund.
Therefore, we recommend that the Legislature reduce by $313,000 theamount budgeted from the HWCA and augment the HSA appropriation
by a like amount, so that abandoned site search activities are funded fromthe appropriate source.
Industry Education Program Has No Details

We recommend that prior to budget hearings, the department advise theLegislature (1) why the industry education program should end after one
year and (2) what the department's plans and priorities are concerning
the operation of the program.
The budget proposes to spend $150,000 in statutorily appropriated
HWCA funds during the current year for the support of an industry
education program. Chapter 1245, Statutes of 1985 (AB 1858), requires thedepartment to create a program to inform industry of regulations concerning handling, storage, and disposal of hazardous wastes. In responseto this requirement, the department plans to spend the $150,000 appropriated by Chapter 1245 during 1985-86· on contracts with educational,
professional, or trade associations. The budget does not propose to extend
the program into the budget year.
Our review of the department's plans focused on two basic questions:
1. What are the department's plans and priorities in establishing the
program?
2. Why does the department believe the program should run for only
one year?
Unfortunately, the department could not respond to either question.
This is because the details of the industry education program had not been
determined. From our discussions, it appeared that the department had
not decided (1) which industries to target, (2) whether information
should be disseminated in pamphlets or through local seminars, and (3)what the information needs of small businesses are. Since there were no
details to discuss, the department could not demonstrate how the program
would adequately meet statutory requirements in one year.
Accordingly, we recommend that the department inform the Legislature of its plans and priorities concerning the operation of the industry
education program and explain why the industry education program
should terminate after one year.
Eliminate Investigator Support

We recommend that the Legislature delete $410,000 requested from the
HWCA for the support of eight investigators because the department nolonger proposes to use DHS investigators for enforcing state hazardous
waste control laws.

Item 4260

HEALTH AND WELFARE / 725

The budget proposes $410,000 from the HWCA for the support of eight
DHS investigators from the Audits and Investigations Division. These
positions w~re funded by the Toxics Division during the current year todetermine whether the investigators-who are peace officers, and therefore can serve wiunmts and conduct other quasi-legal activities-would
provide villuableassistance in enforcing hazaraous waste control laws. The
department has determined, however, that the investigators do not possess the necessary technical expertise to substantially aid in enforcement
actions. As a result, the department no longer proposes to support theeight positions with funds from the HWCA.
Since the depa,rtment does not propose to fund the investigator positions as described in the 1986-87 budget, we recommend that the Legislature delete the $410,000 requested from the HWCA for this purpose.
5. CALIFORNiA MEDICAL ASSISTANCE PROGRAM (Medi-Cal)
The California Medical Assistance program (Medi-Cal) is ajoint federalstate program initially authorized in 1966 under Title XIX of the federal
Social Security Act. This program is intend~d ,to assure the provision ofnecessary health care services. to public assistance recipients and to otherindividuals who cannot afford to pay for these services themselves.
The budget proposes Medi-Cal expenditures of $4,973 million ($2;380
million General Fund and. $19 million SAFCO) in 1986-87, including$4,848 million ($2,337 mHliqn General Fund and $19 million SAFCO) for
local assistance and. $125 million ($42 million General Fund) for stateadministration. The total level of General Fund and SAFCO expenditures
proposed for Medi-Cal in the budget year exceeds estimated expenditures
for the current year by $85 million, or 3.7 percent.
Table 23 shows Medi-Cal expenditures for 1984-85 through 1986-87.
Table 23
Medi-Cal Program
Expenditures and Funding
1984-85 through 1986-87(dollars in thousands)

Fund
Health care services .................... StateAllCounty administration ................ StateAll
Claim processing .......................... StateAll
Subtotals ................................ StateAll
State administration .................... StateAll
Totals ...................................... StateAll

Actuu/
1984-85"$1,941,919
4,121,445
48,891
127,477
6,985
27,732$1,997,795
4,276,654
35,694
117,097$2,033,489
4,393,751

Estimllted
1985-86$2,213,968
4,511,941
53,052
141,975
7,434
32,066$2,274,454
4,685,982
39,531
113,948$2,313,985
4,799,930

Proposed
1986-87$2,283,495 h
4,673,894
60,266
134,994
12,24039,146$2,356,001 h
4,848,034
42,455125,123$2,398,456 h
4,973,157

Percent
Chunge
3.1%
3.6
13.6
-4.9
64.6
22.1
3.6%
3.5
7.4
9.8
3.7%
3.6

a Th('·dC'partment's budg('t scheduies contain conflicting figures for 19~ Medi-Cal ('xpenditures, andth(' d('parhn('nt does not know which are corr('ct. These figures come from the Health Care Deposit
Fund st"t('ment.
h Stat(' funds in 1986--87 include $18,902,000 from the Special Account for Capital Outlay.
.

Item 4260

726 / HEALTH AND WELFARE
DEPARTMENT OF HEALTH SERVICES-Continued

Chart 1 shows Medi-Cal program expenditures since 1978-79. The levelof spending has increased at a steady pace since 1983-84, when there were
sharp decreases as a result of the 1982. Medi-Cal reforms. Budgeted expenditures from all funds are 9.2 percent higher in the current year thanin 1984-85, and 3.6 percent higher than in the current year.
Federal, State, and County Responsibilities Under The Medi-Cal Program, The administration and funding ofMedi-Cal are shared by the federal
and state governments. Counties perform certain tasks on behalf of thestate.
The state Department ofRealth Services (DRS) develops regulations,establishes rates of payment to health care providers, reviews requests for
authorization of certain types of treatment prior to delivery, audits provider costs, recovers payments due from private insurance companies andother sources, reviews county eligibility determinations, and manages
various contracts with private vendors for processing of provider claims.
Other state agencies, including the California Medical Assistance Commission and the Department of Social Services, perform Medi-Cal-related
functions under agreements with DRS.
County welfare departments, along with the health department in Los
Angeles County, determine the eligibility of applicants for Medi-Cal. In
addition, many counties receive Medi-Cal reimbursements for services
delivered to Medi-Cal eligible individuals treated in county hospitals andoutpatient facilities.
Chart 1Medi-Cal Expenditures by Funding Source
1978-79 through 1986-87 (in billions)$5

GeneralFundFederal
Funds

IMCJ

4

3

2

78-79

7~80

80-81

81-82

82-83

83-84

84-85

85-86 a 86-87 a

a Expenditures lor 1985-86 and 1986-87 reflect unallocated reductions of 4.1 and 4.75 percent respectively.

Item 4260

HEALTH AND WELFARE / 727

The federal Department of Health and Human Services, through its
Health Care Financing Administration, provides policy guidance and financial support for the Medi-Cal program.
Eligibility

Persons eligible for Medi-Cal fall into three major categories: categorically needy, medically needy, and medically indigent. The categoricallyneedy (cash grant recipients) consist of families or individuals who receive cash assistance under the Aid to Families with Dependent Children(AFDC) or Supplemental Security Income/State Supplementary Payment (SSI/SSP) programs. The categorically needy automatically receiv~
Medi-Cal cards and pay no part of their medical expenses.
The medically needy include families with dependent children andaged, blind, or disabled persons who are ineligible for cash assistancebecause their income exceeds cash grant standards. These individuals canbecome eligible for Medi-Cal if their medical expenses require them to"spend down" their incomes to 133 percent of the AFDC payment levelspecified for their household size.
The medically indigent are those who are not categorically linked (thatis, they do not belong to families with dependent children and are notaged, blind, or disabled) but who meet income and share-of-cost criteriathat apply to the medically needy category. Coverage under the medicallyindigent program is limited to (1) persons who are under the age of 21,(2) pregnant women, and (3) persons residing in long-term care facilities.
Eligibles and Users in 1986-87. The budget projects that an averageof 2,910,400 persons will be eligible for Medi-Cal benefits each month
during 1986-87. This is 1,200 more than the average number ofbeneficiaries eligible in the current year. The budget projects that 2,440,400 persons
will be eligible to receive benefits on a fee-for-service basis and 470,000
persons will be enrolled in various prepaid plans. Of the population eligible for fee-for-service care, an average of 50 percent, or 1,219,000 persons,are expected to receive Medi-Cal benefits each month during 1986-87.
Table 24
Average Medi-Cal Program Eligibles and Fee-for-Service
Benefit Recipients Per Month
By Eligibility Category
1984-85 through 1986-87(persons in thousands).·l!·eruge .\/onthil· Eligibles
1984-85
1985-86
1986-87
Categorically needy
AFDC ........................................

SSI/SSP ......................................

Fee-for-Serrice
Benefit Recipients
us u Percent of
Eligibles"
1984-85198~6
1986-87

1,716
686

1,749
695

1,740
700

37.3%
68.5

37.1%
70.7

37.9%
72.5

219
115
113
9
2,857

226
118
113
9
2,909

230
119
114
8
2,910

41.1
94.5
44.3
100.0
48.5%

41.2
93.8
44.8
100.0
49.0%

41.6
94.2
45.1
100.0
50.1%

~Iedically needy

Families ......................................
Aged, blind, or disabled ........
~Iedically indigent ......................
Other I. ..........................................
Totals ......................................

" Data concerning usc of sen'ice arc only ""ailable for fee-for·sen·ice eligibles.
I. Includes renal dialysis patients and refugees.

24-80960

728 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

Table 24 shows the number 'of persons eligible for Medi-Cal in eacheligibility category, as well as the percent of fee-for-service eligibles who
actually receive benefits.
Chart 2Medi-CaIEligibles, Users, and Costs
Percent by Eligibility Category
1986-87
Medically Indigent
Medically Needy-Aged, blind,or disabled
Medically Needy-Families
Long-Term CareSSI/SSP Cash Recipients

AFDC Cash Recipients

Persons Eligible

Users of Services

Expenditures

Expenditures by Eligibility Category. Chart 2 shows the percentages of eligibles, benefit recipients, and expenditures that each eligible
group is expected to account for in 1986-87. Families receiving AFDC
constitute 60 percent of Medi-Cal eligibles but are responsible for only 27
percent of total Medi-Cal expenditures. SSI/SSP recipients constitute 24
percent of the Medi-Cal caseload and are responsible for 36 percent ofprogram expenditures. Medi-Cal eligible recipients residing in long-termcare represent only 2.2 percent of all Medi-Cal eligibles but consume 20
percent of Medi-Cal expenditures. The share of medical expenditures
attributable to the medically indigent and the medically needy is roughly
equal to their share of the Medi-Cal eligible population.

Item 4260

HEALTH AND WELFARE / 729

Scope Of Benefits

Medi-Cal recipients are entitled to a wide range of health services,
including physician, inpatient and outpatient hospital, laboratory, nursing
home care, and various other health-related services. Many Medi-Cal services, however, require prior state authorization and may not be paid forunless the service is medically necessary. Not all services allowed in California are required by federal law.
Federal law requires states participating in the Medicaid program toprovide a core of basic services, including hospital inpatient and outpatient; skilled nursing; physician services; laboratory and X-ray; homehealth care; early and periodic screening, diagnosis, and treatment(EPSDT) for individuals under 21; family planning; and rural health clinics (as defined under Medicare). In addition, the federal government
provides matching funds for 32 optional services. California provides 30 ofthese 32 optional benefits.
Expenditures by Service Category

Chart 3 shows Medi-Cal spending proposed for 1986-87, by service category. The chart reflects the following major changes in the distribution of
expenditures between 1985-86 and 1986-87:
Chart 3Medi-Cal Expenditures by Service
1984-85 through 1986-87

90

Other Services

80
Prepaid Systems

70
60

Long-Term Care

50
40
Professional Services

30

20

Community Inpatient

10County Inpatient

1984-85

1985-86

1986-87730 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued• Spending on prepaid health systems is expected to increase from 5.2
percent in the current year to 8.3 percent in 1986-87. This increaseis primarily due to the expected start-up of the Expanded Choiceprogram in San Diego County during August 1986.
• Estimates for 1986-87 show an end to the sharp decline in the shareof Medi-Cal expenditures going to community hospitals. Community
hospital expenditures declined from 24 percent of total Medi-Cal expenditures in 1984-85 to 20 percent in 1985-86. The department estimates their share will decline only slightly, to 19 percent in 1986-87.
General Medi-Cal Budget Issues
Estimates Will Be Updated in May

We withhold recommendation on $4,848 million ($2,337 million GeneralFund and $19 million SAFCO) requested for local assistance under theMedi-Cal program, pending review of revised Medi-Cal expenditure estimates to be submitted in May.
The proposed expenditures for the Medi-Cal program are based on
actual program costs through August 1985. The department will present
revised estimates in May, which will be based on program costs throughFebruary 1986. Because the revised estimates will be based on more recent experience, the estimates will provide the Legislature with a morereliable basis for budgeting 1986-87 expenditures. We therefore withholdrecommendation on the amounts requested in local assistance for theMedi-Cal program, pending review of the May estimates.
The Expenditure Estimates for Medi-Cal Are Phony

We recommend that the Department of Finance explain during budget
hearings how it expects to achieve $233.2 million ($115.2 million GeneralFund) in unallocated Medi-Cal budget reductions during 1986-87.
The expenditures shown in the budget for Medi-Cal health services in
the current year and the budget year are significantly less than the expenditures projected by the Department of Health Services. In effect, theDepartment of Finance has arbitrarily reduced the department's expenditure estimates by 4.1 percent, or $190.8 million ($94.9 million GeneralFund), in 1985-86 and by 4.75 percent, or $233.2 million ($115.2 million
General Fund), in 1986-87. The only explanation given in the budget forthese reductions-reductions that cause General Fund expenditures to be$200 million less than what the department projected-reads as follows:"There is considerable uncertainty associated with projecting Medi-Cal
expenditures, which vary according to the number of persons eligible,
the number and type of services these people require, and the cost ofproviding these services. For these reasons, the Medi-Cal Estimate of
Expenditures provides a range which is required by Welfare and Institutions Code 14100.5, which states in part 'The Department of Financeshall identify a high-, mid-, and low-range of Medi-Cal service expenditures .. .'For fiscal year 1985-86, the Medi-Cal Estimate has been adjusted forpotential variance resulting in a reduction of $190.8 million.
For fiscal year 1986-87, the Department proposes the followingchanges ...
• A reduction of $233.2 million to adjust the Medi-Cal Estimate of expenditures for potential variance."

Item 4260

HEALTH AND WELFARE / 731

In the course of preparing its estimates of Medi-Cal spending, the Department of Health Services routinely prepares high-, mid-, and low-range
estimates. The high- and low-range estimates for the budget year represent the mid-range estimate plus or minus 4 percent. The department
asserts that this 4 percent range is "consistent with the accuracy observedin most large economic regression models." A narrower range-plus orminus 3.3 percent-is used for the current year because the current-year
estimate includes two months of actual expenditures. This year, the department, for the first time, has expanded the range by 1 percent. This wasdone in recognition of the fact that actual expenditures in recent months
have been subject to unexpected variability.
Chart 4 shows the high, mid, and low estimates prepared by the Department of Health Services and the amount requested by the Department of
Finance.

Chart 4Medi-Cal Health Services Expenditures, All Funds
198o-B1 through 1986-87 (in billions)

$6

5

4

3
DHS High Estimate

2

DHS Mid-Estimate
Governor's Budget(DHS Low Estimate)

80-81

81-82

82-83

83-84

84-85

85-86

86--87In the past, the Medi-Cal appropriation requested in the Governor's
Budget has been based on the mid-range expenditure estimate. While the
mid-range expenditure estimate is subject to error, it is looked upon by theestimators as the most reliable of the available estimates.
What the Department of Finance has done is substituted the low-range
estimate for the mid-range estimate on the grounds that the mid-range
estimate could turn out to be too high. This, of course, also enables thedepartment to claim a larger reserve for economic uncertainty and thereby reach the 3.7 percent goal on which the administration places so muchemphasis.

-------------------

732 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

These "savings" in the Medi-Cal program are nothing more than wishful
thinking. The same logic that produced these savings could be used to"justify" General Fund revenue projections that are $1.1 billion higher
than what is reflected in the Governor's Budget. Achieving real savingsin Medi-Cal expenditures of $424 million requires policy changes thateither reduce reimbursement rates or service levels-not wishful thinking. For example, excluding the MIA transfer, all of the steps taken in 1982
to limit the costs of the Medi-Cal program yielded savings in 1983-84 ofapproximately $440 million ($220 million General Fund). Hence, toachieve the savings that the Department of Finance anticipates in 198586, the Governor would have to propose, and the Legislature would haveto enact on an urgency basis, a set of measures every bit as far-reachingas those enacted in 1982.
The Governor has proposed no changes in policy that could be expected
to produce savings in Medi-Cal health services expenditures. On the contrary, the only major initiative that the administration proposes for 198687-the expanded choice pilot in San Diego-will result in increased expenditures during the budget year.
The latest estimates of actual spending under the Medi-Cal programindicate that current-year expenditures are much closer to the mid-range
estimate than they are to the low range. Actual data from the Department
of Health Services show that Medi-Cal spending through mid-January was
only $60 million ($30 million General Fund) below levels expected basedon the mid-range estimate. This difference was primarily due to lower
than expected expenditures in November 1985. Expenditures since November have equaled the estimated levels.
In addition to the unallocated reductions made by the Department of
Finance, the budget fails to provide funds to cover other shortfalls likely
to occur in 1986-87. We estimate that unbudgeted General Fund 1986-87
costs in the Medi-Cal program will total $148 million, including the unallocated Department of Finance reductions. Table 25 lists these costs. They
include:• Long-Term Care Rate Increases. No funds are provided for longterm care rate increases that are required under current federal law
and the California state plan.
•• Start-up for San Mateo County Organized Health System. The
department plans to initiate a county-organized health system in San
Mateo County during 1986-87. This will result in so-called pipeline
costs due to payment of fee-for-service claims after the system isoperational.
• Perinatal Services. Chapter 1404, Statutes of 1984 (AB 3021), establishes new services for pregnant women. Regulations defining
these services are expected to be issued and services provided during
1986-87.
• ICFIDD-N Costs. The department plans to begin reimbursing
costs for a new facility category, ICF/DD-Ns, during 1986-87.

Item 4260

HEALTH AND WELFARE / 733
Table 25
Medi~Cal Program
Unbudgeted Costs Likely During 1986-87(dollars in thousands)

Unbudgeted Costs
Unallocated reduction ..................................................................................... .
Long-term care rate increases .................................................................... ..
San Mateo County system ............................................................................ ..
Perinatal services ............................................................................................. .
ICF/DD-r\ costs ............................................................................................... .
Totals ................................................................................................................

Generui
Fund

All
Funds

$115,200$233,200
27,00054,000
4,000
8,000-unknown1,800
3,500$148,000$298,700

Under current law, whenever the Director of the Department of HealthServices "has reason to believe that the total cost of the Medi-Cal program
will exceed available funds," he or she may modify methods and rates of
payment for services. Rates may be reduced by up to 10 percent. If thesemodifications and reductions are not sufficient to eliminate the shortfall,
the Director may order further reductions in coverage for a limited rangeof benefits. If the Medi-Cal deficiency reaches 10 percent, the Director isrequired by law to take these cost-controlling actions.
The Director, as yet, has chosen not to take the discretionary actions
within his power to limit current-year Medi-Cal costs. The projected current-year shortfall is 4.5 percent of the appropriated amount, nearly halfway to mandatory program reductions. If the Legislature agrees toamounts proposed in the 1986-87 Governor's Budget for the Medi-Cal
program and none of the current-year payments lap over into 1986-87, asofJuly 1, 1986, the Director of the Department of Health Services will findhimself even closer than he is now to mandatory rate and service cuts.
Expanded Choice

Background. Assembly Bill 799 (Ch 328/82) authorizes the California Medical Assistance Commission (CMAC) to contract on a pilot basis
for the provision of prepaid capitated health services to aU Medi-Cal
recipients residing in a clearly defined geographic area. Based on thismandate, the CMAC has developed the "Expanded Choice" program andplans to let contracts in three areas-two urban and one rural. The areas
initially chosen for the pilot project were San Diego County, the San
Fernando Valley in Los Angeles County, and Stanislaus County. The
budget, however, anticipates that the program will be implemented onlyin San Diego County during 1986-87.
Under the Expanded Choice program, the Department of Health Services will contract with health maintenance organizations (HMOs) for theprovision of hospital care, prescription drugs, and physicians' and otherservices. Recipients will receive these services from the HMOs undercontract with the department. Fee-for-service care outside these HMOs
will not be reimbursed except for specific types of services including
dental care, mental health services, podiatry, chiropractic, speech therapy, audiology, and extended nursing home care.
Enrollment in an HMO will be required of all categorically eligible
recipients and medically needy Medi-Cal recipients who pay no share ofcost. Medi-Cal beneficiaries who are being treated for a defined medical
problem by a physician not affiliated with an expanded choice health planand/ or who meet specific exemption criteria may be excluded from theprogram. Beneficiaries will be asked to choose a plan. If a beneficiary does
not make a choice within a specified period, he or she will be assigned toa plan.

734 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

The department will pay the prepaid health plans a monthly fee pereligible enrollee to provide covered medical services. The department
will also incur additional administrative costs to (1) monitor contractedorganizations to insure that they provide adequate service and (2) toprovide beneficiaries the necessary information to make an informed
choice among the health plans offered.
Budget Proposes August 1, 1986, Implementation. The CMAC expects to approve Expanded Choice health care contracts with as many as
11 prepaid plans in San Diego County during February 1986. By that time,the department expects to have designated a contractor to provide
beneficiaries with information on the available health plans and to maintain enrbllment records. Notices to beneficiaries regardiIlg their healthplan choices are scheduled to be mailed April 15, with follow-up notices
sent on May 15 and June 15. Any beneficiary who fails to choose a healthplan by July 1 will be assigned to a plan.
The budget reflects a variety bf adjustments to Medi-Cal costs in both
local assistance and state operations as a result of the Expanded Choice
pilot program.
Local Assistance.
The 1986-87 budget proposes $138,295,000($69,147,500 General Fund) to pay the monthly enrollment fees for the
160,000 Medi-Cal beneficiaries in San Diego County. The budget also
reflects a $100.4 million reduction in the cost of fee-for-service claims
under Medi-Cal. The net cost of $37 million ($18.9 million SAFCO) stems
from so-called pipeline costs. These costs result from the fact that during
the first months of the pilot, fee-for-service claims will continue to be paid
for care received before the pilot begins.
State Operations. The budget proposes the following major changes
in the state operations to implement the Expanded Choice program:• An increase of $420,000 ($210,000 General FUrid) and 12 positions tomonitor contractor performance and perform various support functions.
• A decrease of $494,000 ($140,000 General Fund) arid 23 positions associated with expected reductions in prior authorization workload,
recovery, and investigations activities in San Diego County.
• An increase of $500,000 ($250,000 General Fund) to commission an
independent evaluation of the Expanded Choice program.
• An increase of $117,200 ($58,600 General Fund) for computer mailings and equipment.
• An increase of $1,496,000 ($765,500 General Fund) to perform thebeneficiary enrollment and information function.
Additional Costs and Savings Not Reflected. The department has
not budgeted the following additional savings and costs that we expect will
result .from the Expanded Choice program:• Cost to the department of $700,000 ($350,000 General Fund) for audit
staff needed to conduct annual financial and medical audits of newly
participating plans.
• Added costs to CMAC of $45,000 for ongoing negotiator support.
• Savings of $176,000 ($44,000 General Fund) due to reduced postage
and checkwrite costs associated with paying Medi-Cal fee-for-service
claims.
• Savings of $62,000 ($16,000 General Fund) in the cost of claiming
reimbursement from Medicare.

Item 4260

HEALTH AND WELFARE / 735• Savings of $335,000 ($168,000 General Fund) due to the eliminationof county administration payments for dual-choice presentations in
the pilot area.
.'
Expanded Choice Will Result in Net Ongoing Costs. Table 26
shows the 1986-87 costs and savings attributable to the Expanded Choiceprogram. The table includes both the costs and savings budgeted for1986-87 and the additional costs and savings that we have identified. The
table also shows the net costs and savings for 1987-88, using the same
assumptions made for 1986-87. This illustrates the full 12-month effect ofthe pilofs operation.
Table 26
Expanded Choice Pilot Program
1986-87 and 1987-88 Costs(dollars in thousands)

1. Expanded choice costs
A. Costs for medical services and provider operations ................... .
B. State administrative costs ................................................................. .
Audits ..................................................................................................... .
Contract monitoring .......... :................................................................ .
Da ta processing ................................................................................... .
Enrollment functions ......................................................................... .
CMAC ..................................................................................................... .
County administration ...................................................................... ..
C. Total costs ............................................................................................. .
Fee-for-service savings
A. Medical services .................................................................................. ..
B. .State administrative costs ................................................................. .
Checkwrite and postage .................................................................... ..
Prior authorization ............................................................................. .
Recovery and investigations ............................................................ ..
Medicare claiming ............................................................................... .
Dual choice .......................................................................................... ..
C. Total savings ......................................................................................... .
III. Net operating costs ................................................................................... .
IV. Additional one-time costs ......................................................................... .
A. Pipeline costs ...................................................................................... ..
B. Enrollment fUllctions (phase-in) .................................................... ..
C. Evaluation ............................................................................................ ..
V. Total costs ................................................................................................... .

n.

1986-87

1987-88"$138,295
2,510
(700)
(420)

$150,868
2,510
(700)
(420)
(117)
(1,156)
(80)

(117)

(1,156)
(80)
~)

~)

$140,805$153,378$138,120
1,067
(176)
(452)
(42)
(62)

$150,676
1,500
(191)
(812)

~)

~)

$139,187$1,618$38,292(37,452)(340)$152,176$1,202

(64)

(67)

~)

$39,910$1,202" Costs in 1987--88 were calculated using the same assumptions as in 1986-87. They do not reflect potentialchanges in rates paid under expanded choice, changes· in state support costs, or other changcs in theMedi-Cal program that might occur.

We estimate net additional costs due to the Expanded Choice programof $1.6 million ($0.8 million General Fund) in 1986-87. We also estimatethat Expanded Choice costs will exceed fee-far-service savings by $1.2
million ($600,000 General Fund) in 1987-88 and annually thereafter.
As shown in Table 26, Expanded Choice medical costs exceed fee-forservice medical costs. This is due primarily to the CMAC's method ofdetermining fees. The CMAC will set fees equal to 95 percent of (1) thecosts incurred in providing medical services under the fee-for-service
system plus (2) the average cost per beneficiary for administration of theMedi-Cal program. Since average state administrative costs are about 5
percent of total Medi-Cal costs, they offset any savings in medical costs.

-

~---

.. - - - -736 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

Under the Expanded Choice program, administrative costs will increase, primarily due to the $1.2 million contract for the beneficiary enrollment/presentations function.
Withhold Recommendation On Expanded Choice Changes

We withhold recommendation on (1) the proposed position augmentations and reductions related to the Expanded Choice program and (2) thecontract funds proposed for both the enrollment functions and the evaluation pending receipt of the May revision and completion of the contract
award process.
Position Changes. The proposed budget contains various position
augmentations and reductions related to the expanded choice pilot
project. Implementation of the pilot project has already been delayed
twice, and further changes in the project may be made in the coming
months. Consequently, it would be premature to recommend approval ordisapproval of the proposed position changes at this time. Consequently,
we withhold recommendation on the proposed changes, pending receiptof the May revision. At that time, the department will be able to make amore reliable estimate of the program's effects and expected implementation date.
Contract Costs. The department indicates that the evaluation ofbids and the contract award process are scheduled for completion in late
February. At that time, the department will have a good idea what the
proposed contract will cost. The development of the evaluation contract
is just beginning, and the department has not yet completed the detailsof the evaluation.
We cannot determine whether the department's plans for the evaluation provide the data needed for a complete evaluation of the Expanded
Choice program. Consequently, we withhold recommendation on theamount proposed for expanded choice contracts covering the evaluationand enrollment functions, pending receipt of more complete information
concerning the proposed contracts.
A. MEDI-CAL HEALTH SERVICES
1. General Fund Deficiency of $125.9 million in 1985-86

The budget estimates that 1985-86 spending for Medi-Cal health services will exceed available funds by $31 million ($14.9 million GeneralFund). The deficiency, however, probably is several times this amount.
The Department of Health Services estimated the current-year deficiency
to be $205.7 million ($125.9 million General Fund). The Department of
Finance arbitrarily reduced the estimate by $190.8 million ($94.9 million
General Fund) .
Table 27 shows the amounts appropriated for Medi-Cal health services
for 1985-86 and the factors that have resulted in the projected deficiency.
The major increases and decreases in expenditures are as follows:Item 4260

HEALTH AND WELFARE / 737
Table 27
Medi-Cal Health Care Services
Proposed Budget Changes
1985-86 and 1986-87(dollars in millions)

1985-86
Funds available, 1985 Budget Act
1. Health benefits item ...................................................................................... ..
2. Refugee reimbursements ............................................................................... .
3. Prm'ision 1 ......................................................................................................... .
4. Rate item ........................................................................................................... .
5. Abortion item ................................................................................................... .
Subtotals, 1985-86 expenditures (Budget Act) ........................................ ..
Unanticipated changes
1. Increase in users of services ........................................................................ ..
2. Long-term care rate increases .................................................................... ..
3. Committee v. Kizer ......................................................................................... .
4. Federal audit recovery ................................................................................... .
5. Reduced federal audit receipts .................................................................... ..
6. Lopez \'. Heckler ............................................................................................. .
7. Disability determination moratorium ......................................................... .
8. Delay iI{ expanded choice start-up ............................................................ ..
9. Other changes ................................................................................................... .

1985-86 expenditures (Department of Health Services estimate) .............. ..
Arbitrary 4.1 percent reduction ............................................................................. .
1985-86 expenditures (Department of Finance estimate) ............................ ..
iJeiiciency:
Budget~d ................................................................................................................. .
Actual ....................................................................................................................... .

Genenll
Fllnd

All
Fllnds$2,102.4$4,310.3
22.1
14.2
138.7
11.7
$4,497.0

68.9
11.7$2,182.9
$73.4
31.9
15.9
13.2
8.5
5.3
5.0
-22.8
-4.4
$2,308.9-94.9$2,214.0

10.5
10.1
-45.3
-7.4
$4,702.7-190.8$4,511.9-$31.0-125.9-$14.9-205.7$2,308.9$4,702.7

$26.4
-7.5
31.9
7.3
12.1
8.0
-14.4
18.9

$52.8
-13.2
63.9
14.6
24.2
16.0
-12.7
37.5
4.3
-10.1
27.2
$4,907.1-233.2$4,673.9$146.8
63.7
14.1
13.2

1986-87
Baseline expenditures (Department of Health estimate) ............................ ..
Proposed changes
1. Increase in users of services ........................................................................ ..
2. One-time costs! savings in 1985-86 .............................................................. ..
3. Full-year cost of 1985-86 provider rate increases .................................... ..
4. Full-year cost of 1985-86 beneficiary cost-of-living adjustments ........ ..
5. 1986-87 beneficiary cost-of-living adjustments ........................................ ..
6. Statutory provider rate increases ................................................................ ..
7. Limitation on abortion funding .................................................................. ..
8. Expanded choice start-up costs .................................................................... ..
9. Home- and communitv-based care waivers .............................................. ..
10. Transfer of dental ad~inistrati\'e cost ...................................................... ..
11. Other changes ................................................................................................... .

1986-87 expenditures (Department of Health Services estimate) .............. ..
Arbitrary 4.75 percent reduction .......................................................................... ..
1986-87 expenditures (Department of Finance estimate) ............................ ..
Amount requested from SAFCO ........................................................................... .
1986-87 net expenditures (Department of Finance estimate) .................... ..
Change from 1985-86:
Before arbitrary reductions
Amount.. .............................................................................................................. ..
Percent ................................................................................................................. .
After arbitrary reductions
Amount..................................................................................................................
Percent ..................................................................................................................

-5.1
12.3
$2,398.7-115.2$2,283.5-18.9$2,264.6$4,673.9

$89.8
3.9%

$204.4
4.3%

$69.5
3.1 %

$162.0
3.6%• Increases in Users of Services ($73.4 Million). After the May 1985
expenditure estimates were released and before the 1985 Budget Act
was _~igned, the Del?~rtment of Health Services revised its expendi-

738 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

ture estimates for 1984-85. It did so because the number of persons
using Medi-Cal services in March and April 1985 were considerably
above the projected levels. When the higher utilization rates werefactored into the 1985-86 estimate, estimated costs went up by $146.8
million ($73.4 million General Fund).
• Long-Term Care Rate Increases ($31.9 Million). Rate increases
for long-term care facilities exceeded the 4 percent increase provided
in the 1985 Budget Act. Effective August 1985, rates increased by 7
percent for skilled nursing facilities, by 4.7 percent for intermediatecare facilities, and by 17.5 percent for state hospitals. Rates paid tointermediate care facilities for the developmentally disabledhabilitative increased by an additional 0.7 percent, effective October1985. These rate increases resulted in cost increases of $63.7 million($31.9 million General Fund).
• Committee v. Kizer ($15.9 Million). In July 1985, the state Courtof Appeals ordered the department to continue paying for the costsof all abortions for Medi-Cal beneficiaries and voided the restrictions
specified in the 1985 Budget Act. This order results in unbudgeted
costs of $15.9 million to the General Fund and an estimated $1.8
million in savings in federal funds.
• Federal Audit Recoveries ($13.2 Million). The state has settled
several outstanding disputes relating to funds that federal auditors
have identified as inappropriately charged to the federal government. The largest of these relates to inappropriate claiming of federal
funds for payment of abortion services during the period from 1972
to 1979.
.
• Reduced Federal Audit Receipts Under Provision 1 ($8.5 Million).
The 1985 Budget Act provided for the receipt of $14.2 million infederal funds following a final resolution of certain outstanding audit
disputes. The department now estimates that the state will receive
only $5.7 million, leaving an $8.5 million shortfall that must be fundedby the General Fund.
• Lopez v. Heckler and Continued Disability Determination Moratorium ($10.3 Million). In the case of Lopez v. Heckler, the federal
court required the reinstatement of persons discontinued from SSI/
SSP because of inappropriate determinations regarding their disabilities. The added cost to Medi-Cal as a result of reinstating thesebeneficiaries will be $10.5 million ($5.3 million General Fund) higher
than what had been estimated. In addition, the moratorium on disability determinations has been extended through January 1986, resulting
in Medi-Cal cost increases of $10.1 million ($5.0 million GeneralFund).
• Delay in Expanded Choice Start-Up (-$22.8 Million). The 1985
Budget Act was based on the assumption that the Expanded Choice
pilot program would begin at two sites in the spring of 1986. Start-up
has been delayed until August 1986. This delay will reduce currentyear costs by $45.3 million ($22.8 million General Fund). These areso-called "pipeline" implementation costs that result whenever
beneficiary enrollment in prepaid health organizations increases.
2.

General Fund Request for 1986-87: Up 2.3 Percent
General Fund Costs: Up 3.9 Percent

The budget requests $4,673.9 million ($21264.6 million General Fund and$18.9 million SAFCO) for Medi-Cal healtn care services in 1986-87. The

Item 4260

HEALTH AND WELFARE / 739

General Fund request is $50.2 million, or 2.3 percent, above estimatedexpenditures for the current year as adjusted by the Department of Finance. The projected increase is below the norm for this program for two
reasons. First, as noted above, the Department of Finance made an arbitrary reduction in the Department of Health Services expenditure estimate for 1986-87. Second, part of the costs that normally would be
financed from the General Fund have been shifted to the Special Accountfor Capital Outlay for the budget year.
Disregarding the arbitrary reduction, Medi-Cal health services are expected to cost $4,907.1 million in 1986-87 (Department of Health Services
estimate), of which $2,398.7 million will be supported with state funds.
This represents a 4.3 percent increase in total spending and a 3.9 percent
increase in state funding requirements. Table 27 summarizes the major
factors that have led to the increase in spending. They include the following:• Increases in Users of Services ($26.4 Million). The number of
those utilizing Medi-Cal services is expected to increase by 1.6 percent in 1986-87. This increase will occur despite a projected 0.8 percent decrease in the numbers of persons eligible for fee-for-service
Medi-Cal services. The resulting increase cost occurs primarily ininpatient hospital services, intermediate care facilities, medical transportation, home health services, and other services. Because of thehigh cost of inpatient hospital services, the increases in this service
category account for most of these increases. The families and cash
assistance disabled recipients show the largest increases in the number of users projected for 1986-87.
• Full-Year Cost of 1985-86 Provider Rate Increases ($31.9 Million).
The 1985 Budget Act provided increases in rates for various Medi-Cal
services ranging from 4.0 to 26.3 percent. The full-year cost of theseincreases will not be felt during 1985-86 because the rate increases
took effect on August 1, and Medi-Cal payments for services are madeseveral months after the services are provided. The 1985-86 rate increases will cost an estimated $63.9 million ($31.9 million) more in thebudget year than they cost in the current year.
• Full-Year Cost of 1985-86 Beneficiary Cost-oE-Living Adjustments($7.3 Million). The full-year effect of the cost-of-living adjustment provided under the AFDC and SSI/SSP programs during 198586 will increase budget-year costs by $14.6 million ($7.3 million General Fund).
• Statutory Provider Rate Increases ($8.0 Million). The budget request includes funds for expected increases in rates of payment for
inpatient services in noncontract hospitals and for drug ingredients.
State law requires that reimbursement for these services be provided
based on actual cost. The rate increases will result in costs of $16
million ($8 million General fund).
• Limitation on Abortion Funding (-$14.4 Million). The budget
proposes control language identical to that approved in the 1985
Budget Act limiting the use of Medi-Cal funds for abortions. The
budget assumes that the restrictive language will withstand legal challenge and that the number of Medi-Cal-reimbursable abortions will
decline. The result is a net savings of $12.7 million ($14.4 million
General Fund) in 1986-87.
• Expanded Choice Start-Up Costs ($18.9 Million from SAFCO).
The department expects to implement the Expanded Choice program in San Diego County, effective August 1, 1986. Under this pro-

740 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

gram, most persons eligible for Medi-Cal will enroll in prepaid healthorganizations. They will no longer use fee-for-service providers fortheir medical care. The result is a one-time cost of $37.5 million ($18.9
million SAFCO) to pay for fee-for-service claims processed after the
program begins.
• Transfer of Dental Administrative Costs (-$5.1 MilJion). The
budget proposes to transfer the cost of processing Medi-Cal dental
claims from the health services item to the Medi-Cal fiscal intermediary item. This permits a $10.1 million ($5.1 million General Fund)
reduction in the request for health services and a commensurateincrease in the fiscal intermediary item.
Proposed Changes in Medi-Cal Benefits

We recommend approval of the following proposed changes in MediCal benefits:• Absorptive Lenses. The budget proposes to extend coverage toinclude selective absorptive lenses for beneficiaries with certain retinal diseases. These lenses reduce or block the transmission of lightthat is harmful to some persons. Use of these lenses can prevent
permanent damage to the retina.
• Prior Authorization Limits. The budget proposes to increase from$50 to $100 the dollar threshold for purchases of prosthetic, orthotic,
and durable medical equipment that require a prior treatment authorization request (TARs). It also proposes to cut staff in Medi-Cal
field offices that now process TARs for these low-cost services. The
increased thresholds result in an estimated increase in health services
costs of $56,000 ($28,000 General Fund) and offsetting savings in
Medi-Cal administrative costs of $83,000 ($21,000 General Fund).
Full Funding of Statutory Beneficiary Cost-of-Living Adjustments

Any increase in cash grant payments under the Aid to Families with
Dependent Children (AFDC) and Supplemental Security Income/State
Supplementary Payment (SSI/SSP) programs increases Medi-Cal costs in
two ways. First, increased income standards result in increased numbersof Medi-Cal eligibles; and second, increased maintenance need levels result in reduced share-of-cost payments by medically needy and medicallyindigent beneficiaries.
The budget contains $24.2 million ($12.1 million General Fund) to fundincreased Medi-Cal costs that are anticipated as a result of 4.9 percent(estimated) increase in AFDC and SSI/SSP grant levels that current law
requires.
No Discretionary COLAs Provided in 1986-87

The budget includes $40.2 million ($20.0 million General Fund) for
statutory rate increases. This amount includes funds for (1) 7.3 percent
increase in costs for noncontract-hospital service, and (2) a 7.3 percent
increase for the hospital component of rates for prepaid health plans,county organized health systems, and the Redwood Health Foundation,and (3) a 5.6 percent increase in the cost of drug ingredients. (All of theseincreases are subject to change, based on the criteria set forth in state law.)

Item 4260

HEALTH AND WELFARE / 741

The budget provides no funds for increases in the rates paid to any otherproviders. Table 28 shows the rate increase granted to various types ofproviders in recent years. It also shows the costs of providing a 1 percent
increase in provider rates in 1986-87.
Table 28
Medi-Cal Provider Reimbursement Rate Changes
1984-85 through 1986-87
1986-87 Cost(dollars in thousands)

Rute Chl11ges
ActualProp
Actual
Stu tutory increuses;\;oncontract hospitals ....................................... .
Drug ingredients .............................................. ..

of 1 Percent
1ncrease
General
All
Fund
Funds
$544 "$1,088 "712
1,424

1984-85

1985-86

1986-87

10.4%
7.5

9.5%
6.2

7.3%
5.6

15.3 "
9.8"
13.4

7.0
5.4 "
17.5

4,672
502
1,576

9,269
1,002
3,153

7.7
9.4
8.0
7.7
1.9
9.7
7.4

6.0
5.3
4.0
7.9
5.4
12.0
26.3

1,683
402
515
583
728
145
345

3,381
798
1,047
1,161
1,430
285
691

7.7
8.0
3.0

5.3
4.0
4.0

60
22
1,720
$14,209 .

120
45
3,802
$28,696

Other required increases
Skilled nursing facilities .................................. ..
Intermediate care facilities ............................ ..
State hospitals ..................................................... .

DiscretiowlrI' increases
Physician .... :........................................................ .
Dental ................................................................. .
Drug dispensing .............................................. ..
Hospital outpatient ........................................... .
Prepaid health plans ......................................... .
Redwood Health Foundation ........................ ..
Laboratory and pathology.............................. ..
Psychology, acupuncture, portable X-ray,chiropractic ................................................ ..
Prosthetics and orthotics ................................ ..
Other providers ................................................. .
Totals .............................................................. ..

"This includes $362,000 ($181,000 General Fund) for hospital services provided by Redwood HealthFoundation, county organized health systems, and prepaid health plans operating in areas not closed
to hospital contracting.
"This includes the 1984-85 increases for SNFs, ICFs, and state hospitals of 6.3, 3.6, and 10.2 percent,respectively, granted August 1, 1984; increases granted in Ch 1621/84 of 1.0, 0.9, and 0.4 percent
effective Februarv 1, 1985; and increases granted in Ch 10/85 and Ch 11/85 of 7.4, 5.0, and 2.5 percent
effecti"e March i5, 1985.
<' This is the combined impact of a 4.7 percent increase granted August 1, 1985 and a 0.7 percent increaseprovided by Ch 1336/85 effective October 1, 1985.

Funding for Disproportionate Hospital Providers Increasing

The California Medical Assistance Commission (CMAC) is responsible
for negotiating contracts with hospitals, county health systems, and healthcare plans that provide services to Medi-Cal beneficiaries. In this capacity,
the CMAC renegotiates rates of payment with hospitals, "closes" areas tononcontract hospital providers after negotiations in an area have been
completed, and terminates existing contracts and negotiates new contracts in closed areas.
Table 29 shows that the CMAC has negotiated contracts which will
increase hospital payment rates by $31.8 million in 1986-87 without substantially increasing overall Medi-Cal costs. It has done so by negotiating
contracts in two new areas, which will yield an estimated $8.8 million
savings, and by terminating some costly contracts and negotiating newcontracts in closed areas which will produce a $21.9 million savings. Mostof the new contracts were negotiated with children's hospitals, whichwere exempt from contracting until October 1984.

Item 4260

742 / HEALTH AND WELFARE
DEPARTMENT OF HEALTH SERVICES-Continued
Table 29
Effect of CMAC Hospital Contracts NegotiatedBetween September 1984 and September 1985
All Funds
0

Added costs
Rate increases h ......................................................................................................
Budgeted in Medi-Cal base
Disproportionate providers ......................................................................... .
Others ............................................................................................................... .
Additional increases
Disproportionate providers ......................................................................... .
Others ............................................................................................................... .

1985-86

1986-87$18,642$31,803(9,060)(6,942)(19,940)(6,773)(2,480)(160)(4,780)-8,508-11,156-$1,022-8,827-21,942$1,034(310)

Sm1ngsClosure of two new areas .................................................................................. ..
\'ew and terminated contracts ......................................................................... .
Totals .................................................................................................................... ..

"SOUTC£': Department of Health Services and California Medical Assistance Commission.

h Includes $1.9 million in 1985--86 and $2.0 million in 1986-87 resulting from contract amendments that

permit separate billing of physician's services that previously were included in the hospital's contructratc.

The 1985 Budget Act included $5 million ($2.5 million General Fund)to increase reimbursement rates for hospitals that have a disproportionately large share of low-income patients. The CMAC has defined theseproviders as hospitals that are county or university hospitals, or hospitals
with more than 20 percent of their patients funded by Medi-Cal.
Under its guidelines the CMAC will not terminate a contract or refuse
to amend a contract with a "disproportionate" hospital solely because it
wishes to avoid overall cost increases. In addition, the commission in negotiating reimbursement rates, will take into account information provided
by "disproportionate" hospitals on their fiscal situation and the impactthat proposed contract changes would have on them. The guidelines also
call for CMAC to give speCial consideration to rate amendment proposals
requested by disproportionate providers.
Table 29 shows the share of rate increases that have gone to "disproportionate" hospitals and other hospitals. Excluding the $5 million augmentation for disproportionate providers, the 1985 Budget Act provided$9,060,000 for disproportionate providers and $6,942,000 for other providers. In addition, negotiations have resulted in revenue increases for disproportionate providers totaling $2,480,000. These increases are funded using
money added to the 1985 Budget Act specifically for disproportionate
providers.
Medi-Cal Rates for Long-Term Care

The 1985 Budget Act directs the Legislative Analyst to review themethod that the department uses to set rates for long-term care facilities,
including skilled nursing facilities, intermediate care facilities, and facilities for the developmentally disabled. The purpose of the review was todetermine whether increases in rates were adequate to cover the actual
increases in overall costs and in the various cost categories.
The Rate-Setting Method. Each year the department calculates p.ew
rates for long-term care facilities and publishes the results in its annual
Reimbursement Study. The department begins by determining the actual
costs experienced by facilities in the prior fiscal years. For example, rates

Item 4260

HEALTH AND WELFARE / 743

for 1985-86 were based on costs experienced by facilities whose fiscal years
ended between July 1983 and June 1984. Costs for each facility are adjusted
by a factor that reflects unallowable costs which the department has identified in audits of a sample of long-term care facilities. Unallowable costs
include (1) costs unrelated to patient care (for example, personal cars,
entertainment, or travel), (2) unreasonable compensation (salary or consulting fees for administrators or owners that exceed limits establishedunder Medicare costs principles), and (3) other technical adjustments(such as adjustments in depreciation schedules). Table 30 shows the percent of costs disallowed for various types of facilities.
Table 30
Percent of Costs Disallowed Due to Audit Adjustments
FuciJj~1" Cutegory

Skilled nursing facility
1-59 beds ........................................
Over 59 beds ................................
Intermediate care facility
1-59 beds........................................
Over 59 beds ................................

1979

1980

1981

1982

1983

2.7%
3.2%

3.7%
3.5%

3.3%
4.1 %

5.4%
3.2%

6.3%
3.4%

2.7%
3.2%

5.8%
6.3%

3.3%
4.1 %

3.3%
8.3%

4.2%
13.0%

Source: Department of Health Services Reimbursement Studies.

Allowable costs are then spread into four categories: (1) salaries, wages,
and benefits, (2) property taxes, (3) fixed costs (including depreciation,leases, rents, interest, leasehold improvements, and other amortization),and (4) other costs. Costs in each of the four categories are projected forthe coming state fiscal year by applying a variety of adjustment factors.
These factors represent estimates of cost increases expected between thetime the costs were reported and the midpoint of the coming fiscal year.
The following adjustment factors were used in the 1985 rate study thatset rates for 1985-86:
1. Salaries, Wages, and Benefits. The department updated thesecosts through September 1984 based on data received from the Employment Development Department about wages paid in the nursing homeindustry. For the period from October 1984 to June 1985, the department
then applied an increase of 10 percent (on an annual basis) to reflectincreases granted to certain classes of state employees. An additional increase of7.5 percent (on an annual basis) was granted for the period from
July to December 1985.
.
2. Property Taxes. The department provided funds for a 2 percent
annual increase in property taxes.
3. Fixed Costs. The department did not provide funds for cost increases in this category. The department has argued that these costs remain relatively constant and that there is no logical basis on which to
update costs in this category.
4. Other Costs. The department updated these costs using thechange in the California Consumer Price Index for All-Urban Consumers.
The department relies on the Department of Finance for estimates of thisindex.
Costs for each facility are projected for the budget year. Additional
adjustments may be added if the base does not reflect recent programchanges. For example, the 1985-86 rates were adjusted to include (1) the
cost oflaundry and haircut services required by Ch 1641/84 (AB 2845), (2)Item 4260

744 / HEALTH AND WELFARE
DEPARTMENT OF HEALTH SERVICES-Continued

the wage pass-through provisions and staffing standards established by
Chs 10 and 11/85 (AB 160 and SB 53), and (3) the added administrative
costs stemming from the Johnson v. Rank court decision, which requiresthat patient expenditures for certain drugs and medical supplies be counted toward an individual's share of cost under the Medi-Cal program.
After these adjustments are made, facilities are categorized according
to size, type, and location; and separate rates for each category are set atthe median of the projected cost for the facilities in each category.
Overall rate increases provided by the department have been more thanadequate to meet actual cost increases. The primary basis for judging
the accuracy of the rate-setting method is whether or not actual cost
increases exceed the rate increases that the department has set. Because
the rates are established at the median-that is, 50th percentile-the department's methodology would be successful if the rate paid equaled the
median cost of the facilities in a given year.
Table 31 shows that the rates paid to skilled nursing facilities in recent
years have exceeded the median costs that the facilities actually incurred.
Only three times has the median facility of any category experienced costs
that exceeded the rates set by the state. When shortfalls occurred, mediancosts for facilities were 0.1 to 1.6 percent higher than rates, which amounted to a shortfall of five to sixty-five cents per patient-day.
Table 31
Percentage by Which Reimbursement Rates Exceed Median Adjusted Costs
Incurred by Skilled Nursing Facilities

Los Angeles
Less thun
60 Beds
Fiscul Yeur
End Dutes
60 Beds
or More2.9%
1980 ............................ 2.8%
1980-81 ...................... 4.5%
6.1%
3.3%
1981-82 ...................... 1.9%
1982-83 ...................... 3.4%
1.9%
1983-84 .................... " 3.2%
1.1%

Bul' Areu COllnties
Less Thun
60 Beds
or More60 Beds
3.1%
2.7%
8.2%
4.8%
0.5%
2.1%
-0.1%
0.9%
1.2%
-1.6%

All Others
COllnties
Less Than
60 Beds
60 Beds
or More
2.8%
6.2%
7.7%
7.1%
2.9%
4.1 %
0.7%
2.1%
2.6%
-1.4'0/0

Adequacy of Increases by Cost Category. The DHS rate-setting
method consistently overestimates the increases in salaries and wages
given by long-term care facilities. On the other hand, increases provided
for fixed costs and other costs are consistently less than actual costs. Although facilities have been compensated for overall cost increases by therates, cost increases in individual categories have not, in all cases, been
fully reimbursed. Table 32 compares the rate increases in each cost category to the actual cost increase reported for a sample of long-term carefacilities taken by the California Health Facilities Commission (CHFC).
Table 32 shows that salary and wage increases provided by the department exceeded actual salary and wage increases by 1.3 to 2.6 percent.
Fixed costs increased between 2 percent and 3 percent annually, eventhough the department had assumed that these costs would remain unchanged. "Other costs" increased by 8.5 and 8.8 percent for fiscal years
ending in 1982-83 and in 1983-84. The department's rate method allowed
only a 3 percent increase in 1982-83 and a 5 percent increase in 1983-84
for "other costs."

Item 4260

HEALTH AND WELFARE / 745
Table 32
Increases in Actual Costs Compared With Rate Increases

Cost
Increllse

Rllte
Increllse

Difference

Salaries and wages ..........................................................
Fixed expenses..................................................................
Property taxes ..................................................................
Other costs ........................................................................

6.2%
2.1%
4.6%
10.2%

1981-82
8.6%
0.0%
2.0%
7.3%

2.4%
-2.1%
-2.6%
-2.9%

Salaries and wages ..........................................................
Fixed expenses..................................................................
Property taxes ..................................................................
Other costs ................................................... :....................

3.4%
2.6%
1.5%
8.5%

1982-83
6.0%
0.0%
2.0%
3.0%

2.6%
-2.6%
0.5%
-5.5%

Salaries and wages ..........................................................
Fixed expenses..................................................................
Property taxes ..................................................................
Other costs ........................................................................

3.8%
2.7%
0.5%
8.8%

1983-84
5.1 %
0.0%
2.0%
4.9%

1.3%
-2.7%
1.5%
-3.9%

Somc(': CIIFC Long-Term Care COLA Study and DHS Reimbursement Studies.

Use of Salary Increase Funds. The CHFC findings indicate that salary and wage increases for nursing home employees have fallen short ofthe increases that the department assumed when it projected costs. In
part, this may be because facilities have used some salary increase funds
to cover cost increases in other categories that were not fully reimbursed
by rate increases. Nevertheless, there is little evidence to suggest that
increasing rates for "other costs" would result in higher spending forsalaries and wages. We note that:• Between 1979 and 1983, long-term care facilities have consistently
spent between 3 percent and 5 percent of their revenue in ways thatdepartment auditors have determined to be unrelated to patient careor unreasonably high.
• Many long-term care facilities have certified that they will not use therevenue given to them under Chs lO and 11/85 (AB 160 andSB 53).
These rate increases were specifically provided for the purpose ofincreasing rates of pay and staffing levels. The available data do not
permit the department to determine whether a facility spent thefunds for extra staffing or granted the required wage increases. Nevertheless, 12.6 percent of facilities have chosen not to expend thefunds for these purposes, even though current law requires the DHS
to recover misspent funds and assess a 10 percent penalty.
• Salary increases for administrative personnel have consistently exceeded salary increases given to nursing personnel. The CHFC study
showed that most facilities have given administrators larger salary andwage increases than those projected by the department, even though
the overall rate of increase for salaries and wages fell below the department's projections. At the same time, wages for nurse assistants,
housekeeping, and dietary personnel in most facilities have increased
at rates lower than those assumed in the department's projections.

746 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued
Data on Staffing Increases Needed

We recommend that the department be prepared to report during
budget hearings on the feasibility ofmodifying the AB 180/SB 53 certification worksheets to include nursing hour data so that the department candetermine whether facilities are in compliance with laws requiring staffing
and wage increases.
Chapters 10 and 11, Statutes of 1985 (AB 180 and SB 53), require longterm care facilities to (1) increase hourly wages for nursing personnel and(2) increase nursing staff. Medi-Cal rate increases paid for the costs ofthese requirements. Current law requires facilities to certify that the rateincrease funds were actually spent as intended.
The department, in conjunction with provider groups, developed aworksheet to gather the information on compliance. The data collected on
the worksheet allow the department to determine whether each facility
increased its spending on nursing personnel. The worksheet, however, hasa serious flaw. It does not gather data on the number of nursing hours paidfor during the periods when the facilities were subject to the new requirements. Without these data, it is impossible to determine for the facilities
that failed to spend all the additional funds whether the failure was due
either to lower-than-required staffing increases or to less-than-required
increases in hourly wages.
This oversight should be corrected. Therefore, we recommend that the
department report during budget hearings on the feasibility of modifying
the certification worksheets in order to gather data on nursing hours
provided during the periods subject to certification. With this information,
the department will be able to determine whether the long-term carefacilities are complying with the provisions of current law.
Long-Term Care Rate Increases Are Likely

We recommend that the Legislature transfer $12,672,000 ($6,336,000
General Fund and $6,336,000 in federal funds) from the Medi-Cal services
items to the Medi-Cal rate increase items in order to eliminate overbudgeting of state hospital services and help reduce underbudgeting of rateincreases for long-term care facilities.
The budget proposes no funding to increase rates for long-term carefacilities, including state hospitals. Under current federal law, rates forlong-term care facilities, nevertheless, will increase.
Federal law, in conjunction with California's state plan, requires annual
adjustments in reimbursement rates for long-term care facilities. The
state's plan specifies a procedure that must be followed in calculating theannual rates of payment for long-term care facilities. Unless the department amends the plan and the federal government concurs with theamendments, the currently established procedure will lead to increases inreimbursement rates for skilled nursing facilities, intermediate care facilities, and state hospitals for the developmentally disabled.
Since we are not aware of any proposal to significantly change the stateplan, we conclude that the budget is underfunded. (This is on top of theunderfunding that results from the arbitrary reductions imposed by the
Department of Finance.). The size of the shortfall cannot be determinedat this time, but it is significant. Each 1 percent increase in long-term care
rates will result in costs of $13.4 million ($6.8 million General Fund). The

Item 4260

HEALTH AND WELFARE / 747

actual percentage increases in the rates called for by the state's plan will
not be known until updated cost information from long-term care facilities
is analyzed.
The budget inadvertently provided funding for a 4.1 percent increasein state hospital rates. The budget for the Medi-Cal program includes$347.9 million ($173.9 million General Fund) for reimbursements to the
Department of Developmental Services (DDS) for the cost of serving
Medi-Cal eligibles residing in state hospitals. The DDS estimates that,without a cost-of-living adjustment, the cost of serving these patients willbe $335.2 million ($167.6 million General Fund). This is $12.7 million ($6.3
million General Fund) less than the amount proposed in the budget.
Taking the administration at its word-no funds for long-term care rateincreases-we find that Medi-Cal funds for state hospitals are overbudgeted. Obviously, it would be pointless to recommend that the Legislaturedelete the $12.7 million when an even greater amount will be needed in
1986-87 to fund rate increases for long-term care facilities. Therefore, we
recommend that the Legislature transfer $6,336,000 to the General Fund
rate increase item (Item 4260-106-001) and $6,336,000 to the federal rateincrease item (Item 4260-106-890), so that it will be available to partiallycover the 1Q86-87 costs of long-term care rate increases.
Process for Budgeting Long-Term Care Rate Increases Should Be Improved

We recommend that as part of the May revision, the Department of
Finance provide an estimate of what rate increases for long-term carefacilities will cost.
The budget proposes no funding for long-term care facility rate increases, even though the state's plan and federal regulations will makethese increases difficult (if not impossible) to avoid.
The cost of rate increases required for long-term care facilities will not
be known until after the Department of Health Services completes its
annual rate study. In the past, the department has not been able to complete its rate study until after the Department of Finance has submitted
its May revision of expenditures to the Legislature. Nevertheless, thedepartment generally has been far enough along in its analysis of thereported costs of these facilities that it could project an approximate percentage increase in the rates. Such an estimate-even a rough estimatewould be of value to the Legislature in doing its fiscal planning if it were
included in the May revision, as are other statutory rate increases. The
amount in the final budget could be adjusted by the Conference Committee on the Budget Bill to reflect the final rate increases.
We therefore recommend that, as part of the May revision of expenditures for the Medi-Cal program, the Department of Finance provide anestimate of what the increases in long-term care rates called for by· thestate's plan will cost.
Intermediate Care Facilities for the Developmentally Disabled-Habilitative(lCF/DD-H) Rate Increases Unjustified

We recommend a reduction $2,483,000 ($1,241,000 General Fund) requested for a rate increase for ICFIDD-Hs because the rate increases are
not justified.
The budget includes $2,483,000 ($1,241,000 General Fund) for (1) a 9.5
percent increase in the rates paid to intermediate care facilities for thedevelopmentally disabled-habilitative (ICF/DD-Hs) with 4-6 beds and(2) a 5.3 percent increase for those ICF/DD-H facilities with 7-15 beds.

748 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

The increase is intended to cover the cost of upgrading a patient careposition to a supervisor position. The funds would be sufficient to provide
an additional 56 hours per week of supervisory time.
According to the proposal, current rates are not high enough to encourage providers to invest in the development of new ICF/DD-Hs. A workgroup established by the DDS, composed of facility administrators, regional center staff, and advocates, concluded that patient care staff were
not providing an adequate level of programmed activities due to inadequate supervision. Therefore, the DDS proposed this increase in ICF /DDH rates to permit the payment of a higher hourly wage to one of the four
patient care staff members. The department also proposes to draft andadopt regulations requiring the person hired for this supervisory position
to have additional experience in providing developmental services.
There are several problems with the proposed rate increase:
1. Rate Increases Have Already Been Granted. The rate increases
provided in Ch 1336/85 were specifically intended to increase the hourly
wages of patient care personnel. These increases already have provided
a response to the problem of inadequate supervision that the proposed
rate increase is intended to solve. They will improve the ability of thesefacilities to attract and retain higher-quality staff who will be more likely
to provide the required program activities under the current level ofsupervision.
.
2. Further Rate Increases are Likely. The proposed $2.5 million rateincrease would be in addition to the normal rate increase for 198~7. The
Department of Health Services will complete another rate study before
the end of 1985-86, and rates will be adjusted in August 1986 to reflect the
ICF/DD-Hs' most-recent cost experience. It is very likely that this study
will find a need for increases in these facilities' rates. In any case, rates will
be adjusted to reflect the facilities' actual costs projected into 198~7. The
normal rate increase may provide increases that will be sufficient to stimulate the desired growth in the numbers of ICF/DD-Hs.
3. Facilities Already Have Personnel Responsible for Supervising theProgrammed Activities. These facilities currently are required to employ a qualified mental retardation professional (QMRP) for at least nine
hours each week to plan individual programs for residents and to see thatthese programs are implemented. If supervision of patient care personnel
is not adequate, it is indicative of poor performance by the QMRP, rather
than a need for additional supervisory personnel.
4. The Supervisory Hours Provided are Excessive. The ICF/DD-Hs
are required to provide a minimum of 56 hours a week of habilitative
program activities for each client. Most clients spend a considerable portion of this time-up to 30 hours weekly-outside the facility. The proposal
assumes that the facility will employ the supervisor for the full 56 hours
each week. This is much more time than would be required to increase
the supervision of patient care staff during the time when the facility isproviding on-site habilitative programs.
5. The Proposal Does Not Take Account of Existing Supervisors and
Added QMRP Time Already Reflected in Facility Cost Data. Accord"
ing to the DDS, an unknown number of these facilities already haveupgraded one of the patient care positions to a lead or supervisory position. Others may have increase QMRP time beyond the minimum nine
hours required. To the extent that this has occurred, the cost data fromthese facilities already reflect the added costs of the proposed requirement.

Item 4260

HEALTH AND WELFARE / 749

For all of these reasons, we conclude that the proposal for a further
increase in the rates for ICF/DD-Hs is unwarranted at this time. We
therefore recommend that the Legislature delete the funds requested for
ICF/DD-Hs.
As we have pointed out elsewhere, the budget as proposed does notcontain adequate funding for long-term care facility rate increases. Adequate funding is likely to require much more than the amount we recommend to be reduced here, but this amount could be used to offset some-of these unbudgeted costs. Nevertheless, we hesitate to suggest any specific use of the funds that would be saved by accepting our recommendation
until it is clear that the administration will not, and the Legislature must,
provide the funds necessary to support the service levels proposed for1986--87.
No Funding for ICF/DD-Ns Budgeted

We recommend that during budget hearings, the Department of Finance report on how it expects to fund the costs of Medi-Cal reimbursement for /CFIDD-N services during 1986-87.
The budget includes no funds for the costs ofICF /DD-N clients because
the reimbursement rates for these facilities have not been established.
Chapter 1496, Statutes of 1985 (SB 851), established a new category of
long-term care facility, intermediate care facility for the developmentallydisabled-nursing (ICF /DD-N). These facilities are intended to provide
care for developmentally disabled persons who require more medical
attention than can be provided in commuriity care facilities or other longterm care facilities. The department is requesting additional positions in
the Licensing and Certification Division and in Medi-Cal field offices tosupport these new facilities.
Although the department's implementation schedule assumes that an
average of 500 ICF /DD-N recipients per month will be supported by theMedi-Cal program during the last six months of 1986--87, our review indicates that this caseload is overstated. The schedule for licensing thesefacilities would allow for no more than an average of 330 recipients permonth. Based on estimates of the rates provided for this facility category,a caseload of 330 recipients would result in a cost of $3.5 million ($1.8
million General Fund) during 1986--87.
Even though the budget has made no provision for the services that
ICF/DD-N clients will require, the state will incur costs to reimburse thefacilities providing these services. Thus, here again, the administration has
underbudgeted program costs. We therefore recommend that during
budget hearings, the Department of Finance report on how it expects tofund the costs of Medi-Cal reimbursement for ICF/DD-N services during
1986--87.
Caseload Estimates Need to be Reconciled

We recommend that the Department of Finance (1) reconcile the discrepancy between the SS/ISSP aged caseloads and the refugee caseloads
prepared by the Departments of Health Services and Social Services and(2) report prior to budget hearings on any changes that may be warrantedin the amounts requested for SS/ISSP, Refugee Cash Assistance, and MediCal.
The Department of Health Services estimates that the numbers of both
refugees and SSIISSP aged recipients will decrease in the budget year. In

750 / HEALTH·AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

contrast, the Department of Social Services estimates that the number of
eligible persons in these two programs will increase. This discrepancy was
not picked up either by the Health and Welfare Agency or by the Department of Finance in reviewing the two departments' budget submissions.
We discuss the details of these conflicting estimates in our analyses of
Item 5180-111-001 (SSI/SSP) and Item 5180-131-866, where we recommend that the Department of Finance reconcile the conflicting estimatesand report prior to budget hearings on any changes that may be warranted in the amounts requested for the affected programs.
Adult Day Rate Study Overdue

We recommend that prior to budget hearings, the department (1) report
the reasons for the delay in submitting to the Legislature the Adult Day
Health Care program rate methodology and (2) describe the steps it istaking to ensure timely establishment of these rates in the future.
Chapter 1624, Statutes of 1984, required the Department of HealthServices to submit to the Legislature, by January 1, 1986, a rate methodology for adult day health care (ADHC) centers. The department was also
required to implement a uniform data collection and cost reporting system by January 1, 1985, for use in rate determination. A discussion of theuniform data collection system can be found in our analysis of the Department of Aging (Item 4170-001-001).
As ofJanuary 1986, the department had not submitted the required rate
methodology to the Legislature. Until a reimbursement methodology isimplemented,· ADHC centers will be reimbursed at the maximum approved Medi-Cal rate. Consequently, the delay in establishing ADHC
rates may result in increased costs to the state.
Given the importance of these rates, we recommend that prior tobudget hearings, the department (1) report the reasons for the delay insubmitting the required rate methodology and (2) describe the steps it istaking to ensure timely submission of future rates.
No SCivings Budgeted for Asset Clearance Match

We recommend that during budget hearings, the Department of HealthServices report on (1) the savings which are expected to occur in theMedi-Cal program due to the asset clearance match and (2) the potential
for achieving additional savings by including medically needy recipientsin the match program.
The Department of Social Services (DSS) currently operates a computer system to match welfare records with the Franchise Tax Board's
records of interest earnings in order to identify cases where the resource
limits may have been exceeded. Questionable cases are referred to county
welfare departments and to the Department of Health Services for investigation. Investigations can result in persons becoming ineligible for the
AFDC and Medi-Cal programs. The Department of Social Services estimates that this program will reduce state AFDC expenditures by $8.6
million $4.3 million General Fund) in 1986-87.
We recommend that during hearings the department report on (1) thesavings expected due to the asset clearance system as it is now conducted,
and (2) the potential for achieving additional savings during 1986-87
through investigation of medically needy recipients who may have resources in excess of allowable limits.

Item 4260

HEALTH AND WELFARE / 751

Additional Federal Funds May Be Available

We recommend that during budget hearings, the Department of Finance provide a status report on California's request for retroactive federal
funding of state hospital costs and an estimate of the amount of federal
funds California expects to receive.
During a routine review, federal auditors noted that the costs used to
calculate the rate of reimbursement for state hospitals under the Medi-Cal
program were understated because they did not include a portion of costsof the central administrative staff of the department. 'These costs justify
a 5.8 percent increase in the reimbursement rates for state hospitals, andthus the 5.8, percent increase in the federal government's share of reimbursement costs.
According to the Department of Health Services, it may be possible toclaim additional federal funds for past years on a retroactive basis. These
claims could amount to as much as $15 million during 1986-87.
We recommend that during budget hearings, the Department of Finance advise the Legislature on the status of these claims.
PHP Costs Exceed Fee-for-Service Costs

We recommend that the Legislature adopt Budget Bill language directing the department to revise its PHP rate methodology for a savings of$4.7
million ($2.35 million General Fund).
Background. Expansion of Medi-Cal enrollment in California's prepaid health plans (PHPs) has been encouraged, based on the premise that
increased PHP enrollment reduces Medi-Cal costs. Indeed, during past
years, PHP rates, in the aggregate, have been less than the equivalentfee-for-service (FFS) costs. The PHPs' lower costs usually are attributed
to the incentive structure that PHP providers face. By prepaying for
health care costs on a capitated basis, the state reduces any incentives that
PHPs might have to provide unnecessary services and introduces incentives for them to prevent illness.
In 1984-85, for the first time, PHP rates were set at a level that was equal
to FFS costs as calculated by the department. This was true in each of thefour categories for which individual rates are paid: family, aged, blind, anddisabled.
By law PHP rates cannot exceed the equivalent costs, including thecosts of "administration," in the FFS system. In past years, the department
defined "administration" to include the amount of indirect costs that thestate would save for each Medi-Cal eligible who enrolled in a PHP. Thesesavings arise because with fewer FFS claims to be processed, the cost ofutilization review activities, checkwriting, and postage go down.
In 1984-85, the department began defining "administration" to include
additional indirect costs. These costs include the total costs associated with
the Fiscal Intermediary Management Division (FIMD), the total cost of
the CSC contract, and 50 percent of each of the Field Services Branch,
Audits and Investigations Division, and the Health Insurance Section of
the Recovery Branch. When these administrative costs are added to FFS
equivalent costs, it increases by $1.68 per month the amount that PHP
rates can be raised without exceeding the FFS standard.
The problem with this change in methodology is that the additional
administrative costs could not be saved merely by converting a few thousand participants to the PHP system. They could be saved only if theentire Medi-Cal population enrolled in capitated programs.

752 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

As a result of this change, the state now pays more for certain Medi-Cal
beneficiaries enrolled in PHPs than it would if these beneficiaries obtained their health care services in the FFS system. Every additional
categorically eligible person who switches from FFS to the PHP systemincreases state costs by $1.68 per month.
Paying a premium to PHPs would be appropriate if it could be shownthat California's PHPs offer higher-quality or more accessible health services, or that enrollees are healthier as a result of PHP care than comparable FFS users. We are not aware of any evidence, however, that this is thecase in California. Consequently, we recommend that the Legislature
adopt the following Budget Bill language directing the department torevise the rate methodology it uses to determine FFS equivalent costs sothat it recognizes only those FFS costs that are likely to be avoided if
additional Medi-Cal beneficiaries enroll in PHPs:"It is the intent of the Legislature that the rate methodology used todetermine fee-for-service equivalent costs for the Medi-Cal prepaid
health plan program shall include only those administrative costs likely
to be avoided if additional Medi-Cal beneficiaries enroll in prepaid
health plans."
We also recommend that the Legislature reduce by $4.7 million ($2.35
million General Fund) the health care services item to reflect the savings
that would result from use of the revised rate methodology.
We recognize, as we have elsewhere in the analysis of Medi-Cal programs, that the proposed budget falls short of what would be required toprovide the service levels required under current law. But we hesitate torecommend that savings identified here be used to provide the necessary
funds until it is clear that the administration will not propose to adequately
fund these programs.
Technical Errors Need Correction

We recommend a reduction of$1,532,000 ($103,000 General Fund, $663,000 SAFCO, and $766,000 in federal funds) to correct technical errors in
prepaid health plan costs.
The budget inappropriately includes $207,000 ($103,000 General Fund)for a prepaid health plan (PHP) that no longer has a Medi-Cal contract.
The proposed budget also double-counts some beneficiaries in its estimate
for ongoing PHP enrollment and the new Expanded Choice pilot. The
result is the double-budgeting of $1,325,000 ($663,000 SAFCO) in "pipeline" costs. Therefore, we recommend a reduction of $1,532,000 (including$103,000 General Fund, $663,000 SAFCO, and $766,000 in federal funds) tocorrect PHP population estimates and resultant costs.
B.

COUNTY ADMINISTRATIONThe budget proposes $134,994,000 ($60,266,000 General Fund) for county welfare departments to support Medi-Cal eligibility determinations for
medically needy Medi-Cal beneficiaries in 1986-87. The costs of eligibility
determinations for categorically eligible (AFDC and SSI/SSP) beneficiaries are funded either through Item 5180-141 in the Department of Social
Services or by the federal Social Security Administration.
The total cost of Medi-Cal eligibility determinations is expected to decrease by $7 million, or 4.9 percent, in 1986-87. The reduction reflects
one-time costs for certain court cases, retroactive payments to Los Angeles
County, and federal expenditures for county cost-of-living adjustments
granted in previous years that will not reoccur in 1986-87. General Fund

Item 4260

HEALTH AND WELFARE / 753

expenditures for Medi-Cal eligibility determinations are expected to increase by $7.2 million, or 14 percent in, 1986-87. The major reason for theincrease is that the ratio of General Fund-to-federal fund expenditures will
return to normal in 1986-87. General Fund costs in 1985-86 are expected
to be abnormally low due to the receipt of $7.9 million in federal funds andreimbursements for prior-year expenditures.
Estimates of 1985-86 expenditures indicate that General Fund costs forcounty eligibility determinations will be $631,000, or 1.3 percent, higher
than the amount appropriated for these costs in the 1985 Budget Act. The
deficit is due primarily to an overestimate of assessments against counties
for excess eligibility determination denial rates.
Table 33 displays estimated and proposed expenditures for county administration in 1985-86 and 1986-87.
Table 33
Medi-Cal County Administration
Proposed 1986-87 Budget Changes(dollars in thousands)

Generu/FUJld
A. Funds available, 1985 Budget Act
1. Eligibility item ................................................................................................ .. $52,371
2. Federal refugee reimbursements ............................................................... .
3. Federal fund and reimbursement adjustments ...................................... ..
Subtotals, 1985-86 expenditures (Budget Act) ........................................ .. $52,371
B. Unanticipated 1985-86 changes
1. Intake caseload increase-L.A. county hospital ..................................... .
$104
2. Social Security account number project .................................................. ..
69
3. Reestimated cost of HR 4170 implementation ...................................... .. -1,139
4. Termination of two-person households maintenance need level adjustments ........................................................................................................... .
-143
5. Federal fund pass-ons for 1984-85 COLA ................................................ ..
6. Johnson v. Runk retroactive settlement ................................................... .
71
7. Reduced estimate of amount withheld from counties for excess denial
rates ................................................................................................................... .
2,031
8. Decreased caseload ......................................................................................... .
-374
9. Other changes ................................................................................................ ..
62
C. 1985--86 expenditures (estimated) .................................................................. .. $53,052
D. PrOjected current year deficiency ................................................................. .
E. Budget year changes
1. Elimination of one-time reimbursement adjustments ........................ ..
2. Income status reporting pilot project ..................................................... .
3. SAWS-automated eligibility determination ........................................ ..
4. Retroactive court settlements .................................................................. ..
5. Elimination of one-time payment adjustment to L.A. county ......... .
6. Elimination of federal fund pass-on for 1984-85 COLA ..................... .
7. Development of a cost-avoidance recovery system ............................ ..
8. 4.8 percent COLA .................................................................. ~ .................. ..
9. Early periodic screening, diagnosis, and treatment case management caseload changes ............................................................................... .
10. California Children's Services case management caseload changes
11. Other changes .............................................................................................. ..
F. 1986--87 expenditures (proposed) .................................................................. ..
G. Change from 1985-86 (estimated)
Amount ............................................................................................................. .
Percent ............................................................................................................... .

All
Funds
$123,264
402
12,493$136,159$208
138-2,278
-287
8,152
143

-512
252
$141,975(681)(5,816)

7,962
172
-124
-1,477-1,589345-248-2,954-1,58950
1,906-8,152
500
3,799

195
218
-99
$60,266

828
702
-212
$134,994$7 ,21413.6%-$6,981-4.9%

754 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued
Productivity Increases Expected

We recommend a reduction of $1.4 million in order to reflect the savings
from increased productivity standards.
The proposed $134,994,000 ($60,266,000 General Fund) appropriation
for local assistance to county welfare departments is based on a cost control plan. This plan specifies the amount each county will receive to administer various eligibility determination programs, as well as the
productivity standards for each county. These standards set the number
of applications to be processed (intake cases) and the number of approved
cases to be maintained (continuing cases), per eligibility worker. The
standards for a given county must equal the county's prior performanceor the average performance of counties of similar size, whichever is higher.
The Budget Act of 1985 requires the department to recalculate workload standards using 1984-85 as the base year for the 1986-87 cost control
plan. Because the 1984-85 county productivity figures are higher thancurrent productivity standards, we estimate that use of the new standards
will reduce the amount required for county eligibility determinations by$1.4 million, for a General Fund savings of this amount.
Consequently, we recommend that the Legislature reduce by $1.4 million the General Fund appropriation for local assistance to counties for
eligibility determination costs, in order to reflect productivity changes.
Responsibilities Transferred

We recommend a reduction of $335,500 ($168,000 General Fund) inlocal assistance to San Diego County because under the Expanded Choiceprogram, county presentations to Medi-Cal beneficiaries regarding prepaid health plans will no longer be necessary.
The budget includes $366,000 ($183,000 General Fund) for San Diego
County so that it can continue to make presentations to Medi-Cal applicants regarding prepaid health plans. Currently, during the eligibility
determination process, county personnel present Medi-Cal applicantswith a choice between enrollment in the fee-for-service Medi-Cal system
or enrollment in a prepaid health plan.
Beginning in August 1986, this function will be performed by a private
contractor as part of the Expanded Choice program. Consequently, we
recommend a reduction of $335,500 ($168,000 General Fund) in San Diego
County's allocation. This would eliminate funding for the August 1986-toJune 1987 period, while leaving sufficient funds to cover the cost of presentations made in July.
Implementation Delay Affects Workload

We withhold recommendation on $81,300 ($40,650 General Fund)
proposed for county eligibility determination workload increases due tothe Greater Avenues to Independence (GAIN) program.
The budget proposes $81,000 ($40,650 General Fund) for expected increases in county eligibility determination costs due to implementation of
the Greater Avenues of Independence (GAIN) program. The GAIN program and our recommendations regarding it are discussed in our analysis

Item 4260

HEALTH AND WELFARE / 755of the proposed budget for the Department of Social Services (Item 5180151-001) .
The Medi-Cal budget assumes that 80 percent of those persons whose
eligibility for AFDC is ended due to the GAIN program will become
eligible for Medi-Cal as medically needy. This would increase county administrative costs for the Medi-Cal program.
The budget request for these additional costs assumes a January 1, 1986,
implementation date for the GAIN program. Since implementation of the
program has been delayed, we withhold recommendation on the amountproposed for GAIN-related workload, pending receipt of a revised implementation schedule and cost projection. This information will be included in the May revision.

C.

MEDI-CAL CLAIMS PROCESSING

The Department of Health Services does not directly pay doctors, pharmacists, nursing homes, or other providers for the services they render.
Instead, the department contracts with fiscal intermediaries for Medi-Cal
fee-for-service claims processing. Currently, the department has processing contracts with the Computer Sciences Corporation (CSC) and twoother vendors. In addition, the department reimburses (1) the State Controller's office for printing and mailing checks to Medi-Cal fee-for-service
providers and (2) the State Treasurer's office for redeeming Medi-Cal
warrants. Payments to organized health systems and to providers of mental health services under the Short-Doyle Act are processed directly by thedepartment or, in the case of the Redwood Health Foundation and theCalifornia Dental Service, by the health system itself.
Current-Year Costs Will Exceed Amount Appropriated

The budget anticipates that General Fund expenditures for claims processing in the current year will be $724,000, or 9.4 percent, higher than theamounts appropriated. Overall spending for fiscal intermediary services
is $2.7 million above the amounts appropriated. Table 34 summarizes theestimated and proposed expenditures for Medi-Cal claims processing in
1985-and 1986-87.
The current-year deficiency is primarily due to the unanticipated increase in cost reimbursement claims made by Computer Sciences Corporation. This increase of $1.9 million ($485,000 General Fund) reflects the
final settlement on the cost reimbursement methodology required under
the contract.
Budget-Year Increase Due to Transfer of Dental Administrative Costs

The budget request for claims processing is $7.1 million ($4.8 million
General Fund) above estimated 1985-86 costs. This increase is attributable
to the transfer of processing costs associated with dental claims from theMedi-Cal health benefits subitem to the fiscal intermediary subitem. Costs
for other fiscal intermediary operations are expected to decline between
the current and the budget years, due to (1) elimination of $3.5 million
in one-time 1985-86 costs and (2) a $650,000 decrease in base operations
costs under the CSC contract. These reductions more than offset a $2
million increase in CSC change order costs due to:• Higher cost for automation of the treatment authorization request(TAR) system.
• New costs for operating a cost avoidance system to improve thirdparty payments for Medi-Cal eligibles.
• Contract for child health and disability prevention claims processing.

Item 4260

756 / HEALTH AND WELFARE
DEPARTMENT OF HEALTH SERVICES-Continued
Table 34
Medi-Cal Claims Processing
Proposed 1986-87 Budget Changes(dollars in thousands)

GenemiFund
A. Funds available, 1985 Budget Act
1. Fiscal intermediary item ............................................................................. .
2. Refugee reimbursements ............................................................................. .
3. Provision 1 (settlements of prior-year federal issues) ......................... .
Subtotals ........................................................................................................... .
B. Unanticipated current-year expenditures
1. Computer Sciences Corporation contract
a. Cost reimbursement ................................................................................. .
b. Change orders ........................................................................................... .
c. Other changes ........................................................................................... .
2. ~1edicare crossover contract ....................................................................... .
3. State Controller's office ............................................................................... .
4. Reduced refugee reimbursements ............................................................. .
5. Revised federal sharing ratio ....................................................................... .

C. 1985-86 expenditures (estimated) ............................................................... .
D. Projected current year deficiency ............................................................... .
E. Budget year changes
1. Computer Sciences Corporation contracta. One-time 19~6 costs ........................................................................... .
b. Various workload adjustments ............................................................. .
c. Change orders(1) Third-party cost avoidance ............................................................. .
(2) Increase in change order costs ..................................................... .
2. Medicare crossover contract ....................................................................... .
3. State Controller's office ............................................................................... .
4. Transfer of dental fiscal intermediary costs from Medi-Cal services
item ................................................................................................................... .
5. Child Health and Disability Prevention program claims processing
contract ............................................................................................................. .
6. Reduction in refugee reimbursements ..................................................... .
7. Reduction of Provision 1 funds ................................................................... .
F. 1986-87 expenditures (proposed) ................................................................ .
C. Change from 1985-86 (estimated)
Amount ............................................................................................................ .
Percent ............. ,.............................................................................................. .

$6,710$6,710All

Funds$28,143120
1,129$29,392

$485
69
64
35
31
32
10

$1,941
329
148
138
118

$7,434($724)$32,066($2,674)

-$882
-236

-$3,500
-726

100
258
32
20

1,000
1,014
129
89

4,087

8,174

293
5
1,129

900

$12,240$39,146$4,80664.6%$7,08022.1 %

Computer Sciences Corporation Performance

In July 1984, Computer Sciences Corporation (CSC) began processing
Medi-Cal claims under the terms of a new contract. The contract instituted several important changes in the requirements imposed on the MediCal fiscal intermediary. Experience under the new contract is now sufficient to allow an assessment of CSC's performance in meeting contract

Item 4260

HEALTH AND WELFARE / 757

requirements. The following review focuses on three areas of performance: (1) claim cycle times, (2) provider services, and (3) systems development activities.
CSC Failed to Meet Standards for Claim Processing Timeliness in 6 Out
of 12 Months. The contract sets an overall claim processing standardof 18 days and separate standards for several claim types, including pharmacy (17 days); long-term care (8 days); inpatient (25 days); outpatient(25 days); medical professional (25 days); and equipment, transportation,
prosthetics, and orthotics (25 days). Table 35 shows the average claim
volumes, percent of claims denied, and maximum and minimum cycle
times during 1985.
Between November 1984 and October 1985, CSC failed to meet thecontract's standards six times. The overall cycle time standard was exceeded three times. The standard for pharmacy claims was exceeded for threeof the months during this period, and the standard for long-term careclaims was exceeeded once. Standards for all other claim types were met
during each of the 12 months. In the most recent month for which data
were available (October 1985), CSC processed claims well within thetimes set by the contract.
Table 35
Medi-Cal Claims Volume and Cycle Times a
January through November 1985

Pharmacy ....................................... .
Long-term care ............................. .
Inpatient care ................................. .
Outpatient care ............................. .
Medical ........................................... .
Vision care ..................................... .
Totals ........................................... .

Al'erageMonthlv
Claim;
Volume1,949,092
104,532
67,193
993,768
4,004,075
108,021

AverageMonthly
Payments(in millions)
$24.5
97.7
122.8
23.0
90.0
2.6

7,226,681$360.5

Average Monthly
Cvcle Time (in days) h
Range of
ActualStandard
Performance
17.0
12.0 to 18.8
8.0
3.5 to 9.6
12.3 to 21.6
25.0
25.0
14.8 to 23.6
25.0
8.8 to 19.4
11.4 to 20.8
25.0
12.6 to 18.7
18.0

"Source: Department of Health Services.
h Cycle time data for November 1984 through October 1985.

Whenever CSC fails to meet the cycle time requirements of the contract, the department withholds 10 percent of the payments under thecontract until the requirements are met. Once the standards are met, thefunds are released to CSc. Funds were withheld from CSC for 6 out of the
12 months between November 1984 and October 1985.
Some Services to Providers Are Not Adequate. The contract requires CSC to provide a range of services to assist providers in accurately
completing their medical claims. These services include the following:• Provider Manuals and Bulletins. CSC is required to print and disseminate (1) provider manuals to newly enrolled providers, (2) manual updates, and (3) bulletins with information useful to Medi-Cal
providers.
• Quarterly Training Sessions. The contract requires that quarterly
training sessions be open to the public and presented throughout thestate. The CSC representatives have conducted 148 training sessions
since July 1984. Provider reactions to these seminars have been positive.

- - -...- - -....

---------

758 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued• Toll-Free Lines. The contract requires CSC to install 40 toll-freelines, staffed to accept provider inquiries. Computer Sciences is required to have the capability of putting the caller on hold when alllines are busy and taking the calls in order.
The esc is not providing adequate access to the toll-free lines. A
department study recently found that 76 percent of calls placed atregular intervals between 8:00 a.m. and 5:00 p.m. encountered a busy
signal. Another 15 percent received the recording requesting that thecaller hold, and only 9 percent of the calls were answered by anoperator.
• Regional Services Representatives. As required by the contract,
CSC has established six regional offices with staff trained to visit
providers in order to assist them with major billing concerns andrelated matters. The contract requires representatives to scheduleon-site visits within 20 days of the initial provider request. Recent staff
turnover in at least one office has resulted in CSC's failure to meet the
20-day standard. According to the department, providers have reacted positively to the availability of trained staff to help with billingproblems. These staff also help CSC by encouraging providers to
install billing systems that permit submission of claims on computer
tapes or diskettes.
Systems Development Group Performs Well. The contract requires
CSC to hire systems analysts to undertake system enhancements andmodifications that are needed due to changes in federal or state laws. The
number of system analysts has increased from a low of 5 in January 1984
to a high of 30, the maximum required under the contract. This groupcompleted 94 separate enhancements during 1984 and another 21 during
1985. This contract feature allows the claims processing system to be updated in a timely manner to reflect changes in the rules governing theMedi-Cal program. It also allows the state to initiate other improvements
without separate negotiations, which took place under the former changeorder process.
Installation of Dental Claims System Delayed

The California Dental Service (CDS) began processing claims for MediCal dental services under the terms of a new contract, beginning in November 1985. The department awarded the bid to CDS in November 1984
following a comretitive bidding process. The department estimates thatthe contract wil result in first-year savings of $23 million relative to theold contract. In addition, the new contract enhances the state's ability tomopitor dental claims processing services. Specifically, the contract provides for:• State review and approval of changes in dental benefits .
.; Authority to withhold payments for services if performance standards
are not met.
• Improved information concerning dental services reimbursed andclaims processing performance.
.
• Development and installation of an improved automated claims processing system.
The terms of the contract required the new system to be ready fortesting by August 1985 and to be operational when claims processing
under the new contract began in November. The system is not yet operational. Development has been completed, and the department began

Item 4260

HEALTH AND WELFARE / 759

acceptance testing on January 15, 1986.1£ the testing does not detect major
problems, the new system could be operational by mid-April 1986.
The department has negotiated a cha~ge order with CDS. Under theterms of the change order, the state will not impose liquated damages, as
permitted by the contract, for failure to complete the design, development, and installation of the system within specified time limits. Damages
under the original contract could exceed $5,000 a day for failure to complete the new system. The change order provides that CDS must continue
processing claims under existing methods until the new automated system
has been tested, approved, and installed.
In the interim, CDS will be reimbursed at the rates established for the
new system. This change will reduce CDS revenues and provide an incentive for CDS to rapidly implement the new automated system in order torealize operational efficiencies. Until the new system is operational, thestate will realize the benefit of a lower price for claims processing services
but must accept incomplete management information reports. In additiOh, delayed development of the system will delay the time when thesystem will qualify for enhanced federal funding.
Savings Due To Expanded Choice Not Budgeted

We recommend that the Legislature delete $176,000 ($44,000 GeneralFund) from the Budget Bill to reflect the reduced workload that will
result from implementation of the Expanded Choice pilot project.
The department expects to implement the Expanded Choice pilot program in San Diego during August 1986. Under this program, persons now
using fee-for-service care will be required to enroll in prepaid healthplans. This will result in the savings for:• Postage ($53,000) .
• Checkwriting ($123,000).
The budget for 1986-87 has not been adjusted to reflect these savings.
Therefore, we recommend that the Legislature reduce the amount budgeted by $176,000 ($44,000 General Fund) to reflect the reduced workload
due to the Expanded Choice pilot.
Funds for Change Orders Over budgeted

We recotnmend that the Legislature reduce by $506,000 ($190,000 General Fund) the amount budgeted for change orders because the need forthese funds has not been established.
The funds requested for fiscal intermediary services include $250,000($62,500 General Fund) in the current year and $506,000 ($190,500 General Fund) in the budget year for change orders that have not yet been
identified. (Change orders are modifications to the automated system forprocessing Medi-Cal claims). The amount requested for change orders isbased on past experience.
The requirements for change orders vary greatly from year to year.
Moreover, even the costs projected for identified change orders have beenvery inaccurate.
. In recent years, the budget has included funds only for identified
change orders. Additional change orders that are required during thecourse of the year have been supported by redirecting funds or throughdeficiency appropriations.
Because the heed for these unspecified change orders has not been
established, we recommend that the Legislature delete the $506,000($190,000 General Fund).
25-80960

760 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued
D. MEDI-CAL STATE ADMINISTRATIONThe budget proposes $125.1 million ($42.5 million General Fund) for
state administration of the Medi-Cal program in 1986-87. This represents
an increase of $11.2 million, or 9.8 percent, in total funds budgeted, andan increase of $2.9 million, or 7.4 percent, in General Fund support. Table
36 displays Medi-Cal state administrative expenditures in 1985-86 and1986-87. The amounts shown for departments other than the Department
of Health Services include General Fund appropriations made for thosedepartments and the federal fund matches that the departments receivefrom the Department of Health Services as reimbursements.
Table 36
Medi-Cal Program
State Administration Expenditures
1985-86 and 1986-87(dollars in thousands)

Departtnent of Health Services ..................... .
Department of Social Services ....................... .
California ~1edical Assistance Commission ..
Department of Aging ....................................... .
Totals..................................................................

Estimuted 1985-86
Geneml
All
Fund
Funds
$34,387$102,085
3,770
9,077
952
1,731
422
~
$39,531$113,948

Percent
Proposed 1986-87 Chunge in
GenemlAll
General
Fund
Funds
Fund
$37,112$110,431
7.9%
3,958
11,849
5.0
994
1,846
4.4
391
997
-7.3
$42,455$125,123
7.4%.\"ot('; Funds are shown where they are actually spent, not where they are appropriated. All federal funds

shown for departments other than Health Services are appropriated in the budget for Health Services
and then transferred to the department where the funds are expended.

The proposed increase in spending by the Department of Health Services primarily reflects increases for external contracts intended to (1)implement Expanded Choice enrollment functions ($1.6 million) and (2)develop an automated third-party liability recovery system ($3.5 million).
The increase in total expenditures by the Department of Social Services
results from an adjustment of federal funds required for that department.
In recent years, the amount of federal funding provided to DSS in the
Budget Act has not been sufficient, and the Director of Finance has had
to supplement these funds using authority given to him by Section 28 of
the Budget Act. The estimated costs for 1985-86 shown in Table 36 do notreflect the increase in federal funds that will be required in the current
year.
The budget proposes support for 1,335.8 positions in the Department of
Health Services that can be attributed directly to administration of theMedi-Cal program. This is 59.2 positions, or 4.2 percent, less than thenumber of authorized positions in 1985-86. The decrease reflects the expiration of 42.5 limited-term positions and the net reduction of 16.7 permanent positions.
Table 37 shows the changes in Medi-Cal-related positions proposed forthe budget year. It does not reflect positions in the department's adminis-

Item 4260

HEALTH AND WELFARE / 761

trative units whose costs are distributed for funding purposes to the MediCal program.
Table 37
Medi-Cal Program
Proposed Positions in the
Department of Health Services a.
1986-87

Program
Eligiblity ..........................................................
Benefits ............................................................
Rate de\'elopment ........................................
Contract operations ......................................
Utilization control ........................................
H..ealth. reco\'er~ ............................................
FIscal mtermedmry ......................................
Program de\'elopment ................................
Audits and investigations h..........................
Totals ............................................................

E'(isting
Positions
64.6
38.8
38.1
55.0
414.6
218.8
123.4
26.1
415.6

-1,395.0

LimitedTerm
Positions

Proposed
Chilnges

Proposed
Positions

Percent
Chilnge

0.9
-1.0

-6.7%
-2.6

-2.0

17.0
-18.1
-15.5
25.0
-5.0
-20.0

60.3
37.8
38.1
72.0
388.2
202.3
122.4
21.1
393.6

30.9
-6.4
·-7.1
-0.8
-19.2
-5.3

-42.5

-16.7"

1,335.8

-4.2%

-5.2

-8.3
-1.0
-26.0

" Additional positions paid for by the Medi-Cal program are located in the divisional offices supervisingthe "bo\'e programs and in the Administration Division.
h This includes the 92 percent of the positions in Audits and Investigations Dh-ision attributable to\Iedi-Cal program activities.
,- The totul includes" reduction of 58.6 positions, an addition of 43.9 permanent or limited-term positions
and the transfer of 2 positions_

Proposed Chonges Which Should Be Approved
We recommend approval of the following program changes that are notdiscussed elsewhere:• A reduction of one position due to the transfer of rural health clinic
claims processing activities to the Medi-Cal fiscal intermediary.
• A reduction of one vision care consultant in the benefits program.
Status Report Needed on Statewide Automated Welfare Systems

We withhold recommendation on the staff changes requested for thedevelopment of welfare computer system standards, pending receipt of
the annual progress report.
The budget reflects a $4,000 ($2,000 General Fund) reduction due toseveral changes in staffing budgeted for the Statewide Automated Welfare
System (SAWS) development. The 1986-87 budget includes a total $171,000 ($85,000 General Fund) for SAWS activities. The changes include:
1. Conversion of four limited-term positions to permanent positions.
Two of these positions were due to expire on December 31, 1986, and two
were to expire at the end of 1986-87.
2. Transfer of five positions to the Department of Social Services, ofwhich three were to expire at the end of the current year and two were
to expire during 1986-87.
The Department of Social Services is required to prepare an annual
report on its progress in achieving the goals established for the SAWS
program. We withhold recommendation on the changes proposed in thebudget for SAWS, pending review of the annual progress report. Any

762 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

decision concerning continued funding for this project must consider
what progress has been made in meeting its stated goals.
Recommendation Needed on Permanent Staffing Needs

We recommend that at the time of budget hearings, the Department of
Finance advise the Legislature whether it intends to propose a permanent
staffing level for the Fiscal Intermediary Management Division for 198687.
The Supplemental Report of the 1985 Budget Act directed the Department of Finance to review the staffing needs of the Fiscal Intermediary
Management Division, in order to determine the appropriate permanent
staffing level for the division. The study was not completed in time toguide the department during compilation of the division's 1986-87 budget
request. Consequently, the budget requests an extension of the current
limited-term positions for one additional year. The extension will give theadministration and the Legislature more time to consider the division's
staffing needs.
The required review is near completion and could be used as the basis
for determining permanent staffing requirements for 1986-87. We therefore recommend that the Department of Finance report at budget hearings whether it intends to propose a permanent staffing level for thedivision for 1986-87.
Medi-Cal Field Office Staffing Changes Available

We recommend that the Department of Finance report during budget
hearings on the staffing changes that would be needed to implement therecommendations of the Department of Health Services task force on
Medi-Cal field office productivity.
.
In accordance with the requirements of the Supplemental Report of the1985 Budget Act, the Department of Health Services reviewed the MediCal field office staffing standards study that was prepared by the Department of Finance. This review was conducted by a task force consisting of
three field office administrators who sought to determine what accounted
for differences in productivity among the field offices.
The task force suggests that improvements can be made in the staffing
pattern of Medi-Cal field offices that will improve productivity. The task
force made the following recommendations that would require budgetchanges to implement:• Increase the number of nurse evaluators and medical technicians.
According to the task force, the field offices are increasingly successful
in employing these classifications in utilization review activities under
the guidance of a medical consultant.
• Reclassify medical consultant positions to office assistant and medical
technicians. The task force found that the most productive field offices are those with effective and adequately staffed clerical officesystems. Inadequate clerical support leads to medical personnel performing clerical functions. Increasing clerical personnel increases
productivity, particularly of the medical technicians.
Our analysis of the field office staffing standards study and discussions
with field office staff lead us to conclude that the recommendations are
sound and would increase field office productivity and reduce overall
costs.

Item 4260

HEALTH AND WELFARE / 763

The Department of Finance has made no proposals to implement. thetask force's recommendations. We recommend that the department report during budget hearings on the budgetary changes that would beneeded to implement these recommendations.
Feasibility Study Report Not Yet Available

We withhold recommendation on a reduction of 13.5 positions for thedevelopment of an automated case management system, pending receiptof additional information from the department.
The budget proposes a reduction of 13.5 positions and an augmentationof $405,000 ($202,000 General Fund) to implement an automated casemanagement system in the Casualty/Worker's Compensation Section of
the Recovery Branch. The casualty / workers' compensation program identifies and collects funds due the state from liable third parties for casualty
and work-related injury cases involving Medi-Cal beneficiaries.
Under the current system, billing and payment data are prepared andmaintained manually. The department estimates that an automated system would reduce staff time by 20 percent per case. At the time thisanalysis was prepared, we had not received the feasiblity study report(FSR) for the proposed system. The FSR will provide details on system
operations and expected costs and benefits.
We cannot recommend action on this request without the information
contained in the FSR. Therefore, we withhold recommendation on thefunding requested for the automated system and the associated position
reductions, pending receipt of additional information from the department.
..
More Information Needed on New System to Bill Insurance Carriers

We withhold recommendation on $5,000,000 ($500,000 General Fund)
requested for a proposed new system to improve third-party payment ofMedi-Cal claims, pending receipt of additional information.
The budget proposes $5,000,000 ($500,000 General Fund) to implement
a new system of processing Medi-Cal provider claims for beneficiaries
with other health coverage.
The current method of Medi-Cal claims payment allows providers to bill
and receive payment from Medi-Cal whether or not a beneficiary is covered by an insurance carrier or other third party. After a Medi-Cal claim
is paid on behalf of a beneficiary with known third-party coverage, thedepartment attempts to collect the amount it paid from the third party.
The department indicates that this "pay and chase" method is ineffectualand that 75 percent of its bills to insurance carriers are not paid. The
current system also severely limits the amount of information that can beused from insurance companies.
Recent federal regulations mandate an alternative method of collecting
information that will permit the fiscal intermediary to refuse Medi-Cal
payment for beneficiaries with known health insurance. The department
estimates that the system will save $19 million ($9.5 million General Fund)annually.
The budget proposes expenditures for five separate components of the
new system:• $500,000 to improve automated systems, such as the Medi-Cal Eligibility Data System (MEDS), to permit them to handle more insurance
information.

764 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued• $500,000 in local assistance to counties to fund changes in their computer systems.
• $2.5 million to redesign the Other Health Coverage Master System toprovide claims summaries, monitor third-party liability coverage, andallow billing for specific covered services for an individual beneficiary.
• $1 million to implement changes required at Computer Sciences Corporation (CSC).
• $500,000 to provide ongoing beneficiary file matches with insurancecompanies.
At the time this analysis was written, we had not received information
regarding the system design, costs, or estimated savings. We withholdrecommendation on the $5 million proposal, pending receipt of this information.
Primary Care Case Management Expansion Completed

We recommend approval.
The budget proposes a reduction of $172,000 ($86,000 General Fund)and four positions due to the implementation of the Primary Care CaseManagement (PCCM) program. The budget also proposes to reduce $64,115 ($32,057 General Fund) and one supervisory position associated withthese four positions as part of mandated supervisory/staff reductions.
A federal waiver allows the department to enter into pilot contracts
with primary care providers under which all medical care, including referrals, consultation, and hospital admissions is provided for specified
beneficiaries. Providers are at-risk and are paid an amount equal to 95
percent of the equivalent fee-for-service costs.
The department indicates that the pilot project will include up to 18
contracts with providers by the end of 1985-86, and that no more contracts
are necessary to adequately evaluate the pilot project. Consequently, thebudget proposes to eliminate four positions that have been associated withthe development of new PCCM contracts.
We have reviewed the department's proposal and conclude that it will
not be necessary to execute additional contracts. We also conclude that the
proposed reduction of the supervisory position associated with the PCCM
development positions will not hinder ongoing program efforts. Therefore
we recommend that the Legislature approve the proposal.
Administration's Plans for Statewide Expansion of "Gatekeeper" Unknown

We recommend that the department report to the Legislature during
budget hearings on its plans to implement statewide preadmission screening.
Chapter 1637, Statutes of 1984 (AB 2226), required the department toimplement a preadmission screening or "gatekeeper" program in fiveMedi-Cal field offices starting in 1984-85. The purpose of the program is
to screen Medi-Cal beneficiaries who are applicants for placement in anursing home to determine if they could be more approyriately maintained in the community using home-based health and socia services. This
program is discussed further in the 1986-87 Budget: Perspectives andIssues and in connection with the In-Home Supportive Services program(Item 5180).
The budget makes no mention of the statewide implementation re-Item 4260

HEALTH AND WELFARE / 765

qui red by Chapter 1637. It is unlikely that this program can be effectively
implemented without a staffing increase or redirection of staff resources.
Consequently, we recommend that the department report during budget
hearings on its plans to implement this program statewide.
6. AUDITS AND INVESTIGATIONSThe Audits and Investigations Division performs a variety of activities
that monitor the expenditure of Medi-Cal dollars. Specifically, the division
conducts:• Financial audits of hospitals, long-term care facilities, local agency
public health programs, prepaid health plans, and department programs. Audit information may lead to the recoupment of overpayments or be used to determine provider rates in the future.
• Utilization reviews of providers and beneficiaries. Staff review medical records and other documentation in order to verify the accuracyof payments made and identify overutilization of services. These reviews may lead to the recoupments of overpayments from providers
or may help the department prevent overutilization of health careservices by providers and beneficiaries.
• Investigations of alleged provider or beneficiary fraud in the MediCal program. Information collected by investigators may help the
department recoup overpayments or support criminal prosecution by
the Department of Justice.
The division also conducts quality-of-care reviews of prepaid Medi-Cal
providers and conducts ongoing quality control reviews of county eligibility determinations.
Audits and Investigations Program Will Save $131 Million in 1985-86.
Our analysis indicates that California's audits and investigations programis successful. We base this conclusion on (1) the amount collected as aresult of the program and (2) the amount collected relative to administrative costs. In fact, we project that as a result of the division's efforts, theMedi-Cal program will save $131 million ($67 million General Fund) in
1985-86. These savings represerit the sum of (1) overpayment recoupments ($104.4 million) and (2) cost avoidance ($48.4 million), minus thecosts of administering the program ($21.9 million).
Table 38
Department of Health Services
Audits and Investigations
Savings and Costs
1984-85 and 1985-86(in millions)

1984-85
Sa\'ings
1. Recollpments ..................................... .
2. Cost avoidance ................................ ..
Total savings .................................. ..
Administrati\'e costs ............................ ..
Xet savings .................................... ..

Genenlf
Fund-$148.3-28.5-$176.8
10.5-$166.3

All
Funds-$296.6-57.1-$353.7
22.8-$330.9

Est. 1985-86
Genenll
All
Fund
Funds
-$52.2-$104.4-24.2-48.4-$76.4-$152.8
9.8
21.9-$66.6-$130.9:'\ot(': An ('xplanation of the larg(' change in net savings between 1984-85 and 1985-86 can be found inour discussion of the financial audits function.

766 / HEALTH AND WELFA~m

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

Cost avoidance results when payments are found to be inappropriate
before they are made. The division conducts two program activities that
result in cost avoidance. It restricts the overutilization of Medi-Cal services
by providers and beneficiaries, and it utilizes audit data to adjust certain
provider rates to reflect allowable costs.
Table 38 summarizes the savings and costs resulting from these programs in 1984-85 and 1985-86.
Eleven Dollars are Recovered for Every Dollar Spent. Table 39shows the savings attributable to the audits and investigations program
per dollar of administrative costs for the years 1983-84 through 1985-86.
Table 39
Department of Health Services
Audits and Investigations Program
Program Savings Per Administrative Dollar Spent 0
1983-84 through 1985-86
Financial audits ........................................................................ ..
Utilization review .................................................................... ..
Investigations ............................................................................. .
Overall a\'erage ................................................................. .

1983-M$27.8024.40
0.10$15.801984-85$43.803.10
0.10$25.601985-86$18.003.70
0.10$10.80" Excludes Medical Audit, Quality Control, and Central Operations Units.

In 1985-86, the audits and investigations program will yield savings of$10.80 dollars for every dollar of administrative cost. Financial audits generate the highest recoupment-to-cost ratio; investigations yield the lowest.
Documented Recoupments and Cost Avoidance Understate Program
Benefits. The savings shown in Table 39 do not tell the whole story.
The department cannot identify the cost avoidance resulting from investigations and medical reviews. This is due, in part, to the fact that the
program deters fraud and abuse in addition to detecting it.
Financial Audits

The division's financial auditors validate payments made to health care
entities by Medi-Cal and other state-funded programs. In the course of
their work, they (1) verify cost data reported for rate-setting purposes, (2)determine fiscal settlements, (3) assure compliance with program requirements, and (4) make recommendations to improve program management.
The financial audit program has the highest savings-to-cost ratio in thedivision. It produces an estimated $18 in savings for every administrative
dollar spent. Table 40 shows estimated savings and costs attributable to thefinancial audits conducted in recent years. We estimate that financial
recoupments in 1985-86 will produce at least $99 million ($50 million
General Fund) in savings to Medi-Cal and other health programs. Recoupments in 1984-85 were considerably larger-about 65 percent above tne
current-year level. The decrease is due primarily to two factors (1) hospital contracting, which has reduced the number of hospital audit settlements, and (2) an unusually large recoupment resulting from the annual
audit of Los Angeles County health care programs in 1984-85.

Item 4260

HEALTH AND WELFARE / 767

We estimate that the state will avoid $47.2 million ($23.6 million GeneralFund) in costs during 1985-86 as a result of adjustments in rates for longterm care facilities that were suggested by financial audits.
Table 40
Department of Health Services
Financial Audits
Savings and Cost Avoidance
All Funds
1983-84 through 1985-86(in millions)
Savings
1. Recoupments ........................................................... .
2. Cost avoidance ......................................................... .

1983--84

1984-85

1985-86-$138.4-56.3-$289.9-56.3-$99.0-47.2

Total sa\·ings ......................................................... .
Administrative costs ..................................................... .
\"et sa\·ings ............................................................. .

-$194.7
7.0-$346.2
7.9-$146.2
8.1-$187.7-$338.3-$138.1

Table 41 shows the numbers of audits conducted in different types offacilities from 1982-83 through 1985-86. It indicates that the number ofaudits in 1985-86 will be 22 percent above the 1982-83 level. During thisperiod, there has been a sharp decline in the number of acute care hospital
audits, but this decline has been more than offset by an increase in audits
of intermediate care facilities and skilled nursing facilities. The increased
emphasis on long-term care facilities is due to legislation that requires
expanded audits of nursing homes to ensure that increases in state reimbursements are passed-through to nursing home employees. The department has also increased the number of preventive health and block grant
audits in recent years in order to reduce a large backlog carried over fromprevious years.
Table 41
Department of Health Services
Financial Audits Performed
By Type of Facility or Program Audited
1982-83 through 1985-86

Actuul1982-83

Actlwl1983-84

Actuul1984-85Est.
1985-86

Acute care hospitals ................................................................
Intermediate care facilities ....................................................
Skilled nursing facility ............................................................
Preventive health ....................................................................

318
324
62

506
72
170
48

437
42
245
87

277
92
295
197

Totals ..................................................................................

704

796

811

861

Fuci/i(\· or Progrum Audited

Major Change in Audit· Emphasi$ Proposed
We withhold recommendation on the budget proposals (1) to eliminate$324,000 ($162,000 General Fund) and 9 auditor positions and (2) to redi-

rect 10 auditor positions, until the department completes pilot audits ofcontract hospitals.
The budget proposes to eliminate $324,000 ($162,000 General Fund) and9 positions in recognition of the reduction in the number of acute care
hospital audits. The budget also proposes to redirect 10 positions fromacute care audits to nursing home audits, in accordance with the requirements of Ch 10/85 and Ch 11/85 (SB 53 and AB 180).

768 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

The department indicates that almost all cost reimbursement audits ofacute care facilities for years through 1982-83 will be completed in 198586. According to the department, the implementation of the Selective
Provider Contracting program in 1983-84 has greatly reduced the amountof time required to collect the information needed for fiscal recoupments
and rate development purposes.
Our review indicates that the proposed reduction and redirection of 10
positions to nursing home audits is premature. This is because the department has not completed its pilot audits of contract hospitals to determine
how much time is necessary to meet either the data requirements of thedepartment or those of the California Medical Assistance Commission(CMAC). The expected date for completion of the pilot audits is March
1986.
We withhold recommendation on the amount proposed for reduction
and redirection, pending completion of the pilot contract hospital audits.
Action Needed on AB 8 Audits

We recommend that the Legislature ask the department to explain
during budget hearings why no action had been taken on $1.1 million of"AB 8" audits currently under appeal. We Further recommend that theLegislature (1) adopt Budget Bill language requiring the department totake action on 16 completed AB 8 audits that are in suspense and (2)augment the department's budget by $388,000 From the County HealthFacility Financing Authority Funds and 10 positions to establish an annual
audit program.
Background. The budget requests $965 million for the County
Health Services Fund in 1986-87: Of this amount, $399 million is for the
AB 8/County Health Services program, and the balance of $566 million isfor the county Medically Indigent Services (MIS) program.
Assembly Bill 8 (Ch 282/79) created a County Health Services (CHS)
program in order to partially replace the property tax revenues lost bycounties as a result of Proposition 13 (1978). Subsequently, in 1982, theLegislature enacted legislation eliminating the medically indigent adult(MIA) category from the Medi-Cal program and transferring to the counties responsibility for the health care of individuals in this category. It alsoestablished the MIS program to assist counties in providing services to thispopulation.
Current law gives counties substantial flexibility in expending the funds
subvened to them under these two programs. Counties may expend AB
8/CRS funds on inpatient, outpatient, and public health services that they
provided in 1977-78, as well as on any new county health program. Counties may exp~nd MIS monies on any Medi-Cal reimbursable services thatare delivered to individuals who the counties determine are eligible forcare under their respective indigent care programs. Current law also
provides that unspent or inappropriately spent funds must be returned to
the CHS Fund. These funds may be appropriated by the Legislature for
special one-time county health projects or deposited into the County
Health Facilities Financing Assistance Fund.
Audit History. The department established a five-county pilot
project in 1982-83, at a cost of $141,305 to determIne the cost-effectivenessof auditing county AB 8/CHS programs for the purpose of confirming thatthe funds were spent in accordance with law. The audit staff identified aItem 4260

HEALTH AND WELFARE / 769

total of $1.4 million in potential recoupments from the five counties. (MIS
funds were not subject to audit under the pilot program.) Four of the fivecounties appealed the department's findings. One appeal, involving$254,000, was decided in the county's favor. If the funds involved in theremaining audit exceptions are recovered, the pilot audits will show an$8-to-1 cost-benefit ratio.
Based on the findings from the pilot, the department in 1983-84 redirected existing audit staff with the aim of completing 27 additional audits.
Staff completed 16 audits and began, but later suspended, efforts on an
additional 7.
Action on Audit Findings Yet to be Taken. Of the $1.4 million inaudit exceptions from 1982-83, the department (1) collected $60,133 fromone county and (2) decided an appeal involving $254,000 in another county's favor. It has taken no action on the remaining $1.1 million.
Of the 27 county audits covering 1983-84 expenditures initiated by thedepartment, notification of potential recoupments were given to 9 counties, for an additional $900,000 in recoupments. The department has also
completed all the necessary paperwork in connection with an additional
7 audits.
In sum, it appears that approximately $2 million should be recoupedfrom the counties and returned to the County Health Facilities Financing
Authority. The $2 million would then be available for meeting the counties' capital financing needs, as well as for special one-time health projects,
if appropriated by the Legislature.
Our review indicates that an ongoing audit program covering both CHS
and MIS funds would be prudent and cost-effective. The department
indicates that an audit program costing $388,000 would lead to recoupments of over $5 million per year, provided the department takes thenecessary action to collect funds identified by the audits as having been
inappropriately spent. This estimate only covers CHS expenditures; itdoes not include potential recoveries from MIS program subventions. In
addition, we believe an ongoing audit program would (1) produce moreaccurate information on health-related expenditures, revenues, and net
county costs and (2) ensure that CHS and MIS funds are used only forservices authorized by statute.
We recommend that the department explain during budget hearings
why no action has been taken on the $1.1 million in audit findings that has
been under appeal since 1984. We further recommend that the Legislature adopt Budget Bill language requiring the department to take action
on the 16 completed AB 8/CHS audits and augment the department's
budget by $388,000 from County Health Facilities Financing Authority
funds to support 10 positions for an annual audit program for county AB
8 I CHS and MIS funds.
Utilization Review

The department's utilization review programs monitor the appropriateness of Medi-Cal services by using systematic case selection procedures
and extensive computer analysis of utilization patterns. Utilization review
units are composed of medical and analytical personnel who review medical records and other supporting documentation to assess the appropriateness of (1) payments made to providers and (2) beneficiaries' utilizationof services.
The department conducts utilization reviews of physicians, laboratories,
pharmacies, and beneficiaries. We estimate that 1985-86 recoupments and770 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

cost avoidance due to utilization reviews will reach $6.3 million. Chart 1
shows utilization recoupments for the years 1982-83 through 1985-86. It
shows that the majority of recoupments result from physician andbeneficiary utilization reviews.
Chart 5

Savings Due to Utilization Review
1982-83 through 1985-86 (in millions)$10

Pharmacies
Laboratories

9

Beneficiaries

8

Physicians

7

6
5
4

3
2

82-83

83-84

84-85

85-86

Recoupments due to utilization reviews are expected to decline by$750,000 in 1985-86, or 10 percent below 1984-85 levels. This is primarily
because appeals from physicians are taking up an increased share of staff
time, thereby reducing recoupments from these providers. These declines
are partially offset by increased recoupments due to laboratory utilization
reviews. Recoupments due to beneficiary reviews are also expected toincrease as a result of the recent broadening of Medi-Cal drug benefits.
Restoration of whole-grain codeine, in particular, is expected to increase
the incidence of beneficiary drug overutilization.
Recoupment-to-Cost Ratios Vary Widely, The department estimatesthat in 1985-86, savings of at least $3 will result for every dollar spent toadminister the utilization review program. Nevertheless, as Table 42shows, the cost-to-benefit ratios of individual utilization review components vary widely. Laboratory reviews produce the highest savings-to-cost
ratio; pharmacy reviews yield the .lowest.

Item 4260

HEALTH AND WELFARE / 771
Table 42
Department of Health Services
Utilization Review Program
Savings Per Administrative Dollar Spent
1983-84 through 1985-86
1~

Physician ..................................................................................... .
Laboratorv ................................................................................. .
Pharmacy' ................................................................................... .
Beneficiarv ................................................................................. .
Oven;ll average ................................................................. .

$1.20
10.00
2.20
6.00
82.30

1984-85
$3.80
2.50
0.30
2.70
$3.10

1985-86
$3.20
4.00
0.30
4.00
$3.00

Potential Exists for. Increased EffectivenessWe recommend that the department report to the Legislature by April
15, 1986, on the advisability of expanding "special claims reviews" andusing "abbreviated utilization review programs."
Special Claims Review. If the department's audit of a provider
identifies overutilization of Medi-Cal services, the department can institute a special review and approval procedure for claims filed by thatprovider in the future. This special claims review program reduces the
chances of continued overutilization or inappropriate billing. The numberof providers placed on special claims review has increased from 61 in
1982-83 to an estimated 200 in 1985-86.
The department could expand the special claims review procedure toother types of providers that are not subject to these procedures. Currently, the department does not place pharmacy or clinical laboratory providers on special claims review because these providers have very large
claims volumes.
It is true that reviewing claims from these providers would requireconsiderable effort unless the special reviews were restricted to a limited
number of drug types or lab procedures. The potential benefits fromextending -special claims review to these providers, however, are considerable. This is because in the case of pharmacies, current post-payment
audits are relatively ineffective in identifying recoupments. In the case ofclinical laboratories, post-payment audits identify potential recoupments
averaging more than $600,000 per audit, but less than 20 percent of theseamounts are actually collected because, according to the department,
many of the audited firms declare bankruptcy or change ownership near
the time of the audit.
We recommend that the department report to the Legislature by April
15, 1986, on the advisability of expanding special claims review for selectedclinical laboratory and pharmacy claims.
Abbreviated Utilization Review. The department is evaluating a
proposal to initiate an abbreviated utilization review program that would
identify and allow a provider with a pattern of abuses to be placed on
special claims review months earlier than the current audit process allows.
Such a program would offer several important benefits: (1) Medi-Cal
payments for unnecessary services could be curtailed earlier, (2) payment reviews would be simplified, (3) a larger sample of providers could
be reviewed, and (4) cost-effectiveness could be improved.
Abbreviated claims review promises to be an important adjunct to special claims review in helping to reduce abuse of the Medi-Cal program. We
also recommend that the department report on the potential for establishing abbreviated audits wherever special claims review can be used toprevent inappropriate payments.

772 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued
More Effective Case Identification Method Needed

We recommend that by April 15, 1986, the department present to theLegislature a plan to more effectively identify pharmacy cases for auditing.
The pharmacy utilization review program is the least cost-effective
utilization review activity. The program achieves savings of only 30 centsfor every dollar spent to administer it.
Since 1982-83, the department has reduced the amount of staff devoted
to this activity, from 12 pharmacists to 6 in the current year. The department also is undertaking a program to streamline the audit process andrevise the pharmacy manual, in an effort to increase the number andaccuracy of the reviews.
These improvements are commendable. Nevertheless, we find that themethod used by the department to choose pharmacy cases for audit limits
the unit's effectiveness. According to the department, at least one-half ofall pharmacy audits result in no recoupments. This is due, in large measure, to problems with computer programs used to identify cases for auditing. The selection criteria relied on by these programs repeatedly identify
high-volume providers, rather than those with suspicious billing patterns.
The department has indicated that improvements in this system could
improve the productivity of pharmacy audits.
We recommend that by April 15, 1986, the department present to theLegislature a plan for improving the system used to select pharmacies foraudit.
Pharmacy Reduction Not Justified

We withhold recommendation on a proposed reduction of $/)7,000($15,000 General Fund) and one pharmacist position pending receipt ofthe department's report on methods of increasing the effectiveness of thepharmacy review program and the program changes.
The budget proposes a reduction of $57,000 ($15,000 General Fund) andelimination of one supervisory pharmacist position located in southern
California. This position is one of two pharmaceutical consultant II positions that currently share the statewide supervisory responsibility for thepharmacy audit program.
While the current pharmacy review program is not cost-effective, thepharmacy manual revisions, streamlined audit process, the potential adoption of the abbreviated review process, and recommended changes in theaudit selection process may result in substantially greater returns to thestate.
Since supervising pharmacists participate heavily in ongoing workload,
this reduction will further reduce pharmacy audit production. We believe
it is premature to approve this reduction before examining the cost-effectiveness of changes in the pharmacy audit program. Therefore, we withhold recommendation on the position reduction pending further
evaluation of these proposed changes.
Beneficiary Utilization Review Computer Needed

We recommend an augmentation of $15,000 ($7,500 General Fund) tofinance the purchase ofa computer for the Beneficiary Utilization Review
Unit.

Item 4260

HEALTH AND WELFARE / 773

The Beneficiary Utilization Review (BUR) Unit monitors the utilizationof Medi-Cal services by beneficiaries. If this unit detects overutilization ofMedi-Cal services, it may restrict a beneficiary's drugs, office visits, or bothfor up to two years. If abuse continues, the department may also limit abeneficiary to one particular provider for all Medi-Cal services. The BUR
Unit is expected to avoid payments of approximately $1.2 million in 198586 by reducing inappropriate utilization of services by beneficiaries.
Table 43 outlines the unit's activities from 1982-83 to 1985-86. The dramatic reduction in the number of drug restrictions is attributable to thechanges in the Medi-Cal drug formulary and eligibility made during 198283.
Table 43
Department of Health Services
Beneficiary Utilization Review
Beneficiary Restrictions Initiated1982-83 to 1985-86

Drug
Restrictions
198~ ........................................................
1,038
1983-84 ........................................................
52
1984-85 ........................................................
26
1985-86 (est.) ............................................
130

OfficeVisit
Restriction
2,031
749
161
130

Combined
Drug/Office
Visit
Restriction
466
166
99
210

Beneficiaries
LimitedTo a Specific
PrOlider46
32
10

The Beneficiary Overutilization Detection System (BODS), which ismaintained by the department's Data Systems Branch, allows the BUR
Unit to match all previously reviewed beneficiaries to determine (1)whether the beneficiary currently is on restricted status, (2) the type ofcurrent restriction, and (3) any previous restrictions. This system, however, has numerous deficiencies that limit the effectiveness of the BUR Unit.
A department data processing report indicates that it would cost $27,000
to modify the system in order to meet the unit's needs. The same report
indicates that the purchase of a personal computer to replace the BODS
system, at an estimated cost of $15,000, would allow more timely file
updates, the development of better models for identification of beneficiary overutilization, the elimination of a duplicative card file system, andan annual reduction of $15,000 in long-term operating costs.
Our review confirms that the current BODS is outdated and that the useof a computer will increase the efficiency of staff, improve cost avoidance,and result in long-term savings to the state. Consequently, we recommend
an augmentation of $15,000 ($7,500 General Fund) to provide the BUR
Unit with a computer.
Investigations

The division's investigative units are responsible for investigating alleged provider and beneficiary fraud in connection with department programs. The investigators, who have peace officer status, investigate
cQmplaints regarding possible crimes or intentional violation of a statuteor regulation. After a preliminary investigation, most cases of provider
fraud are referred to the Department of Justice. The department retains
jurisdiction over beneficiary fraud cases.
The department estimates that actual recoupments attributable to this774 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued

component of the program will be approximately $300,000 ($150,000 General Fund) in 1985-86. This is $100,000, or 25 percent, less than the 1984-85
amount. In terms of recoupments alone, the investigations program is theleast cost-effective of the division's review programs, producing 14 centsfor each dollar spent on investigations.
Table 44 lists the division's major investigation activities from 1983-84
to 1985-86. Staffing levels have remained constant at 80 positions during
this period.
Table 44
Department of Health Services
Audits and Investigations Division
Investigations Conducted
1983-84 through 1985-86

PrO\·ider..........................................................................................
Beneficiary ....................................................................................
Referruls to the Department of Justice..................................
Toxics ·in\'cstigations....................................................................

1983-84
239
1,284
139

1~

164
1,449
433
249

1985-86 (Est.)
209
1,484
900
93

The number of beneficiary and provider Medi-Cal investigations hasremained fairly constant since 1983-84. Nevertheless, the number of provider fraud cases referred to the Department of Justice is expected toincrease dramatically in 1985-86, due to an improved referral system.
Toxics Investigations TerminatedWe recommend that during budget hearings, the Legislature ask the
department to explain why it terminated toxics criminal investigation efforts in the Audits and Investigations Division.
The 1985 Budget Act redirected eight investigators from the Medi-Cal
program to the investigation of illegal dumping, illegal groundwater
pumping, and other cases involving toxic substances. The department
indicated that the toxics program needed investigators who were trained
to prepare cases that would stand up in court.
On September 30,1985, however, toxics investigations were terminated,
and the eight investigators were returned to the Medi-Cal program.
We have been unable to obtain from the department an explanation of
why it terminated the criminal toxic investigations. As far as we can determine, the need for toxic investigations is just as great today as it was in
October 1984 when the positions initially were diverted.
Consequently, we recommend that during budget hearings, the Legislature ask the department to:
1. Explain why it terminated the division's toxics criminal investigations
program.
2. Describe what toxics criminal investigations are currently being conducted by the department.
3. Summarize what the department plans to do with the eight investigator positions.

Item 4260

HEALTH AND WELFARE / 775

Decentralization of Case Screening Saves Staff TimeWe recommend approval of the proposed reduction of two investigative
positions.
The budget proposes a reduction of $80,000 ($40,000 General Fund) andtwo positions to reflect the decentralization of the investigations screening
function. Currently, a central unit located in Sacramento performs intake,screening, and tracking of incoming complaints involving Medi-Cal fraud
and abuse. The department proposes to transfer this function to the field.
Our review indicates that decentralization will not reduce the department's ability to respond to complaints. Therefore, we recommend thatthe proposed staffing reductions be approved.
The budget also proposes to convert three investigator positions tolimited-term positions for possible elimination in 1987-88 because it expects that the revised case screening criteria will reduce workload in
1987-88. The department indicates that it will examine the workload impact of (1) the new investigations screening criteria and (2) new statutes
requiring beneficiaries to sign their Medi-Cal card during 1986-87.
We recommend approval of the three limited-term positions and will
examine the necessity for these positions when th~ department's workload
study is completed.
Computer Checks of Assets Feasible

We recommend that the department report to the Legislature by April
15, 1986, on the feasibility of utilizing the asset clearance match program
for the medically needy category of Medi-Cal beneficiaries.
Chapter 703, Statutes of 1981 (SB 620), authorized a four-county demonstration project in which county welfare and Franchise Tax Board (FTB)
records were matched to determine if any welfare recipients earned morethan $30 in interest or dividends in any year. Because both the Aid to
Families with Dependent Children (AFDC) and Medi-Cal programs include eligibility rules that limit the assets a family may retain and still
qualify for assistance, this project providesa means for reducing program
costs by identifying recipients with assets that may exceed the limit.
Matches are referred to county investigative staff in the AFDC programand state investigators in the Medi-Cal program.
.
The demonstration program was successful in identifying fraud andreducing welfare expenditures. As a result, the program was implemented
statewide in 1984. The Department of Social Services estimates that thisprogram will reduce state AFDC expenditures by $8.6 million ($4.3 million General Fund) in 1986-87.
The matching program covers only those beneficiaries who are
categorically eligible under both the AFDC and Medi-Cal programs. The
Medically Needy program, however, has similar family asset limits. The
state may be able to realize savings and reduce beneficiary fraud if theasset clearance match program is extended to the medically needy eligibility category.
Consequently, we recommend that the department report by April 15,
1986, on the feasibility of extending the asset clearance match program to
medically needy eligibles.

776 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-Continued
General Issues
Regional Reorganization Questionable

We recommend that the department report to the Legislature during
budget hearings ()n its reasons for combining the management of two
regional offices in southern California.
The budget proposes a reduction of $243,000 ($103,000 General Fund)and six positions made possible by the proposed consolidation of management for two southern California regional offices. Under the proposal,
each office would retain its separate identity.
.
The department states that the position reductions will not only reduce
expenses but will "streamline" reporting relationships in southern California regions.
We have the following concerns regarding this proposal:• Section supervisors would be responsible for approximately 45 staff.
• Management personnel would be less available for on-site management of state operations because they would spend more time traveling between locations.
In sum, we are concerned that supervisory resources will be stretched
too thinly. Consequently, we recommend that the department reportduring budget hearings on its reasons for combining the management of
two southern California regional offices.
Contracting Proposal Lacks Adequate Justification

We recommend that the Legislature reject a proposal to reduce $44,000
and two positions and redirect funds to contractual services because thedepartment's proposal lacks adequate justification. .
The budget proposes elimination of one physician and one nurse position, a reduction of $44,000 in federal funds, and a redirection of $75,000($37,500 General Fund) to consultant and professional services, in orderto fund a one-year pilot project.
The pilot will test the effectiveness of contracting for physician services
to conduct utilization reviews. The department indicates that practicing
physicians on contract may accomplish reviews in less time, provide expertise in medical fields that cannot be provided by state physicians, andwill be more credible during appeals. The pilot also includes contract
funds for medical duplicating services. Currently, departmental medical
staff spend time duplicating beneficiary medical records for medical utilization reviews. The department believes contracting for these services
may be more cost-efficient.
Our review indicates that the utilization review program has two underlying problems that the proposal attempts to resolve. First, the programfrom time to time needs contract funds to hire expert physicians to advise
state physicians who are conducting utilization reviews and to testify at
appeal hearings to support the state's cases. These services are complementary to and cannot substitute for the routine utilization review activities performed by state physicians. Eliminating a physician position willproduce funds for consulting services but it may also reduce the overall
number of utilization reviews accomplished. Second, the program needs
clerical personnel to duplicate the medical records required during thecourse of medical reviews. Our review indicates that state clerical staff
could accomplish the duplicating at a cost well below the amount budget-

Item 4260

HEALTH AND WELFARE / 777

ed in the proposed contract. Furthermore, the contract will not provide
the same level of services that would be lost by the elimination of one state
nurse position.
Because the department's proposal lacks adequate justification, we recommend rejection of the staff reduction and the redirection of funds tocontractual services.

DEPARTMENT OF HEALTH SERVICES-CAPITAL OUTLAY

Item 4260-301 from the Special
Account for Capital Outlay
and the Federal Trust Fund

Budget p. HW 78

Requested 1986-87 ......................................................................... .
Recommended approval ............................................................... .
Recommended reduction ............................................................. .
Recommendation pending ........................................................... .

$1,384,000
313,000
165,000
906,000
Anlilysis

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. Emergency Generator. Reduce Item 4260-310-036(2) by$10,000. Recommend that the Legislature delete funds

p1lge

778

in excess of cost estimate.
2. Los Angeles Lab Acquisition. Reduce Item 4260-301036(3) by $10,000.
Recommend that the Legislaturedelele funds for EIR and appraisal, because these funds are
not needed to exercise an option to purchase leased facilities.
3. Berkeley Lab Remodel and Expansion. Withhold recommendation on Item 4260-301-890 (1), pending receipt of additional information.
4. Minor Projects. Recommend that all funds for parking
lot improvements under Item 4260-310-036(1) be designated as a loan to the DHS and repaid through user fees.
5. Minor Projects. Reduce Item 4260-301-036(1) by $145,000.
Recommend that the Legislature delete funds for one
project that is not justified.

778

779
781
781

ANALYSIS AND RECOMMENDATIONS

The budget proposes $478,000 from the General Fund, Special Accountfor Capital Outlay, and $906,000 from the Federal Trust Fund for threemajor projects and four minor projects for the Department of HealthServices (DHS).
The Federal Trust Fund amount would come from receipts anticipated,but not yet received, under Section 8 (g) of the federal Outer Continental
Shelf Lands Act. The Budget Bill appropriates a total of $45.2 million in"8 (g)" revenue, which would be on top of the $356.3 million alreadyappropriated. It is not clear at this time that the state will receive sufficient
funds to finance either the amount already appropriated or the amountincluded in the Budget Bill.

Item 4260

778 / HEALTH AND WELFARE

DEPARTMENJ. OF HEALTH SERVICES-CAPITAL OUTLAY-Continued
Table 1
Department of Health Services
1986-87 Major Capital Outlay(dollars in thousands)

Project

Phuse"

Emergency Genenltor............................ pwc
Los Angeles Lab ...................................... EIR and Appraisal
Berkeley Lab Remodel.......................... EIR and Schematics
Total....................................................

BudgetAllu/rsts Estimuted
Bill
Rec~mFuture
Amoullt melldutiolls
Cost
$246
10
906
$1,162236
Pending
Pending$1,30060,000 h$61,300" Phase symbols indicate: p=preliminary plans; w=working drawings; e=eonstruetion; EIR=environmental impact report.
h Department estimate is $57 million to $60 million.

Emergency Generator

We recommend that the Legislature reduce Item 4260-301-036(2), emergency generator, by $10,000 to reflect the current cost estimate by the
Office of State Architect.
The Berkeley laborato~y has two natural gas-powered emergency generators with a total capacity of 250 KW. The department proposes to install
one 500 KW diesel-powered generator for emergency electrical power
because these generators do not meet the baseline electrical needs of the
facility. This project is a resubmittal of a minor capital outlay project
funded for $149,000 in the 1984 Budget Act. The department did notpurchase the generator at that time because the cost was higher than thedepartment anticipated.
The Budget Bill provides $246,000 for the generator. The Office of State
Architect's cost estimate indicates a cost of $236,000 for the generator.
While our analysis indicates that the generator is needed, we have been
unable to establish any need for the additional $10,000. Consequently, we
recommend that the Legislature delete the $10,000 from this item so thatthe budgeted funds will equal the estimated project cost.
Los Angeles Lab Acquisition

We recommend that the Legislature delete Item 4260-301-036(3), for an
EIR and appraisal of the Los Angeles laboratory facilities, because thesefunds are not needed to exercise the option to purchase this leased facility,
for a reduction of $10,000.
The DHS southern California laboratory facility was constructed to state
specifications in 1967 and is occupied under a lease-with-option-to-purchase agreement. The 20-year term of the lease will expire two and onehalf years from now-on June 30, 1988. On that date, after giving 90 days
notice to the owner, the state can purchase this 25,000 square foot facility
and associated property for the contractural amount of $1.3 million.
The Department of General Services estimates that the property isworth $1.97 million to $2.25 million. The DHS indicates that the laboratory
meets the program's needs, even though some modifications should bemade to provide additional storage and improve the ventilation. The.
budget requests $10,000 to fund an EIR and an appraisal of this property.

Item 4260

HEALTH AND WELFARE· / 779

Our analysis indicates that purchasing this laboratory would be costbeneficial to the state. Nevertheless, there is no need to appropriate funds
for the appraisal and the EIR. The value estimate is well above the option
price and EIRs are not required for a simple change of ownership. Furthermore, no funds for any pre-a~quisition activities are needed until the
1987-88 fiscal year. Consequently, we recommend that the Legislaturedelete this item. We further recommend that during the 1986-87 fiscal
year, the department prepare a report identifying the need for and costof any necessary modifications to the Los Angeles lab facility.
Berkeley Lab Remodel and Expansion

We withhold recommendation on Item 4260-301-890 (1), schematic
drawings and EIR for the Berkeley lab remodel and expansion, pending
receipt of additional information.
The main operations of the DHS laboratories are located on Berkeley
Way in a 196,000 square foot (sf) facility built in 1953 (160,000 sf) and 1966
(36,000 sf). The DHS also has smaller facilities on Acton Street in Berkeley
and in Emeryville. These three laboratories support the Public Health andEnvironmental Health programs of the DHS.
The Budget Bill includes $906,000 for preparation of schematic drawings
and an environmental impact report (EIR) for a major remodeling andexpansion of the Berkeley Way lab. Under the plan, the Acton Street andEmeryville facilities would be closed and the functions consolidated at
Berkeley Way. The estimated total project cost ranges from $58,229,000 to$60,788,000.
Background. The history of this project dates to October 1980,
when the Department of General Services issued a 1O-year facilities planfor the DHS laboratory system. This plan identified laboratory space deficiencies and proposed several alternatives. The 1985 Budget Act provided$50,000 to the DHS to study the alternatives proposed by the Departmentof General Services in the 1980 facilities plan. The Legislature directed the
DHS, in conducting this study, to consider the programmatic and physicalplant changes which had occurred since 1980 and the effect of the Governor's proposal to consolidate toxics programs. .
The Berkeley laboratory study, which was released in December 1985,
outlines three renovation and expansion alternatives. Each alternative
adds approximately 100,000 square feet of office and laboratory space tothe facility, and costs approximately $60 million.
Summ~ry. Our review indicates that the study:• fails to reevaluate the alternatives recommended in the 1980 HealthServices laboratories facilities plan. .
• bases its recommendation on projected laboratories needs from 19851995.
• finds that the Governor's proposal to consolidate the toxics program
into a single department will have no effect on the laboratory otherthan to alter the laboratory's funding level.
• finds that most of the approximately $1.4 million in special repair andcapital outlay funds appropriated for the Berkeley facilities between
1980 and 1985 was used for required maintenance and that little of thework can be incorporated into the building's expansion and remodeling.
We find that several major issues warrant review before the Legislatureapproves this project.

780 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-CAPITAL OUTLAY-Continued

Staffing Levels. The DHS expects the number of staff working in
the consolidated Berkeley Way facility to increase by 38 percent in thenext 10 years. Specifically, the DHS staffing projections show an increaseof 35.4 personnel-years from 1985-86 to 1986-87 and 149.1 personnel-years
between 1986-87 to 1995-96. The proposed expansion plan is based onthese projections.
Our analysis indicates, however, that the DHS's staffing projections
generally have been high. For example, the department's lO-year plan of1980 envisioned a real growth in staff for the subject facilities of approximately 6 percent per year. Actual staff growth has been approximately 3
percent per year. In addition, the department estimated a 10 percent per
year increase in staff for the southern California lab between 1980 and
1990. As of 1985, that lab had experienced a net decrease in staff. Basedonthe proposed 1986-87 budget for DHS and in view of past experience,
our analysis indicates that the current staffing projections are also high. Inturn, these projections inflate the amount of space the DHS needs toremodel and/ or construct in the proposed addition.
Space Allocation. The department has requested an amount of
space for the Berkeley lab expansion that is more than double what it
requested just three years ago. In 1983, the DHS estimated that 61,000
additional gross square feet (gsf) were needed. In 1985, the DHS revised
the estimate to 115,000 gsf. The current plan provides for constructing a
102,021 gsf addition to the Berkeley lab and renting an additional 31,000
gsf, for a total of 133,021 gsf of additional space.
Based on the State Administrative Manual (SAM) guidelines and theconsultant's recommendation of 144 net square feet of lab per scientist,
our review of the proposed plan indicates that it overstates need by at least
28,000 gsf. The extra space generally is due to the fact that the plan
provides larger labs than the consultant indicates is necessary and does notcomply with all SAM guidelines.
Moreover, the proposed design may be overstated by even more than
28,000 square feet if:• the consultant's recommended lab size is larger than necessary,• the 38 percent staffing increase is not realized, or• some of the lab's toxics programs are consolidated in a new toxics
department.
Cost items not included in the $60 million estimate. The cost of thisproject has escalated by a factor of six in just two years. Moreover, the fullcost of the project is still uncertain. The current $60 million estimate is notbased on actual lab conditions, but simply on the number of square feetproposed and the consultant's estimate of the average national cost ofbuilding or renovating lab and office space. The DHS has provided no data
to substantiate these estimates. Furthermore, this estimate excludes many
proposed items. For example, the DHS proposes to rent additional"swing" space during the years of remodeling, at a total cost of $3 million.
The DHS also proposes to relocate several nonlab divisions currently
housed in the Berkeley facility to rented quarters, at an annual cost of$62,000.
Summary. The DHS's Acton Street and Emeryville facilities clearly
are substandard. Consequently, the proposal to consolidate the DHS activities into the Berkeley Way lab is merited. To accommodate this consolidation, remodeling and additional space must be provided. As discussed

Item 4260

HEALTH AND WELFARE / 781

above, however, the DRS has not substantiated the estimated $60 million
project cost.
We have spent considerable time reviewing this proposal since the DRS
issued the report in December. This review has been facilitated by the
DRS which has been very cooperative and has provided prompt anq
thorough responses to our questions. Nevertheless, because of the time
constraints, we have not completed our review and analysis of this multimillion dollar project. Consequently, we withhold recommendation on
this project, pending further analysis.
Minor Projects

We recommend that the Legislature provide funds for parking lot improvements in the form of a loan to be repaid through user fees.
We recommend further that the Legislature reduce Item 4260-301-036(1), by $145,000 to eliminate funding for sunscreens on windows at theBerkeley Way building because (1) sections of the building may beremoved during construction and (2) the screens are not justified on a
cost/benefit basis.
The department proposes four minor projects ($200,000 or less per
project) for a total cost of $222,000. These projects and our recommendations on each are summarized in Table 2.
Table 2
Department of Health Services
1986-87 Minor Capital Outlay(dollars in thousands)

Budget Bill
Project
AmountChilled Water Cooler ............. ...............................................................
18
Asbestos Removal....................................................................................
31
Install Security Fence ............................................................................
28
Solar Shielding ........................................................................................ 145
Totals.................................................................................................. 222

AIlIIlysts
RecommeIldation
18
31
28 (as a loan)
77

We have concerns with two of the four projects.
Los Angeles Parking Lot Security Improvements. The Budget Bill
provides $28,000 for construction of an eight foot fence with three strandsof barbed wire and electric card controlled access gates around the employee parking lot. The department indicates that numerous employee
vehicles parked in the lot have been stolen or vandalized in the past five
years. In the October 1985 collective bargaining agreement between the
DRS and the California Association of Professional Scientists, the parties
agreed that the DRS will request funding for security improvements tothe lot and that some recoupment of these costs through parking fees may
be discussed after January 1, 1987.
Our analysis indicates that parking security is a problem at the Los
Angeles laboratory, but that the cost of improving security should becharged to parking lot users. Consequently, we recommend that theLegislature appropriate the $28,000 as a 20-year loan, to be repaid withinterest from a surcharge levied on the parking lot users. To implement
this recommendation, it should adopt the following budget language:"Provided that any funds appropriated under Item 4260-301-036 (l) thatare used to finance parking lot improvements are a loan to the Depart-------------------------------------

782 / HEALTH AND WELFARE

Item 4260

DEPARTMENT OF HEALTH SERVICES-CAPITAL OUTLAY-Continued

ment of Health Services. Payments on the loan shall be on an annual
basis over a 20-year period with interest at the current rate earned on
money deposited in the Pooled Money Investment Account. Funds forthese payments shall be raised by assessing a parking lot user charge."
Window Sunscreens. The budget provides $145,000 to install sunscreens on all west and south facing windows in the Berkeley laboratory
facility. According to the DHS, the laboratory becomes quite warm onsunny days and the department hopes that the temperature will be reduced by shading the windows. Our analysis indicates that this project is
not justified because (1) some of these sunscreens may need to be
removed if the building is expanded, (2) information provided by the
DHS indicates that the payback on sunscreens covering windows in air
conditioned rooms is over 18 years and (3) the manufacturer is unable toestimate how many degrees cooler the screens will make nonairconditioned rooms. Consequently, we recommend that the Legislature delete$145,000 from Item 4260-301-036 (1).

DEPARTMENT OF HEALTH SERVICES-REVERSION

Item 4260-495 to the General
Fund

Budget p. HW 65

ANALYSIS AND RECOMMENDATIONS

We withhold recommendation on the following seven reversions pending receipt of additional information from the department.
The budget proposes to revert the unencumbered balances remaining
from seven appropriations to the Department of Health Services. The
funds would revert to the unappropriated surplus of the General Fund.
The seven appropriations are described below:
1. Chapter 1134, Statutes of 1979, appropriated $2,100,000 for a dental
disease prevention program for children. As of November 27, 1985, abalance of $700,000 remained unexpended.
2. Chapter 1163, Statutes of 1979, appropriated $130,000 for a pilot program to determine whether providing Medi-Cal per-capita reimbursements to pharmacists for services provided to nursing homes would
reduce costs to the state. As of November 27, 1985, a balance of $27,745
remained unexpended.
3. Chapter 277, Statutes of 1980, appropriated $225,000 for a project torevise and consolidate public health services statutes. As of November 27,
1985, a balance of $9,740 remained unexpended.
4. Chapter 204, Statutes of 1982, appropriated $875,000 to establish abirth defects monitoring program ($450,000) and to conduct studies on theeffect of (a) malathion on pregnant women ($275,000) and (b)ethylenedibromide (EDB) on reproductive systems ($150,000). As of November 27, 1985, a balance of $47,858 remained unexpended.
5. Chapter 1572, Statutes of 1984, provided $135,000 for the establishment of toll-free phone numbers for providers wishing to contact MediCal field offices. As of November 27, 1985, a balance of $27,527 remained
unexpended.

Item 4270

HEALTH AND WELFARE / 783

6. Chapter 10, Statutes of 1985, appropriated $150,000 for a study of thelong-term care rate-setting methodology. The department proposes torevert these funds.
7. Chapter 1394, Statutes of 1985, appropriated $500,000 to establish an
occupational health and disease prevention program. The department
proposes to revert $236,000. The budget also proposes to continue thisprogram through a separate budget change proposal.
We will make recommendations to the Legislature on the proposed
reversions after we have received additional information from the department.

Health and Weifare Agency
CALIFORNIA MEDICAL ASSISTANCE COMMISSION

Item 4270 from the General
Fund

Budget p. HW 79

Requested 1986-87 ......................................................................... .
Estimated 1985-86 ........................................................................... .
Actual 1984-85 ................................................................................. .
Requested increase $42,000 (+4.4 percent)Total recommended reduction ................................................... .

$994,000
952,000
617,000
21,0001986-87 FUNDING BY ITEM AND SOURCE
Item-Description
4270-001-001-Support
Reimbursements

Fund
GeneralFederalAmount$994,000(852,000)

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS

1. Technical Budget Issues. Reduce Item 4270-001-001 by$21,000. Reduce reimbursements by $20,000. Recommend reduction to eliminate overbudgeting in operating
expenses.

Analysis
page785

GENERAL PROGRAM STATEMENTThe California Medical Assistance Commission (CMAC) was established by Ch 329/82 (AB 3480) to negotiate contracts with hospitals, county health systems, and health care plans for the delivery of health careservices to Medi-Cal recipients. In addition, the commission is responsible
for reporting to the Legislature twice each year on the status and costeffectiveness of selective provider contracts.
During 1985-86, a total of 25.5 positions, including 7 commissioners, areauthorized for the commission.

Item 4270

784 / HEALTH AND WELFARECALIFORNIA MEDICAL ASSISTANCE COMMISSION-Continued
OVERVIEW OF THE BUDGET REQUESTThe budget proposes an appropriation of $994,000 from the GeneralFund for the support of the commission during 1986-87. This is an increaseof $42,000, or 4.4 percent, above estimated current-year General Fund
expenditures. This increase priIIl;arily reflects (1) an increase of one position for implementation of the Expanded Choice program and (2) salary
increases.
Total expenditures by the Gommission, including the expenditure offederal funds provided by the Department of Health Services, areproposed at $1,846,000 in 1986-87-an increase of $85,000; or 4.8 percent,above estimated expenditures in the current year. This increase also is due
primarily to the proposed new position and salary increases.
The budget does not include additional funding for merit salary adjustments or inflation adjustments to operating expenses and equipment.
Table 1 shows personnel-years, expenditures, and funding sources forthe commission from 1984-85 through 1986-87.
Table 1
California Medical Assistance Commission
Budget Summary
1984-85 through 1986-87(dollars in thousands)

Expellditures
Est.

Prop.
1986-87$1,846
852
$994
26.4

Prognlm

Actulll
1984-85

Contract negotiations......................................
Reimbursements (federal funds) ................

$1,303686

1985-86$1,761809:'\et totals....................................................
Personnel·years ................................................

$617
21.9

$952
25.5

Percellt Chllllge
From 1985-86
4.8%
5.3
4.4%
3.5

ANALYSIS AND RECOMMENDATIONS
Hospital Contracts Implemented

As ofJanuary 1986,274 acute care hospital contracts had been signed in
71 of the state's 138 health facilities planning areas. Approximately 92
percent of Medi-Cal inpatient expenditures occur in these areas. Table 2
summarizes the status of hospital contracting.
Table 2Contracts with Acute Care Hospitals
January 1986
1. Coveragea. ;>.lumber of health facilities planning areas ....................................................................................
b. Areas for which contracts have been negotiated ('"closed" areas) ..........................................

138
71

c. Areas in which contracting has not been completed .............'.....................................................
2. Hospital participationa. "umber of hospitals in closed health facilities planning areas..................................................
b. :-lumber of nonacute care hospitals not eligible for contracts ..................................................

67
440
48

c. :'\et number eligible for contracts ....................................................................................................
d. :'\umber of current contracts ............................................................................................................
3. Estimated number of contract renegotiations in 1986-87................................................................

392
274
325

Item 4300

HEALTH AND WELFARE / 785

The current contracts do not have expiration dates but may be renegotiated at the request of either the commission or the hospital. The commission advises that most of the current contracts probably will be
renegotiated at least once during the budget year. In some cases, contracts
are renegotiated more than once in a year. The fiscal effects of thesecontracts are discussed in our analysis of the California Medical Assistanceprogram (Medi-Cal).
Budget Increases Due to Expanded Choice Program

We recommend approval.
The budget requests $34,698 ($17,000 General Fund) and one position
for anticipated workload increases associated with the planned 1986-87
implementation of the Expanded Choice program in San Diego County.
The commission indicates that the additional position is needed to establish ongoing advisory committees of beneficiaries and providers and to
conduct additional liaison activities. Our review indicates that the additional resources are justified.
Technical Budget Issues

We recommend reductions totaling $21,000 from the General Fund and$20,000 in reimbursements to eliminate overbudgeting in facilities operations, consulting services, and out-of-state travel.
The proposed budget includes $112,000 for facilities operations, whichis $15,000 above the amount we estimate will be required in 1986-87. The
budget also proposes $16,000 for external consulting services, although thecommission has provided no expenditure plan for these funds. Finally, therequest for out-of-state travel exceeds by $10,000 the amount that is warranted by actual expenditures in recent years.
Accordingly, we recommend that these funds be deleted from thebudget for a savings of $21,000 to the General Fund and a $20,000 reduction in reimbursements.
.

Health and Welfare Agency
DEPARTMENT OF DEVELOPMENTAL SERVICES

Item 4300 from the GeneralFund and Developmental
Disabilities Program Development Fund

Budget p. HW 80

Requested 1986-87 .......................................................................... $858,977,000
Estimated 1985-86............................................................................ 876,247,000
Actual 1984-85 .................................................................................. 792,939,000
Requested decrease $17,270,000 (-2 percent)Total recommended reduction .... ;.............................................. .
2,943,000
Recommendation pending ........................................................... .
8,817,000

786 / HEALTH AND WELFARE

Item 4300

DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued
1981HS7 FUNDING BY ITEM AND SOURCE
Item-Description
4300-001-001-Support
4300-001-172-Support
4300-101-001-Local assistance
4300-111-001-Local assistance
4300-121-001-Local assistance
4300-111-036--l.ocal assistance
4300-101-172-Local assistance
4300-121-172-Local assistance
Subtotal
4300-101-890-Support
4300-111-890-Local assistance
Reimbursements
Total

Fund
GeneralDevelopmental Disabilities
Program Development
GeneralGeneralGeneralSAFCO
Developmental Disabilities
Program Development
Developmental Disabilities
Program Development
FederalFederalAmount$19,229,000
217,000
366,108,000
50,008,000
7,721,000
12,673;000
04,971,000$460,927,000(88,000)(944,000)
398,050,000$858,977,000
AllIliysis

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
L Residential Care Rate Pilot. Recommend that when
the department submits its April 1, 1986, revised residential
care rate proposal, it (1) identify the total cost of implementing the program statewide and (2) address other costs
and policy issues.
2. Board and Care Cost-of-Living Adjustment. Reduce Item
4300-101-001 by $2,332,000. Recommend reduction toeliminate double-budgeting of the cost-of-living adjustment for board and care facilities.
3. Regional Center Core Staffing. Reduce Item 4300-101-001
by $611,000. Recommend reduction because some regional center core staffing salary increases were in excess
of 6 percent provided to other staff.
4. Hospital Population Estimates. Withhold recommendation on the proposal to eliminate 308 treatment positions,pending receipt of updated hospital population estimates.
Recommend that the department prepare and submit arevised estimate of 1986-87 hospital populations and staffing requirements.
5. State Hospital Nontreatment Positions Reduced. Recommend that the department inform the Legislature during budget hearings what its policy is toward staffing
imbalances in the state hospitals. Further recommend thatprior to budget hearings, the department provide a management plan which explains how the workload of the 11
administration positions proposed for elimination can beabsorbed.
6. Special Repairs.
Withhold recommendation on$7,908,000 requested from the Syecial Account for Capital
Outlay for state hospital specia repair projects, pending

page

792

797

798

806

808

812

Item 4300

HEALTH AND WELFARE / 787

further review of the projects and further discussion 'ofstate hospital special repair needs.
7. Laundry Contract. Augment Item 4300-111-001 by$41,000.
Recommend that the Legislature restore$41,000 and 57 laundry worker positions at Agnews andFairview State Hospitals because the proposal to contract
for laundry services is premature. Further recommendthat the Legislature adopt Budget Bill language identicalto language in the 1985 Budget Act limiting the price that
Prison Industries Authority may charge for laundry services.
.
B. Equipment Proposal.
Withhold recommendation on$4,B31,000 requested for hospital equipment, pending receipt of a mandated report on state hospital equipment.
9. Hospital Equipment Expenditures. Recommend that
the Legislature adopt Budget Bill language restricting theexpenditure flexibility of the state hospitals.
10. Report on Future Use of State Hospitals. Recommendthat the department advise the Legislature why its reporton the long-term plan for state hospitals is late, and when
the report will be released.

B12

B14
B14
B15

GENERAL PROGRAM STATEMENTThe Department of Developmental Services (DDS) administers community- and hospital-based services for persons with developmental
disabilities. The Lanterman Developmental Disabilities Services Act defines a developmental disability as a disability originating before a person's
IBth birthday that is expected to continue indefinitely and that constitutes
a substantial handicap. Such disabilities may be attributable to mental
retardation, cerebral palsy, epilepsy, autism, neurologically handicapping
conditions closely related to mental retardation, or mental impairment
resulting from accidents that occur before age lB.
The department is authorized 13,413.3 personnel-years in the current
year to carry out the following programs:
1. The Community Services program develops, maintains, and coordinates services for developmentally disabled persons residing in the community. The program's acitivities are carried out primarily through 21
regional centers, which are operated statewide by private nonprofit corporations under contract with the department. The regional centers provide a variety of services, including (a) diagnosis, (b) development of
individual program plans, (c) referral to and purchase of needed residential and nonresidential services, (d) monitoring of client progress, and (e)developmental disabilities prevention services. As part of the Community
Services program, the department also administers the Program Development Fund, which provides start-up funds for new community-based services.
2. The Hospital Services program provides services in B of the state's 11
hospitals. Agnews, Fairview, Lanterman, Porterville, Sonoma, and Stockton hospitals operate programs exclusively for the developmentally disabled, while Camarillo and Napa hospitals operate programs for both thedevelopmentally disabled and the mentally disabled through an interagency agreement with the Department of Mental Health.

Item 4300

788 / HEALTH AND WELFARE
DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued
OVERVIEW OF THE BUDGET REQUESTThe budget proposes an appropriation of $443,066,000 from the GeneralFund to support the programs of the Department of Developmental Services in 1986-87. This is a decrease of $299,926,000, or 40 percent, below
estimated current-year expenditures.
The reduction in expenditures does not reflect a corresponding reduction in services provided by the department. Rather, it reflects a changein accounting policy that is necessary in order to conform with generally
accepted accounting principles. Specifically, the budget proposes to treat
Medi-Cal funding for the support of state hospital operations as reimbursements rather than General Fund revenues. This change has the effect of
reducing expenditures in the budget; it will not have any effect on theoperation of the state hospitals.
Expenditures from all funding sources are proposed at $860,009,000 in
the budget year. This is an increase of $17,235,000, or 2 percent, above
estimated current-year expenditures.
Table 1 displays program expenditures and funding sources for the
department in the prior, current, and budget years.
Table 1
Department of Developmental Services
Budget Summary
1984-85 through 1986-87(dollars in thousands)

Act!lui

Est.

Prop.

Etpelldit!lres1984-85

1985-86

1986-87

Department administration ............
Communitv sen'ices ..........................
State hospital services ........................

$17,802276,891
499,049$793,742$19,728
328,938
528,558$877,224$20,614379,825
459,570$860,009

Percellt Chullge
From 1985-86
4.5%
15.5
-13.1
-2.0%

$672,084$742,992
2,807$443,066
12,673-40.4% "
351.5

3,260
803
117,595

2,834
977
127,614

5,188
1,032
398,05083.1
5.6
211.9 "

369
13,010.6
13,379.6

405.4
13,077.9
13,483.3

396.3
10,155.8
10,552.1--

Totals ..............................................
Funding source
General Fund ..................................
SAFCO ..............................................
De\'elopmental Disabilities Program De\'elopment Fund ........
Federal funds ..................................
Reimbursements ................................
Personnel-years
Dep'lrtment support ......................
State hospital services ....................

-2.2%-22.3 h-21.7%" This decrease reflects the proposed transfer of administration of Napa State Hospital from the Department of De\'elopmental Services to the Department of Mental Health.
h The increase in reimbursements and the decrease in General Fund are due to an accounting procedure.

The budget proposal does not include funds for merit salary adjustments
or inflation adjustments to operating expenses and equipment. We estimate that the department will have to absorb approximately $3,460,000 insuch costs. This issue of absorbing merit salary adjustments and its impact
on the operation of state hospitals is discussed further on page 809 of thisanalysis.

Item 4300

HEALTH AND WELFARE / 789

ANALYSIS AND RECOMMENDATIONS
I. DEPARTMENT SUPPORTWe recommend approval.
The budget proposes a General Fund appropriation of $19,229,000 for
support of the department in 1986-87. This is an increase of $868,000, or
4.7 percent, abo've estimated current-year expenditures. Total expenditures, including those supported by the Program Development Fund,
reimbursements, and federal funds, are proposed at $20,614,000, which is$886,000, or 4.5 percent, above estimated current-year expenditures.
Table 2 identifies the major changes in the department's support budget
proposed for 1985-86.
Table 2
Department of Developmental Services Support
Proposed Budget Changes(dollars in thousands)

All

Gellenli
FUlld
1985-86 expenditures (Budget Act) .................................................................. $17,447

FUllds$18,864

Adjustments, 1985-86:
1. 1985-86 salarv and benefit increases ........................................................
2. Other adjust~ents ........................................................................................
1985-86 expenditures (revised) ........................ :.................................................

853
61$18,361907-43$19,728

$824

$882

-16

-56

- 77
137
$19,229-77
137$20,614Baseline adjustments, 1986-87:
1. Salary and benefits adjustments ................................................................
2. Merit salary adjustments ........................................................................... .
3. Inflation adjustments for operating expenses and equipment... ...... .
4. Other adjustments ........................................................................................
Program change proposals:
1. :\apa administration positions....................................................................
2. Community Services Division positions ..................................................
1986-87 expenditures (proposed) ......................................................................
Change from 1985-86 (revised):
Amount ................................................................................................................
Percent ................................................................................................................

$868
4.7%

$886
4.5%

The budget proposes a total of 396.3 personnel-years for department
headquarters in 1986-87. This is a decrease of 9.1 personnel-years below
the number authorized in the current year.
II. REGIONAL CENTERS AND COMMUNITY DEVELOPMENT PROGRAMS

The budget proposes an appropriation of $379,825,000 for regional
centers and community development programs in 1986-87, including$373,829,000 from the General Fund and $4,971,000 from the Program
Development Fund. This is an increase of $50,887,000, or 15.5 percent,above estimated current-year expenditures. Total expenditures, including
the expenditure of SSIISSP payments to residential care providers, areproposed at $497,252,000, which is an increase of $64,722,000, or 15 percent,above estimated current-year expenditures.
Table 3 displays the components of regional center and community
development program expenditures for the prior, current, and budget
years.

Item 4300

790 / HEALTH AND WELFARE
DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued
Table 3
Department of Developmental Services
Regional Center and Community Development Programs
Budget Summary
1984-85 through 1986-87(dollars in thousands)

Progmm
A. Regional centers
Operations
Personal services ..................
Operating expenses ..............
Totals ....................................
Purchase of service
Ollt-of-home care ..................
Day programs ........................
Other ........................................
Subtotals ........................................
B. Community de\·elopment
Community placement ................
Program development ................
Cultural center ..............................
Pre\·ention ......................................
Cost-of-lh·ing adjustment ............
Subtotals ........................................
C. SSI/SSP reimbursements ............
Totals ......................................
Funding source
Ceneml Fund
Regionlll centers..............................
SSP" ..................................................
Progmm Del·elopment Fund ..........
Fedeml funds (55!) " ........................
Reimbursements ................................

Actulll
1984-85

Exeenditures
Est.
19~6

Prop.
1986-87$65,252
17,349$82,601$76,788
18,183$94,971$86,110
19,311$105,421

12.1%
6.2
11.0%

$68,949
43,02878,087$190,064$77,92153,64092,352$223,913$112,264
63,36877,563$253,195

44.1%
18.1
-16.0
13.1 %$1,038
2,078
139
971

$6,9822,927
145$8,460 h
4,996
145$276,891$84,734$361,625$328,938$103,592$432,530

7,608$379,825$117,427$497,252

Percent Chllnge
From 19~6

21.2
70.7

15.5%
13.4
15.0%

8272,804$324,846
8373,829
15.1%
36,43644,54550,494
13.4
3,091
2,628
4,971
89.2
48,29866,93359,047
13.4
996
1,464
1,025
-30.0
"Assumes funding split of 43 percent General Fund and 57 percent federal funds.
l'This does not include 8370,000 for eight elient placement coordinators in the regional centers· purchaseof-sen·ice budget.

Table 4 shows the changes to the budget for regional centers proposed
in 1986-87:
Table 4
Department of Developmental Services
Regional Centers Proposed 1986-87 Budget Changes(dollars in thousands)
Opemtions
1985-86 expenditures (Budget Act) ................................................................. .
$93,173
Adjustments:
1. Ch 26/85 (AB 114) early intervention services ....................................... .
70
2. Community placement transfer ................................................................... .
-292
3. Pre\·ention fund transfer ............................................................................... .
2,020
4. Increased federal SSIISSP funding ............................................................. .

1985-86 expenditures (revised) ......................................................................... .

$94,971

Purchllseof Services$224,468

95
350-1,000$223,913

Item 4300

HEALTH AND WELFARE / 791

Baseline adjustments:
1. Full-year cost of Ch 26/85 ............................................................................. .
2. Community placement plan fund transfer ................................................
3. Federal funds adjustment ............................................................................. .
4. Cuseload and cost increases............................................................................
Subtotals ......................................................................................................
<;ost-of-liying adjustment ....................................................................................
1986-87 expenditures (proposed) ......................................................................
Change frOlri 1985--86 (re\'ised):
Amount ................................................................................................................
Percent ................................................................................................................

55
292
10,158$105,421
208
8105,629

1,000
28,2278253,195
7,284
8260,479

810,658
11.2%

836,566
16.3%

Regional Center Caseload Estimates

The department estimates that regional center caseload will be 82,423
in 1986-87. This is an increase of 4,111, or 5.2 percent, above the estimatedcurrent-year caseload. The caseload estimate will be revised by the department in May, when additional data on clients become available. Table
5 shows the increases in caseload for 1981-82 through 1986-87.
Table 5
Department of Developmental Services
Regional Centers' Midyear Caseload
1981-82 through 1986-87

SlImber ofClients
1981--82 ............................................................................. . 64,221
1982--83 ............................................................................. . 68,473
1983--84 ............................................................................. . 70,898
1984--85 ............................................................................. . 74,184
1985--86 (estimated) ..................................................... . 78,312
1986-87 (proposed) ....................................................... . 82,423

Increase 01 'er
Prel"iolls Year
1,898
4,252
2,425
3,286
4,128
4,1ll

Percent
Change
3.0%
6.6
3.5
4.6
5.6
5.2

Client Characteristics

Developmentally disabled clients in the community and the hospitals
have varying levels of disability and thus have many different service
needs. Of the 82,423 clients in the regional center caseload, 6,385 are statehospital clients. Approximately 62 percent of community clients reside athome or in an independent living arrangement; 38 percent reside in along-term care ora community care facility.
Table 6 compares the characteristics of regional center and state hospital clients. Generally speaking, state hospital clients suffer from more
severe disabilities than regional center clients. For example, 71 percent ofstate hospital clients are profoundly retarded, as opposed to 11 percent ofregional center clients. One-third of the hospital clients have severe
behavior problems as compared to one-tenth of the regional center clients. One-half of hospital clients cannot understand any spoken words, ascompared to 15 percent of regional center clients. Sixty-five percent ofstate hospital clients must be fed or need help eating, as compared to 21
percent of regional center clients. Over 80 percent of state hospital clientsneed diapers or help with toileting, compared to 34 percent of regional
center clients.
26-:-80960

Item 4300

792 / HEALTH AND WELFARE
DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued
Table 6

Department of Developmental Services
Characteristics of Clients in the Community and State Hospitals
December 1985

Clients'

Percent ofState
Hospital
Clients

11 %

71%

23

16
13

Percent of
COlIllIl1I11itl'

Retardation le\'el:Profoundly retarded ....................................................................................
Se\'erely retarded ........................................................................................
\foderate or mild I\' retarded ....................................................................
A\'erage or not dil;gnosed ..........................................................................
Beha\'ior assessment:
Se\'ere beha\'ior problem ..........................................................................
~foderate or minimal ..................................................................................
beha\'ior problem ..................................................................................
Violence:
Frequently \'iolent ......................................................................................
Often \'iolent ................................................................................................
Seldom \'iolent ..............................................................................................
"e\,er \'iolent ................................................................................................
Understanding:Spoken words not understood ..................................................................
Few words understood................................................................................
Com'Crsation understood............................................................................
Walking:
Wheelchair or bedridden ..........................................................................
Walks with assisth'e de\'ice ........................................................................
Can walk ........................................................................................................
Eating:~lust be fed ....................................................................................................
"eeds help ....................................................................................................
Can feed self..................................................................................................
Visual imp\lirment:
Totall\' or nearl\' blind ................................................................................
Profo~lI1d or se\:ere impairment ..............................................................
~loderate impairment ................................................................................
"ormal, near normal ..................................................................................
Hearing impairment:
Profound or se\'ere loss ..............................................................................
~foderate or mild IOs5..................................................................................
loss or not diagnosed ............................................................................
Toileting:"eeds diapers ................................................................................................
"eeds help toileting ....................................................................................
Independent ..................................................................................................
~1ltior medical problems:
T\\'o or more..................................................................................................
One ..................................................................................................................
"one ................................................................................................................

"0

"0

59
7
10

34

33

35
31

57
3
18
25
54

12
28
14
46

15

49

31

32

54

19

10
8

34

82

58

5
16
79

23

35

3
3
12

8
9
10

82

73

8

42

4

8

7
89

15

13
21
66
5
11
84

77
49
32

19

30
16
54

Residential Care Rate Pilot Implemented

We recommend that when the department submits its April 1, 1986,
revised residential care rate proposal, it (1) identiFy the total cost ofimplementing the program statewide and (2) address specified other cost andpolicy issues.

Item 4300

HEALTH AND WELFARE / 793

Background. Current law requires the department to set rates forboard and care facilities based upon the following factors: (1) the clients'
basic living needs, (2) the amount of supervision provided to clients, and(3) administrative services and facility maintenance. The law requires thedepartment to adjust these rates annually to reflect increases in the costof living and to redetermine the cost of basic living needs every three
years. Any rate increases, however, must be approved by the Legislature.
The department's last board and care facility rate study was conducted
in 1984 and resulted in a proposal for restructuring rates and conducting
a rate pilot project. The department presented its proposal to the Legislature in 1985. The Budget Act of 1985 directed the department to conduct
a pilot project for six months in three regional centers and to submit arevised proposal to the Legislature by April 1, 1986.
Summary of the Department's Proposal. When it proposed the pilot
project, the department identified the following major problems with thecurrent system, which it believed would be corrected in the pilot:• The Current Rates are Based on Questionable Assumptions. Current rates paid to providers for client care vary according to clientclassification. Clients are classified as needing basic, minimal, moderute, or intensive supervision, based upon their skills with daily living
activities. A 1983 department study indicated that most clients needabout the same level of supervision, and only certain clients need
substantially more supervision. Consequently, the proposed rate
structure would recognize only a moderate and high level of supervision.
• The Current Client Assessment Tool is Too Subjective. The client
assessment tool is used to classify clients for payment purposes. The
department has many concerns about the client assessment tool now
used and proposes to use a new tool that it recently devised. The
department believes that its new assessment tool could improve thelevel of objectivity in client assessment.
• Special Services Are a Fiscal Problem and Create Confusion.
Shortly after the current rate structure was implemented, some facilities began requesting compensation for providing special services,such as behavior modification. The costs for these special services
have grown from $3,000,000 in 1977 to an estimated $21,600,000 in
1985-86. Funding for "special services" is widely perceived as a rate
supplement to adjust for inadequate residential care rates. There are
no detailed services standards for most board and care facility clients.
Detailed requirements, however, do exist for special services clients.
The coexistence of special services agreements with other departmental service regulations creates confusion for facilities that haveboth special service clients and other clients. The proposed rate structure would eliminate special services and would instead correct for
inadequate residential care rates by using rates that reflect actual
provider costs.
• The Current Rates Do Not Recognize Certain Costs. The department states that the current board and care facility rates generally are
not high enough to fund all of the services which the department
wishes to provide. Specifically, no allowance is made for night shiftstaffing, staff illness, or staff vacation, and no allowance is made for thecost difference between owner- and staff-operated facilities. In addition, the department indicates that the COLAs given in past years
often have not been sufficient to cover increasing costs. The proposed

Item 4300

794 / HEALTH AND WELFARE

DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued
rate structure would, on the average, pay facilities for their actual
costs by reimbursing them for their actual 1984 average cost plus anadjustment for inflation that has occurred since 1984.
How Rate Categories Would Change. The rate structure developed
for the pilot project has four client rate levels and two operator categories-owner- and staff-operated. The following section explains and compares
the proposed and the current rate structures.
Level 1: Basic. Currently, all board and care facilities receive $531
per month from the Supplemental Security Income/State Supplementary
Payment (SSIISSP) program for the care that they provide to developmentally disabled clients. The SSIISSP program is a cash grant public
assistance program supported 53 percent from the General Fund and 47
percent from federal funds. If a developmentally disabled client in a board
and care facility is classified as basic or levell, the facility receives noadditional support for the care of that client. Currently, it is estimated that
2.3 percent of developmentally disabled clients in board and care facilities
are classified as level 1 (basic). The department's proposal would notchange the rate of payment or the classification system for basic clients.
Levels 2 and 3. Currently, board and care facilities that care fordevelopmentally disabled clients who are classified as minimal, moderate,
or intensive receive the SSIISSP payment of $531 per client per monthplus a rate supplement that varies from a low of $126 to a high of $502 perclient per month. The amount of the rate supplement varies not only withthe classification of the client but with the size of the facility. Generally,larger facilities receive larger rate supplements. Table 7 shows how thetotal amount paid to the facility currently varies with client classificationand facility size. The rates shown on Table 7 include both the SSI/SSP
payment and the rate supplement.
Table 7
Department of Developmental Services
Board and Care Facilities
Monthly Rates by Facility Size
Effective January 1. 1986

ClientC1l1ssificu tion~linimal caTC ....................................................
~Iodcratc caTC ................................................
Intcnsh'c caTC ..................................................

1-6
Beds
$657
829
944

7-15
Beds
8679
853
967

16-49
Beds
8745
918
1,033

50+
Beds
$738
910
1,025

Currently, it is estimated that 26 percent of the clients in board and carefacilities are classified as in need of minimal care, 39 percent are classified
as needing moderate care, and 32 percent are classified as needing intensive care.
.
The department proposes to replace the minimal, moderate, and intensive client categories with a standard classification and an additional careand training classification. In addition, the department proposes to eliminate variation in rates based on facility size, and instead substitute "owneroperated" and "staff-operated" as a basis for rate differentials. Table 8shows how the rates would vary under the new client and facility categories. The rates shown on Table 8 include both the SSIISSP payment andthe rate supplement.

Item 4300

HEALTH AND WELFARE / 795
Table 8Department of Developmental Services
Proposed Monthly Rates for
Board and Care Facilities

Filcilitl'Tlpe
Client ClilssifiC<ltion
Owner-Operilted
Stilff-Operuted
Le\'el 2: Standard ..................................................................................
$779
$938
Le\'el 3: Additional training ........................................................... .....
1,072
1,293

Under the department's proposal, the minimum monthly rates payable
would increase from $657 to $779. Approximately 5,368, or 29 percent, ofboard and care facility clients currently receive less than $779 per month.
The maximum rate payable would increase from $1,025 per month to'$1,293 per month. The department cannot determine how many facilities
could benefit from the change in the maximum rate.
.
Level 4: Negotiated Rate. This level is for clients with special
needs that go beyond the needs of level 2 or level 3 clients. The department would negotiate with providers to set rates for individual clients andwould include requirements of the program in a contractual agreementthat could be monitored. The negotiated rate would use level 2 as its costbase. Clients could be assigned to level 4 for no more than two years.
Under the department's proposal, if a facility can only provide a certain
level of care, it would only be reimbursed for that level. For example, if
a facility is providing level 2 care to a level 3 client, the facility would be
reimbursed at the lowerlevel2 rate for that client. If a facility is providing
level 3 care to a level 2 client, the facility would be reimbursed for the
lower level 2 rate for that client. With this system, the department cansystematically determine if facilities are providing the correct level of care
to clients and adjust facility reimbursements accordingly. As a result, themethod used to determine the correct reimbursement level for particularfacilities would make it easier to monitor the quality of facility activities.
Benefits of the Proposed Residential Care Rate System. The department expects its proposal to result in many benefits, including:• Defined Responsibilities. The proposed system would clearly define the services that board and care facilities are required to provide.
The current system does not have specific client care requirements.
As a result, providers can receive rate supplements for existing clients
without providing a substantially different level of service to theseclients.
• Quality of Care. The ability of the department to monitor thequality of care would be improved because the requirements of service are clearly specified for each provider. If the provider does notprovide the required service, then the department would adjust its
reimbursements accordingly.
• Cost Containment. The proposed system should help containcosts in three ways. First, by clearly defining client service requirements, some clients' overall level of functioning should improve, thus
preventing them from being classified as needing higher levels ofservice. Second, by clearly defining client service requirements, providers should no longer have the opportunity of increasing revenues
without actually providing more services. Third, the negotiated ratewould clearly outline the client improvement to be attained. If theclient improvement is not achieved, the client service would have to

---

---

-.

-----_._------

796 / HEALTH AND WELFARE

Item 4300

DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued

be reconsidered and renegotiated. Under the current system, once
special services are negotiated, they essentially remain in place for thelife of the client.
Fiscal Impact of the Proposed Rate Structure. The department cannot estimate the statewide cost of the rate proposal. It explains that inorder to calculate total costs, it would have to actually classify clients under
the proposed rate structure on a case-by-case basis. For the same reasons,the department cannot provide an estimate of which providers or regional
centers may experience decreased or increased reimbursements as a result of the new system. Reimbursements to individual providers could
increase or decrease as a result of this proposal.
Pilot Project Modifications. The Department of Finance notified
the Legislature on December 31, 1985, that it planned to augment the
1985-86 budget for three regional centers that are participating in thepilot by a total of $1,081,360. The augmentation will fund these centers'
participation in the rate pilot during the last five months of 1985-86 (fromFebruary 1986 through June 1986).
The $1,081,360 was appropriated in the 1985 Budget Act for other programs that have experienced delays. The Department of Finance explainsthat the augmentation consists of two parts: (1) $907,970 (84 percent) for
revised estimates of facility and staff costs and (2) $173,390 (16 percent)to fund the department's decision to hold harmless, or "red circle," facilities participating in the pilot. Pilot program providers who would have lost
reimbursement under the new pilot rate structure will not see their reimbursements fall below existing levels. The department believes it is necessary to red circle the rates in order to have facilities participate in the
program voluntarily, as specified by language in the Budget Act of 1985.
The augmentation represents a total increase to the three regional center purchase-of-service budgets of 9.9 percent. If the funds for "red circling" are excluded, the increase is 8.3 percent. Thus, if these three
regional centers are typical of all regional centers, the full-year cost of
implementing the proposed rate structure could reach $18,200,000 statewide.
Revised Residential Care Rate Proposal. The department is required by the Budget Act of 1985 to submit a revised residential care rate
proposal to the Legislature by April 1, 1986.
The department indicates that it may request separate legislation to
implement its rate change proposal, rather than make the change throughthe Budget Act. In either case, the department should provide the Legislature with sufficient information to evaluate the effects of the rate pilot aswell as the effects of implementing the department's final proposal on astatewide basis.
Unless the department collects additional information, however, it will
not be able to do this. Specifically, we believe that in addition to providing
the information required by the Budget Act of 1985, the department
should address the following issues raised by the revised rate proposal:• Overall Costs. The department should provide estimates of thecost to implement the proposal statewide, using its best assumptions
regarding client classifications based on client assessment samples.
The department should also estimate the statewide cost of a "redcircle" policy (that is, a policy of holding those facilities that would
experience a rate decrease under the original proposal at their current reimbursement level).

Item 4300

HEALTH AND WELFARE / 797• Regional Center Funds. Under the proposed residential care
rates, reimbursements to individual providers will change. The department should estimate the net change for each regional center.
• Red Circling. The department should discuss what alternative
participation incentives it has considered and why it made the decision to "red circle" (that is, hold facilities harmless from reimbursement decreases).
• Proposal Modifications. The department has made changes to salary levels and staff-to-client ratios in its pilot project. The department
should justify these changes and explain why it has revised its initial
proposal.
• Single Client Level Incentives, Client Care. The proposed system
encourages providers to have only one type of client in a particularfacility in order to maximize revenues. The department should discuss how this incentive will affect the movement of clients and thequality of client care.
In sum, we recommend that the department include in its April 1, 1986,
report the information which the Legislature needs to evaluate the department's rate proposal. Specifically, the report should (1) summarize
the rate changes proposed and the reasons for the change, (2) provide
estimates of the statewide cost of implementing the proposal, (3) estimate
the statewide cost of holding facilities harmless from rate decreases, (4)estimate the fiscal effect of the proposal on the 21 regional centers, (5)discuss the cost and savings and the reasons for any changes in facility staff
salary rates and staff-to-client ratios, and (6) discuss the likely effects onclient movement and quality of care that will result from the fiscal incentives established by the proposal.
Board and Care Cost-of-Living Adjustment Too HighWe recommend that the Legislature reduce by $2,332,000 the amountbudgeted For the cost-oE-living adjustment for board and care facilities toeliminate double-budgeting.
The budget proposes $7,284,000 froni the General Fund to provide a
discretionary 2 percent cost-of-living adjustment (COLA) for all regional
center providers.
Our analysis indicates that there are three problems with this proposal:
1. The proposal fayors one class of regional center facilities. The
budget proposes .tb provide board and care facilities with an additional
COLA of $2,332,OOO-more than what would be given to other providers
who serve developmentally disabled clients. The department has not provided any indiCation that board and care providers face larger cost increases than other providers. We are not aware of any analytical reason
why these facilities should be singled out for special cost-of-living increases.
2. Special rate increases for board and care facilities should be justified
in connection with the department's rate increase proposal. If board
and care facilities serving developmentally disabled clients warrant additional rate increases, the increases should be based on specific cost differentials. The department's rate proposal for board and care facilities will
provide a more appropriate forum for the Legislature to address suchdifferen tials.
3. The proposal results in a double COLA on the SSIISSP share ofboard
and care cost. Board and care facilities receive reimbursements from

798 / HEALTH AND WELFARE

Item 4300

DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued

the two state departments-the Department of Developmental Services(DDS) and the Department of Social Services (DSS). TheDSS currently
reimburses board and care facilities at the rate of $531 per client permonth through the SSI/SSP program. The DDS also provides additional
rate supplements to board and care facilities. The DDS rate supplements
average approximately $530 per month. Thus board and care providers, on
the average, receive approximately $1,061 per month per developmentally disabled client when both sources of reimbursement are considered.
The budget proposes to increase the average combined reimbursementof $1,061 by 2 percent, or approximately $21 per month, effective July 1986.
The amount budgeted from the General Furid for the 2 percent increaseis $4,554,000. This means that the state would be funding the COLA for
both the state and federal portions of the board and care rates. Moreover,in January 1987, the DSS will increase its $531 SSI/SSP rate by 4.7 percent,or $25 per month. The $25 monthly SSI/SSP increase will cost approximately $3 million in 1986-87, ·of which the state's share is 57 percent, or$1.7 million. On an annual basis, the General Fund share of the increase
will be $3.4 million.
The effect of the department's proposal is to provide two COLAs on the
SSI/SSP portion of the monthly reimbursement. One cost-of-living increase will be paid through the DDS; the other through the DSS.
For these reasons, we recommend that the Legislature (1) provide a
COLA from the proposed General Fund increase for only the DDS portion of board and care facility costs and (2) delete $2,332,000, which is theamount of the 2 percent COLA on the SSI/SSP funds.
Some Regional Center Core Staffing Salary Increases Too HighWe recommend that the Legislature delete funds budgeted for regional
center core staffing salary increases exceeding 6 percent for a saving to theGeneral Fund of $611,000.
The budget proposes to augment regional center personal services by$611,000 from the General Fund to increase the salary of four staff classifications by more than the 6 percent increase authorized for all other regional center employees.
The department prepares the regional center operations budget using
a staffing and salary model that utilizes caseload data and staff-to-client
ratios. In addition to workload increases, the regional centers receive
funds for salary increases. The salary adjustment is based on the salary
increases provided to state employees in the prior year. The centers,
however, may use the funds to establish any staff configuration and pay
any salaries they deem appropriate.
The department proposes to increase funding for core staffing salaries
so that what the centers receive more closely reflects the actual salaries
paid to or responsibilities of the center director, administrator, chief counselor, and executive secretary positions. The director's salary specified in
the model would be increased to the top step of the salary range. The
salaries specified in the model for the executive secretary, administrator,and chief counselor would be increased to reflect expanded responsibilities.
Our analysis indicates that the proposed salary increases would not be
consistent with the policy that underlies regional center core staffing
reimbursement. Currently, the regional center core staffing methodology

Item 4300

HEALTH AND WELFARE / 799

allocates funds for positions using the mid step of the salary range. The
methodology assumes that this allows the regional centers sufficient funding for staff salaries, even though individual salaries may be above or
below the mid step. The department's proposal would result in one position, the center director, being reimbursed at the top step, while all otherpositions wOilld receive reimbursement at the mid step.
The department acknowledges that no systematic study was used tojustify the proposed departure from the current policy for determining
the salaries of the administrator, chief counselor, or executive secretary.
Moreover, the regional centers would not have to follow the department'ssalary classifications when they set staff salaries; they could use the additional fl,mding for any number of personnel-related purposes. Furthermore, there is no basis for believing that the services provided could not
be obtained at the current salary levels.
For these reasons, we can see no justification for funding salary increases
above 6 percent. Accordingly, we recommend that the additional funds bedeleted from the regional centers' operation budget, for a savings to theGeneral Fund of $611,000.
Medicaid Waiver Still Pending

The Department of Finance (DOF) notified the Legislature on October 15, 1985, that it planned to authorize the expenditure of $244,003 in
1985-86 to fund "Medicaid waiver" staff in the regional centers. These staff
document the services received by clients under a Medicaid waiver, sothat the state can qualify for federal reimbursements. The $244,003, which
was appropriated by the Budget Act of 1985, provided support for theperiod of September 29, 1985, through December 31, 1985. Language inthe 1985 Budget Act prohibited the DDS from continuing Medicaid waiver staff if the waiver for which the staff were authorized was denied.
The Medicaid waiver covets 3,700 community-based clients. Under thewaiver, California can claim Medicaid (Medi-Cal) funding for home- andcommunity-based services-services that normally cannot be billed
through the Medi-Cal program. Without the waiver, the cost of thesehome- and community-based services would have to be met by the General Fund. The DDS obtained its initial Medicaid waiver on April 25, 1985,
retroactive to July 1, 1982. The waiver expired June 20,1985. The DDS has
submitted a proposal to the U.S. Department of Health and Human Services (DHHS) for a new three-year Medicaid waiver.
At the time this analysis was written, the DHHS was still in the process
ofreviewing the DDS waiver request. A final DHHS decision was expected by the second week in February 1986. The DDS estimates that if
approved anq made retroactive to September 29, 1985, the waiver will
generate $29,760,000 in federal fund revenues for 1985-86.
Until a final decision is made, it is important for the department to keep
current the Medicaid records of eligible clients because retroactive Medicaid certification of clients is not permissible. On this basis, we conclude
that maintenance of Medicaid waiver staff in the current year is justified
until the DHHS renders a decision.
Conversion of Community Care Facilities to ICF/DD-N Justified

We recommend ~pprovaJ.
The budget proposes to use $500,000 from the Program Development
Fund (PDF) to facilitate the conversion of community care facilities tointermediate care facilities for the developmentally disabled-nursing

800 / HEALTH AND WELFARE

Item 4300

DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued(ICF /DD-Ns). The department proposes to provide approximately$10,000 per facility to meet the requirements of converting to a ICF/DDN.
Chapter 1496, Statutes of 1985 (SB 851), directed the Departments ofHealth Services (DHS) and Developmental Services (DDS) to develop
and impl~ment licensing and Medi-Cal regulations for a new health facility category known as ICF/DD-N. ICF/DD-Ns are residential facilities
that provide nursing supervision and intermittent health care services
which will be Medi-Cal reimbursable. The facilities will serve medicallyfragile persons.
The department estimates that the emergency regulations will be
adopted by DHS in October 1986 and that final adoption will be completedby April 1987.
The department has identified approximately 50 community care facilities serving medically fragile persons with developmental disabilities thatwill be eligible to convert to the ICF/DD-N category. A 1981 study showsthat these facilities were not providing sufficient nursing care or developmental services. Currently, these facilities are licensed by DSS, which isallowing them to continue operation until a more appropriate licensing
category is developed.
Our analysis indicates that expenditure of $500,000 will speed the conversion offacilities to ICF /DD-Ns, and thereby improve services to developmentally disabled persons. On this basis, we recommend that the Legislature approve the amount as budgeted.
Community Placement of State Hospital Residents Proposed

We recommend approval.
The budget proposes $8,830,000 for the regional centers to use in placing
750 state hospital residents into the community. This amount consists of(1) $7,830,000 from the General Fund and (2) $1,000,000 from the Program Development Fund (PDF). The amount requested is $327,000, or 3.8
percent, above current-year estimated expenditures. Nevertheless, thedepartment anticipates placing 205 fewer state hospital clients in community facilities during 1986-87 than it placed in the current year.
Background. The 1984 Budget Act included $6,478,000 from theGeneral Fund to place 810 state hospital residents in community facilities.
During 1984-85, 592 state hospital clients actually were placed in the
comrp.unity-208Iess than the budget anticipated. In the current year, thedepartment expects to place 955 state hospital clients, including most of
the 208 clients not placed in 1984-85. The 1985-86 budget for placement
totals $8,503,000, including $1,439,000 in funds "rolled over" from 1984-85
and $1,000,000 from the PDF.
The $8,830,000 in the budget year would be spent as follows:• $1,350,000 to fund the initial start-up and operating costs of 90 intermediate care facilities for the disabled-habilitative (lCF /DD-Hs) andday programs that eventually will provide services to approximately
540 clients.
• $1,934,000 to fund regional center administrative costs incurred in(l)placing 750 clients in 1986-87 and (2) identifying an additional 750
clients for placement in 1987-88.
• $5,546,000 to fund regional center purchase-of-service costs for 750
clients in 1986-87. The department indicates that 23 percent of theseItem 4300

HEALTH AND WELFARE / 801clients will need special services, compared with only 13 in 1985-86.
The cost of these special services will be partially offset, however, by
the fact that the percentage of placements into homes or board andcare facilities (which do not require fiscal assistance from the regional
center) will increase from 48 in 1985-86 to 58 in 1986-87.
Table 9 shows that the department has met 31 percent of its estimatedclient placement goal during the first four months of 1985-86. In 1984-85,
the department had met only 24 percent of its goal by December.
Table 9Department of Developmental Services
Community Placements by Regional Center
1984-85 to 1985-86

Projected
Placements
30
Alta California .............................. ..
Central Valle\· ............................... .
East Ba\' ....... :................................ ..
Eastern' Los Angeles .................. ..
Far Xorthern ................................. .
Frank D. Lanterman .................. ..
Golden Gate ................................. .
Ilarbor ............................................. .
Inland East ..................................... .
Inland West" ................................ ..
Kern ................................................. .
Xorth Bar...................................... ..
Xorth Los Angeles County ...... ..
Orange County ............................ ..
Redwood Coast ............................ ..
San Andreas ................................... .
San Diego ....................................... .
South Central Los Angeles ...... ..
Tri·Counties .................................. ..
Valley·xfountain ........................... .
West;ide ......................................... .

10
78

20

1984-85
Dec. 84

Actual
9
16

26

39

5
4
13
9

78
79

4
4

24

14
8
10
6
7
14

40
32

37
23
47
18

65
26
15
.jl
13

4
4

1985-86

June 85
Actual
35

30
56
8
8

28

69

20
26
26
16
36
10
31
23

Totals ...................................... ..
Percent placed .................... ..
Less clients entering hospitals ..
Plus client deaths ........................ ..

800

-530
150

-168
63

Xet reduction in state hospital
population ............................. .

420

89

329

24.3%

34

45
70

21
6
7
3
194

19

72
92
25

34

13
44
15
33
13
592
74.0%
-399
136

56

Projected
Placements
20

37
72
37

39
31
61
17

93
39

85
Actuul.\'0\'.

14

22
11
14
19
6
14
5
51
3
8
14
8
4

30

19
41
21

19
6
9
6

75

26

33
955

11
300
31.4%

-515
145

-238

585

110

48

" Inland W('st was forJl1('r1y Sun Gubri<'i.

The department's placement proposal is consistent with prior proposals
approved by the Legislature. Specifically, the proposal again provides
start-up funds for the development of intermediate care facilities and day
care programs that will be capable of serving current state hospital clients
who have major disabilities. The proposal funds regional center administration costs for the placement of clients at levels that are consistent withthe 1985-86 cost per placement. Finally, the budget for community services needed by 750 state hospital clients appears reasonable and is consistent with past budgets. For these reasons, we recommend that the amountbe approved as budgeted.

802 / HEALTH AND WELFARE

Item 4300

DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued
Program Development Funding Increases

We recommend approval.
The budget proposes expenditures of $6,213,000 from the Program
Development Fund (PDF) in 1986-87, consisting of $5,188,000 in parental
fees and $1,324,000 in federal reimbursements from the State Council on
Developmental Disabilities. This is an increase of $2,080,000, or 50 percent,above current-year expenditures.
The increase in available funding primarily reflects new parental fees
and improved collection efforts. Chapter 268, Statutes of 1985, authorized
fee collection from parents whose children reside in intermediate carefacilities. In addition, the department has centralized parental fee collections.
The proposed expenditures from the PDF include $217,000 to support
four positions in the department, $1,000,000 for the community placementof state hospital residents, and $4,996,000 for grants in support of newservice delivery projects. PDF grant funding for new programs is limited
to 24 months. The ongoing costs of new projects must be funded from theregional centers' purchase-of-services budget. The budget for regional
centers proposes a General Fund augmentation of $3,866,000 to support
programs in 1986-87 that were started with PDF funds in 1985-86.
III.

STATE HOSPITALSThe Department of Developmental Services operates the eight statehospitals (Agnews, Camarillo, Fairview, Lanterman, Napa, Porterville,
Sonoma, and Stockton) that have programs for the developmentally disabled.
The budget proposes expenditures of $459,570,000 (all funds) for programs to serve these state hospital clients in 1986-87. This is a decrease of$68,988,000, or 13 percent, below estimated current-year expenditures.
The primary reason for the decrease is the proposed transfer of Napa State
Hospital to the Department of Mental Health.
The proposed General Fund appropriation for the DDS hospitals of$50,008,000 is $349,777,000, or 88 percent, below estimated current-year
expenditures. This reduction reflects a change in how expenditures by thehospitals are shown in the budget; it does not reflect a change in service
levels. Currently, the department budgets General Fund money to operate the hospitals and then deposits its Medi-Cal reimbursements for hospital services directly into the General Fund. The amount spent shows up
in the budget as an expenditure; the reimbursements show up as revenue.
In the budget year, Medi-Cal reimbursements will be used to financeexpenditures directly, in effect offsetting the expenditures as reflected in
the budget. The change follows generally accepted accounting principles.
The budget projects an average hospital population of 6,387 developmentally disabled clients in 1986-87. This is 439 clients, or 6.4 percent, lessthan the current-year level. The budget proposes 9,248.4 positions in hospital programs for developmentally disabled clients.
The average cost per client in 1986-87 is projected to be $65,621, an
increase of $5,698, or 9.5 percent, above the cost per client in the current
year. The 1985-86 cost-of-living increases added $2,814 to the average cost
per client per year. The 1986-87 cost-of-living increases will add $3,263 to
the average cost per client per year.

. Item 4300

HEALTH AND WELFARE / 803

Table 10 displays expenditures, funding sources, population, positions,and cost per client for hospital programs serving the developmentallydisabled.
Table 10Department of Developmental Services: State Hospitals
Budget Summary, Population, and Cost Per Client
1984-85 through 1986-87(dollars in thousands)

198~

Erll.eIlditures
Est.
1985-86

8390,253
108,7968409,031
119,527$499,049

GeIleral FUIld ........................................
.5.4FCO ...................................................,.
Fedeml fUIlds ........................................
.\1eIltal heillth reimbursemeIlts ........
Other reimbursemeIlts ........................

8382,775

B. ..herage population ..................................

AetuillA. Budget summary
ProgramDe\'elopmental sen'ices pr~grams ..
~Iental health programs ......................
Cost-of-liYing adjustment ....................
. Totals ....................................................
Funding source

C. Cost per client ..........................................

Prop.
1986-87

PerceIlt ChilIlge
From 1985-86

2.4%-66.2"$528,558$419,033
40,44790$459,570

730
108,796
6,748

8399,785
2,807
895
119,5275,544

850,008
12,673944
40,447355,498

S.\IF"
351.5
5.5-66.2"

7,232
853,9626,826
859,9236,387
865,621

-6.4%
9.5%

-13.1 %X\/F"

" RC'flC'cts transfC'r of "apa StatC' Hospital to thC' DC'pnrtmC'Jlt of Mental Health.
" "ot a ~1C'allillgful FigurC'. RC'flC'cts proposal to rC'placC' 8350,478,000 GC'llCral Fund with ~1C'di-Cal· reimbursC'lIlC'nts.

Table 11 shows the changes to the current-year budget proposed for1986-87. The budget proposes a net reduction in General Fund expenditures of $349,777,000, due primarily to (1) the accounting change mentioned earlier and (2) cost savings due to hospital population decreases.
The major factors that increase 1986-87 expenditures are the 1985-86 and1986-87 salary and benefit adjustments granted to state employees.
Table 11
Programs for the Developmentally Disabled
Proposed 1986-87 Budget Changes(dollars in thousands)

1985-86 expenditures (Budget Act) ........................................................ ..
Baseline adjustments, 1985-86:
1. 1985-86 salary and benefit increases ................................................... .
2. Elimination of nlCant positions .......................................................... ..
3. Fair Labor Standards Act (FLSA) o\'ertime funding ..................... .
4. Adjustment for 6 percent salary savings ........................................... .
5. Other increases and decreases ........ ;.................................................... .
1985-86 expenditures (re\'ised) ................................................................. .

GeIleml
FUIld$378,845

All
FUIlds
8501,319

19,227
-110
2,690
-827
-40
$399,785

24,993-133
3,493-1,074-40
8528,558

Item 4300

804 / HEALTH AND WELFARE
DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued
Baseline adjustment, 1986-87:
1. Full-\'ear cost of 1985-86 salar\' and benefit increases and 1986-87
salar;' adjustments ...................: ............................................................... .
2. ~lerit salary adjustments ....................................................................... .
3. Cook chill implementation ................................................ .-................. .
4. SAFCO equipment funding ................................................................. .
5. Reimbursements from Medi-Cal ......................................................... .
6. Unit dose implementation ..................................................................... .
7. One-time funding reductions:FLSA o\'ertime ......................................................................................... .
Salary sa\'ings adjustment ..................................................................... .
8. Additional holida\' ................................................................................... .
9. Other increases ,{nd decreases ............................................................. .
Caseload and cost adjustments:
1. Full-year effect of 1985-86 population decrease ............................. .
2. Planned scheduled treatment-phase III at Camarillo ................. .
3. 1986-87 population decrease ............................................................... ...
4. Inflation adjustment for selected operating expense items ......... .
5. S""ings related to 1985-86 community placement effort ............. .
Program change proposals:
1. Reduction in administrath'e positions................................................. .
2. Salary sa\'ings relief ................................................................................. .
3. Ventilator client staffing ....................................................................... .
4. Redirect le\'el of care teachers to AB 1202 education funds ....... .
5. Janitorial contract ..................................................................................... .
6. :\apa transfer to DMH ........................................................................... .
7. Augmentation of special repairs ........................................................... .
Cost-of-lh'ing adjustment on education funds ....................................... .

1986-87 expenditures (proposed) ............................................................. .
Change from 1985-86 (re\'ised):
Amount ....................................................................................................... .
Percent ....................................................................................................... .

$19,605$25,624-854-4,765-350,478
-722

-959
-938

-2,690827
353-84-3,493
1,074
353
-40

-6,693-3,922
1,384-1,521-7,889366-3,922
1,798-1,521-81,197
1,823
447-$1,555
2,368
447-1,38090$50,008-1,380-84,5125,10190
8459,570-8349,777-87.5%-$68,988-13.1 %

Hospital Populations

Table 12 shows the average state hospital population of developmentallydisabled clients for each of the years 1982-83 through 1986-87_ It showsthat the state hospital population of developmentally disabled persons has
been declining gradually for several years as a result of the department's
Table 12
Department of Developmental Services
State Hospital Average Population a
1982-83 through 1986-87

Actuill

Actuill

Actuill

Est.

Prop.

Percent Chilnge

1982--83
Agnews ................ 1,047
C,lmarillo ............
577
Fain·iew .............. 1,183
L,mterman .......... 1,211:\apa ......................
350
Porter\'ille ............ 1,419
Sonoma ................ 1,321
Stockton ..............
-579
Totals ............ 7,687

1983-84
1,059
579
1,127
1,185
311
1,349
1,285
-564
7,459

1984-85
1,054
571
1,065
1,146
237
1,307
1,303
549
-7,232

1985-86
1,045
557
974
1,050
191
1,235
1,240
534
-6,826

1986-87
1,033
551
883
953
178
1,145
1,115
-529
6,387

FroIll19~6

-1.1%
-1.1
-9.3
-9.2
-6.8
-7.3
-10.1
-0.9
-6.4%

"This table shows ""erage daily population for each fiscal year. Hospital staffing estimates are based on
year-end population projections, not projections of the average hospital population.

Item 4300

HEALTH AND WELFARE /805

and the regional centers' efforts to care for clients in a community setting
whenever possible. The budget projects an overall population reductionof 6.4 percent in 1986-87. The size of the reduction varies by hospital.
Stockton State Hospital's population is projected to decline by less than 1
percent, while the population at Sonoma State Hospital is projected to
decline by more than 10 percent.
Cost Per Client

Table 13 displays the cost per client at each hospital for treatment staff,
support staff, and operating expenses. Variations in treatment staff cost
per client are attributable primarily to the client mix at different hospitals.
Hospitals with more difficult to care for clients receive larger staff allocations. Treatment staff cost in the current year range from a low of $30,553
per. client at Porterville to a high of $40,230 at Camarillo.
Support staff costs per client in the current year vary from a low of$15,347 per client at Porterville to a high of $21,719 at Stockton. The
reasons for this variation are many, including differences in the numberof support positions allocated to individual hospitals in past years. Until
recently, the hospitals did not attempt to reduce excess staff at particularhospitals through reallocation of support positions. Although the department is now attempting to reallocate support staff among hospitals on thebasis of workload standards, many historical variations remain. Size of the
facility is another important factor explaining variations in support staff
among the hospitals. Facilities with small populations, such as Stockton,
are unable to base the number of workers entirely on the number ofclients. Another determinant of support staff size not related to populationis the number of acres to be maintained. The kinds of employee classifications at each hospital and the percentage of the workforce at the maximum step in each classification are other variables that affect cost perclient.
Operating expenses in the current year vary from a low of $6,752 perclient at Porterville to a high of $11,553 at Stockton. Operating expenses
vary with the size and efficiency of the physical plant. Large older hospitals with inefficient equipment and small populations have high operating
expenses per client.
We recommend approval of the following significant funding and staffing changes proposed for 1986-87 that are not discussed elsewhere in thisanalysis.
• Staff Augmentation for Ventilator Clients. The budget proposes a$447,000 augmentation from the General Fund to provide 11 additional positions for the care of ventilator clients. Ventilator clients need
the assistance of ventilator devices to maintain their breathing for theremainder of their lives. The department has determined that because of the care needed by the ventilator clients, additional staff
positions are required. The position augmentations appear to meet an
essential need.
• Community Education for Hospital Clients. The budget proposes
to redirect $1,070,000 to fund contracts for client education in thecommunity. The department proposes to eliminate 33 hospital teaching positions that it has held vacant in order to fund contracts withlocal school districts. This proposal would, in effect, recognize thehospitals' current operating procedure. Chapter 1191, Statutes of 1981
(AB 1202), requires that hospital clients be taught in the least restrictive setting.

806 / HEALTH AND WELFARE

Item 4300

DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued
Table 13
State Hospital Cost Per Client
Programs for the Developmenta"y Disabled
1984-85 through 1986-87

Treutment
Stuff

Support
Stuff

Operating
Erpellses

Totul

829,044
34,33935,535815,311
16,717
17,345$8,966
7,911
9,459

853,32158,96762,339831,362
40,23042,133820,298
19,726
20,834

S9,9,j5
8,840
10,501

861,615
68,796
73,468

828,560
32,11035,008$17,516
20,23922,19488,332
8,310
10,966854,408
60,65968,168829,445
32,671
36,056815,218
17,047
18,90789,011
9,764
13,036853,674
59,482
67,999830,588
38,39039,996

816,789
18,14920,89088,3147,454
7,243

855,691
63,993
68,129827,470
30,55332,812

813,525
15,347
16,52986,3806,752
9,234

847,375
52,65258,575

828,576
32,45434,886815,871
16,807
18,132$8,104
8,806
11,540852,551
58,06764,558828,247
31,48532,185$22,066
21,71922,275$11,066
11,553
14,512$61,379
64,757
68,972Agnews1984-85 ................................................................... .
1985-86 .................................................................. ..
1986-87 ................................................................... .
Camarillo
1984-85 ................................................................... .
1985-86 .................................................................. ..
1986-87 ................................................................... .
Fairview
1984-85 ................................................................... .
1985-86 ................................................................... .
1986-87 ................................................................... .
Lanterman
1984-85 .................................................................. ..
1985-86 ................................................................... .
1986-87 .................................................................. ..
\'apa
1984-85 .................................................... ,............. ..
1985-86 ................................................................... .
1986-87 .................................................................. ..
Porten'ille
1984-85 .................................................................. ..
1985-86 ................................................................... .
1986-87 .................................................................. ..
Sonoma1984-8.j .................................................................. ..
1985-86 ................................................................... .
1986-87 ................................................................... .
Stockton
1984-85 .................................................... ,.............. .
1985-86 ................................................................... .
1986-87 ............................................................. " ... ..

Updates on Hospital Population Estimates Needed

We withhold recommendation on a proposal to eliminate 308 treatment
positions, pending receipt of updated hospital population estimates. We
further recommend that the department prepare and submit a revised
estimate of 1986-87 hospital populations and staffing requirements.
The budget proposes to eliminate 308 state hospital positions by June
1987, resulting in a partial-year savings during 1986-87 of $3,922,000. The
full-year savings that will result from this proposal total $lO,529,000. The
elimination of these positions reflects the department's estimate that the
number of developmentally disabled persons residing in state hospitals
will decline by 400 between June 30, 1986, and June 30, 1987.
Background. The number of authorized treatment staff has formany years been based on established ratios of staff to clients. As theItem 4300

HEALTH AND WELFARE / 807

developmentally disabled population in state hospitals has declined, thenumber of authorized treatment staff has been reduced as well. The annual staffing adjustments traditionally have contained two elements-a
population change adjustment and a level-of-disability adjustment. The
level-of-disability adjustment recognizes that as the higher-functioning
clients leave the hospital, the remaining population is more difficult tocare for.
The proposed staffing reduction of 308 positions consists of two elements. First, there is a reduction of staff related to a population declineof 400 clients. Second, there is an increase in staffing related to the level-ofdisability adjustment. Table 14 shows the position changes related to eachof these two elements.
Table 14
Department of Developmental Services
Population and level-of-Disability Adjustments
In The State Hospitals

1986-87
Sm'ings

Full-Year
Sm'ings

395$6,302,000
305,000

812,604,000
610,000-87
308-2,685,000$3,922,000-2,685,000
810,529,000

PositionsA. Staff adjustment related to population decline(400)
Treatment staff..............................................................
Food and clothing ...................................................... ..
B. Staff adjustment related to level of disability
Treatment staff..............................................................
Totals........................................................................

Our analysis indicates that the department's estimates in past budgets
have overstated the rate at which the hospital population declines. When
this occurs, the number of treatment positions needed in the state hospi~
tals is more than the number funded in the budget. If the pattern ofbverestimating population declines holds, the 1986-87 budget will nothave enough staff to care for all the clients actually in the state hospitals
during the budget year.
During the first six months of 1985-86, the actual population in the statehospitals was approximately 100 clients larger than what was anticipatedin the budget. The shortfall in community placements (discussed earlier)is one of the reasons that the state hospital population has been underestimated.
The hospital population projected for June 30, 1986, is important because it serves as the base for projecting staffing needs in 1986-87. In orderto reach the population of 6,585 clients on June 30,1986, that the budget
now projects, the hospitals' actual population must decline by 337 persons
during the last five months of 1985-86, or by 67 clients per months. During
the first seven months of this year, however, the hospital population declined by an average of 20 clients per month. Thus, the rate of decline will
have to more than triple to reach the target population of 6,585 on June
30,1986.
.
The projected rate of decrease in hospital population during 1986-87 isalso important because it affects the number of treatment positions requested for the 1986-87 period. Currently, hospit~l population is decreasing by approximately 20 clients a month, or 240 clients annually. The
budget projects that the hospital population will decrease by 400 clientsin 1986-87-an average of 33 clients per month.

-------~---------~

808 / HEALTH AND WELFARE

Item 4300

DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued

In genenll terms, each additional client requires the addition of one newtreatment position.
We asked the department if it intends to revise (1) its June 30, 1986,
population estimate and (2) its estimate of the rate of hospital population
decline during 1986-87. The department responded that it has not madea final decision as to whether it will prepare a revised May 1986 estimate.
Because the department (1) has underestimated its staffing requirements in the current year, (2) has based its 1986-87 staffing request on aJune 30, 1986, state hospital population level that is likely to be low, and(3) assumes that state hospital population will decline at a rate that is notconsistent with recent experience, we recommend that the department
prepare a revised population and staffing estimate for presentation to theLegislature.
Reduction in Hospital Nontreatment Positions Questionable

We recommend that the department inform the Legislature during
budget hearings what its policy is toward staffing imbalances in the statehospitals. We further recommend that prior to budget hearings, the department provide a management plan explaining how the workload of 11
administration positions proposed for elimination can be effectively absorbed.
The budget proposes to eliminate 60.5 nontreatment positions at thestate hospitals, for a savings of $1,555,000. Specifically, the department
proposes to eliminate (1) 11 assistant hospital administrator and administrator resident positions to reflect a more efficient management organization and (2) 49.5 food service, clerical, and other positions that exceed
current staffing standards.
Background. The staffing standards developed by the Departmentof Developmental Services and Mental Health indicate that certain hospitals have too many employees, while others have too few. The Budget Act
of 1983 required the Departments of Mental Health and Developmental
Services to implement a plan for redistributing non treatment positions
among state hospitals in order to (1) conform to staffing standard guidelines and (2) provide for a more equitable distribution of staff among the
hospitals.
The department developed the plan in 1983-84 and made a major effort
to implement it in 1984-85. Under the plan, the department lets vacancies
build up in position classifications that are overstaffed. Vacant positions
are then either (1) transferred to hospitals that need such positions toreach the staffing standard or (2) reclassified to provide other categoriesof needed positions. For example, an excess of food services worker positions could be reclassified to groundskeepers if there is a shortage ofgroundkeepers.
, Most of the 49.5 positions targeted for elimination are vacant. These
positions have not been filled because there are more than enough ofthese positions to meet staffing standards. The 11 administration positions
identified for elimination currently are filled.
Our analysis indicates that nontreatment position staffing imbalances at
the hospitals have not yet been fully corrected and that numerous instarices of understaffing, as measured by the staffing standards, still exist.
In addition, our review indicates that 49.5 positions of the 60.5 positions
proposed for elimination were, until recently, intended for redirection inorder to lessen staffing imbalances and make progress toward the staffing
standards guidelines. Finally, we note that budget materials do not specify

Item 4300

HEALTH AND WELFARE / 809

how the workload of the 11 hospital assistant administrator positions thatare proposed for elimination can be redistributed without adversely affecting hospital operations.
With this in mind, we recommend that (1) the department inform theLegislature during budget hearings what its plans are for correcting oospital staffing imbalances and (2) how transfer and redirection of vacant
positions can be used to correct imbalances if the 49.5 positions are eliminated. We further recommend that prior to budget hearings, the department provide the Legislature with a management plan which specificallyexplains how the workload of the 11 hospital administrator positions canbe absorbed without adversely affecting hospital operations.
Merit Salary Adjustment Funding Proposed

We recommend approval.
The budget proposes to redirect $2,368,000 in state hospital savings to
reduce the "salary savings" factor from 6.7 percent to 6.2 percent. The
savings consist of (1) $1,363,000 from eliminating 60.5 hospital non treatment positions and (2) $1,005,000 from reducing hospital treatment positions to reflect population decreases.
The term salary savings refers to personal services costs for authorized
positions that will not be incurred due to vacancies. Vacancies arise formany reasons, but most often result from delays in filling vacated or new
positions and delays in implementing new programs. Salary savings also
result when positions are filled with personnel who are paid salaries lower
than those which their predecessors were paid. Salary savings can also
result from arbitrary decisions to hold a given percentage of authorized
positions vacant.
The administration generally required departments to absorb thecost of merit salary adjustments (MSAs) in preparing their budgets for
1986-87. In the case of DDS state hospitals, this requirement means thatvacant positions will have to be held open longer to produce an additional$2,194,000 in salary savings needed to fund the MSAs. In effect, this forces
the salary savings rate to 6.7 percent from the 6 percent reflected in the1985 Budget Act. The proposal to reduce salary savings from 6.7 to 6.2
percent would, in effect, allow the hospitals, on average, to employ anadditional 67.5 personnel.
The department states that budgeted state hospital salary savings rates
would be reduced because:• Although it has been able to meet the required minimum staffing
ratio of one nursing position to eight clients in the current year, it has
only been able to do so by maintaining artificially high salary savingsin non treatment positions, and redirecting funds from other hospital
operations that are authorized to have a richer staff-to-client ratio.
• High salary savings rates were first budgeted in 1977-78, when a large
number of new positions were added to the state hospitals that could
not immediately be filled, creating a high vacancy factor. This highvacancy factor was incorporated into the budget. Since that time,
however, the department has not experienced a problem in filling
authorized positions. Thus, continuation of high salary savings rates
forces the departments to hold authorized positions vacant in order
to avoid spending more funds than the amount budgeted. The department has indicated that the vacancy factor probably would have returned to the historical 3 percent level had the budget not maintained
an artificially high vacancy requirement.
• Other state departments that provide care to clients on a 24-hour,
7-day-a-week basis have salary savings rates that are below the 6.7

810 / HEALTH Ai\'D WELFARE

Item 4300

DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued

percent state hospital rate. These departments include the Department of Mental Health (5.4 percent), the Department of Corrections(3 percent), the Veterans' Home (6 percent), and the Youth Authority (2.9 percent).
Our analysis confirms that the current salary savings requirements for
DDS's hospitals are artificially high.
The purpose of the salary savings adjustment is to avoid overbudgeting,
not to urtificiCllJy reduce expenditures. Consequently, the salary savings
amount should be based on the best available estimate of llormCll position
vacancies.
We have no analytical basis for determining what the current "normal"
vacancy rate is for the state hospitals. This rate will tend to vary over time
as personnel system requirements change, as private-sector jobs become
easier or more difficult to obtain, as state salaries become more or lesscompetitive, and as hospital administrators hold positions vacant for otherreasons. The normal vacancy rate, however, appears to be lower than thecurrent salary savings requirement.
Although our review indicates the salary savings requirement is high,there are two problems with the salary savings proposal. First, the budget
pretends that it is reducing the salary saving rate by 0.5 percent when infact it is increasing an already excess rate by 0.2 percent.
Second, the budget refuses to address the change in salary savings in astraightforward manner. Instead, it makes the reduction of the salarysavings requirement at least in part contingent on the elimination of 60.5
non treatment positions, even though a strong case can be made for continuation of these positions. This is, indeed, an odd way to construct abudget for the operation of the state hospitals.
Janitorial Contract Would Reduce Cost

We recommend approval.
The budget for 1986-87 proposes to eliminate 294.3 janitorial positions
and contract out for janitorial services, for a savings of $1,380,000 to theGeneral Fund. In 1987-88 an additional 262.6 janitorial positions would be
eliminated.
The proposal provides for the gradual elimination of janitorial personnel. In 1986-87, janitorial staff at Lanterman, Porterville, Sonoma, andStockton would be phased out. In 1987-88,janitorial staff at Agnews, Camarillo, and Fairview would be eliminated.
The department is not satisfied with the current quality of janitorialservices in state hospitals. It indicates that with its present housekeeping
staff, the hospitals receive many deficiency notifications during licensing,accreditation, and environmental health surveys. The department indicates that if the housekeeping deficiencies continue, it may jeopardize
both federal certification (which is essential if the state is to continue
receiving reimbursement) and accreditation. Thus it hopes to improve
janitorial services, as well as save money by contracting for these services.
The department plans to accommodate displaced janitors by transferring 21 percent of the janitorial staff to contract janitorial jobs, 23 percent
to food service vacancies, and 56 percent to other hospital positions. The
department has adjusted its proposal to reflect the costs of buying out
vacation time of employees who transfer to the contractor. The hospitals
will retain 27 positions, or 4.8 percent of its current housekeeping staff, toperform quality review of services rendered.
.

Item 4300

HEALTH AND WELFARE / 811

The department estimates that housekeeping costs will be $1.06 persquare foot, which is based on bids submitted for services at Sonoma
and Stockton. Table 15 shows that the department estimates 1986-87
savings at $1,380,000,1987-88 savings at $4,157,000, and 1988-89 savings at$4,860,000. (Savings in later years are higher because one-time costs will
be incurred in the initial years.)
Our analysis indicates that the estimated savings have been derived
using reasonable assumptions. We conclude, therefore, that the proposal
has the potential to generate significant savings in 1986-87 and thereafter,and on this basis, we recommend that the proposal be approved.
Table 15
Department of Developmental Services
State Hospital Janitorial Contract Proposal
1986-87 through 1988-89(dollars in thousands)

A. Current janitorial costs
Personal sen'ices ................................................................... .
Operatin~ expense .............................................................. ..
Subtotals ......................................................................... .
B. Proposed contract costs
1. Con tracts:
Agnews ......................................................................... ,..... .
Camarillo ........................................................................... .
F,lin·iell· ............................................................................. .
Lanterman ......................................................................... .
Porten'ille ........................................................................ ..
Sonoma ............................................................................... .
Stockton ............................................................................ ..
Subtotals ..................................................................... .
2. Hospital residual costs:
Hospital costs" ................................................................ ..
Other i ................................................................................ .
Subtotals .................................................................... ..
C. :liet sa\·ings ............................................................................. .

1986-87

1987-88

1988-89

812,417
1,017
813,434

813,037
1,068
814,105

813,689
1,121
814,810

8549
540
1,009
250
82,34881,021
525
942
865
1,134
1,412
1,051
86,94981,610
1,654
1,078
908
1,190
1,482
1,104
89,02689.856-150$12,054
81,38083,290-291$9,94884,1578924
89,95084,860" This cost includes operating expense costs.
h This cost includes ,'acation buy-out. operating expense s""jngs, and other factors.

Transfer of Napa State Hospital Premature

The budget proposes to transfer $84,512,000 budgeted for the administration of Napa State Hospital from the Department of Developmental
Services (DDS) to the DMH. The budget also proposes to transfer two
administrative positions at department headquarters from the DDS to theDMH, effective July 1, 1986.
.
The department indicates that the population of developmentally disabled clients at Napa has declined from over 400 to less than 200 residents,
while the mentally disabled population remains over 1,200. The department states that the hospital is inappropriately under the direction of the
DDS since the majority of the caseload consists of mentally disabledclients.
The proposed transfer of Napa State Hospital to the DMH may havemerit. The proposal, however, requires statutory authorization before it
can be implemented. At the time this analysis was prepared, no legislation
authorizing the transfer had been introduced.

812 / HEALTH AND WELFARE

Item 4300

DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued
Special Repairs Need More Review

We withhold recommendation on $7,908,000 requested from the Special
Account for Capital Outlay (SAFCO) for state hospital special repair
projects, pending further review of the projects and further discussion
with the department regarding state hospital special repair needs.
The budget proposes $7,908,000 from the SAFCO for special repair
projects at the state hospitals. The department received $2,807,000 fromthe SAFCO for special repairs in the current year. Special repairs areprojects that continue the usability of a facility at its original designed levelof service. In contrast, capital outlay includes new construction, alterations, or betterment of existing structures.
The department states that much of the hospital infrastructure, including roads, roofs, plumbing and sewage, electrical, exterior paint,
and grounds, has been neglected in the past due to funding limitations.
Of the amount requested for 1986-87, the department intends to allocate$4,161,000 for infrastructure repairs, $205,000 for PCB transformer removal, $735,000 for repair of water-damaged areas, and $2,807,000 for othermaintenance and repair projects. This would be the first phase of a multiphase special repair program which could extend from two to five years.
The department has provided a list of project priorities and an implementation schedule for some of the multi-phase special repair projects.
Our review indicates that the state hospitals have a large backlog ofspecial repairs projects. The department's listing of project priority for
1986-87 is helpful in understanding the logic behind the proposal. We have
not had sufficient time, however, to thoroughly review the large numberof projects that the department has proposed. Nor have we been able todetermine what the overall magnitude of the special repair problem is in
the eight hospitals under the department's jurisdiction and what expenditures would be required to restore the state hospital infrastructure to
original functioning levels. Finally, we have not been able to determine
the status of preventive maintenance schedules in the state hospitals andfeasibility of developing a system for reporting the costs and completion
dates of previously budgeted projects. For these reasons, we withholdrecommendation on the department's special repair proposal at this time.
Laundry Contract Premature

We recommend that the Legislature restore $41,000 and 57 laundry
worker positions at Agnews and Fairview State Hospitals because theproposed contract for laundry services is premature. We further recommend that the Legislature adopt Budget Bill language identical to language contained in the 1985 Budget Act that sets limits on the price which
Prison Industries Authority may charge for laundry services.
The budget proposes to phase out 57 laundry positions at Agnews andFairview State Hospitals and initiate a laundry services contract with the
Prison Industries Authority (PIA), for a net savings of $41,000 in 1986-87.
The department recommends contracting with the PIA because (1) itwould result in lower costs, (2) it would put prison inmates to work, in
keeping with legislative mandates, (3) it can avoid the need for major
capital outlay expenditures at the state hospitals, and (4) all affected
hospital laundry workers can be phased into other jobs without loss of
income or benefits. The department also believes that a PIA contract

Item 4300

HEALTH AND WELFARE / 813

would be the least costly long-term method of acquiring service-particularly given the rate at which state hospital labor costs are increasing.
The department and PIA have not completed negotiations over theterms of a laundry service contract. The department's budget proposal,
however, assumes that the PIA's laundry services will be 19 cents perpound for personal clothing and 17 cents per pound for flatware (linen)
and approximately $163 per round trip for transportation costs. The department indicates that it has verbal commitments from the PIA thatlaundry service will commence for Agnews and Fairview by March 1987.
Background. In the Budget Act of 1985, the department proposed
to phase out 105 laundry positions at Lanterman, Napa, and Sonoma State
Hospitals and initiate a laundry services contract with the PIA, for a net
reduction in the cost of these services amounting to $138,000 in 1985-86.
At this time last year, the department expected to begin contract service
for Lanterman by October 1985 and for Napa and Sonoma by April 1986.
Service for Lanterman and Sonoma is now scheduled to begin by May 1986and service for Napa is scheduled to begin in July 1986.
When this analysis was written, no contracts had been signed for Lanterman and Sonoma, although they presumably will have to be finalized
before May 1986. The department indicates that the contracts should
include language giving the hospitals an alternative service option in theevent of disruptions in PIA service. The department is not aware of what
milestones, including equipment purchases and installation, must be accomplished at the PIA to assure that laundry services will be available by
the specified dates. Apparently, the PIA has not provided an implementation schedule; nor has PIA specified exactly where the laundry for thehospitals will b~ processed in the immediate future.
Since the laundry service was not provided to Lanterman on schedule,
no laundry worker positions have actually been eliminated. Laundry positions (105) have, however, been removed from the hospitals' personnel
roster, and budgeted funds have been transferred from personal services
to operating expenses.
Because (1) the current PIA schedule for delivery of laundry services
has not been kept, (2) no laundry contracts have yet been executed, (3)the department has not been provided with a detailed schedule and listof tasks that must be accomplished by the PIA before the Agnews andFairview laundry services can be processed, and (4) the department has
no experience with the quality of PIA laundry services or actual prices, werecommend that the Legislature restore the 57 laundry worker positions
and $41,000 to the state hospital budget. This recommendation would (1)delay the initiation of PIA laundry services for Agnews and Fairview by
no more than four months (from March to July 1987) and (2) allow theLegislature to assess PIA's costs and quality of service before it eliminates
laundry worker positions at any more state hospitals.
Potel1tial for Future Rate Increases. The price currently being discussed by the PIA and the department appears to be below both thehospitals' cost for the same service and its cost of obtaining the services
from a private contractor. Once hospitals become dependent on PIA forlaundry services, however, they will not be in a good bargaining position
to prevent future rate increases. Therefore, we recommend that theLegislature re-adopt language added to the 1985 Budget Act which requires that the contract(s) between the department and PIA for laundry
services contain a provision specifying that the price per pound paid by
the department in 1986-87 shall not exceed the price the department

814 / HEALTH AND WELFARE

Item 4300

DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued

would pay for the service from a private contractor or more than PIA's
cost plus its current markup for net profit, whichever is less. This language
is as follows:"The department or individual state hospitals may enter into contracts
with Prison Industries Authority for laundry services, providing that thecontracts provide that the department will not be charged a rate per
pOtlnd which exceeds (1) available commercial laundry rates for thesame service or (2) Prison Industries Authority's cost for operating alaundry plus its standard central administrative charge and a net 11.7
percent profit on direct operations costs."
Equipment Proposal Needs Justification

We withhold recommepdation on the department's $4,831,000 hospital
equipment proposal pending receipt of a mandated report on state hospital equipment.
The budget proposes $4,831,000 in expenditures for hospital equipment,a decrease of $860,000, or 15 percent, below current-year estimated expenditures.
Language in the Supplemental Report of the 1985 Budget Act directed
the department to submit, in conjunction with its 1986-87 budget submission, a report on the management of the state hospital equipment inventories. When this analysis was written, the report had not been submitted.
Without the information contained in the report, we are unable to determine if the department's funding request for equipment is justified.
Therefore, we withhold recommendation on the department's equipment
request, pending receipt of the report. We further recommend that the
department explain during budget hearings why the report was not submitted on time.
Hospital Equipment Expenditure Exceeds Authorization

We recommend that the Legislature adopt Budget Bill language restricting the expenditure flexibility of the state hospitals.
The 1986-87 budget submission indicates that in 1984-85, the hospitals
spent $11,928,000 for equipment. This amount is $5,964,000, or 100 percent,llbove the original equipment authorization approved by the Legislaturefor 1984-85.
The department has not indicated precisely where the funds to financethese unbudgeted expenditures came from or what items were purchasedwith the additional funds. Nor did the department inform the Departmentof Finance (DOF) thatthe hospitals would spend more than the amountbudgeted for equipment. As a result, the Legislature was not notified thatthe Department of Developmental Services diverted $5.9 million fromother items of expenditure to the purchase of equipment.
Regardless of whether the money was well spent, this is something thatshould be of great concern to the Legislature.
It is essential that department budgets accurately reflect the departments' expenditure plans. The Legislature can then review those plans
and appropriate funds for services that it deems appropriate. Obviously,from time to time circumstances will change, necessitating revisions to a
department's expenditure plans. When this happens, the DOF and theLegislature must be informed. Otherwise, the department, rather thanthe Legislature, makes the decisiOn on what legislatively approved pro-

Item 4300

HEALTH AND WELFARE / 815

grams and activities are scaled back. It is the clear intent of Section 6.5 of
the Budget Act that the Legislature be informed of changes in expenditure plans before the fact, rather than after.
We regard the DDS's failure to provide advance notification of thismajor change in expenditure plans as a particularly serious breach in thebudget process. In order for state hospitals to free-up $5.9 million forequipment purchases, other activities and services obviously had to be
reduced. At this point, we do not know whether these activities involved
services to patients or something else. The DOF states that (1) it has
informed the department of the reporting requirements and (2) does notexpect future changes in expenditure plans to go unreported. In our judgment, however, this is not good enough. Accordingly, we recommend that
the Legislature adopt Budget Bill language which (1) requires the department to notify the DOF of significant changes in the expenditure plansof the state hospitals, (2) requires the DOF to approve budget transfers
in excess of 10 percent, and (3) requires that the Legislature be notifiedof all budget transfers in excess of20 percent. Budget Bill language consistent with our recommendation is:"The Director of Developmental Services shall notify the Departmentof Finance of significant changes in the plan of expenditures for statehospitals for personnel services or operating expenses. For purposes ofthis reporting requirement, expenditures that are 10 percent above or
below the amounts shown in the summary by object in the Governor's
Budget shall be deemed significant as shall any other expenditurechanges that the Director deems to have policy significance. The Director of Finance may authorize the augmentation and reduction of anyline of the summary by object for state hospital personnel services oroperating expenses in excess of 10 percent.
"Any transfer in excess of 20 percent pursuant to this section may be
authorized not sooner than 30 days after notification in writing of thenecessity therefor is provided to the chairperson of the committee ineach house which considers appropriations and the Chairperson of the
J oint Legislative Budget Committee, or not sooner than whatever lesser
time the Chairperson of the Joint Legislative Budget Committee, or hisor her designee, may in each instance determine."
Report on Future Use of State Hospitals Is Late

We recommend that the department advise the Legislature why its
report on the long-term plan for state hospitals is late and when the reportwill be released.
Language contained in the Supplemental Report to the 1985 Budget Act
directed the department to submit a report to the Legislature by November 15, 1985, on its long-term plan for state hospitals. As of mid-February
1986, the report had not been submitted.
The report is to address (1) the number and types of core populations
that should be served in state hospitals, (2) the number and types of statehospital clients that should be transferred to regional center programs, (3)the costs and timeframes for serving the transferred populations throughregional center programs, and (4) the number of remodeled state hospitalbeds that would be available to the Department of Mental Health. The
language also directs the DDS to evaluate the option.of having the statebuild and operate some community facilities as an alternative to statehospital services and describe the logistics involved in the closing of a
hospital.

Item 4300

816 / HEALTH AND WELFARE

DEPARTMENT OF DEVELOPMENTAL SERVICES-Continued

The supplemental report asks the department to address issues that areimportant to the Legislature in setting state policy regarding the appropriate use of state hospitals for developmentally disabled clients. Therefore,
we recommend that the department advise the Legislature during budget
hearings why its report is late and when the report will be released.

DEPARTMENT OF DEVELOPMENTAL SERVICESCAPITAL OUTLAY

Item 4300-301 from the GeneralFund, Special Account for
Capital Outlay

Budget p. HW 97

Requested 198~7 ......................................................................... . $13,537,000
Recommended approval ............................................................... .
1,507,000
Recommended reduction ............................................................. .
306,000
Recommendation pending .......................................................... ..
11,724,000
AIlalysis

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
l. Camarillo State Hospital. Withhold recommendation on

three projects, totaling $11,337,000, pending receipt of additional information.
2. Project Schedules. Recommend the Department of Developmental Services and Office of State Architect submit areport to the Legislature (1) explaining why eight out ofnine projects funded last year are behind schedule, (2) describing their plans to expedite the projects and (3) supplying revised schedules for each project.
3. Camarillo State Hospital. Withhold recommendation on
preliminary plans ($387,000) for fire/life safety and environmental improvements for Units 18, 19, 30-33, pending receipt of project information and schedules for other projects
at Camarillo State Hospital.
4. Porterville Kitchen. Reduce Item 4300-301-036(6) by $23,000. Recommend that the Legislature delete this project
because it is not justified.
5. Sonoma Generator. Reduce Item 4200-301-036(7) by $26,000. Recommend that the Legislature delete this project
because it has already funded all improvements necessary
for full compliance with licensing and fire and life safetycode requirements.
6. Minor Projects. Reduce Item 4300-301-036(1) by $257,000.
Recommend the Legislature delete four projects which areeither maintenance items, unjustified or have been funded.
7. Minor Projects. Recommend adoption of supplemental

puge

817
818

819

820
820

821
822

Item 4300

HEALTH AND WELFARE / 817

report language directing the department to study protective wall coverings.
8. Budget Language. Recommend the Legislature amend
Budget Bill language to specify that any unencumberedfunds transferred to the Department of Mental Health mustbe spent for the original purpose of the appropriation. Further recommend that, prior to budget hearings, the Department of Finance submit a list to the Legislature identifying
all funds and projects that would be subject to transfer under this provison.

822

ANALYSIS AND RECOMMENDATIONS

The budget proposes $13,537,000 for the Department of Developmental
Services' Capital Outlay program in 1986-87. This includes funds for six
major projects and 27 minor projects ($200,000 or less per project). The
Department's proposal for major projects and our recommendations are
summarized below in Table 1.
Table 1
Department of Developmental Services
1986-87 Major Capital Outlay Program
Item 4300-301-036(dollars in thousands)

Sub·[telll
(2)
(3)
(4)
(5)

(6)
(7)

Project Title
Construct Children's Units ....................
Swing Space ................................................
Fire, Life Safety and Environmental
ImprO\'ement, Units 11-15 ..............
Fire, Life Safety and Em'ironmental
ImprO\'ement, Units 18, 19, 30-33
Remodel Main Kitchen ..........................
Install Emergency Generator ................
Totals ............................................................

Locutioll
Camarillo
Camarillo

Budget AIW~I'sts Estillluted
Recolll- Future
Bill
Phuse" UIllOUllt lIlelldutioll Cost"$3,301\\l,CPending
Pendingc388

Camarillo

\\',C

7,648

Pending

Camarillo
Porterville
Sonoma

p
p,w
p,w

387
23
26
$11,773

Pending

Pending$6,746218
709
87,673" Phase symbols indicate p = preliminary planning; w = working drawing; c = construction.
" Department estimate.

Three Projects at Camarillo State Hospital Are Significantly Behind Schedule

We withhold recommendation on three projects at Camarillo State Hospital, Items 4300-301-036(2), (3) and (4), pending receipt of preliminaryplans and detailed cost estimates.
The budget proposes working drawing and construction funds for (1)new children's units ($3,301,000), (2) fire and life safety and environmental improvements (FLSEI) to units 11-15 ($7,648,000) and (3) construction funds to provide minimal fire and life safety improvements for eight
units to be used as "swing space" to house clients during remodeling of
the various client areas ($388,000).
The Legislature already has appropriated planning funds for theseprojects. Kwh project, however, is significantly behind schedule and noinformation is available to substantiate the department's request foradditional funds.
Children's Units. The Legislature appropriated $232,000 in the 1984

818 / HEALTH.AND WELFARE

Item 4300

DEPARTMENT OF DEVELOPMENTAL SERVICESCAPITAL OUTLAY-Continued

Budget Act to (1) undertake a life cycle cost analysis comparing the costof remodeling with the cost of new construction and (2) develop preliminary plans for the cost-effective solution. The Department of Finance was
required to submit the approved cost analysis to the Joint Legislative
Budget Committee at least 30 days before starting preliminary plans.
The i~itial version of the life-cycle analysis did not adequately address
the Legislature's concerns. At the time this Analysis was prepared, thedepartment was reanalyzing the life-cycle cost analysis it had submitted.
Consequently, although the budget requests funds to construct a new
facility, the cost analysis needed for making this decision is not complete.
Moreover, the preliminary plans for this project are not available. According to the Office of State Architect (OSA), as ofJanuary 15, 1986 there wasno schedule for starting or completing these plans.
Under the circumstances, we have no basis to advise the Legislature
regarding the need for the $3,301,000. We urge the department to expedite completion of the cost analysis and submit it to the Legislature so that
preliminary plans, based on the most cost-effective alternative, can be
developed prior to budget hearings. Pending receipt of the life-cycle cost
analysis, preliminary plans and a detailed cost estimate, we withhold recommendation on this proposal.
'
Swing Space and FLSEI Eor Units 11-15. The Supplemental ReportoE the 1985 Budget Act expressed the Legislature's intent that preliminaryplans for Swing Space modifications and the FLSEI to Units 11-15 becompleted prior to preparation of the 1986-87 Budget. The OSA reported
to the Legislature, on January 15, 1986, that the plans for the Swing Space
were completed in November 1985, but that the plans for units 11-15
would not be completed until April 1986. At the time this analysis was
prepared, however, we had not received the preliminary plans for either
project. Consequently, we have no basis to evaluate the proposed appropriation. Accordingly, we withhold recommendation on these projects
and urge the department and OSA to expedite completion of the preliminary plans and detailed cost estimates so that the necessary information
will be available prior to budget hearings.
DDS and OSA Should Explain the Delays

We recommend that prior to budget hearings, the department and the
OSA submit a report to the Legislature (1) explaining why eight out oEnine timeJines outlined in the Supplemental Report oE the 1985 Budget
Act were not met, (2) describing their plans Eor expediting the projectsand (3) setting Eorth revised schedules.
The Supplemental Report oE the 1985 Budget Act expressed the Legislature's intent that eight projects be carried out in accordance with thetimelines shown in Table 2.
As Table 2 shows, only one of the eight projects is on schedule. The otherseven have slipped at least two months. In addition, the DDS was also tomeet timelines for three projects at Napa State Hospital, a state hospitalfor the mentally ill. (The Governor's Budget indicates that responsibility
for Napa State Hospital is to be transferred in 1986-87 to the Departmentof Mental Health-DMH). As we discuss in our analysis of the DMH
capital outlay program, these three projects are also substantially behindschedule.

HEALTH AND WELFARE / 819 'Item 4300
Table 2

Department of Developmental Services
Timeline for Projects asStated in the Supplemental Report of the 1985 Budget Act

Project/Hospital
1. Replace Boilers, Agne\l's
2. Swing Space, Camarillo
3. FLSEIJUnits 11-15,
Camarillo
4. Replace Boilers, Camarillo
5. Upgrade Electrical System,
Fain'ie\\'
6. Water Systems Study,
Fain'ie\\'
7. Install Chiller, Lanterman
8. FLSEI/Cottage G, Stockton

TIinelille
Preliminary plans to be completed prior
to preparation of the 1986-87 budget.
Preliminary plans to be completed prior
to preparation of the 1986-87 budget.

Status\'ot Complete:'\ot Complete

Preliminary plans to be completed prior
to preparation of the 1986-87 budget.
Preliminary plans to be completed prior
to preparation of the 1986-87 budget.

:'\ot Complete

To be ad"ertized for construction no'Iater than October 1985.

On Schedule

Study to be sent to Legislature no later
than December 1, 1985.
Working drawings to be completed by
December 1, 1985.
Working drawings to be completed by\O\'ember 15, 1985.

Stud), not started:\ot Complete:'\ot Complete:'\ot Complete

The status of the FLSEI project for Stockton Cottage G is of particularconcern. This project is at least six and one-half months behind schedule.
Thus, improvements to the Stockton building will not start until the 198687 fiscal year even though construction funds were appropriated in the1985 Budget Act.
We recommend that the DDS and the OSA submit a report detailingwhy each project is behind schedule and what steps are being taken to
expedite the projects, and also provide a revised schedule for each project.
New Camarillo FLSEI Project

We withhold recomme11datio11 011 Item 4300-301-036(5), preliminaryplans for FLSEI for U11its 18, 19, 30-33 at Camarillo State Hospital, pendillg receipt ofa cost estimate, schematic drawi11gs and timelines for remodeling Camarillo SWiIlg space and the FLSEI project for Units 11-15.
The budget provides $387,000 for preliminary plans to remodel units 18,
19 and 30-33 to meet current fire and life safety code requirements andlicensing standards. Units 18 and 19 house adolescents. Units 30-32 house
adults with acute psychiatric disorders. Unit 33 is an adult day treatment
activity center.
The need to remodel these units is clear: the units were constructed40-50 years ago when design concepts for housing the mentally ill werebased upon a custodial care model, with little concern for patient privacy,
a home-like atomosphere or active training and therapy programs. The
proposed remodeling will rectify these deficiencies-as well as provide
patients and staff with increased protection from fire.
Unfortunately, we are unable to make a recommendation to the Legislature on the need for the requested amount because (1) we do not havea cost estimate from the Office of State Architect, (2) the department's
cost estimate for preliminary plans is $97,000 less than the proposed
Budget Bill appropriation and (3) the delays in other projects at Camarillo

Item 4300

820 / HEALTH AND WELFARE
DEPARTMENT OF DEVELOPMENTAL SERVICESCAPITAL OUTLAY-Continued

may delay this project and the need for any funds in the budget year.
Consequently, we withhold recommendation on this project, pending
receipt of an Office of State Architect cost estimate, schematic drawings
and a timeline for construction for this project along with all other projects
at Camarillo State Hospital.
Porterville Kitchen

We recommend the Legislature delete Item 4300-301-036(6), preliminary plans and working drawings for remodeling the kitchen at PortervilleState Hospital, because the project is not adequately justified, for a reduction of $23,000 (future savings: $218,000).
The budget provides $23,000 for preliminary plans and working drawings for remodeling the Porterville Kitchen. The department indicatesthat the kitchen lacks sufficient refrigeration, freezer, and storage space,
and that extreme temperatures in the main kitchen necessitates air conditioning.
The department, however, has not provided sufficient information toestablish the need for or cost of this project. The department has not
submitted an OSA cost estimate or any documentation of the kitchentemperature or the capacity of the current refrigeration/freezer units.
Consequently, we recommend that the Legislature delete this item.
Sonoma Generator

We recommend that the Legislature delete Item 4300-301-036(7), preliminary plans and working drawings for a new emergency generator at
Sonoma State Hospital, because the Legislature has funded all electricalimprovements necessary to meet accreditation and licensing requirements,
for a savings of $26,000 (future savings: $709,000).
The budget provides $26,000 for preliminary plans and working drawings for installation of two 1000 KW emergency generators at Sonoma
State Hospital. This would supplement the hospital's existing 2,400 KW
emergency generator capacity. Based on 1984 information (the latest
capacity information provided), the existing emergency systems allows
the hospital to operate at nearly 75 percent of its total electrical need.
The department indicates that it needs the additional emergency power
capacity to meet Title 24, Title 22 and licensing requirements. As documentation, the department submitted a 1982 licensing report which cites
the hospital's emergency power system, along with over 38 other nonrelated items. The citation reads "Facility has emergency power system,
however, system breaks down when all units are functional at the sametime." The citation does not explicitly require additional electrical capacity-only that the system does "not break down".
The electric code specifies that emergency electrical systems in hospital
facilities must serve those circuits essential to life safety and critical patientcare. Consequently, it is not required that the entire hospital be connectedto the emergency electrical system. The department has not provided any
information identifying those circuits which are served by the existing
emergency generators and whether all presently connected systems are
essential to life safety and critical patient care.
In addition, the size of the proposed emergency electrical system islarger than the hospital's totlll electrical demand. Based on the 1984 elec-----~----

Item 4300

HEALTH AND WELFARE / 821

trical information, the existing emergency system coupled with theproposed 2,000 KW generator set, would provide 1,100 KW more than isneeded for the entire hospital.
Finally, we note that Sonoma State Hospital has been remodeled tomeet fire/life safety and environmental improvements. These improvements were supposed to bring the hospital into compliance with all fireand life safety, accreditation and licensing requirements, including thoserelated to emergency electrical service. The Legislature appropriatedfunds on this basis. The department has submitted no information toestablish that the hospital's electrical generating capacity does not meetthese requirements.
Under these circumstances, we recommend that the Legislature delete
Item 4300-301-036(7), for a savings of $26,000 in 1986-87 and a futuresavings of $709,000.
Minor Projects

The budget proposes $1,764,000 for 27 minor capital outlay ($200,000 andless per project) projects. As Table 3 shows, 12 of these projects, totaling$956,000, are for improving handicapped accessibility to the hospital facilities, 13 are for a variety of building or play area improvements and two
are for the protection of walls in hallways.
Table 3
Department of Developmental Services
1986-87 Minor Capital Outlay Program
Item 4300-301-036(dollars in thousands)

BudgetBill
XlImber
12
2
3
1
1
1
1
1
1
1
1
1
1

Project Title
Handicapped Accessibility ............................................
Construct Walkwavs ........................................................
Recreational Area ·ImprO\·ements ................................
Receh'ing and Treatment Building ............................
Install Fire Alarm SYstem ..............................................
Install Floor Drains :.........................................................
Install Handrails in Corridors ........................................
Install Handrails in Units-Phase 1..............................
Fiberglass Wainscot-Phase 1........................................
Install Emergency Egress Lighting ............................
Install Smoke Detectors ..................................................
Replace Steel Doors ........................................................
Trash Container Enclosures ..........................................
Totals ................................................................................. .

Locatioll
Various
Various
VariousAgnewsAgnewsStockton
Stockton
Lanterman
SonomaPorterville
Stockton
Fain'iew
Fairview

Amoullt
8956
24
157
198

AIlilll-st"sRf'c~mmeIldiitioIl
$956
24
157
198

10

10

8
16
38

8
16
38

100

100

37
99
77
44
$1,764SI,507

Four Projects Are Special Repairs, Not Justified or Already Funded

We recommend the Legislature delete funds for four projects totaling$257,000 because the projects are either (l) a maintenance item whichshould properly be funded, in priority, from the department's support
budget, (2) insufficiently justified, or (3) already funded as part of thehospital's overall fire and life safety and environmental improvements.
We recommend that the Legislature delete funds for two projectsInstall Emergency Egress Lighting, Porterville ($37,000) and Install
Smoke Detectors, Stockton ($99,000)-because the Legislature has al-822 / HEALTH AND WELFARE

Item 4300

DEPARTMENT OF DEVELOPMENTAL SERVICESCAPITAL OUTLAY-Continued

ready funded all projects necessary for fire and life safety at these hospitals. We recommend that the Legislature delete funds to replace steel
doors with wooden doors at Fairview ($77,000) because this is a maintenance project which should be funded from the department's support
budget. Finally, we recommend that the Legislature delete funds to enclose the trash containers at Fairview ($44,000) because the department
has provided insufficient information to establish the need for or cost of
this project.
Study Needed to Evaluate Projects to Protect Walls

We recommend that the Legislature adopt supplemental language directing the DDS to prepare a report on protective wall coverings.
The walls of hallways in hospitals for the developmentally disabledcontinually need to be sanded and repainted to cover dents and scrapes
from wheelchairs and gurneys. The department proposes two projects as
an initial phase of a hospital plan to protect these walls. The initial proposal
provides for the installation of (1) fiberglass wainscotting at Sonoma State
Hospital ($100,000) and (2) two levels of handrails at Lanterman State
Hospital $38,000).
Based on our site visits, it is apparent that wall protection is needed.
Providing this improvement throughout the state hospital system, however, will be costly. In view of this, prior to embarking on a statewide
program, the department needs to be sure that the improvements will
provide the necessary protection in a cost-effective way. Thus, the department should evaluate the cost-effectiveness of the two alternatives
proposed, along with other alternatives such as installing rubber bumpers
on wheelchairs/ gurneys and adding no protection but providing regular
maintenance of patching/painting. To assure that this evaluation is completed, we recommend that the Legislature adopt the following supplemental report language:"The Director of Department of Developmental Services shall submit
a report to the Joint Legislative Budget Committee no later than January 1, 1987 which evaluates the cost-benefit of protecting hallway walls
in state hospitals on a statewide basis. The department shall evaluate, ata minimum, (1) fiberglass wainscotting, (2) double handrails and (3) noprotective covering with regular maintenance of patching / painting and(4) rubber bumpers on wheelchairs/gurneys. The report shall include(1) the estimated cost to undertake the most cost-effective solution ateach hospital and (2) a schedule for making the improvements.
Budget Language

We recommend that the Legislature amend the proposed budget language to specify that any unencumbered funds transferred to the Department of Mental Health must be spent for the original purpose of theappropriation.
We recommend further, that prior to budget hearings, the Departmentof Finance submit a list to the Legislature identifying all funds andprojects that would be transferred under this provision.
The budget indicates that the Department of Mental Health will assume
responsibility for the operations of Napa State Hospital on July 1, 1986. The
Budget Bill includes language under this item (Item 4300-301-036) permit-----------------

Item 4440

HEALTH AND WELFARE /823ting the Department of Finance to transfer any unencumbered balances
available for Napa State Hospital capital outlay projects to the Department of Mental Health without prior notification to or review by theLegislature.
The language, as proposed, would appear to permit the Department of
Mental Health to spend these funds for any purpose the department andthe Department of Finance desiI:e. Consequently, we recommend that
the Legislature amend the language to specify that any unencumberedfunds transferred to the Department of Mental Health must be used forthe purpose originally intended by the Legislature.
Moreover, neither the Department of Developmental Services nor the
Department of Finance has identified the projects or associated funds
affected by this provision. We, therefore, recommend that prior to budget
hearings, the Department of Finance submit a list to the Legislature
identifying all projects and funds that would be subject to transfer.
Supplemental Report Language

For purposes of project definition and control, we recommend that the
fiscal committees adopt supplemental report language which describes
the scope of each of the capital outlay projects approved under this item.

Health and Welfare Agency
DEPARTMENT OF MENTAL HEALTH

Item 4440 from the General
Fund

Budget p. HW 100

Requested 1986-87 .......................................................................... $928,252,000
Estimated 1985-86........................................ .................................... 835;858,000
Actual 1984-85 ................................................................................... 691,928,000
Requested increase $92,394,000 (+11.1 percent)Total recommended reduction ....................................................
651,000
Recommendation pending ............................................................ 30,802,000
1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
444O-OO1-OO1-Department support
444O-OO1-036-Department support
444O-OO1-890-Department support
444O-016-001-Department support
444O-011-OO1-State hospitals
444O-011-036-State hospitals
444O-10l-001-LocaI assistance
444O-101-890-Local assistance
Reimbursements
Total
27-80960

Fund
GeneralSAFCO
FederalGeneralGeneralSAFCO
GeneraJ
FederalAmount$23,844,000
500,000(543,000)
21,529,000
290,914,000
3,906,000
498,851,000(16,140,000)
88,708,000$928,252,000

824 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. Client Data System and State Hospital Automation Project.
Withhold recommendation on $498,000, pending review ofthe department's request for proposal.
2. Office Automation.
Withhold recommendation on$162,000, pending review of the department's feasibility
study report.
3. Fifteen Million Dollar Augmentation. Recommend thatprior to budget hearings, the department provide theLegislature with an analysis of the extent to which three
years' worth of augmentations have reduced funding
inequities between counties.
4. Targeted Supplement Fund. Recommend that theLegislature create a new item in the Budget Bill for theTargeted Supplement Fund.
5. 24-Hour Alternative Beds. Recommend that prior tobudget hearings, the department submit a report which
details (a) the process it used to determine what the annual cost for this program should be and (b) the specificcriteria it used to approve/disapprove county proposals.
6. Target Populations. Withhold recommendation on $5
million because the department has not provided theLegislature with any information on how the funds will be
used.
7. Independent Performance Review: Homeless Program.
Recommend adoption of Budget Bill language directing
the department to commission a $250,000 independent
performance review of the homeless program.
8. Homeless Program Data. Recommend that by April 1,
1986, the department estimate what it would cost to (a)amend the Cost Reporting and Data Collection System and(b) report the data through the Client Data System.
9. Rate Supplement Funding. Recommend that during
budget hearings, the department explain how it intends tofund the rate supplement program in 1986-87.
10. Rate Supplement Item Identification. Recommend that
the Legislature amend the Budget Bill to (a) identify therate supplement program as a distinct subitem and (b)control the transfer of funds between subitems.
11. Independent Performance Review: Rate Supplement Program. Recommend adoption of Budget Bill language
directing the department to commission an independent
performance review of the rate supplement program.

12. Sonoma County Skilled Nursing Facility. Reduce Item
4440-011-001 by $540,000. Recommend reduction because the department has not justified the development of
a new regional 24-hour subacute skilled nursing facility.
Further recommend that the Legislature transfer $660,000
from local assistance to the state hospitals.
13. AIDS Mental Health Project. Recommend that prior to

Analysis
page

828
829
831

833

834

835

836

837

839

839

840

842

Item 4440

HEALTH AND WELFARE / 825

budget hearings, the department provide the Legislature
with a written status report on the AIDS mental healthproject.
14. Medical Screening. Reduce Item 4440-101-001 by $67,000.
Recommend reduction because the project for whichthese funds were appropriated has been completed.
15. Mentally DisordElred Offender Program. Withhold recommendation on $19,047,000 requested to fund the start-up
and implementation of the program, pending resolution ofissues affecting program needs and cost estimates. Recommend that the department present a report detailing theramifications of implementing the mentally disordered offender program.
16. Population Adjustments. Withhold recommendation on
certain population-related staffing adjustments, pending
review by the Legislature of the mentally disordered offender program.
17. Treatment Staffing Augmentation.
Withhold recommen dation on $2,238,000 requested for 264 proposed new
positions, pending further review of the proposal.
18. Equipment Request. Reduce Item 4440-011-001 by$44~OOO.
Recommend reduction to correct for overbudgeting. Withhold recommendation on a proposed$706,000 augmentation to fund equipment for the statehospitals, pending resolution of several inconsistencies andquestionable cost estimates.
19. Special Repairs.
Withhold recommendation on
proposed $1,650,000 augmentation for special repairs,
pending receipt from the department of a five-year plan.
20. State Hospital Accreditation. Withhold recommendation on proposed $341,000 contract with the Joint Commission On Accreditation of Hospitals, pending receipt fromthe department of updated and detailed cost estimates.
21. Treatment Evaluation Teams. Recommend that the departIllent (a) revise the composition of the state hospital
evaluation team to conform with requirements of the Supplemental Report of the 1985 Budget Act, and (b) provide
the Legislature with revised costs estimates for the evaluation of all five state hospitals.

842
848

851

852

853

854
855

856

GENERAL PROGRAM STATEMENTThe Department of Mental Health (DMH) directs and coordinates
statewide efforts aimed at the treatment and prevention of mental
disabilities. The department's primary responsibilities are to:
1. Administer the Short-Doyle Act, which provides for delivery of mental health services through a state-county partnership.
2. Operate Atascadero, Patton, and Metropolitan State Hospitals, which
serve the mentally disabled exclusively.
3. Manage programs for the mentally disabled located at Camarillo andNapa State Hospitals, which serve both the mentally and developmentallydisabled.
4. Manage the Lanterman-Petris-Short Act, which provides for involuntary treatment of the mentally disabled.
The department has 4,652.4 authorized positions in the current year.

826 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF M~NTAL HEALTH-Continued
OVERVIEW OF THE BUDGET REQUESTThe budget proposes total expenditures of $944,935,000 (all funds) for
the support of the department's activities in 1986-87. This is an increaseof $87,691,000, or 10.2 percent, above estimated current-year expenditures.
Proposed General Fund expenditures for support of the department
and its programs are $835,138,000, which is $79,063,000, or 10.5 percent,above the estimated level of General Fund expenditures in the current
year. Table 1, provides a summary of the department's budget for thethree-year period ending June 30, 1987.
The proposed General Fund increase of $79 million primarily reflects
the following increases:• $25.75 million for local mental health programs.
• $9.2 million for a 2 percent cost-of-living adjustment to local mental
health programs.
• $19 million for first-year funding of the mentally disordered offender
program.
• $5.2 million appropriation to provide enhanced services for the conditional release program.
• $4.3 million appropriation to continue the conditional release program at the current-year level.
• $2.2 million for phase III of the state hospital model treatment programs.
• $10.4 million reflecting the transfer of Napa State Hospital from the
Department of Developmental Services (DDS) to the DMH.
Table 1
Department of Mental Health
Budget Summary
1984-415 through 1986-87(dollars in thousands)
Expenditures
Local assistance ................................................. .
State hospital services .................................... ..
Departmental administration ........................
Reimbursements .............................................. ..
Totals ........................................................... .
Funding source
General Fund .............................................. ..
Special Account Eor Capital Outlay........ ..
Federal Trust Fund .................................... ..
Personnel-years
Department support .................................. ..
State hospital services ................................ ..
Totals .......................................................... ..

Actual1984-85$419,030
259,142Est.
1985-86$531,340
295,080

Prop.

Percent Change
From19~6

28,90130,824

62,121$707,073

79,068$857,244

1986-87$567,598
330,119
47,21888,708$944,935$629,907
15,045$756,075
715
21,386$835,138
4,406
16,683

10.5%
516.0
-22.0

497.0
3,771.8
4,268.8371.1
4,337.9
4,709.0

285.6
6,633.4
6,919.0-23.0%-52.9"
46.9%

6.8%
11.9
53.2"
12.2
10.2%

"This increase is due to the proposed transfer of administration of Napa State Hospital from the Department of Developmental Services to the Department of Mental Health.

Item 4440

HEALTH AND WELFARE / 827

The budget does not include full funding for merit salary adjustments(MSAs) or inflation adjustments to operating expenses and equipment.
While the budget seeks $987,000 for selected operating expense increases
directly related to patient care in the state hospitals, we estimate that anadditional $742,000 would be necessary in order to adjust the remaining
operating expense and equipment items for inflation. The department
states that due to the substantial number of employees who are hired at,or near, the top of the salary range, the budget provides adequate funding
for MSAs in 1986-87.
ANALYSIS AND RECOMMENDATIONS
A. DEPARTMENT SUPPORTThe budget proposes total expenditures of $47,218,000 for support of the
Department of Mental Health in 1986-87. This is an increase of $16,394,000,
or 53 percent, above estimated current-year expenditures. The increase isdue primarily to increases in external consulting and professional services
requested for the conditional release program and the mentally disordered offender program.
Table 2 shows five-year trends in expenditures, funding sources, andauthorized positions for departmental support.
Budget Char.;es and Adjustments.
Table 3 shows the changes inthe department's budget proposed for 1986-87. The major changes reflectincreased funds for (1) the mentally disordered offender program ($8.7
million), (2) the conditional release program ($5.2 million), (3) mental
health research ($1 million), (4) start-up funding for the state hospital
automation project ($0.5 million), and (5) a proposed contract with aconstruction management firm ($0.5 million).
The budget for 1986-87 shows a special adjustment reflecting a transfer
of $3,549,000 from local assistance to department support. This transfer
reflects a delay on the part of Los Angeles and Monterey Counties inassuming the functions now performed by the Office of Mental HealthSocial Services (OMHSS). Both counties intend to assume responsibility
for the OMHSS functions in 1986-87 as soon as various administrative andoperational issues are resolved.
Table 2
Department of Mental Health
Department Support
Expenditures and Funding Source
1982-a through 1986-87(dollars in thousanc!s)

1982-83 ................ ..
1983-84 ..................
1984-85 ................ ..
1985-86 ..................
1986-87 ..................
Change from1985-86
Amount ............
Percent..............

Salaries$15,996
15,367
15,431
12,7691l,674-$1,095-8.6%

Expenditures
Source of Funds
OperatingGeneral Reimburse· Federal
Authorized
Benefits Expenses Totals
Fund
ments
Funds SAFCO Positions$7,531 $27,814 $24,608$1,990$1,216650.5$4,287
8,545
1,347
5,142
28,96323,443
4,173
601.5
4,868
8,602
28,901
23,835
3,881
1,185
525.0
3,775
14,28030,824I,m
28,707
946
428.8
3,401
32,14347,21845,373
802
453
357.2
$500
-$374 $17,863 $16,394 $16,666-9.9% 125.1%
53.2%
58.1%

-$369
-31.5%-$403$500-42.6% NMF-71.6-16.7%

828 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued
Table 3
Department of Mental Health
Proposed Budget Changes(dollars in thousands)

1985-86 expenditures (Budget Act) ..........................................,.......................... .

GeneralFund$23,399

All
Funds$24,699

877

956

3,549
1,000
-417

3,943
1,000
-417

300

300

Adjustments:
1. 1985-86 salary and benefit increases ........................................................ ..
2. Transfer from Item 4440-101-001, Office of Mental Health Social Services (OMHSS) ..................................................................................................
3. Reappropriation from local assistance for research ............................ ..
4. Adjustment to salary schedule .................................................................. ..
5. Transfer from state hospitals for conditional release program ........ ..
6. Adjustments in federal funds
a. Refugee assistance funds ..........................................................................
b. Community Support Services Project (CSSP) ................................ ..
c. Carry-over of 1985-86 CSSP funds ........................................................
d. Federal disaster grant funds ................................................................ ..
7. Adjustment for rounding ............................................................................ ..

1985-86 expenditures (revised) ............................................................................ ..
Baseline adjustments, 1986-87:
1. 1986-87 salary and benefit increases ..........................................................
2. Transfer OMHSS to Item 4440-101-001.. ....................................................
3. Reduction of one-time research funds ......................................................
4. Adjustment to salary schedule .................................................................. ..
5. Annualize appropriation for conditional release program ................ ..
6. Reductions in one-time federal funds
a. Reduction of CSSP funds ...................................................................... ..
b. Refugee assistance funds ......................................................................... .
c. Federal disaster grant funds .................................................................. ..
7. Brain-impaired adults program (Ch 1658/84) ........................................
8. Transfer of facilities planning positions .................................................. ..
9. Reduction of one-time collective bargaining ..........................................
Program change proposals:
1. Mentally disordered offender program ....................................................
2. Conditional release program ...................................................................... ..
3. Research ..........................................................................'................................. .
4. Construction management firm contract .............................................. ..
5. State hospital automation project .............................................................. .
6. ]CAH consultation and survey .................................................................. ..
7. Office automation for DMH headquarters ..............................................
8. Napa transfer from DDS to DMH ............................................................ ..
9. Hospital treatment evaluation teams ...................................................... ..
10. Brain-impaired adults program ..................................................................

1986-87 expenditures (proposed) .............;.......................................................... ..
Change from 1985-86 (revised)
Amount .................................................................................................................. ..
Percent .................................................................................................................. ..

209
109
25
-1

1
-1

$28,707$30,824$526-3,549-1,000$531-3,943-1,000
98
4,293

100

4,293

-134

-209
200

-1
200

129
-59

-97

8,655
5,177
1,000

8,655
5,177
1,000

129

500

498
341
162

498

341

$45,374

162
77
64
53
$47,218$16,667
58.1%$16,394
53.2%

77

64
53

Client Data System and State Hospital Automation Project

We withhold recommendation on the $498,000 requested for the client
data system and the state hospital automation project pending the Department of General Services' review of the department's request for proposals
for this automation project.

Item 4440

HEALTH AND WELFARE / 829

The budget proposes $498,000 from the General Fund for the first phaseof a three-phase automation project. The funds will be used to contract for
consulting and professional services and to acquire hardware and softwarein connection with a client data system and state hospital automation
project.
At the time this analysis was prepared, the Department of General
Services (DGS) had requested the Department of Mental Health to submit a revised request for proposals (RFP). We have been informed thatthe DGS was concerned with various items in the RFP which did notconform with the feasibility study report (FSR) approved by the Officeof Information Technology (OIT). We understand that the department
has submitted a revised RFP.
.
We cannot recommend approval of this proposal until the DGS approves the department's RFP. Accordingly, we withhold recommendationon the $498,000 requested for the client data system and the state hospital
automation project pending approval by the DGS of the department's
RFP.
Office Automation

We withhold recommendation on the $162,000 requested for office automation, pending review of the department's feasibility study report covering automation of its headquarters.
The budget proposes $162,000 for the first phase of a three-phase plan
designed to automate departmental headquarters. The funds will be used
to acquire both software and hardware.
At the time this analysis was prepared, the department had not completed the feasibility study report (FSR), which the State Administrative
Manual requires for al~ automation projects of this type. Therefore, wewithhold recommendation on the $162,000 requested for office automation, pending receipt and review of the FSR.
Conditional Release Program

We recommend approval.
The budget proposes a $5,177;000 General Fund augmentation to theconditional release program in order to enhance the current level ofservices provided to judicially committed persons in the community.
Background. Effective January 1986, Ch 1327/85 (AB 2381) makes
the state responsible for the outpatient supervision and treatment of individuals who have been found not guilty by reason of insanity or incompetent to stand trial, as well as individuals classified as mentallydisordered sex offenders who are discharged froin a state hospital.
The department indicates that the levels of day treatment, day care,
inpatient services, and drug screening originally planned for the conditional release program are inadequate. The department states that the
judicially committed population in the community has a higher level ofillness than was initially anticipated. Accordingly, higher levels of day
treatment and care are reguired.
The department also indicates that the original program proposal did
not include funding to reimburse counties for the costs associated withstatutorily mandated hearing and treatment costs. Current law requires
the state to pay for the judicial hearing costs and the cost of treatment
during the hearings. The budget material provided by the department
itemizes these costs.
We have reviewed the department's proposal and concur with the department's cost estimates for enhancing the current level of services and830 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued

for reimbursing the counties to fund statutorily mandated hearing andtreatment costs. Accordingly, we recommend approval of the request forthe conditional release program. We will continue to monitor the progressand development of this program to insure that budgeted caseload andlevels of treatment are consistent with program operations.
Mental Health Research

We recommend approval.
The budget proposes $1 million to fund mental health research projects
in response toCh 1286/85 (AB 2541). This augmentation will be used tocontinue funding in 1986-87 for research projects that began in 1985-86.
The department indicates that 30 proposals have been submitted in response to its request for proposals which was issued in October 1985. The
department currently is reviewing the proposals and expects to award
grants and sign contracts soon. The department anticipates that of the $1
million appropriated for 1985-86, a portion of the funds will be spent in
the current year, and that the unexpended portion will be committed forthe remaining period of time covered by the contracts.
The department's proposal is consistent with legislative intent. We will
monitor the progress and development of mental health research to insurethat funds are being utilized effectively.
B.

LOCAL MENTAL HEALTH PROGRAMS

The budget proposes an appropriation of $498,851,000 from the GeneralFund for assistance to local mental health programs in 1986-87. This is anincrease of $40,744,000, or 8.9 percent, above estimated current-year expenditures. Total expenditures for local mental health programs in 198687, including expenditures from reimbursements and federal funds, areproposed at $567,598,000, which is $36,258,000, or 6.8 percent, above estimated current-year expenditures. Table 4 displays local assistance expenditures and funding sources for the past, current, and budget years.
Table 4
Department of Mental Health
Local Assistance Expenditures and Funding Sources
1984-85 through 1986-87(dollars in thousands)

General Fund ..........
Reimbursements ......
Federal foods ..........
Totals ..................

Actual1984-85$364,042
41,12813,860$419,030

Est.
1985-86$458,107
52,793. 20,440$5Jl,340

Prop.
1986-87$498,851"
52,607
16,140$567,598

Change from 1985-86
Percent
Amount8.9%$40,744-186-0.4%-4,300-21.0%$36,358
6.8%"Does not include $67,000 of unexpended funds from Ch 208/82. Item 4440490-001, Budget Act of 1982,
directed that these funds be carried over, without regard to fiscal year, until expended.

Budget Changes. Table 5 shows the changes proposed for 1986-87
in the department's budget for local mental health progrartls. The tablealso shows changes to the enacted budget for these programs, the largestof which is an $11.5 million increase in Short-Doyle Medi-Cal reimbursements. This increase is due to an increase in the number of clients who
receive mental health services and are eligible for Medi-Cal.
The major changes proposed for 1986-87 include (I) a 2 percent cost-ofliving increase ($9.2 million), (2) an augmentation for local mental health

Item 4440

HEALTH AND WELFARE / 831

prograIlls ($25.7 million), (3) a rate adjustment for the rate supplement
prograIll ($2.6 million), and (4) a proposal to fund a new skilled nursing
facility in Sonoma County ($1.2 million).
Table 5
Department of Mental Health
Local Assistance-Mental Health Programs
Proposed Budget Changes(dollars in thousands)

1985-86 expenditures (Budget Act) ..........................................................................
Adjustments:
1. Transfer of Office of Mental Health Social Services (OMHSS) from Los
Angeles and Monterey Counties to support item ..................................... .
2. Increased Short-Doyle Medi-Cal caseload ....................................................
3. One-time appropriations
a. Emergency services for Santa Clara and Santa Cruz ......................... .
b. Ch 1274/85-assessment of minors ........................................................... .
c. Ch 1440/85-Sacramento County capital outlay ................................... .
d. Primary prevention funds ......................................................................... .
1985-86 expenditures (revised) ................................................................................. .

GeneralFund$460,056

All
Funds$517,351-3,549-3,54911,452

1,600

12
1,600
4,300
174

$458,lO7$531,340$3,549-1,6009,20l$3,549-6,0869,201

25,7502,644

25,750
2,644

200
1,000

200
1,000

1986-87 expenditures (proposed) ............................................................................. .

$498,851$567,598

Change from 1985-86 (revised)
Amount ....................................................................................................................... .
Percent ....................................................................................................................... .

$40,7448.9%$36,258
6.8%

Baseline adjustments, 1986-87:
1. Transfer of OMHSS to Los Angeles and Monterey Counties ................. .
2. Elimination of one-time appropriations ....................................................... .
3. Two percent cost-of-living adjustment ......................................................... .
Program change proposals:
1. Local assistance augmentation ....................................................................... .
2. Residential care rate supplement ................................................................. .
3. New Sonoma County 24-hour subacute facility
a. Augmentation ................................................................................................. .
b. Transfer of funds from state hospitals ......................................................

Local Assistance Augmentation

Background. The budget proposes to increase the General Fundappropriation for operation of county mental health programs by$25,750,000, or 6.4 percent, in 1986-87. This augmentation contains several
distinct components. Our analysis will address each component separately.
Fifteen Million Dollar Equity Augmentation Proposed

We recommend approval. We further recommend that prior to budget
hearings, the department provide the Legislature with an analysis of theextent to which three years of augmentations have reduced funding
inequities between counties.
The budget requests an augmentation of $15 million in 1986-87 as thethird phase of a three-year effort to promote the "equitable distribution"of local assistance funds among the state's 58 counties.
In 1984-85 and 1985-86, the state provided substantial "equity augmen-

832 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued

tations" for county mental health programs. These augmentations areintended to bring the per-capita amounts received by county mental
health programs more into line with one another. This augmentation
brings the counties closer to equity, thereby achieving the Legislature'sgoal.
We recommend that prior to budget hearings, the department provide
the Legislature with an analysis and county-specific data showing theimpact that these equity augmentations have had on the distribution ofstate funds. Specifically, the department should provide (1) a comparisonof per-capita county allocations before the 1984-85 equity augmentations
and county allocations after the 1986-87 equity augmentations, (2) an
estimate of the number of new clients served in county mental healthprograms as a result of the augmentations, and (3) the amount of moneythat would be required to bring all counties up to what the department
considers to be their "fair share" of the total available for local mental
health programs' definition of equity.
"Targeted Supplement Fund" Should Be Appropriated in a Separate Item

We recommend that the Legislature create a new item in the Budget
Bill and appropriate money for the Targeted Supplement Fund in thisitem with language limiting the transfer of funds.
The budget proposes a total of $30,200,000 for services that will befunded through the Targeted Supplement Fund. This amount is an undistinguishable part of the $498.9 million appropriation in this Budget Bill for
local mental health program services.
Background. Chapter 1286, Statutes of 1985 (AB 2541), together
with the Budget Act of 1985, created in the State Treasury the Targeted
Supplement Fund. The fund is intended to provide services to priority
populations specified in Welfare and Institutions Code Section 5651.1.
These populations are:
• The chronically mentally ill, including those who are homeless.
• Mentally disturbed children and adolescents, including juvenile sex
offenders and juvenile victims of sex offenses.
• .The mentally ill elderly.
• Mentally ill jail inmates, mentally ill wards of juvenile detention facilities, and mentally ill nuisance offenders who are inappropriately
placed in the criminal justice system.
• Underserved populations, including ethnic minorities, refugees, veterans, and other victims of post-traumatic stress disorders, and individuals diagnosed as both mentally ill and developmentallydisabled.
Section 5727 of Ch 1286/85 requires that for 1986-87, Targeted Supplement Fund monies shall be used for the following purposes:• To reduce the inappropriate placement of seriously mentally disordered persons in. the criminal justice system rather than in mental
health programs.
• To improve mental health services in local jails for seriously mentallydisordered inmates who require secure mental health treatment settings.
• To reduce the incidence of sex offenses among children and adolescents.

Item 4440

HEALTH AND WELFARE / 833• To increase utilization of mental health treatment services among theelderly and veterans.
In order to ensure that Targeted Supplement Fund monies are identified in the Budget Bill and used as the Legislature intends, we recommendthat the Legislature amend the Budget Bill to create a new item, as
follows:"4440-For support of the Targeted Supplement Fund,
Department of Mental Health .................................................... $30,200,000
Schedule:(a) For services to the homeless mentally disabled ............ $20,000,000(b) For mental health services that reduce the inappropriate placement of the mentally disabled in jails ............
5,200,000(c) For services to the following priority populations........
5,000,000(i) mentally disordered persons who require secure
treatment setting in jails or other secure facilities(ii) mentally disabled, the elderly, and veterans(iii) juvenile sex offenders and juvenile victims of sex
offenses
Provisions:
1. Transfers between subitems of this item may be made not sooner
than 30 days after notification in writing of the necessity therefor isprovided to the chairperson of the committee in each house thatconsiders appropriations and the chairperson of the Joint Legislative
Budget Committee, or not sooner than such lesser time as the chairperson of the committee, or his/her designee, may in each instancedetermine."
Funding Level Questionable

We recommend that prior to budget hearings, the department submit to
the Legislature a report that details (1) the process by which it determined
what the annual cost for this program should be and (2) the specificcriteria that it will use in approving/disapproving county proposals.
The budget proposes an augmentation of $5,200,000 for the Targeted
Supplement Fund in order to establish additional 24-hour care mental
health treatment beds for seriously mentally disordered persons who otherwise would be inappropriately placed in the criminal justice system.
Chaper 1286, Statutes of 1985, required that unused funds in Item 4440101-001 of the Budget Act of 1985 be reappropriated to the Director of
Mental Health in order to establish additional 24-hour care beds on ahalf-year basis for 1985-86. These funds will not be used because of onetime savings in the current year. We estimate that the amount of unused
funds subject to Chapter 1286's provisions will be approximately $10 million.
In a policy letter sent to the counties, the department indicated that it
would spend up to $2,600,000 for alternative beds in 1985-86. This amountis equivalent to $5,200,000 on an annualized basis. The policy letter specified that in· order to participate in this program, counties must submit
proposals that contain:• A description of (1) the 24-hour services to be provided, (2) how
these services will reduce the inappropriate placement of seriously
mentally disordered persons in the criminal justice system, and (3) adescription of case fmding and referral procedures.

834 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued• A description of the specific services, in accordance with the cost
reporting/data collection system, that would be reported to the department.
• A budget for each specific service, which details personal services,
operating expenses, and equipment.
• Evidence that local police and/or sheriff departments have been involved in the planning of the proposal and support it.
Once their specific delivery plans have been approved, counties will befree to use their allocation of funds.
Our review of the proposal has identified two significant problems that
the Legislature should consider. First, we estimate that the one-time savings in Item 4440-101-001 will be substantially larger than $2,600,000. Whilethe exact amount of these savings will depend on how much money isspent for the homeless program in 1981H36, it is reasonably clear that the
department intends to spend substantially less on this program than thelaw requires.
Second, the budget material submitted by the department gives no
indication of how the department arrived at the decision to provide fora program costing $5,200,000 on an annual basis. Nor does the material
explain the criteria being used by the department in reviewing and approving or disapproving county proposals.
Accordingly, we recommend that prior to budget hearings, the department submit to the Legislature a report. that details (1) the process bywhich the department determined the annual cost for this program and(2) the specific criteria that the department will use to approve or disapprove county proposals.
Proposal Lacks Substance

We withhold recommendation on the $5 million requested for target
populations because the department has not provided the Legislature
with any information on how the funds will be used.
The budget proposes a $5 million augmentation to implement Section
5727 of Ch 1286/85. Section 5727 requires that in 1986-87, targeted supplement funds be used to support improved mental health services withinjails, to increase utilization of mental health services among the elderly
and veterans, and to reduce the incidence of sex offenses among children
and adolescents.
The budget material submitted by the department merely restates language from Section 5727; it provides no substance whatever for the Legislature to review.
It is probable that a large percentage of those mentally disabled persons
covered by Section 5727 could benefit from improved mental health services. At this point, however, the Legislature has no way of assuring itself
that the $5 million requested for 1986-87 will be used to promote thisobjective in an effective manner. Not only is there no way for the Legislature to evaluate the impact approval of this augmentation would have on
the identified priority populations, it cannot even determine how thismoney will be allocated among the priority populations.
Until such time that the department develops a more specific proposal
for the use of the $5 million augmentation, we withhold recommendationon these funds.

-------------

Item 4440

HEALTH AND WELFARE / 835

California Self-Help Center Augmentation Justified

We recommend approval.
The budget proposes $550,000 for the operation of the California SelfHell> Center. The center is jointly sponsored by the department and thepsychology department at the University of California, Los Angeles. The
center serves as a statewide resource for over 2,200 self-help and mutual
support groups.
Independent Performance Review Needed

We recommend that the Legislature adopt Budget Bill language directing the department to commission a $250,()()() independent performance
review of the homeless program to be completed by February 15, 1987.
The Budget Act of 1985 appropriated $20,000,000 to the "Targeted Supplement Fund" for statewide services to chronically mentally ill adults
who are homeless or at risk of becoming homeless. Chapter 1286, Statutesof 1985 (AB 2541) , established a community support system for the homeless mentally disabled, to be administered by county mental health departments. Services provided to these persons include basic living support andalternatives to inappropriate placement in the criminal justice system.
Following enactment of the Budget Act of 1985, the department developed a methodology for allocating the $20 million among the 58 counties.
The methodology uses five equally weighted criteria to determine county
allocations. These criteria are (1) population in households with an income at or below 125 percent of the poverty level, (2) population of
disabled SSI/SSP recipients, (3) general relief caseload, (4) number of
unemployed persons, and (5) total county population. Each county's allocation is dependent on the number and percent of these five groups
residing within its borders. For example, if a county had 10 percent of eachof the identified groups, it would receive 10 percent of the available funds.
Once a county has received approval from the department for its service delivery plan, it receives its allocation of funds. These service delivery
plans must include strategies for offering the homeless mentally disabledassistance in obtaining income, health care, food, shelter, clothing, psychiatric treatment, money management services, and other services. (Homeless mentally disabled clients may accept or refuse any of these services
or, for that matter, mental health treatment.) In addition, county service
delivery plans must include:• An estimate of the county's homeless mentally disabled population.
• An estimate·of the number of homeless mentally disabled people tobe served annually.
• A description of how the county will establish initial contact withhomeless mentally disabled persons to be served.
• A description of the services to be provided through the county mental health department.
• A description of (1) the services to be obtained from other agencies
and organizations within the community and (2) how interagency
linkages and referrals will work to guarantee service delivery.
• A budget for each specific service, which details personal services,
operating expenses, and equipment.
The department estimates that the homeless program will be in operation for approximately six months during 1985-86. Assuming that the annual funding level for the homeless program will be $20 million,

836 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued

approximately $10 million of the $20 million appropriated for the current
year will not have been spent by June 30, 1986. Section 18 of Ch 1286/85
reappropriates the unexpended funds for additional 24-hour care beds "ona half-year basis" without regard to fiscal year. The department has told
the counties it can use up to $2.6 million for alternatives for inappropriate
jail placements during the current year.
Clearly, the state of California has embarked on a major new program
to assist homeless mentally disabled persons. This program consists of up
to 58 subprograms (one per county), which undoubtedly will exhibit suostantial differences. It will be difficult for the Legislature to monitor the
success of such a multi-faceted effort.
We believe an independent performance review of the homeless program could provide the Legislature with the information it needs to perform its oversight responsibilities. Such a review could help theLegislature develop answers to the following basic questions:
1. Should changes be made in the allocation of homeless funds to moreaccurately reflect the distribution of homeless mentally disabled persons
in California?
2. How reliable are the estimates of the homeless mentally disabled
population made by individual county mental health departments?
3. Are program services reaching the homeless? If not, which county
programs need improvement?
.
4. Are services identified in county plans being provided to the homeless?
5.. Do referrals of homeless mentally disabled persons between local
agencies work effectively? If not, which counties' referral mechanisms
need improvement?
6. What portion of homeless funding is expended for direct services tothe homeless? What portion is spent for staff and other indirect service?
How does the cost per case vary between counties?
So that the Legislature can obtain the benefits of such a review, we
recommend that it adopt the following Budget Bill language:"Of the funds appropriated in this item for the Targeted Supplement
Fund, $250,000 shall be available for use as needed to commission an
independent performance review of the homeless program. The scopeof the review shall be designed in consultation with an advisory committee composed of one representative each from the following: the Senate
Budget and Fiscal Review Committee, the Assembly Ways and Means
Committee, the Department of Finance, the Conference of Local Mental Health Directors, and the Legislative Analyst's office. No funds forthis purpose shall be expended prior to consultation with the advisorycommittee regarding the scope of the performance review. The independent performance review shall be completed and submitted to theLegislature by February 15, 1987. The department shall prepare its
response to the review's findings and recommendations within 30 days."
Data on Services Provided to Homeless Needed

We recommend that by April 1, 1986, the department prepare an estimate of what it would cost to (1) amend the Cost Reporting and Data
Collection (CRDC) system in order to gather information on specificservices provided to homeless mentally disabled clients and (2) report thedata through the Client Data System (CDS).

Item 4440

HEALTH AND WELFARE / 837

Section 5656 of the Welfare and Institutions Code directs the department to collect specific data regarding clients and client services. The
code also directs counties to furnish monthly specific data to the department.
In a policy letter sent to local county mental health departments, thedepartment required the counties, in developing proposals for the homeless program, to include "a description of the specific services to be provided through the proposal with the identification for each of the modesof service and service function pursuant to the Cost Reporting and Data
Collection manual."
We do not believe that the modes of service and service functions
reflected in the CRDC system will yield information on the specific services provided to homeless mentally disabled clients.
If the Legislature is to evaluate the impact of the homeless program on
homeless mentally disabled people, the department must gather clientspecific, result-oriented information on services actually provided. Specifically, the data needed to answer the following questions should be collected:
1. Did the client receive welfare assistance from the SSI/SSP or county
general relief programs?
2. Did the client receive money management assistance?
3. Did the client receive medical care from the county or a Medi-Cal
card?
4. Did the client receive meals and/ or food stamps?
5. Did the client receive clothing?
6. Was the client provided temporary shelter and/ or placed in an apartment or other housing?
7. Did the client receive anti-psychotropic medications?
8. Was the client placed in a day program for the mentally disabled?
These questions can be answered by the county worker monitoring the
progress of the client with a simple yes or no. The data can then becompiled on a monthly basis, yielding information on the frequency andtype of services provided as well as on the frequency with which the client
reenters the system. By creating this database, the department would
assist the Legislature in effectively monitoring the delivery of services in
the homeless program.
Accordingly, we recommend that the department estimate the costs ofamending the CRDC system to collect information on modes of service
and service functions that specifically describe the services offered tohomeless mentally disabled clients. We further recommend that the department estimate the cost of (1) entering these data into the CDS or (2)developing an independent system to perform this function if the CDS isunable to accommodate the additional data.
Residential Care Rate Supplement

We recommend that during budget hearings, the department explain to
the Legislature how it intends to fund the rate supplement program in
1986-87, given the rate increase proposed by the Department of Developmental Services (DDS) to take effect on July 1, 1986.
The budget proposes to increase the General Fund appropriation for the residential care rate supplement program from $11,300,000 to$13,944,000, an increase of $2,644,000, or 23 percent.
Background. The Budget Act of 1985 appropriated $11,300,000 for a
new residential care rate supplement program. The program provides

838 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued

rate supplements for private residential care facilities that serve mentallydisabled clients. Chapter 1352, Statutes of 1985 (SB 155), required thedepartment to pay eligible providers rates equivalent to those establishedby the Department of Developmental Services (DDS).
Currently, eligible residential care facilities receive $531 per month perclient from the Supplemental Security Income/State Supplementary Payment (SSII SSP) program. In addition, they receive rate supplements fromcounty mental health departments. The monthly rate supplements varywith the size of the facility and the severity of the client's illness. The
lowest rate supplement is $126 per client per month and the highest is$387. The department's estimates assume that the rate supplement program will provide funding for 5,463 clients in 1986-87.
In 1985-86, the rate supplement program will be in operation for approximately six months, from January 1, 1986, to June 30, 1986. The department estimates that the program will cost $1.2 million per month,including administrative costs. Therefore, the total cost of the program,including administrative cost, will be approximately $7 million in 1985--86,
leaving an unexpended balance of approximately $4.3 million. At the time
this analysis was prepared, the department had no plan for what it intends
to do with these savings.
State law requires that rate supplements for mentally disabled clientsequal the rate supplements provided 011 behalf of developmentally disabled clients. In appropriating funds for the mental health rate supplement program, the Budget Act of 1985 made no allowance for a
cost-of-living increase in the DDS rates for 1985-86. The 1986-87 budget
requests $2,644,000 to offset the effects of this increase.
The budget for 1986-87 again makes no allowance for the fact that DDS
rates will increase. As a result, the department has underbudgeted the
1986-87 rate supplement program by $1,050,000. Table 6 shows the basis
for our estimate, the impact of the proposed DDS 1986-87 rate supplement, the estimated number of beds for each corresponding rate, and theestimated annual cost of the rate increase.
'
Table 6
Impact of Department of Developmental Services Rate Adjustment on
M1!ntal Health Residential Rate Supplements
1986-87

1986-87 Rate 1986-87
Current Rates
Adjustment a Rates$126 ...................................................................... $13$139
148 ......................................................................
14
162
214......................................................................
15229
2m ......................................................................
15222
298.......................................................................
17315
322 ......................................................................
17339
387......................................................................
18405
379 ............................................................ ;.........
18
397
Estimated 1986-87 cost. .............................................. .
Amount proposed in Budget Bill .......................... ..
Amount underbudgeted .................................. ..

Numberof Beds
1,511
1,024
1,212
966
239

a The DDS includes $531 for SSI/SSP when calculating its rate adjustment.
b Includes 9.79 percent for administrative costs.

164
194
153
5,463

Annual Cost b$2,767,000
2,186,000
3,657,000
2,825,000
992,000
732,000
1,035,000
800,000$14,994,000
13,944,000$1,050,000

Item 4440

HEALTH AND WELFARE / 839

Accordingly, we recommend that during budget hearings, the department explain to the Legislature how it intends to fund the rate supplement program in 1986-87.
Funds for Rate Supplements Should be Identifiable

We recommend that the Legislature amend the Budget Bill so as to (1)identify funding for the rate supplement program as a distinct subitem of
the local assistance item and (2) control the transfer of funds between
subitems.
The Legislature in 1985 established several new mental health programs. Several of these programs are categorical in nature. That is, inorder to receive funding, a county is required to develop and provide
certain services for specifically identified target populations. Funding the
program in this manner allows the Legislature to (1) monitor the overall
quality and effectiveness of programs on a statewide basis, (2) ensure thatfunds are spent solely for identified populations and services, and (3) holdthe counties accountable for effective service delivery.
Currently, funding for the rate supplement program is an indistinguishable part of the $498.9 million proposed for local mental healthprograms.
In order to ensure that funding for the rate supplement
program is used only as intended by the Legislature, we recommend that
the Legislature (1) create an additional subitem (10.45) to the scheduleof Item 4440-101-001 in the amount of $13,944,000 for residential care rate
supplements, in order to specifically identify the appropriation for the rate
supplement program and (2) amend the Budget Bill to require that the
department provide the Legislature with a 30-day written notification if
it intends to use the funds in the item for any purpose other than for rate
supplements.
Independent Performance Review Needed

We recommend that the Legislature adopt Budget Bill language directing the department to commission an independent performance review of
the rate supplement program to be completed by February 1~ 1987.
In passing Ch 1352/85 and the 1985 Budget Act, the Legislature madea commitment to enhance the quality of service provided to the mentallydisabled who live in board and care facilities. If the Legislature is toeffectively monitor the rate supplement program, it needs an independent performance review of the program that can help provide answers to
the following questions:
1. Are the criteria used to determine whether a client requires basic,
level I, or level II supplemental services uniformly applied at the county
level? Is the level-of-care assessment instrument developed by the department the appropriate and most effective tool for ensuring uniform client
assessment by the counties?
.
2. To what extent has the rate supplement program increased the quantity of residential care beds available to the mentally disabled?
3. Did the department's methodology correctly project caseload, or will
this program experience significant caseload changes and cost increases!
decreases?
4. What supplemental services are routinely provided to clients? To
what extent do county agreements with facilities specify what additional
services are required?

840 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued

5. Were recipients of supplemental services effectively monitored andassessed by existing case management services?
6. To what extent has the rate supplement program improved the quality of life and the quality of care for mentally disabled persons who require
residential care?
To secure such an independent performance review, we recommendthat the Legislature adopt the following Budget Bill language:"Of the funds appropriated in this item for residential care rate supplements, $250,000 shall be available for use as needed to commission an
independent performance review of the rate supplement program. The
scope of the review shall be designed in consultation with an advisorycommittee composed of one representative each from the following:
the Senate Budget and Fiscal Review Committee, the Assembly Waysand Means Committee, the Department of Finance, the Conference ofLocal Mental Health Directors, and the Legislative Analyst's office. No
funds for this purpose shall be expended prior to consultation with theadvisory committee regarding the scope of the performance. review.
The independent performance review shall be completed and submitted to the Legislature by February 15, 1987. The department shall prepare its response to the review's findings and recommendations within
30 days.".
Other Issues
Augmentation for New Sonoma County Facility Questionable

We recommend that the Legislature (1) delete $200,000 requested fromthe General Fund and (2) transfer $660,000 from local assistance to thestate hospital item, because the department has not justified adequately
its proposal to develop a new regional 24-hour subacute skilled nursing
facility. We further recommend that the Legislature delete $340,000 tocorrect for overbudgeting of staff benefits in the state hospital budget.
(Reduce Item 4440-011-001 by $540,000.)
The budget proposes a one-time General Fund expenditure of$1,200,000 in 1986--87 for development of a regional 24-hour subacuteskilled nursing facility in Sonoma County. The $1,200,000 consists of (1) a$200,000 augmentation and (2) a one-time $1,000,000 redirection of statehospital funds to the local assistance item. The Sonoma facility is to serveas an alternative for those who would otherwise receive acute care services in a local or state hospital.
The department indicates that the total cost of developing the Sonoma
facility is $1,600,000. The additional $400,000 would come from state hospital salary savings in 1985--86.
The department has offered several reasons in support of its proposal.
First, the capacity of acute and subacute 24-hour care beds at the community level is severely strained. The recent closure of a psychiatric facility in the Napa area due to licensing violations caused a diversion of 68
clients to Napa State Hospital. As a result, county mental health departments cannot admit as many clients to Napa as they would like, andwaiting time for admission to Napa has increased. The development of the
facility in Sonoma County could help to relieve the increased admission
waiting time at Napa.
Second, the department indicates that the proposed facility requires ahigh initial start-up cost that private providers of service are unwilling or

Item 4440

HEALTH AND WELFARE / 841

unable to provide. The proposed augmentation would minimize the startup risk and assist in assuring the private provider a return on investment.
Additionally, the department states that Sonoma and Marin Counties do
not have the total resources available to initiate the start-up of this facility.
Our analysis of the proposal and the budget material submitted by thedepartment in support of it has turned up the following problems andirregularities:• State Hospital Treatment Deemphasized. The department plansto generate $660,000 of the $1,200,000 proposed for the Sonoma facility
through forced additional savings in state hospitals. To produce thesesavings, some state hospital treatment positions would be kept vacant.
Thus, $660,000 of the funding for the Sonoma project is to come fromreduced services for state hospital clients.
• Staff Benefits Overbudgeted. The department maintains that
$340,000 of the $1.2 million diverted to the Sonoma project would notaffect services to state hospital clients because staff benefits for 198687 have been overbudgeted. If the department and the Departmentof Finance knew that staff benefits in the state hospitals budget were
overbudgeted before the Governor's Budget was even introduced,
the excess funds should not have been in the budget in the first place.
This is not a redirection but an augmentation that is indistinguishable
from the $200,000 also proposed for 1986-87. In any event, the funds
should not be considered as available for transfer to the local assistance budget.
• Sonoma and Marin Counties are Resource Rich. The department
has proposed to implement the project with General Fund money byincreasing the allocations of two counties, Sonoma and Marin, thatpossess very substantial mental health resources in comparison toother counties. There is no indication that these counties are providing any matching financial assistance to supplement General Fundsupport, or that they require new skilled nursing beds more thanother counties.
• Augmentation Funds Only 35 Beds. The budget submitted by thedepartment provides funding for only 35 of the 79 proposed beds at
the facility. There is no indication where funding for the additional
44 beds will come from. Fresno and/or Alameda Counties have been
mentioned as possible participants. At the time this analysis was prepared, guaranteed partiCipation of other counties had not been established.
• Size of Supplemental Rate Not Documented. The budget material indicates that the funds provided by the department would be
sufficient to supplement the Medi-Cal rate for skilled nursing facility
beds in the amount of $94 per day for 35 beds during a period of 16months. No documentation has been provided to justify a supplemental rate of $94 per day.
• Fifteen Million Dollar Augmentation Available. In the past two
years, augmentations of $35 million and $40 million have been appropriated for local assistance. An additional $15 million augmentation is
proposed for 1986-87. These funds, rather than funds budgeted for thestate hospitals, would appear to be the appropriate source of funding
for the Sonoma project.
• Source of Future Funding Unclear. No definitive information isprovided regarding the source of continued funding for the facility.
For all of these reasons, we recommend that the Legislature (1) delete$200,000 requested from the General Fund and (2) transfer $660,000 from

Item 4440

842 / HEALTH AND WELFARE
DEPARTMENT OF MENTAL HEALTH-Continued

local assistance to the state hospital item. We further recommend that it
delete $340,000 to correct for overbudgeting of staff benefits in the statehospital budget.
Implementation of AIDS Mental Health Project

We recommend that prior to budget hearings, the department provide
the Legislature with a written status report on the AIDS mental healthproject.
Chapter 767, Statutes of 1985 (SB 1251), appropriated $4,360,000 to the
Department of Health Services (DHS) and the University of California todevelop various AIDS-related programs and research projects. Chapter
767, Statutes of 1985, included an appropriation of $600,000 to the Department of Mental Health and recommended that the department establish
an AIDS mental health project. The bill required the department to coordinate projects and resources directly with the DHS and empowered the
Director of the department to appoint advisory groups as needed.
The Director has appointed an AIDS mental health task group to assist
the department. The group also will assist in the development of a work
plan for the project. The project will include, but need not be limited to,the following:• A statewide needs assessment of AIDS-related mental health issues.
• Education and training for mental health professionals throughout
the state.
• A media campaign, through the Office of Promotion, focusing on theuse of support groups, the relationship between stress and the immune system, and dealing with grief.
AIDS is an urgent public health issue. Accordingly, we recommend thatprior to budget hearings, the department provide the Legislature with astatus report of the AIDS mental health project which addresses the following issues:• How will the needs assessment be performed, when will it occur, whowill do it, how much will it cost, and when will the results be available
to the Legislature?
• Which mental health professionals will be trained, when will thetraining occur, what information will be presented, who will do thetraining, and how much will the training cost?
• What media will be used, what messages will be presented, how large
will the audience be, when will the media campaign occur, and how
much will it cost?
Chapter 208, Statutes of 1982 (S8 929), Medical Screening

We recommend deletion of $67,000 from local assistance because theproject for which these funds were appropriated has been completed.
Chapter 208, Statutes of 1982, directed the department to implement a
project to study clients in the state hospitals and in the community inorder to determine if an individual's physical disability caused or exacerbated the individual's mental disability. The department has completed
the project and is currently reviewing the project report prior to submission to the Legislature. All funding and contractual obligations have been
completed and resolved. Accordingly, we recommend deletion of $67,000
from local assistance for reversion to the General Fund.

- - - - - - ..

~.--_._-----------"-HEALTH AND WELFARE / 843

Item 4440

C. STATE HOSPITAL PROGRAMS

The budget proposes state hospital expenditures of $330,119,000 for
mentally disabled clients in 1986-87. This is an increase of $35,039,000, or
12 percent, above estimated current-year expenditures. The budget proposes an appropriation of $290,914,000 from the General Fund for these
programs, which is an increase of $21,653,000, or 8 percent, above estimated current-year expenditures.
Client Characteristics

State hospitals serve three categories of clients: county clients, judiciallycommitted clients, and clients of other institutions.
County clients may voluntarily consent to treatment or may be detained involuntarily for treatment for specified periods of time under theprovisions of the Lanterman-Petris-Short Act (LPS).
Judicially committed clients include persons who are legally categorized as (1) incompetent to stand trial, (2) not guilty of a crime by reason
of insanity, or (3) mentally disordered sex offenders.
Clients of other institutions include mentally disabled clients of the
Department of Corrections and the Youth Authority who are transferred
to state hospitals to receive medication and other treatment.
Table 7
State Hospitals
Programs for the Mentallv DisabledExpenditures, Funding Sources, Population,
Positions, and Cost Per Client
1984-85 through 1986-87

A. Expenditures and funding sources(dollars in thousands)
County clients ....................................
Judicially committed clients ............
Other clients a ....................................
Totals ............................................
Funding sources:
General Fund ..................................
Reimbursements ............................
SAFCO ..............................................
B. Average population
County clients ....................................
Judicially committed clients ............
Other clients a ••••••••••.•••••••••.•••.•••••••••••
Totals ............................................
C. Authorized positions
Department of Mental Health ......
Department of Developmental
Services ........................................
Totals ............................................
D. Cost per clientCounty clients ....................................
Judicially committed clients ..........
Other clients a ....................................
Totals ............................................

Actual1984-85Est.
1985-86Prop.
1986-87

ChangeAmount Percent$150,345
90,02918,768$259,142$168,935
101,890
24,255$295,080$179,467
125,666
24,986$330,119$10,532
23,776731$35,039

6.2%
23.3
3.0
11.9%

$242,030
17,112$269,261
25,104715$290,914
35,2993,906$21,653
10,195
3,191

8.0%
40.6
446.3

2,643
1,781
356
4,780

2,630
1,621
476
4,727

2,543
1,662
526
4,731

-87
41
50
4

-3.3%
2.5
10.5
0.1%

3,744

4,471

7,246

2,775

62.1%

2,881
6,625

3,206
7,677

962
8,208

-2,244
531

-70.0
6.9%

$56,884
50,55052,719$54,214$64,234
62,85650,956$62,424$70,573
75,61147,502$69,778$6,33912,775
3,454$7,354

9.9%
20.3
6.8
11.8%

a Includes clients from the Department of Corrections, the California Youth Authority, and county alcoholand drug programs.

844 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued

Table 7 shows expenditures by client category, funding sources, average
population by client category, authorized positions, and cost per client,from 1984-85 through 1986-87, for state hospital programs for the mentallydisabled.
Budget Changes
Table 8
State Hospitals
Programs for the Mentally Disabled
Proposed 1986-87 Budget Changes(dollars in thousands)

1985-86 expenditures (Budget Act) ..................................................................... .
Adjustments:
1. 1985-86 salary and benefit increases ........................................................ ..
2. Elimination of limited-term position ...................................................... ..
3. Adjustment to salary schedule ................................................................... .
4. Transfer to conditional release program ................................................ ..
5. Increase CDC reimbursement for 100 beds .......................................... ..
6. Drug program reimbursement adjustment ............................................ ..
7. Fair Labor Standards Act (FLSA) expenditures for overtime ........ ..
8. Other reimbursement adjustments .......................................................... ..
1985-86 expenditures (revised) ............................................................................ ..
Baseline Adjustments:
1. Full-year cost of 1985-86 salary and benefit increases ........................ ..
2. Reduce one-time costs ................................................................................. .
3. Reduce collective bargaining costs .......................................................... ..
4. DDS reductions:a. Population-related staffing adjustments ............................................ ..
b. Introduction of labor-saving food service equipment (cook chill)c. Reduction of FLSA expenditures ........................................................ ..
5 Full-year costs for PST II ............................................................................ ..
6. Adjustment to salary schedule ................................................................... .
7. Reimbursement adjustment ...................................................................... ..
8. Transfer to local assistance for Sonoma County facility ..................... .
9. Elimination of CDC reimbursement for 100 beds ............................... .
Caseload and cost adjustments:
1. Hospital population changes ...................................................................... ..
2. Partial price increase on operating expenses ........................................ ..
Program change proposals:
1. Drug program reimbursement adjustment ............................................ ..
2. Mentally disordered offenders program ................................................. .
3. 1986-87 treatment staffing augmentation .............................................. ..
4. Special repairs augmentation ..................................................................... .
5. Equipment augmentation ........................................................................... .
6. Metropolitan janitorial contract ..................................................................
7. Metropolitan laundry contract .................................................................. ..
8. Transfer of Napa from DDS to DMH ..................................................... .

GeneralFund$256,066

All
Funds$277,065

13,341
-23
-626
-300

14,233
-23
-626
-300
4,300
-329
803
-43

B03

$269,261$295,OBO

13,272-138

14,092-44-143-1,184
-305
-803
593
-348

-1,184
-305
-B03
593
-348

-1,000718-1,000-4,300-2,595
987

1,204
987

-44

10,392
2,898-49-1,193
10,392
2,898
1,650
1,541
-49

-11

-11

10,3441986-87 expenditures (proposed) ........................................................................ ..

-12$290,914

Change from 1985-86 (revised):
Amount .................................................................................................................. ..
Percent ................................................................................................................... .

$21,653
8.0%$330,119$35,03911.9%

Item 4440

HEALTH AND WELFARE / 845

Table 8 shows the 1985-86 and 1986-87 changes in the department's
budget for programs at state hospitals serving the mentally disabled. The
major 1985-86 changes are (1) $14.2 million to cover employee compensation increases and (2) $4.3 million in increased reimbursements from the
California Department of Corrections (CDC) which will be used to fund
100 beds not funded in the 1985 Budget Act.
The budget for 1986-87 proposes a net increase of approximately $22
million from estimated General Fund expenditures in the current year.
The major 1986-87 changes include (1) $10.4 million for a new mentallydisordered offender program, (2) $10.3 million to reflect the proposedtransfer of Napa State Hospital from the Department of Developmental
Services (DDS) to the department, and (3) $2.2 million for treatment
staffing augmentations for the model treatment programs.
Cost Per Client

Table 9 displays the cost per client for treatment staff, support staff, andoperating expenses at each hospital. Variations in treatment staff cost perclient are attributable primarily to the client mix at each hospital. Hospitals with more acute clients and children and adolescent programs receive
larger staff allocations. Variations in treatment staff cost in the current
year range from a low of $31,193 per client at Metropolitan to.a high of$40,230 at Camarillo (where there is a high percentage of children andadolescents in the caseload).
Support staff costs per client in the current year vary from a low of$15,963 per client at Atascadero to a high of $24,385 at Metropolitan. The
costs vary for many reasons, including the number of support positions
allocated to hospitals in past years, the kinds of employee classifications
used at each hospital, and the percentage of the workforce at the maximum step in each classification.
Operating expenses in the current year vary from a low $6,835 per clientat Patton to a high of $8,840 at Camarillo. Operating expenses vary withthe size and efficiency of the physical plant and the number of services
that each hospital contracts out for with private providers. Large, older
hospitals with inefficient equipment have high operating expenses perclient.
The major changes in treatment, support, and operating expense costs
between one fiscal year and another primarily reflect the following factors:
1. Employee compensation increases have been budgeted for both thecurrent year and budget year. Previously, these increases were only budgeted as a baseline adjustment to the current year. Employee compensation
costs for 1986-1987, however, are already known and have been includedin the cost-per-client figures shown in Table 9.
2. Augmentations to treatment staffing were not distributed uniformly.
Thus, for each phase of the treatment staffing augmentation, one hospital
may have received most of the new positions, while another hospitalreceived none or very few new staff. Also, because the treatment staffing
augmentations were budgeted on a partial-year basis, the increases fromone year to the next reflect the impact of "annualizing" the prior year
increase.

846 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued

3. Some hospitals have negotiated contracts with private providers forservices originally performed by state employees. Accordingly, support
costs at these hospitals may decline while their operating expense costs
increase to reflect the cost of the private provider contract.
Table 9State Hospital Cost Per Client
Programs for the Mentally Disabled
1984-85 through 1986-87

Atascadero
1984-85 ........................................
1981H!6 ........................................
1986-87 ........................................
Camarillo"
1984-85 ........................................
1981H!6 ........................................
1986-87 ........................................
Metropolitan
1984-85 ........................................
1981H!6 ........................................
1986-87 ........................................
Napa"
1984-85 ........................................
1981H!6 ........................................
1986-87 ........................................
Patton1984-85 ........................................
1981H!6 ........................................
1986-87 ........................................

Treatment Percent Support Percent Operating Percent
Staff Change
Staff Change Expenses Change

TotalsPercent
Change$26,21138,89640,983

48.4%
5.4%$17,132
15,96318,805

-6.8%
17.8%

$7,087
7,142
8,618

0.8%
20.7%

$50,430
62,001
68,406

22.9%
10.3%

$31,362
40,23042,13328.3%
4.7%$20,298
19,726
20,834-2.8%
5.6%$9,9558,840
10,501-11.2%
18.8%$61,615
68,796
73,46811.7%
6.8%$28,067
31,19337,271

11.1%
19.5%

$23,584
24,38526,074

3.4%
6.9%$7,631
7,646
9,513

0.2%
24.4%

$59,282
63,22472,8586.6%
15.2%$30,588
38,39039,996

25.5%
4.2%$16,789
18,14920,8908.1%
15.1%$8,3147,454
7,243-10.3%-2.8%$55,691
63,993
68,12914.9%
6.5%$24,653
33,55435,09536.1%
4.6%$16,282
16,983
16,8864.3%-0.6%$6,855
6,835
8,134

-0.3%
19.0%

$47,790
57,37260,11520.1%
4.8%

a Costs represent average costs of combined mental health and developmentally disabled programs.

Mentally Disordered Offender Program

The budget for 1986-87 requests $19,047,000 to fund the first-year costof the mentally disordered offender (MDO) program. The $19,047,000 iscomposed of $10,392,000 in the state hospital item for inpatient services
and $8,655,000 in the department support item for administration andoutpatient services.
The MDO program, which was established by Ch 1419/85 (SB 1296)
provides a new mechanism for extending the commitment of mentall}'disordered prison inmates who are eligible for parole. The program will
become operational on July 1, 1986. Our analysis of the budget proposal
for the MDO program will describe the commitment criteria and procedures used by the program, and address several broad public policy issues
that the program raises.
Background

Commitment Criteria. In order to be subject to the commitment
procedures established by Chapter 1419, a prisoner eligible for parole
must meet all of the following criteria:• The prisoner must have a severe mental disorder.
• The mental disorder either is not in remission or cannot be kept inremission.

Item 4440

HEALTH AND WELFARE / 847• The disorder was one of the causes or an aggravating factor in thecrime for which the prisoner was convicted.
• The prisoner has received 90 days or more of treatment for the severe
mental disorder.
• The crime involved the use of force or violence or caused severe
bodily injury.
Commitment Procedures. The following procedures explain how aprisoner can be committed to the mental health system as a condition ofparole.
• Evaluation. In order to be placed into the MDO program, mental
health professionals from the Departments of Mental Health and Corrections (CDC) must evaluate and assess the prisoner to jointly determine if the prisoner satisfies the commitment criteria. If thedepartments do not agree that the prisoner meets the criteria, two
additional evaluators are selected· from an independent panel toevaluate the prisoner.
• Commitment by the Board of Prison Terms (BPT). Once it is determined that the prisoner satisfies the commitment criteria, the BPT
may commit the prisoner to the Department of Mental Health.
• Treatment-Inpatient and Outpatient.
Each prisoner I parolee(the prisoner is now a parolee) who is committed to the MDO program will automatically be placed on inpatient status for treatment
and evaluation during a gO-day period. At the end of the period, thedepartment must commit the parolee to inpatient status unless thedepartment can certify to the BPT that the parolee can be safely andeffectively treated on an outpatient basis.
• Outpatient Revocation. If a parolee has been placed in an outpatient treatment program and the outpatient program director determines that the parolee can no longer be safely and effectively treatedon an outpatient basis, the director may place the parolee in a secure
mental health facility. This revocation of outpatient status will continue until the parolee may again be safely treated on an outpatient basis.
• Parole Revocation. The parole officer may remand a parolee to astate correctional facility. The parole officer must consult with thedirector of the parolee's outpatient program before seeking a returnto prison.
• Administrative Hearings. The law provides for administrative
hearings under the following circumstances:• The prisoner may request, and has the right to receive, a hearing
before the BPT in order to determine if the criteria established at
the time of the initial commitment to the MDO program have, infact, been met. The burden of proof is on the department, the CDC,
or the independent evaluators to certify that the prisoner meets the
speCified commitment criteria.
• The parolee may request another administrative hearing if thedepartment has not placed the parolee on outpatient treatment
within 60 days after receiving custody of the parolee. The burdenof proof is on the department to establish that the parolee requires
inpatient treatment.
• A third administrative hearing is held by the department if a parolee's outpatient status is revoked. The department must conduct
a hearing within 15 days after revocation of outpatient status todetermine whether the parolee can be safely and effectively treated in the program.

848 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued• Judicial Hearings. The law provides for judicial hearings under
the following circumstances:• If the parolee disagrees with the findings from the administrative
hearing held to determine whether the parolee meets the commitment criteria, the parolee has the right to petition for a superior
court hearing on the same issues. A jury trial may be requested withthe standard of proof being "beyond a reasonable doubt;" the jury's
decision must be unanimous.
• Within 180 days prior to the termination of parole, a district attorney may file a petition with the superior court to request continued
involuntary treatment for one additional year. Again, a jury trial
may be requested with the standard of proof for continued involuntary treatment being "beyond a reasonable doubt." The jury's decision to continue the treatment must be unanimous. Additionally,
the parolee may file a petition for a writ of habeas corpus at any
time during this commitment.
Uncertainties and Assumptions Necessitate Careful Legislative Review
and Cautious Implementation
We withhold recommendation on $19,04~OOO requested from the General Fund to provide for the start-up and implementation of the mentallydisordered offender program, pending resolution of issues involving pro-gram needs and cost estimates.
We recommend that by April 15, 1986, the department submit to theLegislature a report detailing the broad policy ramifications that implementation of the mentally disordered offender program will have on
the state mental health system and other state and county programs.
The budget for 1986-87 requests a $19,047,000 augmentation to fund thefirst-year costs of the MDO program. Because this is a new program withno track record, the department derived population projections based
upon its "best estimates" for:
• The number of potential parolees that could be committed to the
MDO program.
• The number of parolees that would receive inpatient treatment.
• The number of parolees placed on outpatient treatment status who
would have their outpatient status revoked.
• The length of time that a parolee would require inpatient and outpatient treatment.
These projections are shown in Table 10. The department then developed a program budget and staffing request, based on the population
projections.
Table 10Department of Mental Health
Mentally Disordered Offender Program
Ten Year Population Projections

Year
Inpatient population ..
Outpatient population
Totals ..........................

1
'lB7
206
493

2
488
498
986

Source: Department of Mental Health

3
656
833
1,489

4

5

823
1,149
1,972

908
1,133
2,041

6
983
1,422
2,405

7
1,055
1,481
2,536

8
1,126
1,481
2,607

9
1,133
1,599
2,732

10
1,139
1,658
2,797

Item 4440

HEALTH AND WELFARE / 849

Bed Transfers Are Only Temporary Solutions and May Create Potentially Dangerous Security Problems. As Table 10 shows, the department
estimates that the first-year inpatient caseload for the MDO program willbe 287 parolees. The department has decided that inpatient treatment willtake place at Atascadero State Hospital, the most secure of all the statehospitals. To make room at Atascadero for the MDO program, the department proposes a series of population transfers and diversions from Atascadero to Patton State Hospital and Metropolitan State Hospital. The firsttransfer, from Atascadero to Patton, involves a total of 200-300 persons
found not guilty by reason of insanity or incompetent to stand trial, andLanterman-Petris-Short (LPS) patients. The second transfer, from Patton
to Metropolitan, will move almost 100 LPS patients.
.
It is not clear what impact the proposed transfer would have on Patton
State Hospital. Given that Atascadero is the most secure state hospital andgenerally houses patients that are among the most difficult to handle, theLegislature must determine if the physical plant and the existing staff at
Patton are sufficient to cope with a more-difficult-to-handle patient population. Similarly, the Legislature will want to consider what kind of influence these difficult patients will have on the hospital's existing population.
The same questions can be raised regarding the transfer of LPS patientsfrom Patton to Metropolitan. Again, the bed transfer involves taking difficult patients from, in this case, a secure hospital with 14-foot fences and
CDC security staff patrolling the perimeter, and placing them in a lesssecure environment. What are the staffing and security implications of the
proposed transfer for Metropolitan? Is the physical plant and existing staff
sufficient to deal with the new patients? What kind of influence will thesepatients have on the existing hospital population?
The department should provide the Legislature with information addressing these issues within the context of an overall plan for the MDO
program.
Implementation of the MDO Program Will Aggravate Capacity Problems of the State Hospitals. The current patient population in thestate hospitals already equals the current bed capacity of the hospitals. -.
Moreover, the department indicates that the current LPS population exceeds, by almost 150, the self-imposed limit on these patients (2,543). The
department also indicates that projections of county overuse of their allocated bed-days is much higher than in previous years. Additionally, thedepartment has agreed to increase by 100 the number of beds provided
to the CDC in the current year, bringing the total number of corrections
beds at Atascadero to approximately 457.
If the assumptions regarding caseload for the MDO program are correct, the department will need 488 beds for the program in the second
year. By the third year, the number of beds needed will exceed 650. Even
if all of the proposed bed transfers occur and if there is no growth in the
LPS, CDC, or other patient populations, the population of Atascadero will
be at least 150 beds more than the hospital s licensed capacity.
The department has basically two options for alleviating the bed shortage so that it can serve the MDO population without expanding the statehospitals' bed capacity. It could (1) reduce the number of corrections.
beds, or (2) place a cap on LPS admissions. Both alternatives have significant policy ramifications.

Item 4440

850 / HEALTH AND WELFARE
DEPARTMENT OF MENTAL HEALTH-Continued

Option 1: Reduce the number of CDC-contracted beds. This option would ease the problem for the mental health system but add to thealready serious problem faced by CDC. Thus, it would merely transfer, notsolve the capacity problem.
Option 2: Limit the number of LPS admissions to the state hospitals.
Under this option the counties would be required to strictly adhere to
their allotted number of hospital days. Enforcing this policy, however,would be extremely difficult, especially in instances where there are noavailable beds in the community.
.
Although these two options could reduce the pressure on state hospital
bed usage, it is clear that the construction of several hundred new beds
will be necessary if the MDO inpatient population projected in Table 10
materializes. The shortage of beds could be acute as early as the third yearof the program.
Should the State Construct a New Facility or Add on to an Existing State
Hospital? To meet the long-term need for new beds, the department
could build an additional 500 beds at Atascadero. The department estimates that these beds would cost upwards of $50 million. Otherwise, thedepartment either will have to build a new free-standing facility or assume
control of a facility now occupied by other patients.
Before the Legislature makes a final decision either to build an addition
to an existing facility or to build an entirely new facility, it needs toconsider the following issues:• Do the short-term capital outlay savings achieved by adding on to an
existing facility offset the higher operating costs relative to a new
facility?
• Where could a new facility be located, and how long would it bebefore the new facility could be occupied?
Atascadero State "Prison"? If 500 new beds for the MDO program
are built at Atascadero and there is no reduction in the number of CDC
beds, the population at Atascadero, for all intents and purposes, would becomposed of the most difficult-to-handle, mentally disabled criminal offenders. Should the department be administering a hospital that is, inreality, a correctional facility, or should jurisdiction of the hospital betransferred to the CDC?
The Conditional Release· Program: A New "State" Operation? An
integral component of the MDO program is outpatient treatment. Chapter 1419 calls for outpatient treatment to be administered and provided
by the conditional release program; It is uncertain, however, whether the
department will be able to negotiate conditional release contracts with thecounties in order to provide outpatient services to the MDO population.
In fact, based on our discussions with the department, we believe it ispossible that several counties may choose to discontinue existing conditional release program contracts with the state because of the MDO program. If this occurs, the state will have to provide outpatient services usingstate employees or through contracts with private providers. As Table 10
indicates, the outpatient population for the MDO program is projected toalmost double after the first year of operation.
Analyst's Comments and Questions. Implementation of the MDO
program certainly will have a profound impact not only on the department, but also on several counties and other state departments. Consequently, we believe the Legislature should be fully apprised of the broad------------------~-

Item 4440

HEALTH AND WELFARE / 851

policy ramifications that implementation of the MDO program will have.
Specifically, the Legislature needs to know:• What are the security implications that result from the transfer ofpatients from one state hospital to another? Are both Patton andMetropolitan State Hospitals sufficiently secure and sufficiently
staffed to serve more-difficult-to-handle patients?
• How does the department propose to operate the MDO program andother hospital programs three years from now, given that the existing
bed capacity of the state hospitals is already severely strained andproposed remodeling prospects are behind schedule?
• What is the' likelihood that bed utilization by the counties and the
CDC will decrease in order to free-up bed space for new admissions
to the MDO program? What are the implications for mentally disordered prison inmates if the department reduces the CDC's bed utilization? What are the implications for the counties if they are required
to stay within their allocation of state hospital days? Are there otheralternatives to substantially reduce the state hospital population thatshould be explored in order to accommodate the MDO program?
• Should a new state hospital facility be built or should new beds be
added to an existing facility? How much would each alternative costover a lO-year period? What are the long-term benefits of building anentirely new facility versus adding on to an existing one?
• Should jurisdiction of Atascadero be transferred from the Department of Mental Health to the California Department of Corrections?
Should Atascadero's bed composition be predominantly penal code
clients and mentally' disordered offenders? Should a new facility bebuilt solely for mentally disordered corrections inmates?
• What does the department propose to do if it can no longer negotiate
contracts for the conditional release program with the counties?
Accordingly, we recommend that during budget heatings, the department present to the Legislature a report detailing the broad policy ramifications that implementation of the mentally disordered offender program
will have for the state mental health system, other state departments, andcounty programs. Until information addressing these issues is available, wehave no basis upon which to advise the Legislature as to what the "correct" caseload or dollar numbers are for the MDO program in 1986-87.
Hospital Population Adjustments

We recommend that the Legislature approve the proposed reduction of
214 state hospital positions due to population adjustments. We withholdrecommendation on the remaining population-related staffing adjustments until the Legislature has had the opportunity to review what impact
implementation of the mentally disordered offender program will have on
the state hospitals.
The budget proposes a net reduction of 76 state hospital positions. The
budget also requests $1,204,000 from the General Fund to fund populationrelated staffing adjustments.
The budget material proposes three different adjustments to staffing
levels for the state hospitals. First, the department proposes a reductionof $3,385,000 and 214 positions to reflect a decline in the number of judicially committed clients. The department expects the number of theseclients to go down during 1986-87 due to a projected decline in the number of admissions for not guilty by reason of insanity and incompetent tostand trial clients. By June 30, 1987, the number of judicially committed

852 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued

clients is expected to be 173 below the current-year level.
Second, the budget proposes to increase the number of staff by 122, ata cost to the General Fund of $3,799,000, to reflect an increase in thenumber of California Department of Corrections (CDC) inmates served
at Atascadero State Hospital. These inmates will increase by 100.
Third, the department proposes an increase of $790,000 and 16 positions
to reflect the 1986-87 phase of the planned scheduled treatment (PST).
Our analysis of the budget material submitted by the department indicates that the penal code population is likely to decline by 173 judiciallycommitted clients. Accordingly, we recommend approval of the proposed
General Fund reduction of $3,385,000 and 214 state hospital positions. We
are reluctant to recommend approval for the remaining two adjustments,
however, until the Legislature has had the opportunity to review what
impact implementation of the mentally disordered offender program will
have on the state hospitals. Therefore, we withhold recommendation on
the remaining population-related staffing adjustments for the state hospitals, pending legislative review of the proposal for the MDO program.
Other State Hospital Issues
State Hospital Staffing Initiative Under Review

We withhold recommendation on $2~38,OOO requested for 264 proposed
new positions, pending further review of the proposal.
The budget proposes to add 264 new state hospital treatment positions,at a partial year cost of $2,238,000 in 1986-87. These additional positions
constitute the third phase of the GovernoT's three-phase program toaugment level-of-care staffing for state hospital programs serving thementally disabled. The full-year cost of the phase three augmentations is$7,357,000. The department estimates that the full-year cost of all threephases is approximately $18 million per year.
The three-year staffing augmentations are associated with treatment
program changes, hospital license category revisions, and major captial
outlay proposals. The department states that the improvements will assist
all five hospitals that serve the mentally disabled (Metropolitian, Napa,
Camarillo, Atascadero, and Patton) to obtain accreditation by the Joint
Commission on Accreditation of Hospitals (JCAH). These improvements
will also assist Metropolitan, Napa, and Camarillo State Hospitals to
become certified for Medi-Cal and Medicare payments.
Our review of the first two fhases of the treatment staffing augmentations indicates that substantia changes have taken place at the hospitalward level. Major treatment program improvements include:• The creation of two new ward classifications (subacute-intermediatecare and special treatment program-skilled nursing), recategorization of existing wards, and a shift of patients to different wards whereappropriate.
• Revisions in the· licensure of beds and requests for certification inorder to qualify for Medi-Cal and Medicare funding.
• Revised staffing standards to provide more scheduled treatment activities and more scheduled treatment hours for patients.
• Progress in developing an automated monitoring system to collectdata on treatment activities provided to clients.
.
• Creation of an evaluation team to monitor the quality of treatment
provided.

Item 4440

HEALTH AND WELFARE / 853

The third phase of the staffing proposal follows the same approach as thefirst two phases. The hospital programs submit a written description of thekind of treatment activities that they propose to offer to their clients. To
date, 21 proposals have been submitted for 1986-87-most of them comingfrom Metropolitan State Hospital. Because the hospitals have submitted alarge volume of written materials for our review, we will need additionaltime to thoroughly review the justification for the proposed increases.
Therefore, we withhold recommendation on the increases at this time.
When we have completed our review, we will submit a supplemental
analysis to the Legislature for its consideration.
_.. J. L.. • I§> - P "ce-. .J.hdireWi rU'DiItI~U'Y1 TV 1~
Equipment Request Needs More Work WI. ~tftf COD - CtMtwr
tle.er'$ h ~ .

wies

We recommend that the Legislature (1) rtJduce the amount budgeted
for state hospital equipment by $44lJOO to correct for overbudgeting (reduce Item 4440-011-001 by $44,000) and (2) approve $835,000 requested forward furniture for the state hospitals. We withhold recommendation on
the balance of the remaining proposed augmentation for equipment forthe state hospitals ($706,000), pending the receipt of clarifying information.
The budget proposes a $1,541,000 augmentation from the Special Account for Capital Outlay (SAFCO) for the purchase of equipment for thestate hospitals. This amounts to a 254 percent increase from "baseline"
funding for equipment ($607,000).
The department's equipment request has three components: (1) baseline funding ($607,000) from the General Fund, (2) $835,000 from SAFCO
for the purchase of ward furniture, and (3) $706,000 from SAFCO funds
for purchase of items directly related to the department's goal of achieving accreditation for the state hospitals.
Component 1. Our analysis of the department's base budget for thestate hospital equipment reveals that this item is overbudgeted by $44,000.
The department did not adjust the base for the one-time purchase of a bus
for Patton State Hospital.
Component 2. Our analysis of the request for $835,000 to purchaseward furniture for the state hospitals indicates that this request has merit.
Both the number of items needed and the estimated costs have been
sufficiently documented to warrant approval of this proposal.
Component 3. The department states that much of the existing hospital equipment is inefficient and obsolete. It maintains that current funding levels allow for the replacement of the equipment inventory once
every 18 years, while most hospital equipment has a life expectancy of 5
to 15 years. Accordingly, the department believes that baseline fundingfor equipment replacement is not adequate.
Our analysis of the $706,000 requested to augment the equipment
budget line item has identified several problems. Specifically, we find that:• DMH Estimates of Replacement Costs Are Not Consistent From One
Hospital to Another. For example, Atascadero State Hospital requested one "wet I dry vacuum" at an estimated cost of $18,150. Metropolitan State Hospital requested five of the same vacuums for a total
cost of $2,500. Furthermore, Metropolitan requests one "l-V standard," at a cost of $75, while Patton State Hospital requests four of thesame item at a total cost of $759-a difference of roughly $115 peritem. A "hospital, X-ray film processor" at Metropolitan is estimatedto cost $25,000, while at Patton the same item is estimated to cost
$6,000.

854 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued• DMH Estimates of Replacement Costs Are Not Consistent With DDS
Estimates. For example, Atascadero requests eight food service
transport cabinets at an estimated total cost of $18,000, or $2,250 per
cabinet. The same item is quoted at $500 each (1984 dollars) in the"State Hospital Equipment Standards" published by the Hospital Operations Division, Department of Developmental Services (DDS).
Similarly, Patton requests 20 bed scales at $398 each for a total cost of$7,950. The same item in the DDS State Hospital Equipment Standards is $3,500 per scale in 1984 dollars .
• DMH Budget Material Presents Conflicting Estimates of Costs andNumbers of Items Needed. The department's budget material
cites different costs for the same item. For example, an inventory for
Patton shows that one ice maker for the main kitchen is needed, at
an estimated total cost of $10,565. Elsewhere, the budget materialshows that two of these items are needed for an estimated total costof $3,392.
These are just a few of the many irregularities in the department's
equipment proposal for 1986-87. In response, the department maintainedthat the differences can be attributed to the fact that the hospitals secure
equipment prices from different vendors in different areas. It also statedthat the necessary specifications required for each item differ from hospital to hospital. Finally, the department contended that the "State Hospital
Equipment Standards" published by the Hospital Operations Division,
DDS, is wrong and should not be used as a reliable source of information.
Without better justification of the amount requested, however, we haveno basis for recommending approval of this amount.
In summary, we recommend that the Legislature (1) delete $44,000
requested from the General Fund to correct for overbudgeting in the basebudget and (2) approve $835,000 requested for the purchase of ward
furniture for the state hospitals because the department has clearly documented the need for this purchase.
We withhold recommendation on the remaining $706,000 requested
from the SAFCO, pending receipt from the department of information
rectifying the inconsistencies in the request.
At the time this analysis was prepared, the department had not completed a report on the state hospital equipment inventory required by the
Supplemental Report of the 1985 Budget Act. This report was supposed
to have been submitted with the department's 1986-87 budget.
Special Repairs Request Incomplete

We withhold recommendation on the $1,650,000 augmentation requested from the Special Account for Capital Outlay for special repairs, pending receipt of a five-year plan specifying the state hospitals' long-range
needs for special repairs projects.
The budget proposes a total of $2,365,000 for special repairs in 1986-87.
This is a $1,650,000, or 231 percent, increase above the $715,000 authorizedfor 1985-86. Special repairs are those projects which maintain the usabilityof the facility at its designed level of service. In contrast, capital outlay
projects include new construction, alterations, and extension or betterment of existing structures.
The department states that many infrastructure systems, such as roads,
roofs, plumbing and sewage, electrical, and exterior and interior paint, areItem 4440

HEALTH AND WELFARE / 855

failing or need major repairs. In the past, funding for these projects has
not been sufficient to meet special repair needs. This, according to thedepartment, has caused hospitals to redirect funds from other areas inorder to make the repairs needed to operate the facilities.
The budget material submitted by the department indicates that the
1986-87 request is the first phase of a five-year, $8.3 million plan to fundspecial repairs projects. The department plans to request $2,365,000 in
1986-87 and 1987-88 and $1,801,000 annually in 1988-89 and 1989-90, in
additibn to $715,000 in the current year. This would allow completion of
the special repairs needed to achieve accreditation of the state hospitals
by the Joint Commission on Accreditation of Hospitals (JCAH).
Our analysis indicates that funding for. special repairs in past years has
been insufficient and that many special repairs projects are long overdue.
Before the Legislature can make an informed decision regarding the proposal, however, the department should submit a comprehensive special
repairs plan for the hospitals. The plan should:
1. Set forth the department's priorities for addressing all major special
repair needs on a statewide basis so that the projects funded will be theprojects actually undertaken.
2. Propose a specific schedule, with cost estimates, for ongoing preventive maintenance so that more costly problems can be avoided in the
future.
3. Discuss the feasibility of, and estimates for, a contingency fund for
emergency repairs, in order to prevent the unwarranted substitution ofprojects not on the list.
4. Propose a reporting mechanism that indicates which projects havebeen completed, whether they were completed on time, and whether the
projects were within budgeted amounts.
We withhold recommendation on the proposed $1,650,000 augmentation, pending receipt from the department of a comprehensive special
repairs plan.
Construction Management Firm Contract Needed

We recommend approval.
The budget requests $500,000 from the Special Account for Capital
Outlay (SAFCO) for the purpose of contracting with a construction management firm.
The department is in the midst of a major remodeling program at thefive state hospitals housing mentally disabled patients. The department
states that it needs to contract with a construction management firm to(1) ensure that the private construction firms stay within project timeframes and (2) provide additional technical assistance. The department
indicates that the DDS had a similar contract during the remodelingprogram for developmentally disabled clients' living areas.
Our review of the proposal indicates that the concept of a contract witha construction management firm has merit. The department does nothave a facilities planning unit, and it will need the technical assistance of
it firm that has experience in the management of large construction
projects. Therefore, we recommend approval of the amount as budgeted.
Accreditation Contract Needs Updated Estimates

We withhold recommendation on the $341,000 requested for contractingwith the Joint Commission on Accreditation of Hospitals (]CAH), pending receipt of updated and detailed cost estimates that accurately reElectthe levels of expenditures for consultation and survey costs.
28-80960

856 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-Continued

The budget requests $341,000 from the General Fund to finance a contract with the JeAH. This contract would assist the department in achieving accreditation of all state hospitals during 1987. Accreditation of all statehospitals could generate up to $30 million annually in increased Medi-Cal
and Medicare reimbursements.
The department indicates that the budget material provided to us forreview was prepared before a contract with the JCAH was finalized.
Therefore, the cost estimates included in the budget material do notaccurately reflect the actual cost of the contract. Additionally, the costestimates for this proposal were presented in a very general form. Until
we receive updated and detailed cost estimates that accurately reflect thelevels of expenditures for consultation and survey, we withhold recommendation on this request.
Composition of Evaluation Team Needs Modification

We recommend that the department (1) revise the composition of thestate hospital evaluation team to conform with requirements set forth in
the Supplemental Report of the 1985 Budget Act and (2) provide theLegislature with revised cost eshmates for the evaluation of all five statehospitals.
The budget for 1986-87 requests $64,000 to fund travel and contract
expenses for 12 evaluators and 3 observers who will evaluate services forthe mentally disabled at three state hospitals.
The Supplemental Report of the 1985 Budget Act required the department to complete a protocol for the impartial evaluation of the quality ofplanned scheduled treatment activities offered by the state hospitals. The
supplemental report requires that (1) a team of not less than five evaluators spend at least four working days at each hospital to conduct theevaluation and (2) a majority of the team be composed of independent
evaluators who are not employed by a state hospital or the department.
The department's proposal indicates that the evaluation team will becomposed of 15 individuals: 8 departmental staff, 3 state hospital advisoryboard observers, and 4 independent contract evaluators. The proposal
provides cost estimates for conducting the evaluation at three state hospitals: Atascadero, Camarillo, and Napa.
..
Our review indicates that the department's proposal does not conformwith the requirements set forth in the supplemental report. A majority ofthe evaluation team members are not independent evaluators. Additionally, the department's proposal does not provide an estimate for the cost ofevaluating Metropolitan and PattonState Hospitals. We recommend thatthe department revise the composition of the evaluation team to conformwith requirements specified in the supplemental report and provide theLegislature with cost estimates forthe evaluation project at Metropolitan
and Patton State Hospitals.

Item 4440

HEALTH AND WELFARE / 857

DEPARTMENT OF MENTAL HEALTH-CAPITAL OUTLAY

Item 4440-301 from the Special
Account for Capital Outlay,
General Fund

Budget p. HW 115

Requested 1986-87 ......................................................................... . $20,273,000
Recommended approval ............................................................... .
642,000
Recommended reduction ............................................................. .
285,000
Recommendation pending ........................................................... . 19,346,000
SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. Report. Recommend that the department submit a report to the Legislature detailing the goals, objectives, timelines and cost of its capital outlay program and its plan foraccommodating the Mentally Disordered Offender (MDO)
population.
2. Withhold recommendation on five projects under Item
4440-301-036(2), (5), (6), (7) and (9) (Table 1, page 858),
totaling $18,404,000 for working drawings and construction,
pending receipt or review of preliminary plans and costestimates.
3. Withhold recommendation on three projects under Item
4440-301-036(4), (8) and (10) (Table 1, page 858), totaling$942,000 for preliminary plans, pending receipt of cost estimates and other information.
4. Emergency Electrical Power. Reduce Item 4440-301-036(3)by $214,000. Recommend reduction to correct for overbudgeting.
5. Minor Projects. Reduce Item 4440-301-036(1) by $71,000.
Recommend reduction to eliminate funding for (a) one
project which is not adequately justified and (b) one project
which should be funded from the department's support
budget.

Analysis
page

858

862

863

863
864

ANALYSIS AND RECOMMENDATIONS
Overview of Budget Request

The budget proposes $20,273,000 for the Department of Mental Health's(DMH) capital outlay program in 1986-87. We are withholding recommendation to the Legislature on $19,346,000 of the amount requested
because the department has not provided sufficient information for theLegislature to evaluate either the cost or the scope of the proposed
projects.
In addition, we recommend that the Legislature reduce (1) Item 4440301-036(3) by $214,000 to correct for overbudgeting and (2) Item 4440-301036(1), minor projects, by $71,000 to eliminate funding for two projects.
The department's request and our recommendations are summarized inTable 1 below.

Item 4440

858 / HEALTH AND WELFARE

DEPARTMENT OF MENTAL HEALTH-CAPITAL OUTLAY...,..Continued
Table 1
Department of Mental Health
1986-87 Capital Outlay Program(dollars in thousands)

Sub
Item

Project Title

BudgetLocation
Analyst's
Bill(Number of beds) Phase" Amount Recommendation(1) Minor Projects ......................................... .
(2) Construct Office Buildings .................. ..

Various
Atascadero

p,w,c
w,c

(3) Emergency Electrical Power, Phase II(4) Fire and Life Safety Improvements
and Remodel .......................................... ..

Atascaderop,w,cAtascadero
(957)

p

364 pending costestimate

Metropolitan
(170)

c

3,253 pending
preliminary plans

Napa
(132)
Napa

c

6,718 pending
preliminary plans
663 pending review of
preliminary plans

Napa
(328)

p

332 pending costestimate

Patton(328)

c5,545 pending
preliminary plans

Patton(308)p

246 pending costestimate(5) Fire and Life Safety and Environmental Improvements R & T ......................
(6) Fire and Life Safety and Environmental Improvements,'Building 195 ..........
(7) Fire Detection System, Phase II ..........
(8) Fire and Life Safety and Environmental Improvements, Building 199 ..........
(9) Fire and Life Safety and Environmental Improvements and Enclose Porches, N building ......................................
(10) Fire and Life Safety and Environmental Improvements, 30 building ............

Totals ................................................................

(2,223 beds)

c

$396
$325
2,225 pending
preliminary plans
531
317$20,273 pending"Phase symbols indicate: p' = preliminary plans; w = working drawings; and c = construction.

Status Of Five-Year Plan to Remodel All State Hospital Beds and Attain
Accreditation

We recommend that prior to legislative hearings, the DMH submit areport detailing (1) the goals and objectives of its capital outlay program,(2) its timeline for and estimated cost of preliminary plans, working drawings and construction of fire/life safety and environmental improvements(FLSEI) to all hospital units for the mentally disabled, (3) its plan for
housing the Mentally Disordered Offender (MDO) clientele through1995 and (4) what changes in FLSEI remodeling of MDO units will benecessary to ensure safety of patients and staff.
The capital outlay projects proposed for the state's mental health hospitals in 1986-87 represent the third year of the administration's "Mental
Health Initiative"-a five-year program intended to upgrade the qualityof hospital care and facilities and to gain accreditation of all state hospitals
before the end of 1987.
The DMH has not identified the total cost of this improvement program. Over the past two years however, the Legislature has appropriatedapproximately $35 million to the DMH for the program. The department
is requesting nearly $20 million for the program in 1986-87.

Item 4440

HEALTH AND WELFARE / 859

In this section, we review the progress that the DMH is making toward
completing the fire/life safety and environmental improvements(FLSEI) and achieving full licensing/accreditation of the hospitals by theend of 1987. Our key findings are as follows:• The approved remodeling for fire/life safety and environmental improvements is substantially behind schedule.
• The goals of the OMD's capital outlay program have become obscured.
• The DMH's capital outlay program needs to be reevaluated to account for the Mentally Disordered Offender (MOO) program soon to
be started in the state hospital system under the provisions of Chapter
1419, Statutes of 1985.
Each of these problems is discussed below.
FLSEI Remodeling Is Substantially Behind Schedule. Attaining thegoal of full FLSEI remodeling and accreditation within five years depends
on proper planning and careful project management to minimize delays.
In the Supplemental Report of the 1985 Conference Committee, theLegislature specified the department's timelines for the eight projects
funded under the DMH's capital outlay program. One project deadline
has not yet been reached, and the department has cancelled one project
which the Legislature approved-the Metropolitan State Hospital Laundry Cogeneration project. (The department has not advised the Legislature of this cancellation nor has the department given a reason for its
action). The department has missed all six of the remaining timelines. Two
projects at Metropolitan State Hospital-the FLSEI remodeling of CTWunit and the upgrade of the electrical system-are more than six months
behind the schedule established by the Legislature.
We expect that the projects funded in 1986-87 will be similarly delayed
because· the department is requesting funds for projects for which it has
not completed the requisite planning. For example, the department isrequesting construction funds in 1986-87 for three FLSEI projects. At thetime this Analysis was prepared, the department did not have preliminaryplans or an Office of State Architect budget for any of these projects. The
department is also requesting preliminary planning funds for three additional FLSEI projects, yet the department does not have schematic drawings or a budget estimate for any of the projects.
Table 2
Status of FLSEI Bed Remodeling
Department of Mental Health

Percent of Beds
in State Hospital
System"Beds
Completed Before Initiative Began ..................................................................... .
359
7Completed After Initiative Began ....................................................................... .
Under Construction ................................................................................................. .
Construction· Funded in 1985-86, But Planning or Working Drawings Still
Incomplete ......................................................................................................... .
Construction Funds Proposed For 19~7, But Preliminary Planning Still
Incomplete ......................................................................................................... .
Preliminary Planning Funds Proposed For 198~, But Schematic Drawings and Budget Estimate Incomplete ....................................................... .
Planning Not Started ............................................................................................... .

TOTALS ..................................................................................................................... .
" Totals do not add to 100 percent due to rounding.

0
752

0
15

636

12

816

16

1,761
788
5,112

34
15

100

860 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-CAPITAL OUTLAY-Continued

Table 2 shows the overall status of the department's FLSEI remodeling
effort. The department estimates that the hospital system will have a
combined total of 5,112 program beds once remodeling is complete. Our
analysis indicates that-contrary to the goal of the mental health initiative-most of the state hospital's beds will not be remodeled by the end of
1987. Even with significant improvements in planning and project management, we doubt remodeling will be complete prior to 1990. This isbecause preliminary planning for remodeling 788 beds will not begin
before 1987-88 and it will take at least two years to complete design andconstruction after the preliminary plans are completed.
The goals of the DMH capital outlay program are unclear. The
Governor's Mental Health Initiative was never consolidated into a single
report containing clearly stated objectives, estimated costs and a plan ofaction. Nor has the department ever prepared such a plan. Consequently,
it is difficult to ascertain what the administration's long-range goals/objectives are for the state's mental hospitals or how the proposed remodelingprogram aids in meeting these goals/objectives.
This ambiguity is evident at Atascadero State Hospital. The DMH's
proposal for Atascadero adds space for therapy, recreation and offices but
does not enlarge the client's 56 square foot bedrooms. The space requirement for accreditation is 110 square feet for individual rooms. Thus, theDMH's proposal leaves the bedrooms at one-half the space required for
accreditation.
The department maintains that enlarging the bedrooms would be extremely costly and would reduce the bed capacity at the hospital. In
addition, DMH contends that activity, office and therapy space is markedly deficient at Atascadero and these additions are necessary if clients are
to receive the DMH's objective of 30 hours treatment each week.
The department's plan to add program space and not enlarge the bedrooms is indeed less costly in the short run, but it may result in AtascaderoState Hospital not receiving accreditation. If the goal is to meet accreditation standards-as has been the Legislature's intent for other state hospitals-then the savings in the short run may be more than offset by costs
later on, since it may be more costly to enlarge the bedrooms at a futuredate. The DMH needs to address these inconsistencies.
The Program Needs to be Reevaluated to Account for the Mentally
Disordered Offender Program. The Mentally Disordered Offender(MDO) program resulted from Chapter 1419, Statutes of 1985 (SB 1296).
This act created a mechanism for committing parole-eligible, mentallydisordered inmates to DMH hospitals.
Implementation of this act places increased demands on the state hospital system. The DMH needs to develop a comprehensive plan to meetthese demands and fulfill these responsibilities. From a capital outlay
perspective, three questions arise:
1. How does the department plan to house the projected hospital population of 287 MDO clients in 1986-87 and 1,139 MDO clients in 1995-96?
Based on the department's projections of the MDO population, there will
be a shortage of at least 150 beds in the state hospital system by 1988-89,
with the shortage increasing to over 894 by 1995-96. The department has
not submitted a plan to avoid this shortage of beds. Instead, the department proposes a series of FLSEI remodeling projects which, althoughdesirable, will effectively decrease bed capacity by 176 or 3.4 percent.
2. What changes in security at state hospitals will be necessary?

---~.--~-~--

Item 4440

HEALTH AND WELFARE / 861

The department, thus far, has addressed the need for increased securityby:• halting plans for one legislatively approved project (modular offices
at Atascadero) and seeking enactment of legislation (AB 1437) toauthorize the use of appropriated funds for more secure permanent
offices.
• filing a deficiency authorization under Section 27, Budget Act of 1985,
in order to obtain funds for planning security improvements at Patton. (Funds for completion of this project are also proposed in AB
1437.)• requesting one minor capital outlay project for 1986-87-night lights
at Atascadero.
The MDO population influx will certainly require changes in hospitalsecurity. The department, however, has not developed either a statewide
policy regarding security or a priority list of the necessary security improvements. Without this information, the Legislature cannot evaluate
the reasonableness of DMH's proposed security-related changes.
3. Should MDO clients be housed in units with full environmental improvement remodeling? The future MDO client currently is serving
time in state prison for committing a violent crime. The department
estimates that the MDO client will be more volatile, more aggressive andmore escape-prone than DMH's current clientele. Nevertheless, the department plans to remodel units earmarked for the MDO client in an
identical fashion to the remodeling of units for other clients. This remodeling includes, among other things, personal lockable cabinets and privacy
curtains around each bed in a multi-bed room.
The need to improve environmental conditions in the state's hospitalhas been recognized for a long time. This effort has been consistently
supported by the Legislature. Certainly, improvements should also bemade for the MDO population. It is unclear, however, if the department's
proposed environmental improvements are appropriate for this population. Given the type of client that will be served by the MDO program,the DMH must determine whether or not the proposed improvements
would create security problems for either the staff or clients.
Summary

In view of the problems described above, the Legislature needs additional information before it can properly assess the DMH's capital outlay
program. Consequently, the DMH should submit a report to the Legislature, prior to budget hearings, detailing the department's:• specific goals and objectives for the state's mental health hospitalsystem.
• plan for each individual hospital, including population projections, bytypes of clients, and proposed modifications to provide appropriate
physical facilities for these clients.
• tiineline and estimated cost for preliminary plans, working drawingsand construction of the necessary modifications to each unit in thestate's mental health hospital system.
• plan for housing the MDO population.

862 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-CAPITAL OUTLAY-Continued• assessment of the appropriate environmental improvements needed
for the MDO population.
Construction Funds Budgeted For Five Projects.
We withhold recommendation on $18,404,000 requested in Items 4440301-036(2), (5), (6), (7) and (9), workingdrawingslconstructionfundsfor

five projects, pending receipt or review of preliminary plans and costestimates.
The Budget Bill requests working drawing/ construction funds for fiveprojects, totalling $18,404,000. Each project has been previously approved(in concept) by the Legislature. For four of the five projects, the DMH
has not provided (1) preliminary plans, (2) a cost estimate and (3) otherinformation needed to substantiate whether or not the amount requested
in the Budget Bill is reasonable or if the project's design reflects legislative
intent. Preliminary plans for the fifth project (Napa Fire Detection),
arrived on January 31, 1986. Because of time constraints, we have not had
sufficient time to review these plans. Accordingly, we withhold recommendation on these projects and urge the DMH and the OSA to expedite
completion of the necessary information so that the Legislature can review it prior to budget hearings.
A brief description of each project follows:
Atascadero State Hospital-Office Buildings. At the request of theDMH, the Legislature appropriated $200,000 in the 1985 Budget Act for
preliminary plans for six two-story modular office buildings. During theyear, the DMH apparently reevaluated the security of modular buildings
and now contends that modular structures are not desirable. Consequently, the DMH has delayed the project in order to obtain legislative approval(proposed in AB 1437) to design permanent offices. This becomes evenmore confusing because the Budget Bill amount ($2,225,000) is based on
the cost of purchasing and installing modular offices. The cost of constructing permanent office facilities is unknown, but probably will be higher. At
the time this analysis was prepared, we did not know what the cost would
be or what office design DMH envisions. Moreover, the OSA has notestablished a schedule for completion of the preliminary plans.
Metropolitan State Hospital-FLSEI, R&T Building. The Legislature appropriated $120,000 in the 1985 Budget Act to develop working
drawings for remodeling the Receiving and Treatment (R&T) building at
Metropolitan State Hospital. This project would remodel six units in the
R&T building to provide patient privacy in bedrooms, handicapped accessand compliance with fire and life safety codes. The budget bill proposes$3,253,000 for construction in 1986-87. In January 1986, the OSA advised
the Legislature that the working drawings would be complete in March
1986. At the time this analysis was prepared, however, the preliminaryplans were still not completed.
Napa State Hospital-FLSEI, Building 195. The 1985 Budget Act
included $185,000 to revise the preliminary plans and working drawings
for this project to provide fire and life safety and environmental improvements to Building 195 of Napa State Hospital. Although in January the OSA
advised the Legislature that preliminary plans were completed in November 1985, the revision of the preliminary plans has not yet started. The
proposed remodeling would provide living quarters for 132 adolescentswith acute psychiatric disorders.

Item 4440

HEALTH AND WELFARE / 863

Napa State Hospital Fire Detection System. The Legislature appropriated $50,000 in the 1985 Budget Act for preliminary plans and working
drawings for a fire detection system and sprinkler system covering sevenbuildings at Napa State Hospital. Although the OSA also advised the Legislature that these plans were completed in November 1985, the plans were
not completed until January 31,1986. As indicated above, we have not had
sufficient time to review them.
Patton State FLSEI And Enclose Porches, uN" Building. The 1985
Budget Act provided $405,000 to revise preliminary plans and working
drawings for remodeling the N building at Patton State Hospital for
FLSEI. Expenditure of these funds was contingent on the DMH sending
the Legislature specific staffing, security, design and cost information. The
DMH is developing this information. Thus, preliminary plans and working
drawings are still incomplete and the OSA has no schedule for completing
this work.
Three New FLSEI Projects

We withhold recommendation on $942,000 for three projects to fundpreliminary plans for FLSEI, Items 4440-301-036 (4), (8) and (loy, pending receipt of cost estimates and other information.
The department proposes to begin preliminary plans for FLESI remodeling at Atascadero, Napa and Patton. At the time this analysis was prepared, the department had not submitted either an OSA budget estimate
or schematic drawings for these projects. Without this information, we
have no basis to evaluate the cost or scope of the project. Consequently,
we withhold our recommendation to the Legislature, pending receipt ofdrawings and budgets for these projects and other items as detailed in thedescriptions below.
Atascadero State Hospital-Patient Living Areas. The department
proposes to alter patient bedrooms and construct additional rooms fortherapy, quiet activities and staff conferences. The department estimatesthat the total project cost will be in excess of $6 million. Our analysis
indicates that the department's proposal will only gain accreditation for
Atascadero State Hospital if the Joint Committee for Accreditation(JCAH) waives many of its guidelines. The Legislature has no indicationthat JCAH will grant these waivers. Consequently, prior to budget hearings, the department should submit its analysis detailing the specific waivers it needs and explaining why the proposed plan should earnaccreditation for Atascadero State Hospital.
Napa State Hospital-Building 199. The department proposes to remodel building 199 for FLSEI. The remodeled building is to provide
intensive care to 328 patients. The DMH estimates total cost to be over $5.7
million. The DMH has not detailed the programs to be provided in thisbUilding or the extent of remodeling.
Patton State Hospital-Building 30. The department proposes to remodel Building 30 for FLSEI. After remodeling, this building will provide
intensive care to 308 patients. The department estimates that the cost ofthese improvements will exceed $4 million. The DMH has not detailed theprograms to be provided in this building or the extent of remodeling.
Emergency ELectrical Power, Phase II

We recommend that the Legislature reduce Item 4440-301-036(3),Emergency Electrical Power Phase II at Atascadero, by $214,000 to correctfor overbudgeting.

864 / HEALTH AND WELFARE

Item 4440

DEPARTMENT OF MENTAL HEALTH-CAPITAL OUTLAY-Continued

The department requests $531,000 to purchase and install one 900 KW
diesel engine driven emergency generator. This represents Phase II of a
two-phase project to provide sufficient emergency electrical capacity at
Atascadero to meet accreditation and licensing standards.
This project is needed, nevertheless, project costs can be reduced by$214,000. The OSA's cost estimate is $321,000-$210,000 less than the requested amount. In addition, based on the State Administrative Manual,
the OSA fees for architectural and engineering services are overstated by$4,000. Consequently, we recommend that the Legislature reduce thisitem by a total of $214,000.
Minor Projects

We recommend that the Legislature reduce Item 4440-301-036 (1), minor
projects, by $71,000 to eliminate one project at Patton State Hospital
because the project is nut justified and one project at Metropolitan State
Hospital which should be funded from the DMH support budget.
The department proposes six minor projects totaling $396,000. As Table
3 shows, two projects provide handicapped accessibility, one project provides security lighting, and three projects make minor modifications in thehospitals' facilities.
Table 3
Department of Mental Health
1986-87 Minor Capital Outlay Program(dollars in thousands)

Project Title
Handicapped Accessibility-Phase III ..................... .
Handicapped Accessibility-Phase III ..................... .
Provide Security Lights ............................................... .
Floor Covering ............................................................... .
Back Flow Preventer ................................................... .
Motor Controls ............................................................... .
Totals ........... ,................................................................. .

Location
Atascadero
Metropolitan
Atascadero
Atascadero
PattonMetropolitan

BudgetBill
Amount
$145
. 27
17
136
44
27
$396

Analyst's
Recommendation
$145
27
17
136
0
0
$325

Our analysis indicates that four of these projects are justified. The othertwo projects are discussed below.
Backflow Preventers-Patton. The department has not provided
sufficient information to establish the need to install the backflow preventers at Patton State Hospital. Backflow prevention has been a code requirement for many years and water systems at state facilities are constructedaccording to the code requirements. The DMH has not identified if or why
the current system does not meet code. Thus, we recommend the Legislature delete the $44,000 requested for this project under Item 4440-301036(1).
Motor Controls-Metropolitan. Finally, the department proposes toreplace the motor controls for its refrigeration units at Metropolitan. Thisis a maintenance item and should be funded in priority order with othermaintenance needs from the DMH's support budget. Consequently, we
recommend that the Legislature reduce Item 4440-301-036(1) by $27,000
to eliminate funding for this project.

Item 5100

HEALTH AND WELFARE /865

Supplemental Report Language

For purposes of project definition and control, we recommend that the
fiscal committees adopt supplemental report language which describes
the scope of each of the capital outlay projects approved under this item.

Health and Welfare Agency

EMPLOYMENT DEVELOPMENT DEPARTMENT
Item 5100 from the GeneralFund and various funds

Budget p. HW 117

Requested 1986-87 .......................................................................... $153,771,000
Estimated 1985-86.................................... .................. ...................... 190,599,000
Actual 1984-85 ..... .................... ............................. ............................ 137,987,000
Requested decrease $36,828,000 (-19.3 percent)Total recommended reduction ................................................... .
908,000
Recommendation pending ........................................................... . 18,595,000
Transfer funds to the General Fund ......................................... . 43,800,000
198&-87 FUNDING BY ITEM AND SOURCE
Item-Description
5100·001-001-EDD, support
5100-001-184-EDD, support
5100-001-185-EDD, support
5100-OO1·514-EDD, support
5100·001·58&-EDD, support
5100-OO1·B69--EDD, support

Fund
GeneralBenefit Audit
Contingent
Employment Training
Unemployment Compensation Disability Insurance
Consolidated Work Pro·

Amount$29,882,000
2,B27,000

19,957,000
61,437,000(5B,957,000)(69,175,000)

gram

5100-001-870-EDD, support
5100·001-B71-EDD, support
5100-001-90~EDD, support
5100-OO1·932-EDD, support
5100-011-890-EDD, support
5100-016-890-EDD, support
5100·021-890-EDD, support
5100·101-588-EDD, local assistance
5100·101-B69--EDD, local assistance
5100·10l-870-EDD, local assistance
5100-101-B71-EDD, local assistance
5100·10l·B90-EDD, local assistance
5100·101-~EDD, local assistance
5100-101-932-EDD, local assistance
5100·111-890-EDD, local assistance
Reimbursements
Total

Unemployment Administra·
tion
Unemployment
School Employees
Local Public Entity Em·
ployeesFederal TrustFederal TrustFederal Trust
Unemployment Compensa·
tion Disability Insurance
Consolidated Work Program
Unemployment Administration
Unemployment
Federal Trust
School Employees
Local Public Entity Em·
ployeesFederal Trust(31B,857,000)(2,944,000)(555,000)(31B,000)(31B,857,000)(2,944,000)(69,175,000)(1,193,980,000)(237,624,000)(2,900,000)(2,021,200,000)(237,624,000)(1B,286,000)(3,437,000)(2,024,100,000)
39,668,000$153,771,000

866 / HEALTH AND WELFARE

Item 5100

EMPLOYMENT DEVELOPMENT DEPARTMENT-Continued

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. Disability Insurance (DI) Position Reductions. Recommend that prior to budget hearings, the department provide the fiscal committees with information documenting
the savings which will result from DI work simplification
measures.
2. Greater Avenues for Independence (GAIN) ProgramPosition and Fund Transfers. Withhold recommendation on $10,186,000 proposed for reduction from the Food
Stamp Job Search, Employment Preparation, and WIN
Demonstration programs, pending receipt of an updated
estimate from the Department of Social Services (DSS) of
the counties' plans to implement GAIN.
3. Pension Offset Refund Workload. Recommend that prior to budget hearings, the department provide the fiscal
committees with workload information related to refunding pension benefits which were offset against Unemployment Insurance (UI) benefits.
4. Tax Collection Positions. Recommend that prior tobudget hearings, the department provide the fiscal committees with information regarding the backlog in its tax
collection program.
5. Operating Expenses.
Withhold recommendation on$5,266,000 in additional funds for operating expenses, pending receipt of additional information about the department's operating expense needs and proposed
expenditures.
6. Job Service Discretionary Funds. Recommend that prior to budget hearings, EDD submit to the fiscal committees, an expenditure plan for $8 million in Job Service
discretionary funds.
7. California Innovative Military Projects and Career Training (IMPACT) Program. Withhold recommendation
on $1.6 million in federal funds for the IMP ACT program
pending receipt of a report from EDD and the Department of Finance on the reasons for transferring the IMPACT program from the Military Department to EDD.
8. Reed Act Funds. Recommend adoption of supplemental report language requiring the department to (a) repay
the Reed Act Fund and (b) submit a report setting-fortha repayment plan.
9. Automated Applicant Data Base. Withhold recommendation on $1,543,000 requested from the EDD Contingent
Fund to develop an automated applicant data base for the
Job Service program, pending receipt of an approved Feasibility Study Report.

10. Technical Budgeting Recommendation. Reduce Item 5100001-001 by $908,000. Recommend reduction of $908,000
to correct for double-budgeting.
11. Disability Insurance (DI) Fund-Potential 1986 Deficit.

Analysis
page

872

873

874

875

876

877

877

878

878

879
881

Item 5100

HEALTH AND WELFARE / 867

Recommend that prior to budget hearings, the department advise the fiscal committees on (a) the estimated DI
Fund balance for 1986 and (b) how it plans to deal with any
potential deficit.
12. Disability Insurance Funding Mechanism. Recommend
enactment of legislation that establishes a new funding
mechanism for the Disability Insurance Fund.
13. School Employees Fund. Recommend that the Legislature transfer $88.8 million, rather than $45 million, fromthe School Employees Fund to the General Fund.
14. Job Training Partnership Act (JTPA). Recommend
adoption of Budget Bill language (a) prohibiting EDD
from establishing an Administrative Cost Pool (ACP) for
JTP A and (b) requiring the department to report to theLegislature on the use of JTPA administrative funds.

882
883
885

GENERAL PROGRAM STATEMENTThe Employment Development Department (EDD) is responsible foradministering the Job Service program, the Vnemployment Insurance(VI) program, and the Disability Insurance (DI) program. The Job Service program (1) refers qualified applicants to potential employers, (2)places job-ready applicants in jobs, and (3) helps youth, welfare recipients,and economically disadvantaged persons find jobs or prepare themselves
for employment by participating in employment and training programs.
In addition, the department collects taxes and pays benefits under the
VI and DI programs. The department collects from employers (1) their
VI contributions and (2) employee contributions for DI. It also collects
personal income tax withholdings. In addition, the department pays VI
and DI benefits to eligible claimants.
The 1985 Budget Act authorized 10,459.7 positions in EDD for the current year. The department, however, administratively increased the number of positions by 411.3, bringing the total number of positions in 1985-86
to 10,871. The increase in positions in the current year is due to (1)increased workload in the VI and DI programs and (2) the implementation of Chapter 1217, Statutes of 1985 (AB 1575), which requires EDD toretroactively refund specified pension benefits which have been offset
against VI benefits since 1980.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes expenditures totaling $153,771,000 from various

state funds and reimbursements for support of EDD in 1986-87. This is adecrease of $36,828,000, or 19 percent, from estimated current-year expenditures. This reduction is primarily due to the fact that $31.6 million
in Employment Training Panel (ETP) funds which were carried over into
the current year will not be available in the budget year. Based on pastexperience, however, it is likely that some amount of ETP funds will be
carried forward from the current year to the budget year as well.
General Fund Request

The budget proposes an appropriation of $29,882,000 from the GeneralFund to support the EDD in 1986-87. This represents a net decrease of$4,949,000, or 14 percent, below estimated current-year expenditures. Table 1 identifies the significant changes in General Fund expenditure levels
proposed for 1986-87. Several of these proposals are discussed later in thisanalysis.

868 / HEALTH AND WELFARE

Item 5100

EMPLOYMENT DEVELOPMENT DEPARTMENT-Continued
Table 1
Employment Development Department
Proposed General Fund Budget Changes
1986-87(dollars in thousands)

Adjustment
1985-86 expenditures (revised) ..................................................................... .
A. Cost changes
1. Increase in existing personnel costs ....................................................
2. Collective bargaining costs ....................................................................

Totals$34,831$1,690-14

Subtotal .................................................................................................... ..

$1,676

B. Program changes
1. Elimination of California Jobs Tax Credit ...................................... ..
2. Transfer of EPP to DSS ...................................................................... ..
3. Reduction due to accounting system automation ........................ ..
4. Reduction in general administration staff ...................................... ..
5. Workload reduction in planning division ........................................ ..
6. Efficiencies in ED&R division ............................................................ ..
7. Reduced frequency of tax deposit .................................................... ..
8. Increased tax workload ........................................................................ ..

-274-6,659
-218
-37

-2
-3
-12

-580

Subtotal ..................................................................................................... .
1986-87 expenditures (proposed) ................................................................ ..

-$6,625$29,882

Change from 1985--86
Amount ............................................................................................................ ..
Percent ............................................................................................................ ..

-$4,949-14.2

Total Revenues and Expenditures

Table 2 details the department's total revenues and expenditures, by
program. As the table shows, the budget projects total expenditures of$4.08 billion in 1986-87. This is a decrease of $226 million, or 5.2 percent,below the current-year level.
Of the $4.08 billion, $843 million (21 percent) is for various programs
and administration, and $3.2 billion (79 percent) is for the payment of VI
and DI benefits.
The $843 million proposed for programs and administration is $215 million, or 20 percent, below current-year expenditures. This reduction is due
largely to the fact that funds carried over into the current year for the
Employment Training Panel (ETP) ($32 million) and the Job Training
Partnership Act (JTPA)-local assistance ($127 million) and state-administered programs ($52 million)-will not be available in the budget year.
Past trends suggest, however, that a comparable amount of ETP and JTPA
funds probably will be carried forward into the budget year. At the timethat the budget was prepared, the department could not estimate theamount of funds which might be carried forward from the current to thebudget year.

HEALTH AND WELFARE /Item 5100

869

Table 2
Employmen~. Developme~it Department

Employment Programs
EmIlloyment Service """,, .... ,,"Work Incentive (WIN) Pro·

FoJSt~p·R~~ipi~~t~··::::::::::::
Service Centers ..........................
Job Agent .... "................................
Comprehensive Employment
and Training Act ................
Youth Employment Services ..
Employment Preparation Pro·

Empfo~!~;:,:t··T;~i;:,:i~i·p~~~i··::Contracts W / Service Delivery
Areas ......................................
Job Training Partnership Act ..
Adult and Youth Training ........
Summer Youth ............................
Displaced Workers ....................
Educational Linkages ................
Administrative ............................
Older Worker Training ... ".......
Veteran's Programs ....................
Special Local Projects ................
Technical Assistance ..................
Private Industry Council ....... ".
Totals, Employment Pro·
grams ................................
Unemployment Insurance (UI) ..
Administration ............................
Benefits ..........................................
Disability Insurance (DJ) ............
Administration ............................
Benefits ..........................................
Personal Income Tax ....................
Former Inmates Program ............
Employment Training Tax ..........
Collection ......................................
Benefits..........................................
General Administration ................
Distributed ..................................
Undistributed ...... ,.......................
Total Budget ............................
(Program) ............................
(UI and DJ Benefits) ... '.. '.
Funding Source:
General Fund ..............................
Disability Fund. ...........................
EDD Contingent Fund ............
Employment Training Fund. ...
School Emc/oyees Fund ..........
Local Pub ic Employees Fund
Consolidated Work Fund. .........
Federal Unemployment FundFederal Unemployment Ad·
ministration Fund ..............
Federal Trust Fund ....................
Benefit Audit Fund ....................
Reimbursements ........................
Totals ..........................................

Budget Summary
1984-85 through 1986-87(dollars in thousands)
ActualEst.
Prop.
/.9R4-fI.'i
1.985-86
1986-87

Change From
1985-86
AmountPercent$99,590$1ll,810$112,563$753

27,606
1,624
6,473
2,695

25,505
2,053
6,816
2,903

23,853
563
7,204
3,066

-1,652-1,490
388
163

-6.5
-72.6
5.7
5.6

191
1,124

982

880

-102

NA
-10.4

8,366
61,4799,582
91,307

9,937
59,633355-31,6743.7-34.7(486,029)
208,183
156,646
42,59726,804
10,992
11,213800
4,481
24,313(306,799)
156,673
80,951
23,52516,08010,190
6,026
800
442
12,112673(258,940)
141,405
71,50815,223
12,571
8,690
4,034

0.7%

NA
(-179,230) (-36.9)-51,510 -24.7-75,695-48.3-19,072-44.8-10,724
-40.0
-802
-7.3
-5,187-46.3-4,039-12,201

-90.1
-50.2
NA

$468,761$736,987$524,498($2,310,119) ($2,332,202) ($2,270,636)
220,506
235,386
232,6142,089,612
2,096,816
2,038,0~3(1,112,996) (1,209,104) (1,253,581)
56,02759,92459,601
1,056,969
1,149,180
1,193,980' 22,150
18,774
21,10020(2,688)(6,314)(9,604)
1,489
1,714
1,804
1,199
4,600
7,800
(30,445)(34,517)(33,949)(28,204)(31,693)(31,415)
2,241
2,819
2,534
$3,915,598$4,308,526$4,083,004-$212,489(-$61,565)-2,772-58,793(44,477)-323
44,8001,050-$225,522-28.8%(-2.6)
-1.2
-2.8
(3.7)
-0.5
3.9
5.0
NA
(52.1)
5.3
69.6(-1.6)(-0.9)-10.1-5.2%(767,818)(3,147,780)

5,388
121

$37,494
1,112,439

14,69064,167(3,290)90
3,200(-568)(-278)-285(1,057,930)(3,250,596)(843,201)(3,239,803)(-214,729)(-10,793)(-20.3)(-0.3)$34,831$29,882
1,2.52,937-$4,949
44,446
1,248-28,384-14.2%
3.7
6.3
-29.1
5.7
5.8
-36.9
-2.7

1,208,491
19,70920,957

3,633

97,621
17,8193,548

69,237
18,841
3,755

258,940
2,061,900

486,029
2,072,100

306,799
2,016,344

321,680(2,642,520)
1,048
20,588$3,915,598

329,940(2,888,069)(2,644,9OO)

2,482
35,956

2,827
39,668-8,183(-243,169)
345
3,712

$4,308,526$4,083,004-$225,522

19,019321,757

1,022
207-179,230-55,756-2.5( -8.4)
13.9

10.3
-5.2%

Item 5100

870 / HEALTH AND WELFAREEMPLOYMENT DEVELOPMENT DEPARTMENT-Continued

The budget does not include funding for Merit Salary increases or inflation adjustments to Operating Expenses and Equipment. We estimatethat the department will have to absorb approximately $7.2 million in suchcosts. We do not know how the department will absorb these costs.
ANALYSIS AND RECOMMENDATIONS

We recommend approval of the following significant budget changes
which are not discussed elsewhere in this analysis:• An increase of $1,671,000 to complete the Job Service Order Sharing(JSOS) automation.
• A reduction of 47 positions and $2 million due to the elimination ofsupervisory positions.
• A reduction of $519,000 to reflect termination of the department's
operation of the Job Corps in southern California because the Department of Labor has selected another program operator.
• A reduction of $2,814,000 and 107.5 positions due to VI automation
efficiencies. These funds will be used to pay for ongoing automation
costs.
• A reduction of $3,081,000 and 136 positions due to Tax Accounting
System (TAS) automation efficiencies. Of these funds, $1.9 million
will be used to support ongoing automation costs.
• A reduction of $1,536,000 and 44.8 positions for food stamp registration
to reflect a lower level of federal reimbursements.
• An increase of $3,252,000 and 103.4 positions to reflect increased workload in the VI program.
DEPARTMENTAL SUPPORT
Proposed Staffing Changes Reflect a Variety of Factors

The department proposes to eliminate 660.9 positions in 1986-87. These
reductions are partially offset by the proposed addition of 361.9 positions,
resulting in a net reduction of 299 positions in 1986-87.
Table 3 categorizes the proposed position changes according to thereason for the change. It also shows the salaries, benefits, and operating
expenses corresponding to the staffing changes. Table 4 shows how thestaffing changes are distributed among EDD's programs.
Table 3
Employment Development Department
Proposed Position Changes
From 1985-86 to 1986-87(dollars in thousands)

Reason for Change
Administrative efficiencies ..
Automation ..............................
Operating expenses andequipment ........................
Program terminations ..........
Program transfers ..................
Workload changes ..................
Totals ................................

Positions
Added Reduced
2.0

19.7
340.2 aNet

Salaries

Net Fiscal EffectBenefits OE&E

Total

-137.2-259.8-135.2-259.8-$3,351-4,581-$1,159-1,586-$145
15,511-$4,655
9,344

-76.0
-135.5-52.4-76.0-116.5287.8-299.0-1,789-2,1196,566-$5,274

-623
-732
2,272
-$1,828

5,266
-239
-978
387
--

5,266
-2,651-3,8299,225$19,802$12,700

-

--

361.9

-660.9a Includes reduction of 60.6 positions for partial'year adjustments.

Item 5lO0

HEALTH AND WELFARE / 871
Table 4
Employment Development Department
Proposed Position Changes by Program
1986-87

Reason for Change
Administrative
efficiencies ........ ..
Automation .............. ..
Programterminations .... ..
Program transfers .. ..
Workload changes .. ..
Totals ................ ..

Other
Adminis· Unemployment Disability Employment
Tax
Employment
trationInsurance Insurance
ServiceCollection Programs
-14.4
-,3.1

-47.3
-111.5

-66.4
-1.0

-3.6
-2.6
13.1
-7.0

178.l
15.7

31.1
-36.1

-0.9
-144.2-72.4-113.2-44.8-230.4

109.7
-35.4

-6.2

0.4
-5.8

-

Total
-135.2-259.8-76.0-116.5287.8-299.0The six categories into which the proposed position reductions andadditions can be divided are as follows:• Administrative Efficiencies. The budget proposes to eliminate a
net 135.2 positions as a result of streamlining the department's operations. These reductions will result in $4.7 million in savings to various
funds. Of the 135.2 positions, 65.5 will result from simplifying theprocessing ofDI claims. Anoth~r 13.4 general adininistration positions
will be eliminated due to reduced workload throughout the depart"ment. The department proposes to augment the administration of the
Job Training Partnership Act (JTPA) by two positions.
• Automation. The department proposes to reduce its staff by 259.8
positions in order to reflect efficiencies made possible by automation.
This reduction frees up $6.2 million. The department proposes toredirect $5.2 million of these savings to cover ongoing automation
costs, for a net savings of $912,000 from the position reductions. The
largest position reductions and automation costs are linked to automation of the UI program and the T AS. The department also proposesto spend an additional $lO.3 million on automation activities, bringing
total automation expenditures to $15.5 million.
• Program Terminations. Expiring federal programs and reductions
in federal contracts account for 76 positions proposed for elimination.
Programs scheduled for termination include the Targeted Jobs Tax
Credit (1JTC), Southern California Job Corps, and the Trade Readjustment Assistance (TRA) Act. In addition, EDD plans to eliminate
13.6 positions in the veterans employment program because federal
funds will not be available to support these positions.
• Program Transfers. Transfer Of program responsibilities to otherdepartments accounts for the elimination. of 135.5 positions. Of these
positions, 124.6 are related to implementation of the Greater Avenues
for Independence (GAIN) program. These reductions will be partially offset by the addition of 19.7 positions that are needed to administer the IMPACT program, which the administration proposes totransfer from the Military Department to ~DD.

872 / HEALTH AND WELFARE

Item 5100-=MPLOYMENT DEVELOPMENT DEPARTMENT-Continued• Workload Changes. The department proposes to delete 52.4 positions due to declining workload. Of these positions, 44.8 result froma reduction in the amount of reimbursements that EDD will receivefrom the Department of Social Services (DSS) for registering foodstamp recipients. These reductions are offset by the addition of 340.2
positions. The additional positions will (1) handle increased workload
anticipated in the UI and DI programs and (2) refund pension offsets
made to UI benefits, as required by Ch 1217/85 (AB 1575).
As Table 4 indicates, position reductions fall most heavily on the Employment Service (ES), UI and Tax Collection programs. The budget
proposes a net reduction of 230.4 ES positions, which is 38 percent of thetotal for the department. Staff reductions in the ES program result fromprogram transfers to DSS (124.6), program terminations (72.4), and reduced workload in the Food Stamps program (44.8). In contrast, the 165.8
positions the department proposes to eliminate from the UI program
result largely from automation (111.5) and administrative efficiencies(47.3). Almost all of the 145.1 positions which the department proposes toeliminate from the tax collection program result from automation efficiencies.
These large reductions will be partially offset by the department's
proposals to add: (a) 19.7 positions to the ES program in order to administer the IMPACT program, (b) 181.5 positions to the UI program in orderto handle increased claims activity and to refund pension offsets pursuant
to Chapter 1217, and (c) 109.7 positions to the tax program due to employer growth and the implementation of Chapter 1217.
Department Has Not Documented DI Efficiencies

We recommend that prior to budget hearings, the department provide
the fiscal committees with information documenting (a) its calculation of
the savings which will result from the DI work simplification proceduresand (b) the actual number ofpositions needed to process DI claims in thepilot office before and after implementing the new procedures.
The budget proposes to eliminate 65.5 field office positions from the DI
program to reflect various changes in the processing of benefit claims(referred to as "work simplification"). The department indicates thatelimination of the positions will free-up $1,925,000 which would revert to
the DI Fund. These proposed position reductions are based on the resultsof ~'work simplification" changes made in one DI field office.
In the current year, EDD has implemented several changes in order toprocess DI claims more efficiently. For example, previously, DI claims
examiners reviewed claims for payment, documented their decision, andwrote instructions to key data operators for entering this information into
the department's computer system. As a result of recent changes, theexaminers now enter the information directly into the computer, eliminating the need to send the claim through the key data operator. The
department advises that the efficiencies were implemented in all DI field
offices between April and September 1985.
The department calculated the savings which will result from these
efficiencies in 1986-87, based on the "best guess" of the manager of the"pilot" office in which the measures were first implemented. This manager estimated that the simplification procedures would enable the department to process its DI workload with approximately 8 percent fewer

Item 5100

HEALTH AND WELFARE / 873

staff statewide. The department, however, could not provide us with any
documentation which (a) supports the 8 percent savings estimate or (b)demonstrates the actual savings which occurred in the pilot office.
Without this information, we have no basis on which to evaluate· thedepartment's proposal and to determine whether the number of positions
proposed for elmination is appropriate. Accordingly, we recommend thatprior to budget hearings, the department provide the fiscal committees
with information documenting (1) its calculation of the savings resulting
from DI work simplification procedures and (2) the actual number of
positions needed to process DI claims in the pilot office before and after
implementing the work simplification procedures.
Transfer of Positions and Funds for Implementation of GAIN

We withhold recommendation on 124.6 positions and $10,186,000
proposed for deletion from the Food Stamp Job Search, Employment
Preparation, and WIN Demonstration programs, pending receipt of an
updated estimate from the Department of Social Services (DSS) of thecounties' plans to implement GAIN during 1986-87.
The budget proposes to delete 124.6 positions and $10,186,000 from threeprograms which provide employment services to welfare recipients. The
funds will be transferred to DSS for use in implementing the GAIN program. Because DSS is the lead agency for GAIN, EDD has relied on DSS'
estimates in proposing position reductions and the transfer of funds. We
have found DSS' estimates, however, to be out of date (please see Item
5180-151-001). Specifically, we have doubts about DSS' estimate of (1)when counties will implement GAIN, (2) how many counties will contract
with EDD to provide employment services, and (3) the level of EDD
services that will be requested by the counties. The actual number of
positions EDD will need in order to provide these services could be very
different from what is shown in the budget if the DSS' assumptions prove
to be wrong.
Food Stamp Job Search. The department proposes to eliminate 48.6
positions and $1.6 million in reimbursements for providing job searchservices to food stamp recipients. Currently, EDD provides these services
in seven counties through a contract with DSS.
The budget proposal assumes that the seven counties, instead of EDD,
will provide job search services to food stamp recipients during 1986-87.
The department's budget proposal, however, states that it is in the processof surveying the seven counties to determine if, indeed, they want toprovide these services or contract with EDD for them. Without this information, we are unable to determine whether the number of positions
proposed for elimination is appropriate.
WIN-Demonstration Program and Employment Preparation Program.
The department proposes to delete 76 positions and $1.9 million currently
used to provide employment services to AFDC recipients under the WINDemonstration (WIN-Demo) program and the Employment Preparation
Program (EPP). The EDD expects that the workload in the WIN-Demoprogram and EPP will decrease annually by one-third during the next
three years as GAIN is implemented throughout the state.
As a result, the EDD estimates that it will require 76 fewer positions for
WIN-Demo and EPP in 1986-87. The department further assumes that874 / HEALTH AND WELFARE

Item 5100

EMPLOYMENT DEVELOPMENT DEPARTMENT-Continued

counties will contract with it for services equivalent to 20 percent of theworkload it lost as a result of implementation of GAIN. The EDD indicatesthat it simply made its "best guess" that counties would contract back for
20 percent of the workload now handled by the department.
The department will have a better estimate of its future workload after
the DSS has had an opportunity to review county plans during the springof 1986.
Transfer of EPP Funding. Currently, the EDD provides throughthe EPP intensive job search and employment services to AFDC applicants and recipients in six counties. The funds for support of the programs
are contained in EDD's budget.
The budget proposes to transfer funding for EPP ($6.6 million GeneralFund) from EDD to DSS. The budget further proposes that DSS returnthe entire $6.6 million to EDD as a reimbursement in order that EDD cancontinue to provide EPP services to counties during 1986-87.
Eventually, DSS plans to incorporate EPP into the GAIN program. In
the meantime, DSS will give the EPP counties the option to (1) administerthe program themselves or (2) contract with EDD to provide employment services to AFDC recipients.
We have two primary concerns regarding the department's proposal.
1. We do not know whether all six EPP counties will; in fact,choose tocontract with EDD for employment services to AFDC recipients. If fewer
counties opt for EDD services, EDD will have excess authorized positions.
2. Some counties may want EDD to provide more services under GAIN
than it provides currently under EPP. In this case, EDD will need additional positions to deliver the services requested by the counties. For
example, Kern County's GAIN plan indicates that the county wants EDD
to report GAIN participation to social services staff, maintain job services
case records, and report data collected for program evaluation to thewelfare departments. These activities would be in addition to the traditional employment services provided by EDD staff.
The DSS has not completed its survey of counties' plans for implementing GAIN and securing related employment services. Consequently, we
have no basis on which to determine whether EDD will have adequate
positions to provide the services requested by counties in 1986-87. For thisreason, we withhold recommendation on the proposed reduction of 124.6
positions and $10,186,000, pending an updated estimate from the DSS on
counties' plans to implement GAIN.
Department Should Revise Its Workload Estimate for Refunding Pension
Offsets

We recommend that prior to budget hearings, the department provide
the fiscal committees with specified workload information related to refunding pension benefits which were offset against UI benefits.
Chapter 1217, Statutes of 1985 (AB 1575), requires EDD to reimburse
individuals whose past VI benefits have been reduced to reflect the receipt of social security benefits or other specified pension benefits. The
reimbursements will compensate for the offsets retroactive to November
1, 1980. The measure also requires the department to refund overpayment
assessments and penalties received since March 1, 1984, related to thesepension offsets.

Item 5100

HEALTH AND WELFARE / 875

The budget requests 242.6 positions and $6,097,000 in federal funds inorder to implement the provisions of Chapter 1217 in 1986-87. The budget
further requests $62 million in federal funds to refund the offset for pensions made to UI benefits since 1980. The Department of Finance has
approved administratively an increase in the current year of 175.1 personnel-years and $5,739,000 to administer the program and $62,200,000 to pay
refunds. Although the department advises that the Department of Labor
will provide federal funds to cover these costs, it was unable to document
this assertion.
The department originally estimated that it would refund a total of$124.4 million in benefits to 138,500 UI claimants during the current andbudget years. The department also estimated that administrative costs forrefunding the benefits would total $11.8 million. The department now
indicates that, based on its actual experience to date, it may have overestimated the workload generated by Chapter 1217. In general, the department indicates that it has received fewer claims for repayment than it
originally anticipated. At the time we prepared this analYSiS, however, thedepartment could not provide us with actual workload data.
To the extent that the department's estimates are, in fact, overstated,the department will be overbudgeted in the current year, as well as in thebudget year. In order for the Legislature to more accurately determine
the amount of funds needed to implement Chapter 1217, we recommendthat prior to budget hearings, the department provide the fiscal committees with (a) its actual workload and funding requirements for support
and benefit payments so far and (b) its estimate of workload and funding
requirements for the remainder of 1985-86, as well as for 1986-87.
Legislature Needs Documentation on Tax Workload and Backlog

We recommend that prior to budget hearings, the department provide
the fiscal committees with specified documentation on the backlog in its
tax collection program.
The budget requests 18.9 positions and $580,000 from the General Fundin order to handle increased workload in its tax collection program. The
increase is caused by the growing number of employers in the state. The
department indicates that the increased workload has resulted in a serious
backlog in the tax collection program. The backlog exists in the processingof employer registration, change of employer status, correction of duplicate accounts, and collection of overdue taxes. The department states thatto the extent it is unable to perform these functions in a timely manner,the quality of services to employers and the state's ability to collect revenues for the General Fund, UI Fund, DI Fund, and the Employment
Training Fund will suffer.
The department advises us that the federal government has provided
the state with funds for the equivalent of 178.5 personnel-years in order
to cover the UI rrogram's share of the tax collection workload. Based on
the state/federa cost-sharing ratio, EDD would match the federal fundswith state funds for an equivalent 102.1 personnel-years. The department
maintains, however, that it only needs a total of 35.6 personnel-years(which is equal to 20 percent of the federal positions), due to efficiencies
made possible by automation. (The department will use the rest of thefederal funds to support part of its operating expenses in the current andbudget years.) Accordingly, the department proposes to add only 18.2
personnel-years for state-funded tax collection activities.
The department has not provided the Legislature with the workload
and backlog data it needs in order to assess the budget proposal. Specifically, the department has not documented:

876 / HEALTH AND WELFARE

Item 5100

EMPLOYMENT DEVELOPMENT DEPARTMENT-Continued• The extent of the backlog in various tax collection functions.
• The number of positions required to reduce the backlog.
• How automation efficiencies will enable it to handle increased workload and reduce the backlog with 18.9 positions.
Consequently, we recommend that prior to budget hearings, the department provide the fiscal committees with the following information:(1) workload data for each of the tax collection functions, (2) data on theactual backlog in each tax function, (3) the number of positions needed
to reduce the backlog, and (4) the impact of the backlog on services to
employers and revenue collection.
Department's Operating Expense Request Is Not Adequately Justified

We withhold recommendation on $5,266,000 in additional funds requested by the department for operating expenses and equipment, pending
receipt of information that (1) documents the need for the additional
funds in each expense category and identifies how the department proposes to spend these funds and (2) identifies the addiUonal amount offunds needed, by expense category, for each program.
The budget requests $241.7 million for EDD's operating expenses andequipment in 1986-87. Of this amount, $132.3 million, or 55 percent, would
be used to support training contracts and other client services. The remaining $109.3 million would be used for normal operating expenses andequipment such as rent, travel, and computers.
Current-Year Budget. The Supplemental Report of the 1985 Budget
Act required EDD to submit a report to the Legislature, by November 1,
1985, on its operating expense needs for 1985-86 and the department's
process for determining those needs.
The department's report outlines a number of steps the department has
taken, or plans to take, in order to improve its internal budgeting process
for operating expenses. The report also identifies a shortfall of $6.7 million
in funding for operating expenses during the current year. To cover the
shortfall, the department has requested an additional $6.7 million for expenses such as:• Telephone lines to support increased automation.
• In-state travel.
• Repairs and alterations on EDD's facilities.
• Consulting services for the T AS.
• Replacement of cars, copiers, and furniture.
The department proposes to fund this current-year shortfall from two
major sources: (1) a $2 million deficiency appropriation from the EDD
Contingent Fund and (2) $4.4 million in additional federal funds madeavailable to. handle the federal program share of increased tax collection
workload. The remaining $300,000 will be financed from various special
funds.
We have reviewed the department's report and believe that it provides
adequate documentation to justify its proposed request for additional
funds in the current year.
Budget-Year Proposal. On the other hand, we do not believe thatthe department has done an adequate job of justifying its request for $5.3
million to meet what it asserts is a "shortfall" in its operating expenses forthe budget year. This is because the department arbitrarily allocated theItem 5100

HEALTH AND WELFARE / 877$5.3 million among seven major expense categories for the purposes ofdeveloping its budget for 1986-87. The department advises that these
allocations do not reflect the amount it actually needs for each expense
category or how it will spend these funds in 1986-87. The department
advises that it intends to develop during the next several months a moredetailed request for operating expenses to be incurred during 1986-87.
Until this information is available, the Legislature cannot determine thedepartment's true operating expense needs. For this reason, we withholdrecommendation on the department's request for $5,266,000 in additional
funds for operating expenses, pending receipt of information that (1)documents the need for the additional amount in each expense category
and describes how the department proposes to spend these funds and (2)identifies the additional amount of funds needed, by expense category, foreach program.
Legislature Needs Plan for Discretionary Funds

We recommend that prior to budget hearings, the EDD submit to thefiscal committees a proposal discussing how the department plans tospend the Job Service 10 percent discretionary funds.
Federal law permits the state to use up to 10 percent of its Job Service
grant funds for various discretionary activities. Under federal law, eligible
discretionary activities include (1) providing incentive grants to local job
service offices, (2) providing services to groups with special needs, and (3)funding experimental Job Service programs. The budget proposes $8,034,000 for discretionary activities in 1986-87.
The department has not been able to provide us with specific plans forthe use of its 10 percent discretionary funds in 1986-87. We believe theLegislature should have an opportunity to review the proposed use of
discretionary funds in 1986-87. Accordingly, we recommend that prior tobudget hearings, the department submit to the fiscal committees a proposal discussing the department's plans to spend the 10 percent discretionary funds.
Transfer of the IMPACT Program is Inconsistent with Legislative Intent

We withhold recommendation on $1.6 million in federal funds for the
IMPACT program pending receipt of a report from EDD and the Department of Finance on why they propose to transfer the program from theMilitary Department to EDD.
The budget proposes to transfer the IMPACT program from the Military Department to EDD in the budget year. The department proposes
to support the IMPACT program using $1.6 million of the 10 percent
federal discretionary funds available under the Job Service program. This
amounts to 20 percent of the discretionary funds available in 1986-87.
The Military Department has administered the IMPACT program since1977. This program provides basic skills, training, employment counseling,
and job placement to economically disadvantaged youth, with an emphasis on preparing them for military service. In the current year, the IMPACT program will receive a total of $1,850,000 from five sources: (1)General Fund support through the Military Department ($232,000) , (2)EDD'sJob Service discretionary funds ($617,000), (3) JTPA discretionary
funds ($188,000), (4) JTPA local assistance through Private Industry Councils ($393,000), and (5) Employment Preparation Program funds ($420,000).·.
The Supplemental Report of the 1985 Budget Act stated the Legis-

878 / HEALTH AND WELFARE

Item 5100

EMPLOYMENT DEVELOPMENT DEPARTMENT-Continued

lature's intent that the IMPACT program be funded through GeneralFund support in the Military Department rather than continued throughdiscretionary fund support from the EDD. The administration, however,proposes to transfer IMPACT to the EDD, where it would be funded
entirely using $1.6 million in federal Job Service discretionary funds.
Therefore, we withhold recommendation on $1.6 million for the program pending receipt of a report during budget hearings from EDD andthe Department of Finance explaining their reasons for transferring the
program.
AUTOMATION ACTIVITIES
Department Needs Plan for Repaying Reed Act Funds

We recommend that the Legislature adopt supplemental report language requiring the department to (1) repay the Reed Act Fund formonies which it has used to automate the UI program and (2) submit areport by October 1, 1986, which identifies its plan for repaying this fund.
The budget proposes to use $2,944,000 in federal Reed Act funds topurchase computer equipment for the VI program in 1986--87. This is inaddition to the $1.7 million in Reed Act funds which were appropriatedby the 1985 Budget Act for VI automation in the current year.
The Reed Act funds are excess federal unemployment taxes that werecollected in the 1950s and turned over to the states by Congress to pay VI
benefits or administrative costs. Federal law allows EDD to use Reed Act
funds for VI capital outlay projects and for automation activities.
Vnder federal law, the department may repay, from the VI program
budget, funds which it "borrows" from the Reed Act for the purchase ofcapital assets. The repayment, thus, serves to replenish the funds available
to the EDD for future projects.
We believe that the Reed Act is an appropriate funding source for VI
automation projects. The funds, however, will not be available for similar
projects in the future unless the department repays the Reed Act Fundfor the monies it is using for automation in the current ($1.7 million) andbudget ($2.9 million) years. Although the department indicates that Reed
Act funds will be repaid from savings generated by automation of the VI
program, it does not have a plan for doing so.
In order to ensure that the department does not deplete this valuable
source of funds, we recommend that the Legislature adopt supplemental
report language which requires the department to (1) repay the Reed Act
Fund and (2) submit a report by October 1, 1986, which identifies its plan
for repaying the fund. The following supplemental report language isconsistent with this recommendation:"The Employment Development Department shall repay the federal
Reed Act funds it has used for automation of the Vnemployment Insurance program. In addition, the department shall submit a report to theLegislature by October 1, 1986, which identifies its plan for repaying theReed Act funds."
No Approved FSR for Proposed Automation Project

We withhold recommendation on $1,543,000 requested from the EDD
Contingent Fund to develop an automated applicant data base for the Job
Service program, pending the receipt of an approved Feasibility Study
Report (FSR).

Item 5100

HEALTH AND WELFARE / 879

The budget proposes to spend $1,543,000 from the EDD Contingent
Fund to develop an automated applicant data base for the Job Service US)
program. This system will link UI and JS applicants with employer job
orders. Specifically, the budget proposal will allow district offices using
computers to match the listing of employer jobs with the qualifications ofprospective employees.
Of the amount requested, the EDD proposes to use $1.4 million for a
multiple-year contract to design and install the applicant data base system.
The remaining $133,400 will be used to pay Health and Welfare Data
Center charges in 1986-87.
At the time we prepared this analysis, the Office of Information Technology (OIT) had not reviewed the FSR. Without an approved FSR, we
are unable to assess the fiscal implications of either the budget change
proposal or the project itself. As a result, we withhold recommendation on
the proposed expenditure of $1,543,000 from the EDD Contingent Fundfor an automated applicant data base, pending receipt of an approved FSR
from OIT.
Technical Budgeting Issue

We recommend a reduction of $908,000 in General Fund support for Job
Service Order Sharing computer operation and maintenance in order tocorrect for double-budgeting.
The budget requests $1,170,000 from the EDD Contingent Fund for theoperation and maintenance costs in 1986-87 of Job Service Order Sharing(JSOS) computers to be installed in the current year. Based on discussions
with the department and our review of supporting documents, we conclude that the department has already included $908,000 from the Contingent Fund for this purpose in the baseline budget for the JSOS program.
We recommend that the $908,000 which is double-budgeted from theContingent Fund be used in lieu of a like amount from the General Fund.
DISABILITY INSURANCE PROGRAM

The Disability Insurance (DI) program provides cash benefits to individuals who are unable to work because of a physical or mental illness
or injury. In general, an individual is eligible for benefits if his/her illness
or injury is not work-related. The EDD administers the DI program in
California.
Currently, DI benefits range from $50 to $224 a week for up to 52 weeks.
The actual benefits an individual receives depend on past contributions
to the DI Fund and the nature of the individual's disability. The department estimates that 651,000 persons will receive an average weekly benefit of $160 in 1986.
The DI program is financed by worker contributions collected througha payroll tax. The amount of the worker's contribution is based on apercentage of the worker's wages, up to a maximum wage of $21,900. The
tax rate was 0.6 percent of wages in 1985 and is 0.9 percent in 1986. In 1985,
an employee whose wage was $21,900-the taxable wage ceiling-contributed $131 to the DI Fund.
In 1980, the Legislature enacted a variable tax rate formula (VTRF)
which is the mechanism used to set the annual DI tax paid by employees
in California. The formula was intended to maintain the fund balance at
25 percent to 50 percent of fund disbursements. This level was supposed
to prevent the fund from developing an excessive balance, while at thesame time ensuring enough funds to pay benefits.

880 / HEALTH AND WELFARE

Item 5100

EMPLOYMENT DEVELOPMENT DEPARTMENT-Continued
Deficit in the DI Fund in 1985

In September 1985, the department notified the Legislature that there
could be a deficit in the DI Fund at the end of both 1985 and 1986. At thetime we prepared this analysis, the department advised us that the deficit
in the DI Fund reached $32 million during the second week in January
1986. Because of this deficit, it was necessary for the department to borrowmoney from the General Fund. The department, however, only needed
to borrow $17.3 million from the General Fund because it began to receive
employee contributions at the beginning of January. Some of these funds
have been repaid already; the remainder will be repaid by March 31, 1986.
Nevertheless, the department estimates that the fund will have a deficitof $44 million at the end of 1986 and the beginning of 1987 because payments from the fund will exceed revenues.
'
Reasons for 1985 DI Fund Deficit

Two factors contributed to the deficit in the DI Fund at the end of 1985:• The number of first claims paid and the duration of claims grewsignificantly between 1984 and 1985 .
• The tax rate did not generate adequate revenues.
The combination of these factors depleted the fund in 1985 and will
result in another deficit in 1986.
Large Growth in Claims and Duration. The department indicatesthat disbursements from the DI Fund increased by 23 percent between
1984 and 1985. This increase was due mainly to the fact that (1) the
number of first claims paid increased by 4.5 percent during this period and(2) the duration of such claims increased by 14 percent. The increase in
first claims paid reversed a trend of declining claims during the last several
years.
The department underestimated the number of people who would submit DI claims, and the length of time they would collect such benefits,during 1985. Table 5 compares the department's estimates of claims activity with actual experience for 1985. The table also displays actual claims
experience for 1984. The table shows that the department underestimatedthe number of first claims paid by 5.1 percent and underestimated theduration of claims by 9.4 percent.
Table 5
Disability Insurance Program
Estimated and Actual Claims Activity
1984 through 1985

1985

First claims paid ..................................
Average duration (weeks) ................
Total disbursement (in millions) ....
Total revenues (in millions) ............

1984
619,34410.2$991$1,147

Est. "
615,839
10.6$1,057$896

Difference
Between Percent
EDD's
ChangeEst. and 1984 tal985
ActualActual(Actual)647,280 b
5.1
4.5%
11.6
9.4
13.7
$1;224
15.8
23.5
$918
2.5
-20.0

Source: EDD, Employment and Research Division.
~ Employment Development Department's Forecast for 1985 dated November 1984.
Actual data through November 1985, plus estimate for December 1985.

Item 5100

HEALTH AND WELFARE / 881

The department indicates that the sudden increase in claims activity
during 1985 was partly related to legislation enacted in 1984 which raised
DI benefits and increased the length of time for which an individual could
collect benefits. The department indicates, however, that the growth exceeded that· which can be attributed to these legislative changes. The
department is unable to fully explain the increase in the number andduration of claims, other than to indicate that it is linked to social andeconomic factors.

Tax Rate Generates Insufficient Revenues. Increased benefit costs
alone did not result in the DI Fund deficit in 1985. Revenues which support the fund also declined by 20 percent between 1984 and 1985, largely
due to a 0.3 percentage point drop in the tax rate-from 0.9 percent in 1984
to 0.6 percent in 1985. This reduction in the tax rate was due primarily to
two factors. First, the state accelerated the collection of various revenues,
including contributions to the DI Fund, starting in 1984. This accelerated
collection ofrevenues caused the balance in the DI Fund on June 30,1984,
to be $90 million higher than it otherwise would have been. This, in turn,led to a 0.2 percentage point drop in the 1985 tax rate. Second, the 1984
legislation which increased benefits also increased the taxable wage ceiling in order to supplement revenues. This further inflated the amount ofmoney in the fund as ofJune 30, 1984. The VTRF interpreted the increasein the fund's balance as a large improvement in fund adequacy. Under theformula, the increased fund balance resulted in a decline in the tax rateof 0.3 percentage points.
Potential Deficit in the DI Fund During 1986-87

We recommend that prior to budget hearings, the department advise thefiscal committees on (1) its most recent estimate of the DI Fund balance
for December 1986 and January 1987 and (2) how it plans to deal with any
potential deficit in the fund.
At the time we prepared this analysis, the department estimated that
there would be a deficit in the DI Fund of $44.4 million during December
1986 and January 1987. This estimate assumes a tax rate of 0.9 percent
during 1986. The deficit could turn out to be higher or lower than $44
million, depending on (1) the actual number of claims filed in 1986, (2)the duration of claims, (3) the average dollar amount of claims, (4) thestrength of the economy, and (5) the number of employees contributing
to the DI Fund.
If a deficit in the fund does occur in 1986, the EDD could deal with itin a number of ways.
• The department could request another short-term loan from the General Fund. As in 1985-86, the loan would be repaid early in 1987.
• The administration could invoke emergency authority under theGovernment Code (Section 2604) to temporarily reduce benefits orchange the contribution rate in order to prevent insolvency in thefund.
• The EDD could request one-time authority from the Legislature toraise the formula-set tax rate by an amount sufficient to keep the fundsolvent.
• The EDD could seek authority to raise the taxable wage ceiling inorder to enhance revenue levels in the latter part of 1986.

882 / HEALTH AND WELFARE

Item 5100

EMPLOYMENT DEVELOPMENT DEPARTMENT-Continued

In order to assure that the Legislature has the information it needs toassess the condition of the DI Fund, we recommend that prior to budget
hearings, the department advise the Legislature on: (1) its most recent
estimate of the DI Fund balance for December 1986 and January 1987 and(2) how it plans to deal with a deficit in 1986 should one occur.
DI Funding Mechanism Needs Improvement

We recommend that the Legislature enact legislation establishing a new
funding mechanism for the VI Fund which incorporates specified features
missing from the current formula.
Chapter 903, Statutes of 1983 (AB 518), requires EDD to submit to theLegislature by February 1, 1986, a report on the variable tax rate formula.
At the time this analysis was prepared, we had not received the report.
Based on our review, we conclude that the following features, which are
missing from the present VTRF, should be included in any future DI
financing mechanism.
• The VI Financing Mechanism Should Incorporate a Significant
Amount of Historical Experience. The VTRF uses the tax rate in
the current year as the starting point for determining the tax rate to
be used in the next year, regardless of whether the current rate
reflects the most recent trend in claims and disbursements. For example, the tax rate for 1986 is based on adjustments to the 1985 tax rate
which failed to generate adequate revenues for 1985. Consequently,
the tax rate for 1986 probably will not generate sufficient revenues tocover disbursements in 1986. In addition, the formula establishes the
new tax rate based on changes in the fund condition over a relatively
short period of time-six months. We believe that the calculation of
the DI funding level should reflect a longer period of actual disbursements and revenues, as well as some reasonable assessment of future
trends.
• The VI Financing Mechanism Should Be Less Volatile. The current VTRF reacts to small changes in the condition of the DI Fundwith large changes in the tax rate. For example, the department
estimates that if disbursements from the fund had been $25 million
lower in June 1985, the tax rate for 1986 would have been 0.7 percent
rather than 0.9 percent. The difference of 0.2 percent would havegenerated $260 million less in revenues for 1986, even though disbursements declined by only $25 million.
• The VI Financing Mechanism Should Be Based on a More Realistic
Point-In-Time Estimate of the VI Fund Balance. Currently, thedepartment determines the upcoming year's contribution rate, basedon the fund's condition as of June 30. The June 30 fund balance,
however, is not an accurate predictor of the year-end balance. In fact,
the DI Fund balance typically is largest in June and smallest in December. Because the balance in the fund generally declines between
June and December, an estimate made later in the year would moreclosely approximate the actual end-of-year fund condition. We believe it would be preferable to calculate the new tax rate based ondata through September 30 rather than June 30. This would still allow
EDD to announce the annual contribution rate for the upcoming year
by November 1, in order to provide 60 days for implementation.
In short, we conclude that DI funding mechanism should be improvedin order to reduce the risk of end-of-year deficits in the fund. Accordingly,

Item 5100

HEALTH AND WELFARE / 883

we recommend that the Legislature enact a new DI tax rate formulawhich: (1) incorporates a significant amount of historical experience, (2)is less volatile, and (3) uses a more realistic point-in-time estimate of the
DI Fund balance.
SCHOOL EMPLOYEES FUND
The State Should Recover Its Full Share of the Surplus in the
School Employees FundWe recommend that the Legislature transfer $88.8 million, rather than
$45 million, from the School Employees Fund to the General Fund for an
increase in General Fund revenues of $43.8 million.
The budget proposes to transfer $45 million from the School Employees
Fund (SEF) to the General Fund in 1986-87.
The SEF is a special fund in the State Treasury which receives contributions from school district employers in order to pay the unemployment
claims from former school employees. In 1984-85, 1,179 employers participated in this program, including K-12 school districts, community college districts, and county administrative offices.
The department estimates that the SEF will have a reserve of $77 million at the end of 1985-86-up from $38.5 million at the end of 1984-85. The
administration cites three reasons for the large increase in the SEF reserve: (1) an increase in the amount of school employee wages, (2) adecrease in VI benefits claimed by former school employees, and (3) anincrease in school employer's contributions to the SEF.
Since the department has determined that the SEF requires a prudent
reserve of $20 million, the fund will have an excess balance of $57 million
as of June 30, 1986. The administration proposes to recapture for the
General Fund $45 million, or 79 percent, of the excess balance. The administration's rationale for transferring this amount of money to the GeneralFund is that the state pays approximately three-quarters of the costs offinancing public schools and therefore should recover its proportionate
share of the surplus.
We conclude that the administration's rationale for recapturing only 79
percent of the excess reserve balance in the SEF betrays a fundamental
misunderstanding both of the way school apportionment funds are provided generally, and of the way such funds are provided to cover theschool districts' costs of VI premiums.
Vnder the state's "revenue limit" system of funding schools, each school
district has a specific revenue limit per unit of average daily attendance(ADA). The school finance system guarantees each school district anamount of general purpose funds equal to its revenue limit times its ADA,
with this amount financed through a combination of local property taxes
and state General Fund aid.
For the vast majority of school districts, the amount of local property
taxes received is not sufficient to fund the revenue limit guarantee
amount. For these districts, the state provides sufficient funds to make up
the difference between the guarantee and the amount of property taxes
raised by the district. Thus, the state provides funding for 100 percent of
the marginal change in each school district's revenue limit "guarantee."Moreover, Section 42241.7 of the Education Code provides that, in any
year in which a school district's costs for unemployment insurance premiums paid to the School Employees Fund exceeds the amount paid by the884 / HEALTH AND WELFARE

Item 5100

EMPLOYMENT DEVELOPMENT DEPARTMENT-Continued

district for this purpose in 1975-76, the district may increase its revenue
limit by the amount of the excess costs. Because the state funds 100 percent of the marginal increase in a district's revenue limit guarantee, therevenue limit "add-on" for unemployment insurance is paid in full by thestate.
In 1984-85, the most recent year for which data is available, the state
General Fund cost of funding the unemployment insurance "add-on" was$24.6 million. In the same year, the unemployment insurance premiums
charged to school districts exceeded the costs of providing benefits by$24.1 million. Obviously, the full amount of these excess costs was paid by
the state.
Our analysis therefore indicates that it would be appropriate for thestate to recapture the full amount of the $57 million in excess reserves in
the SEF, which will be available at the beginning of 1986-87-rather than79 percent of this amount, as proQosed by the Governor. The state also canrecapture an additional $31.8 million which will be available at the end of
1986-87 (June 30,1987). Thus, a total of $88.8 million is available for transfer to the General Fund. In so doing, the state will merely be taking backfunds which the General Fund paid in the first place. Furthermore, recapturing these funds would pose no fiscal risk to school districts. If theLegislature transfers $88.8 million to the General Fund, $20 million will
still remain as a prudent reserve. This reserve exceeds the actual benefits
paid out by the fund in 1984-85, and the estimated benefit payments inboth 19~6 and 1986-87. If, however, the $20 million reserve were notsufficient to cover benefit payments, thereby necessitating a future increase in contribution rates, the full amount of this increase would be paid
for by the state General Fund.
Accordingly, we recommend that the Legislature recapture the fullamount of the $88.8 million excess reserve balance (rather than 79 percent), for an equivalent increase in General Fund revenues.
JOB TRAINING PARTNERSHIP ACTThe Job Training Partnership Act (JTPA) provides employment andtraining assistance to disadvantaged adults and youth, displaced workers,
and older workers. The federal legislation requires both state and local
government participation in the implementation and operation of JTP A
programs. The federal Department of Labor allocates JTP A funds to thestates on a formula basis, according to the relative population, level of
unemployment, and number of economically disadvantaged individuals ineach state.
Budget Estimates Federal Funding to Remain Level in 1986-87

Table 6 shows the federal funds for JTPA in the prior, current, andbudget years. The table shows that the current year budget includes $179
million in JTP A funds carried over from 1984-85. These funds will not be
available in 1986-87. When expenditures are adjusted to account for thiscarry-over, the federal funding levels for 1985-86 and 1986-87 are identical. Table 6 does not reflect the 8.3 percent cut in funding for JTP A during
federal fiscal year (FFY) 1986 that the Congress approved in December
1985. Nor does it reflect any reductions which may occur as a result of theGramm-Rudman-Hollings Deficit Reduction Amendment.

HEALTH AND WELFARE / 885

Item 5100

Table 6
Job Training Partnership Act
Federal Funding Levels
1984-85 through 1986-87(dollars in thousan,dsl

Program
Title II-local programs:
Adult and Youth Program ....................
(carry-over.) ..........................................
Summer Youth programs ......................
(carry-over) ..........................................
Subtotals ................................................
(carry-over) ..........................................
Subtotals, less carry-over ..................
Title II-state programs:
Educational Linkages ............................
Incentive Grants ......................................
Administration ........................................
(special projects) ................................
Older Workers ........................................
Title III-Displaced Workers ..................
Title IVC-Veterans ..................................
Private Industry Council ..........................
Subtotals ....................................................
(carry-over) ..........................................
Subtotals, less carry-over ..................
Totals ......................................................
(carry-over) ..........................................
Totals-less carry-over ......................

Actual1984-85Est.
1985-86Prop.
1986-/37

Change From
1985--86
Amount Percent$141,405$208,183(51,510)
156,646(75,695)$364,829($127,205)$237,624$156,673-$51,510-24.7%

80,951-75,695-48.3$237,624-$127,205-34.9%

71,508$212,913$212,913$12,571
5,388
8,690
4,034
15,223
121$46,027--$46,027$258,940$258,940$237,624$26,804
24,313
15,473(4,481)
1l,213$16,080
12,1l2
10,632(1,936)
6,026-$10,724-12,201-4,841-40.0%-50.2-31.2-5,186-46.2

42,597800

23,525800-19,972-44.8$121,200($52,025)$69,175$486,029($179,230)$306,799$69,175-$52,025-42.9%$69,175$306,799-$179,239-36.9%$306,799

Department Proposes Administrative Cost PoolWe recommend .that the Legislature adopt Budget Bi11language, (1)prohibiting EDD from establishing an administrative cost pool for ]TPA
and (2) requiring the department to report to the Legislature by October
1, 1986, on the use of ]TPA administrative funds.
Federal law allows states to use up to 5 percent of their Title IIA fundsadult and youth programs-to support the administration of the JTP A
program. The budget proposes to use $10_6 million for state administrationof the JTPA programs in 1986-87.
In order to increase the amount of funds available for state administration of the JTPA program, the department proposes to establish an administrative cost pool (ACP). Under an ACP, the department would
augment its 5 percent administrative budget with funds from other JTPA
state programs, such as older workers, educational linkages, and technicalassistance and'incentive funds. To date, the department has proposed tomake only technical assistance and incentive funds (referred to as 6 percent funds) subject to the ACP.
Table 7 compares EDD's administrative budget for JTPA in 1985-86 and1986-87_ As the tablesho)Vs, in 1985-86 the department plans to augment
its administrative budget with $660,000 from an ACP in 6 percent funds,

886 / HEALTH AND WELFARE

Item 5100

EMPLOYMENT DEVELOPMENT DEPARTMENT-Continued

for a total administrative budget of $10,704,000. Of this amount, the department estimates that it will spend $9,783,000 for administrative costs and$921,000 for special local projects. In 1986-87, the department proposes to
use $629,000 in 6 percent funds, along with $10,631,000 in 5 percent funds,
for a total administrative budget of $11,260,000. This includes $9,324,000 for
administration and $1,936,000 for special projects. Thus, although the department expects the cost of JTPA administration to decrease by 4.7 percent in the budget year, it is proposing to spend more than twice as muchfor special projects using funds raised through an ACP.
Our analysis indicates that the department does not have sufficientgrounds to implement an ACP at this time. The department acknowledges
that, currently, it does not need to augment its budget through the ACP
in order to fully fund its administrative costs. The purpose behind the
proposed ACP is to establish a precedent for future years when 5 percent
funds might be scarce.
Table 7
Job Training Partnership Act
Administrative Budget
198!Hl6 and 1986-87(dollars in thousands)

Administration ............................................................... .
Special.local projects ..................................................... .
Totals ............................................................................. .
Funding Source
5 percent funds ..........................................................
6 percent funds ..........................................................

Chll1lgeFrom
1985-86
AmountPercent

Est.
1985-86Prop.
1986-87$9,783$9,324
1,936

-$459
1,015

-4.7%
110.2

$10,704$11,260

$556

5.2%

$10,045660$10,631
629

$586
-31

5.8%
-4.7

921
--

Indeed, Table 7 indicates that the $629,000 in 6 percent funds which thedepartment proposes to incorporate in its administrative budget is notneeded for ]TPA administration. The department could eliminate the$629,000 in 6 percent funds and still have sufficient 5 percent funds tocover its administrative costs and fund $1.3 million in special projects.
Moreover, the department has not provided the Legislature with information justifying the more-than-100-percent increase in funding for special projects, or even describing how the money will be spent. Our reviewof special projects funded in the prior year and current year indicates thatthe discretionary funds have been shifted among; projects, and in somecases the funds have not been spent for the purposes originally proposed.
In addition, the department has not spent all of the funds available for
special projects. This makes the proposal to increase the amount of funds
available for such projects by establishing an ACP even more questionable.
Given the lack of justification for an ACP, we recommend that theLegislature adopt Budget Bill language in Item 5100-001-869 prohibiting
EDD from using an ACP in 1986-87. If our recommendation is adopted,
the $629,000 could be used to support incentive awards and technicalassistance for local JTPA programs. We further recommend that the department provide the Legislature by October 1, 1986, (1) a description of
how it proposes to use administrative (5 percent) funds in 1986-87, (2) areport on its allocation of discretionary money in 1986-87, and (3) a com-

Item 5100

HEALTH AND WELFARE / 887

parison of administrative expenditures for 1984-85, 1985-86, and 1986-87.
The following Budget Bill language is consistent with this recommendation:"The Employment Development Department shall not use an Administrative Cost Pool in order to augment the administrative funds available
to the department for the Job Training Partnership Act (JTPA).
"In addition, the department shall submit to the Legislature by October
1, 1986, (1) a description of how it proposes to use administrative (5percent) funds in 1986-87, (2) a report on its proposed allocation of
discretionary money for special projects, and (3) a comparison of administrative expenditures for 1984-85, 1985-86, and 1986-87."
Legislature Has Not Received Two Reports It Directed EDD to Prepare

At the time this analysis was prepared, the department had not submitted to the Legislature reports on the following issues that were requiredby the Supplemental Report of the 1985 Budget Act;.
1. Fraud detection activities in the DI program-due December 1, 1985.
2. Job Training Coordinating Council budget procedures, expendituresin the older workers program, distribution of incentive awards, and state
match for the federal Veterans program under JTPA-due October 1,
1985.
Without these reports, we cannot determine whether the department
has carried out the Legislature's policies.
The Legislature has received the department's report on the impact ofautomation on the UI, DI, and Job Service Order Sharing and Tax programs. At the time this analysis was prepared, we were in the process ofreviewing the report.

EMPLOYMENT DEVELOPMENT DEPARTMENT-CAPITALOUTLAY
Item 5100-301 from the Unemployment Administration
Fund and the Employment
Development Department
Contingent Fund

Budget p. HW 138

Requested 1986-87 ......................................................................... .
Recommended approval ............................................................... .

$434,000

434,000

ANALYSIS AND RECOMMENDATIONS

We recommend approval.
The budget proposes $434,000 for 10 minor capital outlay projects ($200,000 or less per project) for the Employment Development Department(EDD) in 1986-87. This amount includes:(1) $240,000 from the Unemployment Administration Fund for remodeling restrooms in five offices for handicapped accessibility and29-80960

I
Item 5100

888 / I:IEALTH AND WELFAREEMPLOYMENT DEVELOPMENT DEPARTMENT-Continued
constructing new public restrooms in two offices.
(2) $194,000 from the Employment Development Department Contingent Fund for remodeling the interior of three offices for an "openlandscape" design, installing carpeting and purchasing movable
acoustical partitions. ("Open landscape" refers to office designs
where most employees work in a large common room, separated by
movable partitions.)
We recommend approval of the EDD's minor capital outlay program,which is summarized in Table 1.
Table 1
Employment Development Department
1986-87 Capital Outlay Program(dollars in thousands)

Restroom Remodeling
Office1................................................................................................................ Pasadena
2................................................................................................................ Visalia
3................................................................................................................ Oroville
4................................................................................................................ Stockton
5 ................................................................................................................ Eureka
6 (new) .................................................................................................. San Jose
7 (new) ................•................................................................................. Bakersfield
Open Landscaping
1................................................................................................................ Merced
2................................................................................................................ Riverside
3.. ...... ........... ................... ...................... .............. ................... ...... ............. Bakersfield
Total ............................................................................................................................ ..

Budget Bill
Amount
$25
13
45
6
39

58
57
50
64
70
$427

EMPLOYMENT DEVELOPMENT DEPARTMENTREAPPROPRIATION

Item 5100-490 from federal
funds

Budget p. HW 125

ANALYSIS AND RECOMMENDATIONS

We recommend approval.
This item reappropriates local assistance funds for employment andtraining programs under the federal Job Training Partnership Act (JTP A) .
The item allows the Employment Development Department (EDD) tocarry forward into 1986-87 all JTP A local assistance funds which are unexpended in the current year. Without this language, EDD would be required to notify the Legislature of its intent to carryover these funds
through the process established by Section 28 of the Budget Bill. The item
also requires EDD to notify the. Legislature by December 1, 1986, of theactual amount of JTPA local assistance funds carried over into 1986-87.
Our analysis indicates that establishing a reappropriation item for thesefederal funds is appropriate for two reasons. First, the funds come fromthe federal government; there are no state funds i~ this item that might

Item 5160

HEALTH AND WELFARE /889

be recaptured if not spent. Second, the state has no direct programmatic
authority over these funds. The state's role is that of an intermediarypassing the lTPA funds from the federal government to the local program
operators. Therefore, we recommend approval of this item.

Health and Welfare Agency
DEPARTMENT OF REHABILITATION

Item 5160 from the GeneralFund and Federal Trust Fund

Budget p. HW 138

Requested 1986-87 ......................................................................... . $85,397,000
Estimated 1985-86 ........................................................................... . 81,765,000
Actual 1984-85 .................................................................................. . 73,997,000
Requested increase $3,632,000 (+4.4 percent)Total recommended reduction ................................................... .
None
Recommendation pending ........................................................... . 57,428,000
1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
5160-001-001-Support
5160-001-890-Support
5160-001-942-Support
5160-101-001-Local assistance
Reimbursements
Total

Fund
GeneralFederal Trust
Vending Stand AccountGeneralAmount$19,309,000(95,553,000)(1,285,000)
61,554,000
4,534,000$85,397,000

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. Proposed Staff Reductions. Recommend that, prior tobudget hearings, the department submit to the fiscal committees specified information regarding its proposed position reductions.
2. Additional Federal Funds. Recommend that, prior tobudget hearings, the department advise the fiscal committees on (a) the amount offederal funds it will receive during
1985-86 and 1986-87 and (b) how it plans to use the additional funds.
3. Mental Health Initiative.
Recommend adoption of
Budget Bill language implementing the proposed Mental
Health Initiative on a pilot basis. Further recommend that
the Legislature (a) restore nine positions and $297,000
which the budget eliminates from the Vocational Rehabilitation (VR) program and (b) redirect back to the VR program 17 positions and $915,000.
4. Federal Reimbursements. Recommend that, prior to--------~--

Analysis
page

893

895

896

898

890 / HEALTH AND WELFARE

Item 5160

DEPARTMENT OF REHABILITATION-Continued

budget hearings, the department provide the Legislature
with a plan for increasing the amount of federal reimbursements received for serving Supplemental Security Income/State Supplementary Program (SSI/SSP) and Social Security Disability Insurance (SSDI) recipients.
5. Federal Reimbursements. Recommend adoption of supplemental report language directing the Departments ofRehabilitation (DOR) and Social Services to submit a joint
report (a) identifying the potential costs and savings to thestate of increasing the number of SSI/SSP and SSDI recipients served by DOR and (b) proposing an improved system
for referring SSI/SSP recipients to DOR.
6. Work Activity Program Caseloads. Withhold recommendation on $57.4 million proposed for the Work Activity Program (WAP) until the department provides the Legislature
with reliable estimates of WAP caseload and funding requirements for 1986-87. Further recommend adoption of
Budget Bill language requiring the department to report
twice yearly on W AP caseload projections.
7. Supported Employment Program. Recommend that, prior to budget hearings, the department report to the Legislature on its plans for implementing the Supported Employment program.

899

901

902

GENERAL PROGRAM STATEMENTThe Department of Rehabilitation (DOR) assists disabled persons toachieve social and economic independence by providing vocational
rehabilitation and habilitation services. Vocational rehabilitation services
seek to place disabled individuals in suitable employment. Habilitation
services help individuals who are unable to benefit from vocational
rehabilitation achieve and function a:t their highest levels.
Vocational rehabilitation services are provided by the department's
counselors and by nonprofit organizations. Counselors (1) evaluate applicants for services, (2) work with clients to develop their rehabilitationplans, (3) authorize the purchase of services necessary to implement theplans, (4) supervise the progress of each client in their caseload, and (5)followup to verify rehabilitation. Nonprofit organizations, which include
sheltered workshops, facilities for the deaf and blind, and independent
living centers, provide counseling, job development, placement, and supportive services.
The Work Activity Program provides habilitation services to adults who
are developmentally disabled. The department purchases services from
community-based work activity centers in order to help clients achieve
their highest level of functioning and live independently. The objectivesof work activity centers are (1) to provide clients with work stability insheltered employment, (2) to increase their vocational productivity andearnings, and (3) to the extent possible, develop their potential for competitive employment. Clients may move into competitive employment
either from the work activity centers directly or through the department's
vocational rehabilitation services. Habilitation services also include dailyliving and adjustment training for physically or mentally disabled persons
who are not ready for, or who are unable to benefit from, vocational
rehabilitation.

Item 5160

HEALTH AND WELFARE / 891

The 1985 Budget Act authorized 1,707.9 positions for the department in
the current year.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes an appropriation of $80,863,000 from the GeneralFund for support of the Department of Rehabilitation in 1986-87. This is
an increase of $3,632,000, or 4.7 percent, above estimated current-year
General Fund expenditures.
Total program expenditures, including expenditures from federal funds,
special funds, and reimbursements, are proposed at $182,235,000, an increase of $5.6 million, or 3.2 percent, above estimated current-year expenditures. Table 1 displays program expenditures and funding sources
for the prior, current, and budget years. Table 2 shows the number of
personnel-years for the department during the period 1984-85 through1986-87.
Table 1
Department of Rehabilitation
Budget Summary
1984-85 through 1986-87(dollars in thousands)

Program
Vocational Rehabilitation ........ ..
Habilitation Services ................. .
Support of Community Facilities ........................................ ..
Administration ........................... .
Totals .................................... ..
Funding Source

General Fund ............................ ..
Federal Trust Fund.................. ..
Vending Stand Account.. ........ ..
Reimbursements ...................... ..

Actual1984-85$90,764
49,254Est.
1985-86$102,058
54,539Prop.
1986-87$105,105
58,175Percent Change
From 1985-86
3.0%
6.7

7,069
12,502$159,589

8,044
11,982$176,623

7,563
11,392$182,235

-6.0
-4.9
3.2%

$70,104
84,307
1,285
3,893$77,231
93,573
1,285
4,534$80,863
95,553
1,285
4,534

4.7%
2.1

Table 2
Department of Rehabilitation
Personnel-Years
1984-85 through 1986-87

ActualProgram
1984-85
Vocational Rehabilitation .... 1,447.4
Habilitation Services ............
19.0
Support of Community
Facilities ..........................
Administration ......................
Totals ................................

18.0
215.4
1,699.8

Est.
1985-86
1,385.2
22.9

Prop.
1986-87
1,327.8
19.9

11.7
194.4
1,614.2

11.7
169.0
1,528.4

ChangeFrom 1985-86
AmountPercent-57.4-4.1 %
-3.0
-13.1
-25.4
-85.8

-13.1
-5.3%

General Fund Request. Table 3 identifies the significant changes inGeneral Fund expenditures proposed for 1986-87.
The budget does not include funding for Merit Salary adjustments or
inflation adjustments to Operating Expenses and Equipment. We estimate that the department will have to absorb approximately $2.7 million
in such costs.

Item 5160

892 / HEALTH AND WELFARE

DEPARTMENT OF REHABILITATION-Continued
Table 3
Department of Rehabilitation
Proposed General Fund Budget Changes
1981H17(dollars in thousands)

Adjustments
1985-86 expenditures (revised) ........................................................................... .
1. Cost adjustments
a. Increase in existing personnel costs• Full-year cost of 1985-86 salary increase ............................................. .
• 1986-87 salary increase ........................................................................... .
Subtotal ....................................................................................................... .
b. Collective bargaining costs ......................................................................... .
Total, Cost Adjustments ......................................................................... .
2. Reductions in funding
a. Limited-term Work Activity Program auditors ..................................... .
b. One-time funding for Partially Sighted Project-Northern California
c. Communication Devices Project-Ch 1214 ........................................... .
Total, Reductions in Funding ................................................................
3. Program Change Proposals
a. Work Activity Program caseload adjustment ........................................
Total, Program Change Proposals ....................................................... .
1986-87 expenditures (proposed) ....................................................................... .
Change from 1985-86:
Amount ................................................................................................................. .
Percent.. ................................................................................................................ ..

Totals$77,231

$69
587
$656
-5
$651
-157
-100
-250
-$507
$3,488$3,488$80,863$3,632
4.7%

ANALYSIS AND RECOMMENDATIONS

We recommend approval of the following program changes which are
not discussed elsewhere:• A reduction of 12 central office positions due to efficiencies. This
reduction will free up $436,000 to be used for purchasing clientservices_• A reduction of 7.5 field office clerical positions. This will free up$213,000 to be used for purchasing client services.
Counselor Positions Are Not Being Used to Provide Client Services

Vocational rehabilitation (VR) counselors perform client assessment,
counseling, referral and purchase of services, and follow-up in an effort toplace disabled individuals in suitable employment.
The 1985 Budget Bill, as introduced, proposed to eliminate 37 VR counselor pOSitions. The Legislature restored these positions because it determined that reducing the number of counselors would adversely affectservices to California's disabled population. The Governor chose not toveto funding for the 37 counselor positions in signing the 1985 Budget Act.
Despite the actions taken by the Legislature, the department has not
filled 20 of the 37 positions with case-carrying staff. Instead, the department held these positions vacant until the middle of the current year,
when it filled 15 of the positions with Program Supervisors whose positions
were eliminated in the 1985 Budget Act. These 15 Program Supervisors

Item 5160

HEALTH AND WELFARE / 893

originally were funded from an attrition blanket included in the 1985
Budget Act. The DOR removed them from the attrition blanket andplaced them in the counselor positions in order to stretch the attrition
blanket funds. The department has continued to hold vacant the remaining five counselor positions.
Thus, as a result of the department's actions, 20 counselor positions
which the Legislature restored will not be providing direct rehabilitation
services to clients.
Legislature Needs Additional Information on the Impact of Proposed Position
Reductions .

We recommend that, prior to budget hearings, the department submit
to the Legislature specified information regarding its proposed position
reductions.
The DOR proposes to eliminate 56.5 positions in 1986-87. The reductions would be made in the following three categories of staffing:.
• Central Office-Administration. The budget proposes to reduceeight positions from the DOR central administrative staff. The department indicates that as a result of operating efficiencies, the remaining
staff ca.n absorb the work currently performed by these eight positions.
• Central Office-Program. The budget proposes to reduce six positions which currently support programs administered by DOR'scentral office staff. According to the department, the workload assigned to five of these positions can be absorbed by existing staff
wit~out having a noticeable impact on services. One position
proposed for elimination from the Business Enterprise Program(BEP), however, will reduce the level of services to the blind.
• District Office-Program. The budget proposes to eliminate 42.5
positions that currently are supporting the operation of VR programs
throughout the state. These reductions include: (1) 22.5 positions
providing administrative support to VR counselors, (2) five vocational psychologists, (3) four medical consultants, and (4) 11 VR counselors.
The Legislature has not been provided with the information it needs toevaluate three aspects of the department's proposals.
No Plan for Reorganizing District Offices. The budget proposes toeliminate nine district office administrative staff positions by reducing
from seven to six the number of district offices in Los Angeles. In addition,
the department proposes to eliminate 7.5 clerical positions in various field
offices. It indicates that this reorganization will bring the ratio of administrative staff to counselors in Los Angeles down to a level comparable withthat in the rest of the state. Currently, each administrative staff positionin Los Angeles supports 3.3 counselors. Following the proposed reduction,
each administrative st~f position would support 3.8 counselors. The department's proposal to eliminate 7.5 clerical positions would further
reduce this ratio to one administrative position for every four counselors.
While the department says that it has been considering such a merger
for several years, it has not provided us with a detailed reorganization planshowing:894 / HEALTH AND WELFARE

Item 5160

DEPARTMENT OF REHABILITATION-Continued• The impact of the new staff/counselor ratio on the delivery of services
to clients in Los Angeles.
• How the boundaries of the remaining six districts will be shifted tocompensate for the elimination of one administrative office in the Los
Angeles region.
• Which district office will be eliminated.
Without such a plan, we are unable to evaluate the merits of this proposal.
Rationale for Contracting Out Medical Consultant and Psychologist
Positions Not Documented. The department proposes to eliminate
five vocational psychologist positions and four medical consultant positions. The vocational psychologists provide diagnostic and vocational testing services to VR clients as requested by the department's counselors.
The department advises that elimination of the five positions will free up$168,493 which will be used by counselors to purchase diagnostic andvocational testing on a fee-for-service basis.
The medical consultants provide assistance to VR counselors in determining a client's medical eligibility for services and vocational limitations.
The department states that elimination of the four positions will free up$207,360 which will be used by counselors to purchase these services ona fee-for-service basis.
The department believes that it is more efficient to use psychologists
and medical consultants on a fee-for-service basis than to have full-timestate staff performing these activities. The department, however, could
not provide us with information documenting this assertion or showingthat the proposal would result in savings.
Reduction in Services to the Blind. The budget proposes to reduce
two positions and $76,000 from the BEP. This program provides training
and employment for legally blind persons in the management of foodservice and vending facilities located in public and private buildings
throughout the state.
One of the two positions proposed for elimination is an associate architect. This position produces architectural drawings which are used toestablish new vending sites and to remodel existing sites. In addition, theassociate architect advises persons who wish to open a vending facility
about facility design, equipment speCifications, and equipment costs. The
department states that elimination of the associate architect position will
reduce by one-half the number of schematic and working drawings it will
be able to produce in a year. The department indicates, however, that thisreduction will be partially offset by the increased productivity of theremaining architect which the purchase of a personal computer will makepossible.
Even so, the number of architectural drawings produced annually by
the department will go down by one-third-from 60 to 40 schematic drawings and from 25 to 18 sets of working drawings. The ability of the department to promote the BEP and assist in the development of new sites will
also decline.
The department is unable to advise the Legislature what effect thisreduction would have on employment opportunities for the blind.
Recommendation. In order to help the Legislature make a meaningful assessinent of the proposed position reductions, we recommend
that, prior to budget hearings, the department submit to the fiscal committees the following information:

HEALTH AND WELFARE / 895

Item 5160

1. A reorganization plan for the Los Angeles region which includes (a)a comparison of the present and proposed district boundaries, (b) the
current and proposed caseload by district and number of VR counselors
by district, and (c) the number of administrative positions in each district.
2. A comparison of the costs and benefits of contracting out for vocational psychologists and medical consultants.
3. An explanation of how eliminating an associate architect in the BEP
and producing one-third fewer architectural drawings will affect the levelof employment opportunities and services for the blind.
VOCATIONAL REHABILITATION SERVICES

The federal government provides financial support for the state's basic
VR services and for VR services provided to eligible Supplemental Security Income/State Supplementary Program (SSI/SSP) and Social Security
Disability Insurance (SSDI) recipients. The federal government also
funds grants to individual facilities and programs. The state is required toprovide a match equal to 25 percent of the federal appropriations for thebasic support program. The federal government funds the full cost ofservices provided to SSI/SSP and SSDI recipients.
The budget proposes an expenditure of $116,160,000 from all funding
sources for VR services and associated administration in 1986-87. This is
an increase of $2,457,000, or 2.2 percent, above estimated current-year
expenditures. Of the total, $18,011,000 is requested from the GeneralFund, $92,330,000 is from federal funds, and $5,819,000 is from fees andreimbursements.
The budget also proposes to spend an additional $2.7 million in federal
VR funds for grants to community facilities.
Additional Federal Funds Not Budgeted

We recommend that, prior to budget hearings, the department advise
the fiscal committees on (1) the level of federal funds that it will receive
during 1985-86 and 1986-87 and (2) how it plans to use the additional
funds.
The budget document estimates that federal funds to support the basic
rehabilitation program will total $89,466,000 in the current year and $91,839,000 in the budget year. These amounts, however, do not reflect theeffect of the appropriation bill signed by the President on December 12,
1985. This act increased funding for Vocational Rehabilitation (VR) programs by $90 million, from $1,100 million in federal fiscal year (FFY) 1985
to $1,190 million in FFY 1986. This would result in an additional $7 million
in federal funds for California in the current year. If the Congress appropriates the same amount of funds for FFY 1987, an additional $7 million
would be available in the budget year as well.
The 1986 Budget Bill proposes the expenditure of $2.4 million in extra
federal funds for the VR program. This, however, leaves $4.6 million of the$7 million unallocated.
The VR program is subject to reduction as a result of the GrammRudman Deficit Reduction amendment. Therefore, the Legislature will
not be able to determine until February or March the amount of additional federal funds, if any, which California can expect in 1985-86 and 1986-87.
In order to ensure that the Legislature has an opportunity to review andapprove the proposed use of all funds available to the department, werecommend that, prior to budget hearings, the department advise theLegislature how much federal money will be available for 1985-86 andItem 5160

896 / HEALTH AND WELFARE
DEPARTMENT OF REHABILITATION-Continued

1986-87, and how the department intends to use any additional, unbudgeted funds.
,
Mental Health ,Initiative Needs Pilot Testing

We recommend that the Legislature adopt Budget Bill language implementing the proposed Mental Health Initiative on a pilot basis. We further
recommend that the Legislature (1) restore nine positions and $297,000that would be cut from the VR program and (2) redirect back to the VR
program 17 positions and $915,274.
The budget proposes $2,514,000 for a "Mental Health Initiative" to enhance VR services to the mentally ill. These funds will be made available
by:
1. Reducing 17 Va. positions (11 counselors and 6 administrative staff).
This reduction will free up $561,000 which will be used to purchase prevocational services for mentally ill clients.
2. Redirecting 34 positions (21 counselors and 13 administrative staff)
and $1,953,609 from the basic VR program in order to provide VR services
to the mentally ill.
The initiative represents a cooperative effort on the part of the department and the Department of Mental Health. It is intended to provide both
prevocational and vocational services to mentally ill individuals. According to the department, prevocational services include instruction ingrooming, dressing, appropriate employment attire, interviewing techniques, and job behavior. The department maintains that such services arenecessary in order to assist the seriously mentally ill to succeed in the local
job market.
,
The department believes that its proposal is consistent with the Legislature's intent in enacting Ch 1286/85 (AB 2541)-to establish community
vocational treatment programs for the mentally ill.
Will Additional Costs Result in a Proportional Increase in, Benefits?
The department indicates that its Mental Health' Initiative will supplement the VR services it now provides to mentally disabled individuals.
According to the department, almost 50 percent of its regular VR clients
have some sort of mental impairment such as alcoholism, drug addiction,
character and personality disorders, mental retardation, and psychoses orneuroses. In addition to serving mentally disabled individuals in its regularcaseload, the department operates a Mental Health Co-Operative Program. Under this program, the DOR works directly with Mental Healthprofessionals at 15 sites throughout the state providing VR services tomentally ill persons.

Program
Mental Health Initiative ..................
Mental Health CoOperative ........
All clients ................

Table 4Comparison of Proposed Rehabilitation
Costs and Success Rates for the
Mentally III
1986-87
Average Purchased
Average Cost Client Services
Successful
Number of
Per RehabiliPer RehabiliRehabiliRehabilitation
tationtation Ratetations
Total Cost"$3,170,945

504 I>

2,507,385
108,089,000

565
17,60663%1>$6,291$2,570

63

4,437
6,139

1,397
2,214

64

"Includes vocational rehabilitation position costs, purchased services, and indirect costs.
h Based on estimate for second year of program.

Item 5160

HEALTH AND WELFARE / 897

Table 4 compares the number of rehabilitations, the success rate, andcost per rehabilitation for both the existing Mental Health Co-Operative
Program and the Mental Health Initiative. It also compares these two
programs to the department's basic VR program.
As the table shows, it will cost 30 percent more to rehabilitate a mentally
ill person under the Mental Health Initiative than it would cost to do sounder the Mental Health Co-Operative Program. The department plansto spend $2,570 to purchase services (primarily prevocational) for Mental
Health Initiative clients. In contrast, it will spend $1,397 to purchase services for Mental Health Co-Operative clients. The department, however,does not expect the extra costs to produce higher success rates, as measured by the percentage of persons deemed to have been successfully
rehabilitated. (The 63 percent success rate anticipated for the Mental
Health Initiative, is the department's "best guess"; it does not have any
experience on which to base an estimate.)
The department attributes the higher costs to the fact that the Mental
Health Initiative will serve individuals who are more severely mentallydisabled. These clients will require extensive prevocational services andtraining to prepare them for employment. We are not able to confirm thedepartment's contention that the higher costs of the initiative will yield
greater benefits than the regular VR program or the Mental Health CoOperative Program.
Programmatic Uncertainties. We have identified a number of otherunknowns regarding the implementation of the department's proposal.
They are as follows:• The department could not advise us how it will allocate the $561,000
for client services. In its proposal, the department indicates that
it will spend a total of $561,000 on (1) special prevocational services,(2) computer hardware and software, and (3) job development andplacement services. In addition, the department states that it willfund the development of nontraditional innovative service delivery
models. The department, however, has not provided further details
as to how these funds will be allocated among these items.
• The department could not tell us how clients will enter this program.
The department indicates that some of the individuals who will beserved by the Mental Health Initiative currently are receiving services under the VR program. The department, however, could not tell
us how many of the current VR clients will be diverted to the Mental
Health Initiative and how many will be new referrals from community mental health programs.
Department Should Pilot Test Mental Health Initiative. The department proposes to fund up to 21 sites by redirecting 34 VR positions to
the initiative and by eliminating 17 VR positions. It does not request
additional funds for the initiative. Given the uncertainties identified
above, we believe the department should test the Mental Health Initiativeon a limited scale in order to confirm that (1) this program will effectively
serve the severely mentally disabled and (2) the benefits from the pro-

Item 5160

898 / HEALTH AND WELFARE
DEPARTMENT OF REHABILITATION-Continued

gram justify the higher costs. In addition, a pilot test would give thedepartment an opportunity to determine which local models are mosteffective before expanding the scope of the program.
Accordingly, we recommend that the Legislature adopt Budget Bill
language under Item 5160-001-890 implementing the Mental Health Initiative at 10 sites on a pilot basis. This would require 17 positions and $1,302,000 in client services funding-approximately half of what the department
proposed. Consistent with this recommendation, we recommend that theLegislature (1) restore to the VR program nine positions and $297,000
which the budget proposes for elimination and (2) redirect back to the VR
program 17 positions and $915,274 in federal and state funds which thebudget earmarks for the Mental Health Initiative. These funds would be
used by DOR to provide services to disabled individuals.
The following Budget Bill language is consistent with this recommendation:"The DOR shall spend no more than $1.3 million in federal vocational
rehabilitation funds for program services to mentally disabled clients
under the Mental Health Initiative."
The Department Is Not Maximizing Federal Reimbursements

We recommend that, prior to budget hearings, the DOR present theLegislature with a plan for increasing the amount of federal reimbursements received for serving SSIISSP and §SDI recipients. The department
should include in this plan the action it proposes to take in order toimprove its ability to identify and track SSI/SSP and SSDI clients for the
purpose of obtaining reimbursement.
The federal Social Security Administration (SSA) reimburses the state
for the full cost of providing VR services to a recipient of SSIISSP or SSDI
who remains employed for nine months following rehabilitation. This
reimbursement is in addition to the federal funds the department receives
to provide rehabilitation services to these individuals. The reimbursements can be used to (1) partially offset the General Fund's share of costs
attributable to the VR program or (2) augment services to VR clients.
In order to obtain federal reimbursement; the DOR must provide documentation to the federal government that (1) an individual is an SSIISSPor SSDI recipient, (2) the individual has engaged in substantial gainful
activity (SGA) for nine months (that is, he or she has earned $600 per
month if blind or $300 per month if otherwise disabled), (3) VR services
contributed to the individual's employment, and (4) the costs incurred forrehabilitation were reasonable and necessary. The DOR has one position
which is responsible for identifying SSI/SSP and SSDI clients, certifying
their length of employment, submitting claims for reimbursement, andappealing claims which are denied by SSA.
The DOR Does Not Require its Counselors to Identify and Track SSII
SSP and SSDI Clients Who Are Successfully Rehabilitated. Instead,the department identifies potentially reimbursable cases by matching alist of its clients with a list from the SSA of SSIISSP and SSDI cases in thestate. Then, a list of DOR clients who have been identified as SSI/SSP or
SSDI cases is submitted to the Employment Development Department(EDD). The EDD matches these individuals against its records of wages
paid by employers in order to determine which ones have been employed
for nine months.

----,--- -----

Item 5160

HEALTH AND WELFARE / 899

The department indicates that one-half of the cases on the last list it
submitted to the EDD did not show up on EDD's records as having earned
income. The department advises that there are several reasons for this. A
positive match may not be obtained because of errors in the social security
number. In other cases, individuals' earnings do not show up because they
are working for nonprofit organizations, are homemakers, or are selfemployed. In addition, the department believes that some SSI/SSP and
SSDI recipients stop working or reduce their hours below SGA in orderto maintain their social security benefits.
The DOR does not pursue cases which fail to show a match with EDD's
wage records. As a result, the department is unable to tell us how manyof these cases would qualify the state for reimbursement. Some of these
individuals, however, represent success stories for which the state should
be reimbursed.
We believe the department might be able to double the amount of
reimbursements it receives from the federal government if it could track
and submit reimbursement claims for at least one-half of those cases that
do not yield a positive match with EDD's records. To date, this reimbursement amounts to $3,410 per SSDI case and $3,522 per SSI/SSP case. This
could generate up to an additional $3.5 million in federal reimbursements.
With this in mind, we recommend that, prior to budget hearings, thedepartment present the Legislature with a plan for increasing the amountof federal reimbursements it receives for serving SSI/SSP and SSDI clients. The department should include in this plan a description of theactions that can be taken to improve its ability to identify and track
SSI/SSP and SSDI clients.
Department Should Improve Coordination to Maximize
Federal Reimbursements

We recommend that the Legislature adopt supplemental report language directing the Departments of RehabiJitation and Social Services tosubmit a joint report, by October 1, 1986, that (1) identifies the potential
costs and savings to the state of increasing the number of SSIISSP and
SSDI recipients that the DOR serves and (2) proposes an improved system
for referring SSIISSP and SSDI recipients to DOR, including referral criteria.
As we indicated above, the federal SSA reimburses the state for the costof providing VR services to a recipient of SSI/SSP or SSDI who remains
employed for nine months following rehabilitation. The Department ofSocial Services (DSS) determines whether or not individuals are eligible
for SSI/ SSP, based on a review of their medical condition, and refers someclients to DOR in the course of this review. Currently, several agencies,
including the DSS, refer SSI/SSP and SSDI recipients to DOR for rehabilitation services.
The DSS refers a relatively small number of SSI/SSP and SSDI recipients to DOR. The departments cite two reasons for this. First, the federal
government has changed the way it reimburses the state for the costs ofproviding VR services to these individuals. Instead of providing a block
grant to the state to cover these costs, the federal government now provides reimbursement on a case-by-case basis. Second, DOR maintains that
it is difficult to serve SSI/SSP and SSDI clients. According to the department, this is because these clients (1) do not want to perform SGA on acontinuing basis because they do not want to lose their SSI/SSP grant bygoing to work and (2) have little work experience, and are therefore
difficult to place in jobs.

900 / HEALTH AND WELFARE

Item 5160

DEPARTMENT OF REHABILITATION-Continued

We have reviewed the current referral system and have found it to havethe following deficiencies:• The criteria that DSS uses to determine which clients should be referred to DOR are too broad, and do not target those recipients who
have the best chance of successful rehabilitation .
• The DSS and DOR were unable to provide us with consistent figureson the number ofSSI/SSP and SSDI clients who are referred to DOR.
Our analysis indicates that if DOR successfully served more SSI/ SSP and
SSDI clients, the state could realize substantial savings. These savings
would result from (1) the fact that the grants for SSI/SSP recipients would
be decreased or terminated as a result of successful rehabilitation and (2)DOR would claim additional federal reimbursement for serving theseclients. These reimbursements could be used to offset the General Fundportion of the VR program or to augment services to VR clients.
.
There are good reasons for believing that a number ofSSI/SSP and SSDI
recipients could benefit from VR services and would be willing to receive
such services. First, the federal government has extended to January 1987,
the duration of a pilot work incentive project which encourages SSI/SSP
and SSDI recipients to work. Second, DSS is starting to review the eligibility for aid of currently disabled SSI/SSP and SSDI recipients, giving it anopportunity to refer to DOR recipients who have been receiving SSI/SSP
and SSDI benefits for some time.
With this in mind, we recommend that the Legislature adopt supplemental report language directing the Departments of Rehabilitation(DOR) and Social Services (DSS) to submit a joint report, by Octoh :r 1,
1986, that (1) identifies the potential costs and savings to the state ofincreasing the number of Supplemental Security Income/State Supplementary Program (SSI/SSP) and Social Security Disability Insurance(SSDI) recipients that DSS refers to DOR and (2) proposes an improved
system for referring SSI/SSP and SSDI recipients to DOR, including a
specific referral criteria which identifies those recipients who have thebest chance of a successful rehabilitation.
The following supplemental report language is consistent with this recommendation:"The Departments of Rehabilitation (DOR) and Social Services(DSS) shall submit a joint report by October 1, 1986, that (1) identifies
the potential costs and savings to the state of increasing the number ofSupplemental Security Income/State Supplementary Program (SSI/
SSP) and Social Security Disability Insurance (SSDI) recipients thatDSS refers to DOR and (2) proposes an improved system for referring
SSI/SSP and SSDI recipients to DOR, including a specific referral criteria which identifies those recipients who have the best chance of a
successful rehabilitation."
WORK ACTIVITY PROGRAM

The Work Activity Program (WAP) purchases sheltered employment
services from community-based work activity centers for developmentally disabled adults. The purpose of the program is to prepare clients for
employment, help them live independently, and provide them withprevocational training.

Item 5160

HEALTH AND WELFARE / 901

Basis for Budget-Year Estimate is Unclear

We withhold recommendation on $57,428,000 in General Fund support
requested for the WAP until the department provides the Legislature withreliable estimates of the funding needed to support the estimated WAP
caseload in 1986-87. We further recommend that the Legislature adopt
Budget BiJ1language requiring the department to report twice each year
on work activity caseload projections.
The budget proposes $57,428,000 in General Fund support for the W AP
in 198~7. Of this amount, $56,271;000 is proposed for local assistancegrants to work activity centers and $1,157,000 is for state administration of
the program. This represents an increase of $3.4 million, or 6.2 percent,above thecurrerit-year level. The increase results from a projected caseload increase of914 clients above the level budgeted for the current year.
Current-Year Caseload Estimates. The 1985 Budget Act assumed
that there would be an average of 13,698 clients in W AP during 1985-86.
Actual caseload data through November 1985 indicate that the WAP isserving an average of 175 fewer clients each month than anticipated by
the act. If this trend continues throughout the balance of 1985-86, the
WAP will not need approximately $600,000 appropriated by the 1985
Budget Act.
The department acknowledges that actual monthly WAP caseloads todate have been lower than what the 1985 Budget Act assumed. The DOR,
however, does not believe that these statistics necessarily mean that there
will be savings in the current year.
I
No Basis For 1986-87 Estimates. The Legislature has repeatedly expressed concern regarding the accuracy of the department's WAP caseload estimates. Because of this concern, the Legislature added language
to the 1985 Budget Act which requires the DOR to (1) report twice
annually-November 1 and May I-on current-year and budget-year caseload estimates and (2) incorporate into its caseload .estimates, the potential number of clients moving into the WAP from regional centers, special
education programs, and state hospitals.
The November 1, 1985, report, which the Legislature did not receive
until January 15, 1986, contains no meaningful information regarding
changes in the W AP case~oad that the department anticipates in thebudget year. The department indicates that itprojected the 198~7 caseload simply by extending current-year caseload growth into the budget
year. Specifically, .the department expects the current-year caseload toexceed the actual caseload in 1984-85 by 914 clients. On this basis, it
projects.that the budget-year caseload will be 9. 14 clients higher th.an thelevel currently estimated for the current year.
We have two problems with the DOR's estimate of the 198~7 WAP
caseload.
1. It is not clear that the department took into account (a) the movement of individuals from state hospitals to work activity sites and (b)referrals from special education classes to work activity program in developing its caseload estimates for 1986-87. While the department claims thatit did, nothing has been provided to document this assertion.
2. As far as we can determine, the DOR has not incorporated into its
budget estimates for 198~7, the potential rate and caseload effects of Ch
1219/85 (AB 1667). This measure authorized the department to fund newwork activity programs tinder the Habilitation Services Program. It also
appropriated $600,000 from the General Fund to increase the rate paid to
new work activity programs. While the department acknowledges that

Item 5160

902 / HEALTH AND WELFARE
DEPARTMENT OF REHABILITATION-Continued

this measure may increase the number of W AP clients and the rates paid
for these clients, its budget proposal does not make any allowances forthese increases.
For these reasons, we cannot recommend approval of the amountproposed for the W AP in 1986-87. Therefore, we withhold recommendation on $57.4 million in General Fund support budgeted for the program,pending receipt of a report documenting the basis for the department's
1986-87 caseload and cost estimates.
We recommend that the Legislature adopt Budget Bill language requiring DOR to (1) report twice each year on current-year WAP caseloadchanges and (2) advise the Legislature how these changes are likely toaffect budget-year caseload estimates. The Legislature included this language in the 1985 Budget Act. The language, however, has been dropped
from the 1986 Budget Bill. The language is as follows:"The Department of Rehabilitation shall submit to the Legislature on
November 1 and April 20 an estimate of the Work Activity Program
caseloads for both the current year and the budget year. This reportshall include the assumptions and calculations underlying the estimates,and shall discuss any differences between the projected and actual caseloads for the same period of time. In addition, caseload estimates projected in these reports shall be determined using estimating proceduresthat incorporate the following information:"1. The number of special education students that could realistically
become Work Activity Program clients.
"2. The number of regional center clients that are potential Work
Activity Program clients.
.
"3. The potential impact on Work Activity Program caseloads of any
planned release of clients from state hospitals.
"4. The impact of Chapter 1219, Statutes of 1985, on the caseloads andcosts of the Work Activity Program."
Legislature Needs More Information on Supported Employment

We recommend that, prior to budget hearings, the department report to
the Legislature on its plans for implementing the Supported Employment
Program.
The federal government has awarded the DOR a five-year grant totaling $2,359,000 to implement a Supported Employment Initiative in California. According to the department, supported employment provides avariety of services which enable severely disabled individuals to work withnondisabled individuals in private industry, at pay commensurate withproductivity. The department believes supported employment has thepotential to change the entire state system which serves disabled adults.
The Department of Finance has authorized the DOR to spend $217,000
of its federal grant in the current year for start-up costs, training, andpublicity. The budget proposes to spend $472,000 in 1986-87. Of thisamount, the department plans to use:·• $192,000 to support training for project staff, state agency personnel,
and service providers.
• $48,000 to fund a media campaign.
• $200,000 to award start-up and development grants to 10 Supported
Work Projects (SWPs).
Supported employment has the potential to improve services and per--------~------~--~~-~

Item 5160

HEALTH AND WELFARE / 903

haps even reduce costs. At this point, however, the Legislature is not able
to assess whether the Supported Employment Program is on the righttrack because the department's proposal does not provide enough information on:• The impact that supported employment will have on the caseload andfunding requirements of the current habilitation program.
• The potential savings of the proposal.
• The department's plan to evaluate the program.
• The department's plan to redirect VR counselors to supported employment.
Supported Employment Could Increase Habilitation Program Costs.
The department plans to award $20,000 to 10 local SWPs in 1986-87. By
1991, the department estimates that more than 50 SWPs will be establishedthroughout the state. Under provisions of the federal grant, the funds canbe used only for start-up, training, and development costs. The department estimates that the SWPs will fully expend their start-up grants withinapproximately three months. It is not clear where the money needed tocontinue the SWPs will come from. If the SWPS seek funding under Ch
1219/85, the Legislature probably will be expected to increase funding forthe habilitation program, which is supported by the General Fund. Furthermore, the department intends to use approximately one-half of the$600,000 appropriated by Chapter 1219 to fund supported employment
projects which would be in addition to those established with the federal
grant money.
The Legislature needs to know what these additional demands will bein order to do its fiscal planning.
No Information on Potential Savings. The department indicatesthat supported employment may be more expensive initially than otherhabilitation services because of the intensive supportive services needed
to assist an individual working in the private sector. The department
expects, however, that early intensive services will increase an individual'schances for unsubsidized employment, relative to a W APparticipant, andthus will save money in the long run.
While such savings may occur, the department has provided no information on the cost per participant in supported employment and the potential costs and saVings to the habilitation program.
Plans for State Evaluation Unclear. The federal government plansto evaluate the program in those states which have received a supported
employment grant. The department indicates that it may evaluate theperformance of the programs in California, although it has not made afinal decision to do so. Consequently, at this point there are no firm plans
for a state evaluation of the program.
VR Counselors Will Be Redirected. The department proposes toredirect VR counselors to supported employment programs during thecurrent year. It has not, however, provided any information regarding thenumber of counselors it plans to redirect or the impact that this redirection will have on the existing VR program.
Given these uncertainties, we recommend that, prior to budget hearings, the department advise the Legislature:.
1. How the DOR plans to meet the ongoing funding needs of SWPs.
2. The projected impact of supported employment on the habilitation
caseload and funding requirements, taking into account referrals from the
Department of Developmental Services and special education programs.
3. The estimated cost per participant in the Supported Employment

904 / HEALTH AND WELFARE

Item 5160

PEPARTMENT OF REHABILITATION-Continued

Program and the potential savings to the WAP from the program.
4. The effect that redirection of VR counselors to supported employment will have on services to VRclients.
Independent Living Services Expansion

The Supplemental Report oE the 1985 Budget Act required the DOR to~ubmit a report to the Legislature by December 1, 1985, on the need forindependent living services and the department's plan to deliver these
services on a statewide basis. At the time this analysis was prepared theLegislature had not received the 'report.

Item 5180

HEALTH AND WELFARE / 905

DEPARTMENT OF SOCIAL SERVICESSUMMARY
The Department of Social Services (DSS) is the single state agency
responsible for supervising the delivery of cash grants and social services
to needy persons in California. Monthly grant payments are made toeligible recipients through two programs-Aid to Families with Dependent Children (AFDC) and the Supplemental Security Income/State Supplementary Program (SSIISSP). In addition, welfare recipients,
low-income individuals, and persons in need of protection may receive anumber of social services such as information and referral, domestic andpersonal care assistance, and child and adult protective . services. The
budget proposes total expenditures by the department of $8.8 billion in
1986-87. This is an increase of $424 million, or 5.0 percent, above estimatedcurrent-year expenditures. Table 1 identifies total expenditures from allfunds for programs administered by DSS, for the past, current, and budget
years.
Table 1
Department of Social Services
Expenditures and Revenues, by Program
All Funds
1984-85 through 1986-87(dollars in thousands)

Change From
Actual

Est.

Prop.

1985-86

Program

1984-85

1985-86

1986-87

Departmental support ............................ ..
AFDC" ......................................................... .

$185,509
3,443,17l
2,387,751
1,732
52,783$226,346
3,913,851
2,667,261
1,897
55,989$214,133
3,920,229
2,921,522
2,093
57,857

Amount Percent-$12,213
-5.4%
6,378
0.2
254,261
9.5
196
10.3
1,868
3.3

657,409
712,961
9,873$7,451,189

685,783
829,494
1l,198$8,391,819

714,059
974,312
1l,198$8,815,403

28,276
144,81817.5$423,584

5.0%$3,259,400
3,809,509$3,771,497
4,190,155$4,030,854
4,333,382$259,357
143,2276.9%
3.4

374,064
8,358-1,107419,4229,306

438,576
10,251
2,340

332

525

19,154
945
1,426
-525

SSI/SSP b •..••..•••..••.•••.•••..•••.••..••.•••••.•••.••..•••..
Special Adult programs ........................... .
Refugee programs ..................................... .
County Welfare Department Administration " ............................................... .
Social Services programs"....................... ,Community Care Licensing ................... .
Totals ................................................... .

4.1

Funding Sources

General Fund............................................. .
Federal funds b............................................
Interstate Collection Incentive Fund ..
County funds ............................................. .
Reimbursements ....................................... .
State Children's Trust Fund................... .
Special Deposit Fund............................... .

633

914

4.6
10.1
156.0
-100.0" Includes county funds.
b Includes SSI federal funds.

Table 2 shows the General Fund expenditures for cash grant and social
services programs administered by DSS. The budget requests a total of $4
billion from the General Fund for these programs in 1986-87. This is anincrease of $259 million, or 6.9 percent, above estimated current-year
expenditures.

906 / HEALTH AND WELFARE

Item 5180

DEPARTMENT OF SOCIAL SERVICESSUMMARY-Continued
Table 2
Department of Social Services
General Fund Expenditures
1984-85 through 1986-87(dollars in thousands)

Program
Departmental Support ..........................
AFDC ........................................................

SSI/SSP ......................................................
Specfa:J Adult programs ........................
County Welfare Department Administration ..............................................
Social Services programs ......................
Community Care Licensing ................
Totals ..................................................

Actual1984-85$53,798
1,591,829
1,248,571
1,657

Est.
1985-86$64,266
1,828,902
1,410,536
1,822

Prop."
1986-87$67,967
1,833,927
1,591,370
2,018

122,627
233,833
7,085$3,259,400

129,181
328,448
8,342$3,771,497

133,848
393,382
8,342$4,030,854

Change From
1985-86
Amount Percent
5.8%$3,701
5,025
0.3
180,834
12.8
10.8
196
4,667
64,934

3.6
19.8$259,357

6.9%" Includes proposed cost-of-livingadjustments.

OVERVIEW OF ANALYST'S RECOMMENDATIONS
We are recommending a net reduction of $11,233,000 from the amountproposed for expenditure from all funds. This amount consists of $7,427,000
from, the General Fund and $3,806,000 in federal funds. In addition, we arewithholding recommendation on $170,622,000 in proposed expenditures,
pending receipt of additional information. Our recommendations are
summarized in Table 3.
Table 3
Department of Social Services
Summary of Legislative Analyst's Recommendations(dollars in thousands)

ProgramRecommended Fiscal Changes
GeneralFederalFund
Funds
All Funds

Departmental support ................. ;........... .
AFDC ......................................................... .

-$3,367-$3,806

Recommendations
Pending(All Funds)$3,661 .
-$7,173
34,200SSI/SSP ....................................................... .
Special Adults .......................................... ..
Refugees .................................................... ..
County Administration .......................... ..
Social Services .......................................... ..
Community Care Licensing .................. ..
Cost-of-living adjustments .................... ..
Totals ................................................... .

2,244
119,319
11,198-4,060-$7,427-$3,806-$11,233$170,622

Item 5180

HEALTH AND WELFARE / 907

Department of Social Services

DEPARTMENTAL SUPPORT
Item 5180 from the GeneralFund and Federal Trust Fund

Budget p. HW 148

Requested 1986-87 ......................................................................... . $75,822,000
Estimated 1985-86 ........................................................................... . 71,885,000
Actual 1984-85 ................................................................................. . 62,156,000 .
Requested increase $3,937,000 (+5.5 percent)Total recommended reduction ................................................... .
None
Recommendation pending ........................................................... .
2,529,000
198CHS7 FUNDING BY ITEM AND SOURCE
Item-Description
5180·001-001-Department of Social Services
Support5180-001-890-Department of Social Services
SupportReimbursements

Fund
GeneralAmount$67,804,000

Federal(138,146,000)

Total

8,018,000$75,822,000

Analysis

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS

1. Statewide Automated Welfare System (SAWS). Withhold recommendation on $2,265,000 ($1,133,000 from theGeneral Fund, $943,000 in federal funds, and $189,000 in
reimbursements) proposed for development and implementation of the SAWS project, pending receipt of theannual SAWS Progress Report.
2. Community Care Licensing Workload Standard. Withhold recommendation on $1,396,000 requested from theGeneral Fund for increased licensing activities, pending receipt of a revised workload standard.

page
911

911

GENERAL PROGRAM STATEMENTThe Department of Social Services (DSS) administers income maintenance, food stamps, and social services programs. It is also responsible for(1) licensing and evaluating nonmedical community care facilities and(2) determining the medical! vocational eligibility of persons applying for
benefits under the Disability Insurance program, Supplemental Security
Income/State Supplementary Program (SSI/SSP), and Medi-Cal!medically-needy program.
The department is authorized 3,368.1 positions to administer these programs in the current year.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes expenditures of $75,822,000 from the GeneralFund and reimbursements for support of the department in 1986-87. Thisis an increase of $3,937,000, or 5.5 percent, above estimated current-year
expenditures.
The budget proposes expenditures from all funds, including reimburse-

908 / HEALTH AND WELFARE

Item 5180

DEPARTMENTAL SUPPORT-Continued

ments, of $214,133,000. This is $12,213,000, or 5.4 percent, below estimatedcurrent-year expenditures.
The budget does not include additional funding for Merit Salary Adjustments or inflation adjustments to Operating Expenses and Equipment.
We estimate that the department will have to absorb approximately $4,811,000 in such costs. Presumably, these costs will be financed by diverting
funds budgeted for other purposes.
Table 1 identifies the department's expenditures, by program and funding source, for the past, current, and budget years.
Table 1
Department of Social Services
Budget Summary
1984-85 through 1986-87(dollars in thousands)

Program
AFDC-FG&U ........................................
AFDC-FC ..............................................
Child Support ......................................

SSI/SSP ..................................................
Special Adult programs ......................
Food Stamps ..........................................
Refugee programs
Cash Assistance ................................
Social Services ..................................
Targeted Assistance ........................
Child Welfare Services ......................
County Services Block Grant.. ..........
IHSS ........................................................
Employment programs
WIN ....................................................
GAIN ..................................................
Adoptions ..............................................
Child Abuse Prevention ....................
Community Care Licensing ..............
Disability Evaluation ..........................
Administration ......................................

Change From
1985-86
AmountPercent-$3,697-18.8%
476
9.5
1,370
19.3
46
4.6
13
4.5
-2,181-12.0

Actual1984-85$16,631
4,534
6,639
886
248
17,062Est.
1985-86$19,618
5,010
7,104
1,002
290
18,116Prop.
1986-87$15,921
5,486
8,474
1,048
303
15,935

1,930
1,439
1,137
2,262
1,343
2,185

2,197
1,293
1,058
2,529
1,415
2,706

2,456
1,211
1,255
2,615
1,492
2,635

259
-82
197
86
77

13,61024,248
1,500
6,662
1,961
27,401
96,4765,760$226,346

954
1,939
7,179
2,258
28,081
108,983
5,908$214,133-23,294
439
517
297
680
12,507
148-$12,213

-96.1
29.3
7.8
15.1
2.5
13.0
2.6
-5.4%

$64,266
153,934
7,619
525
2

$67,967
138,146
8,018$3,701-15,788
399
-525

5.8%
-10.3
5.2
-100.06,346
1,419
20,93980,485~

Totals ..............................................
Funding Sources$185,509

General Fund. .......................................
Federal funds ........................................
Reimbursements ..................................
Special Deposit Fund..........................
State Children s Trust Fund ............

$53,798
123,084
8,358
332
(63)

-71

H.8
-6.3
18.6
3.4
5.4
-2.6

2

Proposed General Fund Changes

Table 2 shows the changes in the department's General Fund support
expenditures that are proposed for 1986-87. Several of the individualchanges are discussed later in this analysis.

Item 5180

HEALTH AND WELFARE / 909
Table 2
Department of Social Services
Departmental Support
Proposed General Fund Changes
1986-87(dollars in thousands)
1985-86 expenditures (revised) ................................................................................... .
Proposed Changes
A. Workload adjustments
1. Expiration of limited-term positions .............................•................................
2. Reduction in SCO audit workload ................................................................. .
3. One-time court case costs ............................................................................... .
4. One-time attorney fees ..................................................................................... .
5. One-time implementation costs Community Care Licensing Management Information system ................................................................................. .
6. Extension of office automation to district offices ..................................... .
7. Other ..................................................................................................................... .
B. Cost adjustments ....................................................................................................... .
1. Salary and benefits ...................................................................... :...................... .
2. Retirement ........................................................................................................... .
3. OASDI ................................................................................................................... .
4. Staff reclassification ........................................................................................... .
5. Disaster relief ..................................................................................................... .
6. Other ..................................................................................................................... .

$64,266

-$772
-122
-475

-432
-153
316

-8
-1,646
1,982
334
127
228
175
4

C. Program adjustments ............................................................................................... .
1. Transfer of Work Incentive Program from support to local assistance -2,337
2. Implementation of GAIN (Ch 1025/85) ..................................................... .
220
3. Enhancement and maintenance of Statewide Automated Welfare Systems ........................................ ,.............................................................................. .
1,133
4. Implementation of new Child Support outreach requirements ........... .
188
5. Lower salary savings requirement ............................................................... .
254
6. Reduction in audits backlog and contract with SCO ............................... .
164
7. Increased legal support for Community Care Licensing ....................... .
1,405
8. Implementation of Elder Abuse Prevention Pilot Projects ................... .
24
9. Extension of limited-term positions in Foster Care Rate Bureau ......... .
150
10. Extension of Child Abuse Primary Prevention Program ....................... .
393
11. Increased Community Care Licensing activities ..................................... .
734
12. Community Care Licensing Management Information System Conversion ....................................................................................................................... .
169
1986-87 expenditures (proposed) ............................................................................... .
Changes from 1985-86
Amount ......................................................................................................................... .
Percent ......................................................................................................................... .

2,850

2,497
$67,967$3,701
5.7%

Proposed Position Changes

The budget requests authorization for 3,754.5 positions to staff the department in 1986-87. This is a net increase of 386.4 positions, or 11.5 percent, over the staffing level that would otherwise be authorized in thebudget for 1986-87. The net increase reflects a proposed increase of 452.9
positions and a proposed reduction of 66_5 positions_ The single . largest
increase--320_9 positions-reflects the administration's proposal to expand the Disability Evaluation Division (I?ED) so that it can process the
additional workload resulting from the resuinption of continuing disability
reviews (CDRs) _ Most of the decrease--32.5 positions-reflects the proposal to reduce the department's salary savings level by abolishing various

Item 5180

910 / HEALTH AND WELFARE

DEPARTMENTAL SUPPORT-Continued
positions throughout the department. Table 3 displays the positionchanges proposed for 1986-87.
Table 3
Department of Social Services
Departmental Support
Proposed Position Changes
1986-87

Total
Existing
Proposed
Net Changes
Program
Positions Reductions Additions Positions Positions Percent
AFDC-FG/U ......................................
260.6
-5.6
9.2
264.2
3.6
1.4%
Employment programs ....................
15.5
35.0
50.5
35.0
225.8
GAIN ................................................
(35.0)(35.0)
35.0
100.0
WIN-Demo ....................................
(15.5)(15.5)
AFDC-FC ............................................
115.4
-23.2
12.9
-10.3
-8.9
105.1
AFDC-Child Support Enforcement ............................................

SSI/SSi> ................................................
Special Adult programs ..................
Food Stamps ......................................
Refugee programs ............................
Cash Assistance ..............................
Social Services ................................
Targeted Assistance ......................
Disability Evaluation ........................
In-Home Supportive Services ........
Child Welfare Services ....................
County Services Block Grant ........
Adoptions ............................................
Maternity Care ..................................
Deaf Access ........................................
Child Abuse Prevention ..................
Community Care Licensing ..........
Services to other agencies ..............
Totals ....................................... ,....

75.2
26.2
2.0
285.7
87.8
(43.3)(24.5)(20.0)
1,601.9
50.0
57.1
32.1
142.1
3.7
5.2
23.0
499.2
85.4
3,368.1

-0.2
-0.1
-2.4
-9.2
(-0.7)(-8.5)

7.0
0.7
(0.7)

-16.1
-2.2
-0.4
-0.1
-1.2

320.9
0.2

-0.2
-5.2
-0.4
-66.5

9.0
50.0
7.0
452.9

1.0

75.2
26.0
1.9
290.3
79.3
(42.6)(16.7)(20.0)
1,906.7
48.0
56.7
33.0
140.9
3.7
5.2
31.8
544.0
92.0
3,754.5

-0.2
-0.1
4.6
-8.5
-0.7
-7.8

-0.8
-5.0
1.6
-9.7
-1.6
-31.8

304.8
-2.0
-0.4
0.9
-l.2

19.0
-4.2
-0.7
2.8
-0.8

8.8
44.8
6.6
386.4

38.3
9.0
7.7
11.5%

ANALYSIS AND RECOMMENDATIONS
We recommend approval of the following program changes that are notdiscussed elsewhere in this analysis:• The transfer of $29,782,000 ($2,337,000 General Fund) from the department's support budget to the counties (Item 5180-151-001) for
various employment programs. The counties would provide services
through these programs either directly or through a contract with the
Employment Development Department (EDD) or another contractor. Currently, the DSS uses these funds to reimburse the EDD for thecost of various employment services it provides to county welfare
department clients.
• An increase of $19,788,000 in federal funds to provide for increased
workload in the DED due to the federally mandated resumption (PL98-460) of CDRs.
• A net increase of $466,000 ($164,000 General Fund) to: (1) reduce thecurrent audit backlog, (2) implement a contract with the State Controller's office to perform specified audits, and (3) staff the audit
resolution and application processes.

Item 5180

HEALTH AND WELFARE / 911• A net increase of $639,000 ($254,000 General Fund) to reduce thedepartment's salary savings requirement by $1,284,000.
• An increase of $1,523,000 ($1,405,000 General Fund) for increased.
legal support of the Community Care Licensing program.
• An increase of $2,380,000 ($1,411,000 General Fund) to implement
various legislative measures, including GAIN (Ch 1025/85), Adult
Protective Services projects (Ch 1127/85), and the Child Abuse Primary Prevention program (Ch 1638/84).
• An increase of $1,128,000 ($188,000 General Fund) for increased
workload in the Child Support Enforcement program.
• An increase of $182,000 ($169,000 General Fund) to pay for staff overtime associated with the conversion of the Community Care Licensing Division's Management ,Information System from a manual
operation to an automated system.
'• An increase of $273,000 ($150,000 General Fund) for continuation of
six limited-term positions in the Foster Care Rate-Setting Bureau.
Statewide Automated Welfare System (SAWS)

We withhold recommendation on $2,265,000 ($1,133,000 from the General Fund, $943,000 in federal funds, and $189,000 in reimbursements)
requested for the SAWS project, pending receipt of the department's
annual report on the project;
The budget proposes $2,265,000 ($1,133,000 General Fund, $943,000 federal funds, and $189,000 in reimbursements) to support the department's
costs of developing and implementing the Statewide Automated Welfare
System (SAWS) project in 1986-87. Chapter 268, Statutes of 1984, requires
DSS to report to the Legislature on its progress in achieving the goals
established in the SAWS project. The report is due annually in March.
We withhold recommendation on the funds proposed for SAWS, pending review of the annual progress report on the SAWS project. Any decision concerning continued funding for this project shoula be made in lightof its progress in meeting its stated objectives.
Community Care licensing Activities

We withhold recommendation on $1,396,000 requested from the General Fund for support of increased activities of the Community Care
Licensing Division, pending receipt of a revised workload standard.
The budget proposes $1,396,000 from the General Fund in order toimplement various. community care licensing requirements. These
proposals involve adding staff to perform activities such as assessing penalties on specified facilities, collecting fines, conducting post-licensing visits,
and checking criminal records. Currently, the department is in the process of revising its workload standard for community care licensing staff.
Because the budget proposals were not based on an updated workload
standard, we withhold recommendation on these proposals, pending re"ceipt of a revised workload standard.
Legislatively Required Reports

Adoptions Performance Report. The Supplemental Report of the1985 Budget Act required the DSS to submit a report to the Legislature,
by December 1, 1985, that established specified goals for adoption agency
performance during 1985-86. The report also is supposed to provide recommendations regarding how the Relinquishment program's performance could be improved. At the time this analysis was prepared the report
had not been submitted.

912 / HEALTH AND WELFARE

Item 5180

DEPARTMENTAL SUPPORT-Continued

IHSS Assessments and Service Awards. The Supplemental Report ofthe 1985 Budget Act required the DSS to submit a report to the Legislature by March 1, 1986, that provides an evaluation of its efforts to (1)increase statewide uniformity in the IHSS assessment process and (2)standardize the award of service hours. The report specified that theevaluation include (1) measurable objectives and (2) an implementation
plan for achieving those objectives. The department informs us that its
report is in progress, and will be completed by March 1, 1986.
IHSS Revised Allocation Formula. The Supplemental Report of the1985 Budget Act required the DSS to evaluate the effect on each county's
IHSS program of the 1984-85 and 1985-86 allocations, and submit a reporton its findings to the Legislature by January 1, 1986. These allocations werebased on a different formula than the one used before 1984-85. The department informs us that the report is complete, and that it will be submitted to the Legislature following the completion of a depaitmental review.
IHSS Pilot Project. The Supplemental Report of the 1984 Budget
Act required the DSS to submit an interim report by December 1985,
based on the experience of a pilot program in Santa Cruz County. The
pilot program is intended to compare the cost-effectiveness and quality ofcare associated with both contract and individual provider modes of service delivery. The department has submitted the required report which
describes (1) the county's experience in negotiating and awarding its
contract for services, (2) the effect on some recipients of the transition to
the contract mode, (3) the project's research design, including the comparative data that the county will collect, and (4) two project innovations,
including a revised "Equity" program, which is a computer-assisted assessment system. We discuss this report further in our analysis of Item 5180151.

Work Incentive Demonstration (WIN-Demo) Program. The Supplemental Report of the 1985 Budget Act required the DSS to submit a report
by January 1, 1986, on the transfer of responsibility for registration andreferral under the WIN-Demo program from the Employment Development Department to county welfare departments. At the time this analysis was prepared, the department had not submitted the report to theLegislature.
.
County Welfare Department Performance. The Supplemental Report of the 1985 Budget Act required the DSS to submit a report by
December 1, 1985, on its progress in implementing a system to collect data
reflecting the effectiveness of counties in administering the Aid to Families with Dependent Children (AFDC) and the Food Stamps programs.
The supplemental report specified a variety of performance indicatorsthat should be included in the system, including measurements of how
promptly counties process applications for aid. At the time this analysis
was prepared, the department had not submitted the report to the Legislature.

Item 5180

HEALTH AND WELFARE / 913

Department of Social Services
AID TO FAMILIES WITH DEPENDENT CHILDREN

Item 5180-101 from the GeneralFund and Federal Trust Fund

Budget p. HW 150

Requested 1986-87 ...................................................................... $1,833,927,000 a
Estimated 1985-86 ...................................................................... 1,828,902,000Actual 1984-85 .............................................................................. 1,591,829,000
Requested increase $5,025,000 (+0.3 percent)Total recommended reduction ..................................... ...........
$3,367,000
Recommendation pending ........................................................
$15,400,000" Includes $80,678,00Q in Item 5180-181-001 (c) to provide a 4.9 percent cost-of-living adjustment.

1986-87 FUNDING BY ITEM AND SOURCE
I tern-Description
5180-I01-001-Payments for Children
5180-IOI-890-Payments for Children
5180-181-001 (c)-Cost-of-Living Adjustments
5180-181-890-Cost-of-Living Adjustments
Total

Fund
GeneralFederalGeneralFederalAmount$1,753,249,000(1,825,429,000)
80,678,000(94,594,000)$1,833,927,000

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. Aid to Families with Dependent Children-Family Group(AFDC-FG) Caseload.
Recommend that, prior tobudget hearings, the Department of Social Services (DSS)
report to the fiscal committees on its progress in incorporating specified noneconomic factors in its May revision
estimate of family group caseloads.
2. Aid to Families with Dependent Children-Foster Care
(AFDC-FC) Caseload.
Recommend that, prior tobudget hearings, the Department of Social Services reportto the fiscal committees on its progress in incorporating
specified factors in its May revision estimate of foster carecaseloads.
3. Foster Care Services for Handicapped Children (Ch 1274/
85). Recommend the Department of Finance advise
the fiscal committees of the amount needed to provide
foster care services to handicapped children pursuant to
Ch 1274/85.
4. Foster Parent Training Fund Transfer. Recommend
the Department of Finance advise the fiscal committees on
how it intends to finance the transfer of $1.8 million in
General Fund monies in 1986-87 from the Foster Care
Program to the Foster Parent Training Fund, as requiredby current law.
5. Reduced Federal Funding Due to Simon v. McMahon.
Recommend that, prior to budget hearings, the Department of Social Services report to the fiscal committees on
its progress in securing a waiver from the federal govern-

Analysis
page

920

922

924

925

925

914 / HEALTH AND WELFARE

Item 5180

AID TO FAMILIES WITH DEPENDENT CHILDREN-C~ntinued

ment in order to avoid a cost shift to the state and county
governments for AFDC cases affected by the ruling in
Simon v. McMahon.
6. Greater Avenues for Independence (GAIN) ProgramAFDC Grant Savings. Withhold recommendation on$36 million ($15,400,000 General Fund, $18,800,000 federal
funds, and $1,800,000 county funds) in grant savings budgeted for AFDC caseload reductions expected to result fromthe GAIN program, pending receipt of an up-to-date estimate.
7. Child Support Enforcement Program.
(a) Recommend that, prior to budget hearings, the department provide the fiscal committees with a costestimate for a study of various child support collection
techniques.
(b) Recommend adoption oflegislation establishing an allocation formula that sets incentive payments equal toa fixed percentage of collections.
(c) Recommend adoption of legislation phasing in the inclusion of non-AFDC collections as part of the base on
which the incentive formula will be applied.
(d) Recommend adoption of legislation retaining the current requirement that counties use child support incentive payments to support the Child Support
Enforcement Program, sunsetting this requirementon July 1, 1988, and requiring the DSS to report by
December 1, 1988, on the advisability of postponing
the sunset date.
8. Welfare Fraud Early Detection/Prevention (FRED) Program. Recommend adoption of Budget Bill language
requiring the Department of Social Services to report to
the Legislature by December 1, 1986, on the potential costs
and savings of mandating the FRED program.
9. Asset Clearance Match. Reduce Item 5180-101-001 by $1,931,000 and Item 5180-101-890 by $2,173,000. Recommend reduction of $1,931,000 to reflect more accurate
estimate of the AFDC grant savings that will result fromthe asset clearance match.
10. Integrated Earnings Clearance. Reduce Item 5180-101-001
by $1,436,000 and Item 5180-101-890 by $1,633,000. Recommend reduction of $1,436,000 to reflect a more accurate
estimate of the savings that will result from the integrated
earnings clearance.

927

928

933

935

936

GENERAL PROGRAM STATEMENT

The Aid to Families with Dependent Children (AFDC) program provides cash grants to certain families and children whose income is notadequate to provide for their basic needs. Specifically, the program provides grants to needy families and children who meet any of the following
criteria:
AFDC-FG. Families are eligible for grants under the AFDC-FamilyGroup (AFDC-FG) program if they have a child who is financially needy
due to the death, incapacity, or continued absence of one or both parents.

Item 5180

HEALTH AND WELFARE I 915

In the current year, an average of 478,100 families each month will receive
grants through the AFDC-FG program.
AFDC-U. Families are eligible for grants under the AFDC-Unemployed Parent (AFDC-U) program if they have a child who is financiallyneedy due to the unemployment of one or both parents. In the current
year, an average of 75,810 families each month will receive grants throughthe AFDC-U program.
.
AFDC-FC. Children are eligible for grants under the AFDC-Foster
Care (AFDC-FC) program if they are living with a licensed or certified
foster care provider pursuant to either a court order or a voluntary agreement between the child's parent(s) and a county welfare or probation
department. In the current year, an average of 36,540 children each monthwill receive grants through the AFDC-FC program.
In addition, the Adoption .Assistance program provides assistance toparents who adopt children who have special needs that make them difficult to place in adoptions.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes expenditures of $1,833,927,000 from the GeneralFund for AFDC cash grants in 1986-87. The amount includes $1,753,249,000 in Item 5180-101-001 and an additional $80,678,000 requested in Item
5180-181-001 (c) to provide a 4.9 percent cost-of-living increase in maximum AFDC-Family Group (AFDC-FG) and AFDC-Unemployed Parent(AFDC-U) grants. (The budget does not propose to provide a cost-ofliving increase in the rates paid to foster care providers.) This is an increase of $5,025,000, or 0.3 percent, from estimated 1985-86 expenditures.
As shown in Table 1, total expenditures from all funds for AFDC cash
grants are budgeted at $3,918 million in 1986-87. This is $6 million, or 0.1
percent, above estimated expenditures in the current year. .
Table 1 shows the costs of AFDC programs for 1984-85 through 1986-87.
Under state and federal laws, the federal government, the state, and thecounties contribute 50 percent, 44.6 percent and 5.4 percent, respectively,
toward the cost of grants provide to Non-Refugee AFDC recipients whoare eligible under the federal Family. Group and Unemployed Parent
programs, and 50 percent, 47.5 percent and 2.5 percent, respectively,
toward the costs of foster care grants. The federal government's percentage share of total AFDC costs incurred under the Family Group andUnemployed Parent programs exceeds 50 percent because the grant costs
for refugee families are 100 percent federally funded during these families' first 36 months in the United States. The state's share of total foster
care costs exceeds 47.5 percent because the state pays 95 percent (and thecounties pay 5 percent) of foster care costs which are not eligible forfederal funding under federal law.
For those AFDC-FG and U recipients who are not eligible for grants
under federal law, the state pays 89.2 percent of the grant costs and thecounty pays 10.8 percent. These sharing ratios apply to the cost of grants
provided under the State-Only AFDC-U program as well as to the cost of
grants provided to women during their first six months of pregnancy.
The AFDC-FG program accounts for $3,065 million (all funds), or 75
percent, of total estimated grant costs under the three major AFDC programs (excluding Child Support Collections). The Unemployed Parent
program accounts for 16 percent of the total, and the Foster Care programaccounts for 9 percent.

~

0

....
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Table 1
Expenditures for AFDC Grants, by Category of ReCipient
1984-85 through 1986-87(in thousands)

Actual 1984-85
Estimated 1985-86
Proeosed 1986-87"
FedeTllI CouIl(r ICF" Total
State
Federal CouII(r
Total
State
Federal CouIl(rTotal$1,363,094 S145,009$2,705,796 $1,362,700 $1,529,867 $164,990 $3,057,557 $1,369,579 $1,529,782 $165,876 $3,065,257
29,331
598,931
268,807357,471
32,544
658,822
266,300
327,369
358,075 32,255
656,610
68,277
10,610280,501
245,32182,86912,912
341,102248,894
84,156
13,101
346,151
7,576
8,239
10,401
1,120
2,162
10,262
3,491
13,753. Recipiellt Category
StilteFamily groups ............................................ 81,197,693
Unemployed parent ............................... .
242,231
Foster Care ................................................
201,6146,456
Adoption programs ................................. .
Child support incentive payments to
19,753 -32,288 633
1,788
16,32522,253 -38,272
counties............................................... .
13,690306
23,404 - 38,368
14,964
Child support collections ....................... .
-69,855 -73,407 -8,159-151,421-72,490 -75,133 -8,401 -156,024 -76,072 -78,885 -8,818 -163,775
Subtotals ................................................. . SI,591,829 $1,706,206 $144,503 $633 $3,443,171 81,828,902 $1,919,489 $163,773 $3,912,164 $1,833,927 $1,921,802 $164,046 $3,917,996
(14)
(260)
(115)
(131)
(36,671)(42,041)(4,440)(83,152)
Court-ordered retroactive payments ..
AFDC cash grants to refugees(259,072) (138,147) (152,222) ($16,727) (307,096) (164,157) (180,881) (19,876) (364,914)
Time-expired I> ••••••••••••••••••••••••••••••••••••••(116,598) (128,357) (14,117) (50,356) _ _ _(50,356) _ _ _(93,943)(93,943) _ _ _(100,386) _ _ (100,386)
Time-eligible ......................................... . _ _Totals ....................................................... . 81,591,829 $1,706,206 $144,503 $633 $3,443,171 $1,828,902 $1,919,489 $163,77-3 $3,912,164 $1,833,927 $1,921,802 $164,046 $3,917,996--=

NOTE: Detail may not add to total due to rounding.
" Interstate collection incentive fund.
I> Estimated expenditures-no actual data available.
,. Includes funds for a 4.9 percent cost-of-living adjustment.

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Item 5180

HEALTH AND WELFARE / 917

Proposed General Fund Budget Changes
Table 2
Proposed Generai Fund Changes for AFDC Grants(dollars in thousands)
Cost

1985 Budget Act ..................................................................................................... .
Adjustments to Appropriation
1. Caseload increasea. AFDC-FG arid D........................................................................................... .
$49,268
b. AFDC-FC(i) Group home placements ................................................................. .
23,969(ii) 'Other ..................................................................................................... . ~Subtotal...., ............................................................................................................ .
2. Simoll v: McMahOll ........................................................................................... .
3. Reduced fraud detection savings ................................................................... .
4. Other adjustments ............................................................................................. .
Total, adjustments to appropriation ............................................................. .
1985-86 Expenditures (Revised) ... :..................................................................... .
A. Adjustments
1. Caseload increasea. AFDC-FG and D ................... ,................................................................. .
-6,323b. AFDC-FC(i) Group home placements ........................................................... .
2,~85(ii) Other ....................................................................•...........................
1,088
c. Adoption assistance ............................................................................... .
2;023
Subtotal ........................................................................................................... .
2. State and federal legislation
a. Ch 1441/84 (technical overpayments) ............................................. .
-24
b. Ch 1151/83 (bonus child support incentive) ................................... .
-1,844c. HR 4179 DEFRA ..................................................................................... .
38
SubtotaL .................. ,......................................................................................
3. Court casesu. Simoll v. McMaholl ................................................................................. .
6,304
b. Consolidated cases .......................... ,...................................................... . -52,42;3c. Other ......................................................................................................... .
2,410
Subtotal ..... ;......................................... ,........................................................... .
4. Increased grant savings due to fraud detection
a. FRED ......................................................................................................... .
-3,515b. Integrated clearance ............................................................................. .
-27
c. FTB match ............................................................................................... .
-1,549Subtotal ........................................................................................................... .
5. Grant sayings due to GAIN ....................................................................... .
6. SAWS
a. Central data base ......... ,......................................................................... .
-391
b. Automated intake ................................................................................... .
-1,170Subtotal ........................................................................................................... .
7. Child support collections
a. Basic collections ....................................................................................... .
-1,872b. Intercept systems ................................................................................... .
-420
c. Collections from other states ............................................................... .
-1,290Subtotal ........................................................................................................... .
8. Other adjustments ....................................................................................... .
Total, adjustments ................................................................................... .
B. Proposed Changes
1. 1986-87 cost-of-Iiving adjustments
a. AFDC-FG and D (4.9%) ..................................................................... .
C. 1986-87 Expenditures (Proposed) ............................................................... .
Change from 1985 Budget Act:
Amount .: .... :....................................................................... ;.................................. .
Percent ................................................................................................................. .
Change from 1985-86 Estimated Expenditures:
Amount ................................................................................................................. .
Percent ................................................................................................................. .
0'

Total
$1,731,609$77,950$12,730$3,667. $2,946($97,293)$1,828,902-$727-$1,830-$48,529-$5,091-$15,400-$1,561-$3,582$1,067( -$75,653)$80,678$1,833,927$102,318
5.9%$5,0250.3%

Item 5180

918 / HEALTH AND WELFARE
AID TO FAMILIES WITH DEPENDENT CHILDREN-Continued·

Table 2 shows the factors resulting in the net increase of $5,025,000 in
General Fund support proposed for the AFDC program in 1986-87. As thetable shows, the largest cost increases projected for 1986-87 are attributable to:• A 4.9 percent COLA proposed for AFDC-FG and AFDC-U recipients($80,678,000) .
• The increased costs resulting from the judgment against the state in
the Simon v. McMahon court cases ($6,304,000).
• The expected increase in the foster care caseload ($3,573,000).
These increases are partially offset by reductions attributable to:• One-time costs associated with a group of court cases known as the"consolidated court cases" ($52,423,000).
• Grant savings resulting from implementation of the Greater Avenues
for Independence (GAIN) program ($15,400,000).
• The expected reduction in the AFDC-FG and U caseload ($6,323,000).
• Grant savings resulting from increased welfare fraud detection andprevention activities ($5,091,000).
• Increased child support collections ($3,582,000).
The table shows that the $5 million increase proposed for 1986-87
represents a 0.3 percent increase over the department's estimate ofGeneral Fund expenditures in the current year. The level of expenditures proposed in the budget, however, is 5.9 percent above theamount appropriated by the 1985 Budget Act.
The department estimates that General Fund expenditures in thecurrent year will exceed the amount appropriated in the Budget Act
by $97,293,000. This results from (1) AFDC caseloads that are 2.1
percent higher than the caseloads assumed in the 1985 Budget Act($77,950,000)and (2) the unanticipated costs stemming from a judgement against the state handed down in the Simon case ($12,730,000).
Eligibility, Caseloads, and Grants

Table 3 lists the eligibility criteria for the AFDC and Food Stamp programs (most AFDC recipients receive food stamps).
Caseload Decrease. Table 4 shows that in 1986-87, the AFDC caseload is expected to decrease by 10,508 persons from the revised estimateof caseload in 1985-86. As the table shows, this reduction reflects (1) areduction of 11,270 persons, or 3.2 percent, in the AFDC-U caseload and(2) a reduction of 80 persons, or 0.01 percent, in the AFDC-FG caseload.

- - - - _ . ._ - - - - - - - - - -Item 5180

HEALTH AND WELFARE /919

Table 3
Basic Eligibility Requirements
For the AFDC and Food Stamp Programs
A. Categorical Requirements
1. AFDC-Family Group ........ Child with one parent absent, deceased, or physically or mentally
incapacitated.
2. AFDC-Unemployed
Parent ...................................... "Principal Wage Earner" unemployed. Federal eligibility available if
principal wage earner is unemployed for 30 days and has recent work
experience. Otherwise, family is eligible for 3 months of Emergency
Assistance and State-Only AFDC.
3. AFDC-Foster Care ............ Child placed in foster care. A child removed by the court from an
AFDC eligible home is eligible for federal support; the state supports
court-placed children not linked to AFDC, and, for 6 months, voluntarily placed children.
4. Food Starnps............................ Any family or individual qualifies who meets federally determined
income and resource requirements.
B. Income and Resource RequireAFDC
ments
1. Real and Personal Property $1,000 limit; home exempt

2. Household Goods Personal
Effects ...................................... Exempt
3. Motor Vehicle ........................ First $1,500 of net market value
exempt4. Gross Income Limit .............. 185 percent of AFDC
minimum basic standard ofneed (see Table 5)
5. Allowable Income Deductions .......................................... 1. Standard work expenses ($75
full time; $50 part time)
2. Child care expenses (up to$160 per child)
3. If the family has received
AFDC within past 4 months,$30 and one-third ofremaining income; not applied tofamilies not previously on
AFDC"

6. Net Income Limit.................. AFDC maximum aid payment(see Table 5)

Food Stumps$1,500 limit ($3,000 forhousehold with one member
aged 60 years or over)
ExemptLimit of $4,500 on fair market
value
Limit $540 for an individual;
each additional household
member increases limit by$189 (family of 3 limit of $917)

1. 18 percent of earned income
2. Standard deduction ($95)
3. $134 limit on the sum of excess shelter costs and dependent care expenses
4. Excess medical expenses(actual amount less $35) for
households with member
over 60 or receiving Title IIdisability payments
Limit of $415 for individual;
each additional household
member adds about $145
(family of 3 limit is $705)" Once a family qualifies for aid, during the first four months, it is entitled to the $30 and one-third earned
income exemption in calculating the AFDC grant. For the remainder of its first year, the family isentitled to a $30 earned income exemption.

30--80960

920 / HEALTH AND WELFARE

Item 5180

AID TO FAMILIES WITH DEPENDENT CHILDREN-Continued
Maximum Payment Levels

Table 5 shows the maximum grant levels in 1985-86 for selected family
sizes under the family group and unemployed parent components of the
AFDC program. It also shows the maximum grant levels for 1986-87, basedon the 4.9 percent COLA proposed in the budget.
Table 4
Aid to Families with Dependent Children
Average Number of Persons Receiving Assistance Per Month1985-86 and 1985-87

1985-86
Prograru
ElsDruated
AFDC-Faruily Group ......................................... . 1,276,560
AFDC-UnemplQyed Parent ............................. .
344,790
AFDC-Foster Care ............................................. .
36,540Adoptions Assistance program ......................... .
3,014
Refugees:"
Time-eligible ................................................... .
(48,408)
Time-expired ................................................... .
(151,217)
Totals ............................................................. . 1,660,904

1986-87
Proposed
1,276,480
333,520
37,0003,396

ChangeNuruber
Percent-80-0.01%-11,270
-3.2
460
1.3
382
12.7

(49,733)(169,683)(1,325)(18,466)

2.7
12.2

1,650,396-10,508-0.6%"Grants to refugees who have been in the United States less than 36 months (time-eligible) are funded
entirely by the federal government. Time-expired refugees, those who have been in the United 'States
longer than 36 months, may qualify for and receive AFDC grants supported according to the normal
sharing ratio.

Table 5
Maximum AFDC·FG and U Grant Levels
1985-86 and 1985-87
Faruily Size
1985-86
1 ................................................................................................ $288
2 ................................................................................................
474
3 ............................................................................................... .
587
4 ................................................................................................
698
5 ............................................................................................... .
796

1986-87"
Aruount
Change
$302
$14
497
23
616
29
732
34
835
39

" Based on an estimated 4.9 percent increase in the California Necessities Index (CNI) during 1985.

ANALYSIS AND RECOMMENDATIONS
AFDC-FG Caseload Estimate Is Not Consistent With Recent Trends

We recommend that, prior to budget hearings, the department advise
the fiscal committees of its progress in incorporating in its May revision
estimate of the AFDC-FG caseloads, changes in refugee caseload andchanges in California's marriage, divorce, and illegitimate birth rates.
The budget proposes total spending of $3,065 million (including thecosts of the proposed 4.9 percent COLA) in 1986-87 for cash grants to
AFDC-FG recipients. This proposal assumes an average monthly AFDCFG caseload of 478,080 cases, which represents 1,276,480 persons on aid.
This is approximately the same case load anticipated for the current year.

HEALTH AND WELFARE / 921

Item 5180

Chart 1 displays the actual AFDC-FG caseloads from 1981-82 through
1984--85, and the department's projection of the caseload in the budget
year. As the chart shows, the department assumes that tl;1e steady increasein caseload which has occurred in the recent past will level off by the
beginning of 1986-87. This assumption has significant consequences forthe budget totals. If the actual caseload trends observed between 1981-82
and 1984-85 continued through 1986-87, this would result in 495,000 cases
per month, during 1986-87-17,000 cases, or 3.5 percent, more than thebudget anticipates. This would increase 1986-87 General Fund costs above
the budget estimate by $48 million.
Chart 1

AFDC-FG Case loads, Actual and Projected
Seasonally Adjusted.
1981-82 through 1986-87 (in thousands)
Caseload500- - Actual'----- Projected

480

460

440

420

81-82

82-83

83-84

84-85

85-86

86-87

a Because the data shown is seasonally adjusted. caseloads for 1985-86 consist of projected, as well as actual, caseIoads.

The reason why the department assumes that there will be no increasein the AFDC-FG caseload during 1986-87, despite recent trends, is that it
can find no satisfactory explanation for the recent steady increases in thecaseload. The department points out that these increases in caseload haveoccurred during a period of steadily declining unemployment and general
economic recovery. Moreover, the available data indicate that changes ineligibility standards account for only a very limited portion of the caseload
growth that has occurred since 1983. The department believes it would be
unwise to project a simple continuation of the recent trend absent anunderstanding of the forces causing the trend, or some basis for believingthat the trend will, in fact, continue into the budget year.
We agree that the recent increases in caseloads are perplexing. Whilethe correlation between economic conditions and AFDC-FG caseloads has

922 / HEALTH AND WELFARE

Item 5180

AID TO FAMILIES WITH DEPENDENT CHILDREN-Continued

never been adequate to explain all of the fluctuations in caseloads, it isreasonable to expect that caseloads would at least remain stable in good
economic times. There are, however, several noneconomic factors which
may explain the recent caseload increases. For example, the number ofrefugees in the state has been increasing steadily. Because of language andcultural barriers, these individuals are less likely than are other potential
AFDC recipients to take immediate advantage of improvements in theeconomy.
Another noneconomic factor that could explain the recent increases incaseload is the change in household composition. A recent study publishedby the Department of Health and Human Services found that 45 percentof new AFDC recipients enter the program as a result of becoming divorced or widowed. Another 30 percent of new recipients enter the program as a result of becoming pregnant or having a child out of wedlock.
Only 12 percent of new recipients enter the program due to a loss of or
reduction in their earnings. The same study found that 45 percent of therecipients who leave the program do so because of a change in householdcomposition, while 32 percent leave as a result of an increase in theirearnings.
Thus, changes in the marriage, divorce, or illegitimate birth rates within
California could explain some of the recent increase in AFDC caseloads.
Obviously, we cannot confirm that the recent caseload increases are due
to either of these factors-the increase in California's refugee populationor changes in household composition. These factors, however, are worth
exploring further to see if they can explain why caseloads have increasedin the face of economic prosperity.
We, therefore, recommend that, prior to budget hearings, the department advise the fiscal committees of its success in incorporating in its May
revision estimate of AFDC-FG caseloads the following noneconomic factors: (1) changes in refugee caseloads and (2) changes in California's
marriage, divorce, and illegitimate birth rates.
Foster Care Caseload Estimate Is Not Consistent With Recent Trends

We recommend that, prior to budget hearings, the department advise
the fiscal committees on its progress in incorporating specific factors in its
estimate of the foster care caseloads for the May revision.
The budget proposes total spending of $346,151,000 for the AFDC-Foster Care (AFDC-FC) program in 1986-87. This amount includes $248,894,000 from the General Fund, $84,156,000 in federal funds, and $13,101,000
in county funds. The expenditure proposal assumes that there will be anaverage of 37,000 children in foster care during 1986-87. This is approximately the same caseload anticipated for the current year.
Chart 2 shows the actual caseload for the Foster Care program from July
1982 through September 1985 as well as the department's caseload projection for the remainder of the current year and the budget year.
As the chart shows, the foster care caseload grew at an average annual
rate of 12 percent between July 1982 and September 1985. The department projected that the foster care caseload would increase to 37,000
children in December 1985, at which time it would level off for the next
18 months. At the time this analysis was prepared the department did nothave the December caseload data.
The chart also shows what the foster care caseload would be in 1986-87

HEALTH AND WELFARE / 923

Item 5180

if recent trends continue through 1986-87. Were this to happen, the foster
care caseload would increase to approximately 43,400 cases per month by
the end of the budget year. This increase would result in additional costs
above the budget amount of about $59.7 million. Approximately $42.9
million of this amount would have to be financed by the General Fund.
Chart 1

Foster Care Case load, Actual and Projected
June 1982 throu9h June 1987 (in thousands)
44- - - Actual monthly caseload a
40- - - - - - DSS projected caseload=== Continued caseload trend.
36
32
28-1 _ _/ - - ,24

20

1982-83

1983-84

1984-85

1985--86

1986--87

a Because data for 1985-86 is seasonally adjusted, it includes actual and projected caseloads.

The department advises that it chose to extend out the AFDC-FC caseload at the anticipated December 1985 level because it had no reason tobelieve that caseloads would continue to increase. While the foster carecaseload may not continue to increase at the same rate as in the past, it
is unlikely that it will suddenly level off.
There are several factors which the department did not take into consideration which may affect foster care caseloads during 1986-87. For example, the department should consider the number of reports charging childabuse as well as the number of emergency assistance referrals when it
projects the foster care caseloads. This is because children who are abused
and neglected or are receiving emergency assistance services may eventually be removed from their homes and be placed in foster care homes. To
the extent that child abuse reports and emergency response referrals
continue to increase, it is reasonable to expect a proportional increase infoster care caseloads.
Another factor that may affect foster care caseloads is the Child Welfare
Services (CWS) system. The budget proposes an additional $19 million
from the General Fund in order to fully fund the state's share of actual

924 / HEALTH AND WELFARE

Item 5180

AID TO FAMILIES WITH DEPENDENT CHILDREN-Continued

county costs between 1981-82 and 1984-85. With these additional funds,
counties are expected to increase CWS staffing. This is likely to change therate of growth in foster care caseloads. With increased funding, counties
may put more emphasis on the preplacement preventive services. These
services are provided to children and their families while the child still
resides in his or her own home, in hopes of avoiding foster care placement.
If counties choose to increase these preplacement services, the rate of
foster care caseload growth could slow down.
On the other hand, counties may use the additional funds to increasestaffing in the emergency response progam. This program provides emergency services to abused and neglected children. If the counties increasestaffing for this function, they may respond to reports of abuse that, in thepast, they have deemed to be low priority. An increase in emergency
response (ER) staffing, coupled with increased reports of abuse, could
result in a faster rate of growth in foster care caseloads.
Another factor that may affect foster care caseloads is the extent towhich probation departments place children who are under their supervision in foster care. In general, probation departments supervise children
who are considered delinquent. Probation departments can place thesechildren in facilities which are funded almost 100 percent by the county
or in foster care facilities for which the county's share of cost is 5 percent.
It would be important to determine if the recent increase in total foster
care caseloads is attributable, at least in part, to an increase in the rate at
which probation departments are placing children under their supervision in foster care facilities.
The department should examine these and other factors to see if theycan explain the caseload increases shown in Chart 2. We recommend that,prior to budget hearings, the Department of Social Services advise thefiscal committees on its progress in incorporating the following factors inestimating the foster care caseloads for the May revision: (1) the numberof child abuse reports, (2) the number of emergency assistance referrals
which result in foster care placement, and (3) the number of children who
are placed in foster care and supervised by probation departments.
Costs of Foster Care Services for Handicapped Children

We recommend that the department advise the fiscal committees how
much funding is needed to meet the requirements of Ch 1274/85.
Foster care services are provided to children who have been placed outof their own homes due to the loss of parental support, because of a court
order, or pursuant to an Individualized Education Plan (IEP). The purpose of IEPs is to ensure that children who have been determined ashandicapped receive appropriate education and services. The educationand services may include special education classes, various types of therapy, or out-of-home placement in a private education institution. Currently, if the child is under the custody of the courts, the funds for theseout-of-home placements are provided by the AFDC appropriation (Item5180-101-001) .
Chapter 1274, Statutes of 1985 (AB 882), requires that funds for theseout-of-home care placements be appropriated from a separate item within
the budget, starting July 1, 1986. The 1986 Budget Bill, however, does notcontain the separate appropriation required by Chapter 1274.
The department advises that the budget does not contain a separate

Item 5180

HEALTH AND WELFARE / 925

appropriation for these costs because it does not have an estimate of thenumber of children receiving foster care payments pursuant to an IEP. In
addition, the department could not estimate any potential caseload increase that might occur due to the provisions of Chapter 1274. The department advises us, however, that it intends to include an estimate of thesecosts in the May revision.
It is possible that Chapter 1274 could increase foster care caseloads
because under the provisions of the bill, parents no longer have to transfer
custody of their children to the courts in order to place a child in foster
care pursuant to an IEP. To the extent that more parents take advantageof this provision,: there will be an increase in foster care costs. Therefore,
we recommend. that the department advise the Legislature how much isneeded to proyide out-of-homecare for severely emotionally disturbed
children pursuant to Chapter 1274.
Budget Fails to Transfer Funds to the Foster Parent Training FundWe recommend that, prior to budget hearings, the Department of Finance advise. the fiscal committees how it intends to finance the transfer
of$1.8 million from the Foster Care program to the Foster Parent Training
Fund as required by current law.
Under current law, parents of children who are placed in foster care are
required to pay for a portion of their children's out-of-home care costs ifthey are financially able to do so. These collections are used to offset thestate, county, and federal costs of the Foster Care program.
State law requires that the General Fund share of child support collections exceeding $3.75 million be transferred to the Foster Parent Training
Fund. The Foster Parent Training Fund provides money to both foster
parent training programs run by community colleges and foster youth
services sponsored by local school districts.
The budget estimates that the General Fund's share of child support
collections for the Foster Care program in 1986-87 will total $5.6 million.
This is approximately $1.8 million over the ceiling of $3.75 million. Therefore under the provisions of current law, $1.8 million must be transferredin the budget year from DSS to the Foster Parent Training Fund, for use
by community colleges and local school districts. The department, however, did not take this requirement into consideration when preparing thebudget for 1986-87. Thus, the transfer of these funds will cause the Foster
Care program to be underfunded by $1.8 million in 1986-87. It also willcause General Fund expenditures in 1986-87 to exceed the amount shownin the budget by $1.8 million.
We also note that foster care support collections in the current year will
exceed the $3.75 million ceiling by about $1.6 million. This will cost the
Foster Care program another $1.6 million because of the required transfer
and further reduce the General Fund balance at the end of 1986-87.
We recommend that, prior to budget hearings, the Department of Finance advise the fiscal committees how it intends to finance the transfer
of $1.8 million from the Foster Care program to the Foster Parent Training Fund as required by current law in 1986-87.
Budget Proposal Depends on the Federal Government "Waiving the
Unwaivable and Allowing the Unallowable"
We recommend that, prior to budget hearings~ the department advise

the fiscal committees on its progress in securing the federal waivers needed to avoid a $46,855,000 ($40,030,000 General Fund and $6,825,000 county

Item 5180

926 / HEALTH AND WELFARE
AID TO FAMILIES WITH DEPENDENT CHILDREN-Continued

funds) cost shift from the federal government to the state and counties
which otherwise will occur as a result of the Simon v. McMahon case.
The budget proposes $21,339,000 ($19,034,000 General Fund and $2,305,000 county funds) to pay the costs in 1986-87 of complying with the court's
ruling iIi the Simon v. McMahon case. In its ruling, the California Supreme
Court struck down a state law which required that children with "restricted" income be included as part of the AFDC family for purposes of calculating the family's grant. ("Restricted" income is income that isreceived exclusively for the use of a particular child in an AFDC family.)
The effect of the court's order will be to give AFDC parents the optionof excluding children with restricted income from the "assistance unit"(the assistance unit consist of the members of an AFDC household forwhose needs the AFDC grant is intended). This will mean that the incomeof these children will not be counted as income to the family. In mostcases, the exclusion of such children (and their income) will result in ahigher grant to the family and, therefore, increased costs to the state andcounties.
The DSS estimates that the court's decision will increase General Fundcosts for grants under the AFDC program by $28.1 million in 1985-86 andby $42.0 million in 1986-87. In addition, the department estimatesthat the decision will increase the General Fund costs of administering the
AFDC program by $1.1 million in 1985-86 and by $1.0 million in 1986-87.
The department also estimates that total county costs will increase by $4.7
million in 1985-86 and $6.4 million in 1986-87.
Table 6 displays the department's estimate of costs attributable to theSimon case in 1985-86 and 1986-87.
Table 6
Fiscal Effect a of Simon v. McMahon
1985-86 and 1986-87(dollars in thousands)

GeneralFund
Increased Program Costs .................................... $13,093
Cost Shift ................................................................
16,055
Totals .............................................................. $29,148

1985-86-$18,792-$18,792

CountyFunds$1,922
2,737$4,659-$28,063-$28,063$2,305
4,088$6,393FederalFunds

Totals$15,015$15,015

1986--87
Increased Program Costs ....................................
Cost Shift ................................................................
Totals ..............................................................

$19,034
23,975$43,009$21,339$21,339"Includes administrative costs which would normally be budgeted under Item 5180-141-001-County
Administration of Welfare Programs.

As the table shows, the costs of the Simon case consist of the following
two components:• Increased program costs ($15.0 million in 1985-86 and $21.3 million in
1986-87). These are the increased grant and administrative costs associated with the court's ruling that AFDC parents be given theoption of excluding children with restricted income from the assistance unit .
• Cost shift ($18.8million in 1985-86 and $28.0 million in 1986-87). The

Item 5180

HEALTH AND WELFARE / 927

court's decision will shift grant and administrative costs from thefederal government to the state and counties. This is because underfederal regulations, parents do not have the option of excluding children with restricted income from the assistance unit. As a result, thefederal government will no longer fund its share of grant and administrative costs for these families. Thus, the court, in effect, has createda "state-only" program, and as a result the state and counties will haveto fund those costs formerly covered with federal money.
The budget includes sufficient funds to cover the increased program
costs identified in the department's estimate. It does not, however, include the funds needed to cover the state's share of the costs which thefederal government no longer will fund. The department advises that it
did not budget funds to cover these costs because it is planning to seek awaiver from the federal Department of Health and Human Services(DHHS) that would allow the state to continue receiving federal financial
participation for the grants to families affected by the Simon case. Specifically, the department will ask DHHS to participate in that portion of the
grants representing what the family would have received under the preSimon rules.
A federal official has informed us that, in order for California to continue
receiving federal financial participation for these costs, the DHHS will
have to "waive the unwaivable and allow the unallowable." There is aprovision of federal law, however, that, in effect, permits the Secretary of
Health and Human Services to do exactly that. The budget proposal assumes that the Secretary will exercise this broad authority to waive all
relevant federal AFDC regulations and grant California's request for awaiver for the Simon case.
We do not know whether the Secretary will grant the department's
waiver request. Given the cuts in federal programs made necessary by the
Gramm-Rudman amendment, it would be not just a little surprising if the
DHHS voluntarily increased federal aid to California by nearly $30 million
next year.
In the event that the Secretary does not grant the request, the cost to
the state and counties of the AFDC program in 1985-86 and 1986-87 will
be $46,822,000 ($40,030,000 General Fund and $6,792,000 county funds)
higher than anticipated by the budget. An increase of this magnitude
would reduce the Legislature's fiscal flexibility in putting together abudget for 1986-87. We therefore recommend that the department advise
the fiscal committees, prior to budget hearings, on its progress in securing
the federal waiver.
The Grant Savings from GAIN Anticipated by the Budget Are Based on an
Out-Dated Estimate

We withhold recommendation on $36,000,000 ($15,400,000 GeneralFund, $18,800,000 federal funds, and $1,800,000 county funds) in savings
anticipated from the Greater A venues for Independence (GAIN) program, pending receipt of an up-to-date estimate.
Chapter 1025, Statutes of 1985, created the Greater Avenues for Independence (GAIN) program. This progam provides employment arid
training services to AFDC recipients to help them to become financiallyself-sufficient. The AFDC budget anticipates that these services will resultin grant savings totaling $36 million ($15.4 million General Fund, $18.8
million federal funds, and $1.8 million county funds) in 1986-87. We discuss the department's fiscal estimate for the GAIN program in our analysis

928 / HEALTH AND WELFARE

Item 5180

AID TO FAMILIES WITH DEPENDENT CHILDREN-Continuedof the social services programs item (please see Item 5180-151-001).
We note in that analysis that the department's estimate of the program
costs is out-of-date for several reasons, including the fact that the estimate
assumes an implementation date of January 1, 1986. The department advises that counties probably will not begin implementing the GAIN program prior to July 1, 1986. This delay will greatly reduce the savings thatthe program will generate in 1986-87. Therefore, we withhold recommendation on the savings budgeted for the AFDC program as a result of the
GAIN program, pending the receipt of a more up-to-date estimate.
CHILD SUPPORT ENFORCEMENT PROGRAM
Review of Program Performance

1. We recommend that, prior to budget hearings, the department provide the fiscal committees with an estimate of what it would cost to
conduct a controlled study of the various child support enforcement
strategies.
2. We recommend that the Legislature adopt legislation establishing an
incentive allocation formula based on a fixed, rather than a varying, percentage of child support collections.
3. We recommend that the Legislature adopt legislation phasing in of
non-AFDC collections as part of the base on which the incentive payments
will be paid.
4. We recommend that the Legislature adopt legislation retaining thecurrent requirement that counties use child support incentive payments
to support the Child Support Enforcement program, sunsetting this requirement on July 1, 1988, and requiring the DSS to report by January 1,
1988, on the advisability of postponing the sunset.
The Child Support Enforcement program is a revenue-producing program administered by district attorneys' offices throughout the state.
Through this program, district attorneys locate absent parents, establish
paternity, and obtain and enforce court-ordered child support payments.
This service is available to welfare recipients and nonwelfare families.
Child support payments collected on behalf of AFDC recipients are used
to reduce state, county, and federal welfare costs. Collections on behalf of
nonwelfare clients are distributed directly to the client.
In a report on California's child support program published in September 1985 (LAO Report No. 85-21), we reviewed the performance of California's child support program and the potential effect of recently enacted
federal legislation (PL 98-378) on the program. In the report, we recommended legislative action to (1) conform state law to federal regulations,(2) identify the most effective enforcement strategies, and (3) improve
the performance of the program. Specifically, the report contains therecommendations listed above.
REVIEW OF THE WELFARE FRAUDEARLY DETECTION/PREVENTION PROGRAM

The 1983 Budget Act established the Fraud Early Detection/Prevention(FRED) program in order to detect and prevent fraud at the time an
individual applies for AFDC and/ or food stamp benefits. The FRED program was modeled after a pilot program implemented by Orange Countyin early 1980.
.
.
The 1983 Budget Act required all counties that processed a specified

Item 5180

HEALTH AND WELFARE / 929

number of AFDC and food stamp applications to submit a report to the
DSS by August 15, 1983, on their existing fraud prevention programs. Any
county which determined that its existing program was not as cost-beneficial as the Orange County pilot project was authorized to seek funds fromthe department to implement a program comparable to Orange County's.
To date, 23 counties have applied for and received funds to operate a
FRED program. One of these counties (San Mateo) began program operation in 1983; 16 began in 1984; 2 began in 1985; and 4 (Santa Clara, Santa
Cruz, Fresno, and Yuba) plan to commence operation of a FRED programin early 1986.
While each county's FRED program is unique, they all fit the basic
structure envisioned in the 1983 Budget Act. Basically, the program involves assigning welfare fraud investigators or specially trained investigative-eligiblity workers to work with countly welfare department eligiblity
staff. The investigators are on-call to conduct in-depth investigations of thestatements made by applicants for welfare.
Eligibility workers refer cases to the fraud investigators whenever (1)the statements made by the applicant establish eligibility for welfare and(2) the intake worker has reason to believe that one or more of thestatements in the application is false. For example, the intake worker
might suspect the applicant had falsified his/her application if the person
indicates on the application that he/she had no means of support during
the current or preceding months. Such a response would raise doubts
because it is difficult to understand how a family could survive for several
months with no means of support.
Intake workers in Orange County refer approximately 8 percent of all
welfare applications they process to FRED investigators.
When an investigatoJ;' is assigned to a case, he or she uses standard
investigative techniques to verify the facts set out in the welfare application. These techniques include interviews with the applicant in the welfare office, visits to the applicant's home, and interviews with individuals
who may have personal knowledge of the applicant's situation. Investigators in Orange County find that about 50 percent of the applications
referred to them by intake workers result in a denial of aid or in therecipient withdrawing his/her application.
The FRED Program Has Been Successful in Those Counties that Have
Implemented It

In order to determine whether the FRED program has been successful
in those counties where it has been implemented, we identified two important indicators of the program's performance-client protection andcost-effectiveness. Our review indicates that the program has been successful in achieving each of these goals.
Client Protection. The Budget Acts of 1983, 1984, and 1985 contained provisions designed to protect the rights of applicants for public
assistance benefits. Specifically, counties are required to provide a complaint form to every applicant who withdraws his or her application after
a fraud referral. These forms advise the client of his/her right to file acomplaint either in person or through the mail. The DSS requires counties
to retain all complaints.
In 1984, 20 counties operated FRED programs. They completed morethan 19,000 investigations, which resulted in 7,457 applications being denied or withdrawn. Of those persons whose applications were denied orwithdrawn, only 11 filed complaints and 7 of these complaints were un-Item 5180

930 / HEALTH AND WELFARE
AID TO FAMILIES WITH DEPENDENT CHILDREN-Continued

related to the FRED program.
It seems highly likely that if any of the 20 counties were systematicallyusing the program to intimidate applicants, a substantial number of theapplicants who were denied aid would have lodged complaints. Moreover,the department advises that only nine clients who were denied aid as aresult of the program in 1985, requested and received fair hearings. Of thenine fair hearings, three are still pending and five of the six that have been
completed were decided in favor of the county.
Based on the relative dearth of complaints and the counties' success in
FRED-related fair hearings, we conclude that the program has protected
the rights of clients.
Cost-Effectiveness. The 1984 Budget Act required the department
to report to the Legislature on the performance of the FRED program,including its cost-effectiveness. This report, issued in June 1985, concludes
that for every dollar the counties spend to support the FRED program,they generate between $8.20 and $18.10 in welfare savings.
Our review of the department's report identified the following flaws in
the methodology which the department used to estimate the program's
benefit-to-cost ratio:• The department estimated welfare cost avoidance based on the assumption that the average AFDC case receives aid for 24 months. Thisestimate was based on a sample of active cases. Based on a sample ofclosed cases, we estimate that the average duration of an AFDC caseis approximately 17 months.
• The department assumed that 17 percent of the fraudulent applications would have been detected by another fraud detection program
once the recipient actually began receiving aid. (We believe that theuse of the average time on aid to calculate program savings should
account for this factor because the sample used to estimate the average would include any cases that were closed as the result of a fraud
investigation. )• The department did not take into account the possibility that some
applicants who were denied aid as a result of the FRED program
would successfully reapply at a later date (without necessarily committing fraud in the process).
In addition to these methodological flaws, the department's report was
based on performance data reflecting program results in 1983 and 1984years iri which several counties' programs were in operation for only a few
months.
We believe that a report on the Orange County FRED program, issued
by the U.S. Department of Health and Human Services (DHHS) in October 1985, provides a more reliable estimate of the benefit-to-cost ratio of
the program. The report concludes that Orange County's FRED program
returns between $16.60 and $33.81 in savings to state, federal, and county
governments for every $1.00 in operating costs. The benefits of the program range between $16.60 and $33.81, depending on (1) what the average duration on aid is assumed to be and (2) the method used to estimate
the costs of the program. We believe that the most reasonable combination of these two assumptions is the one which results in an estimatedbenefit-to-cost ratio of 22.1 to 1. Regardless of which set of assumptions isused, however, it is clear that the Orange County FRED program is highly
cost-effective.
.

\-------~-.--.-.-.

Item 5180

HEALTH AND WELFARE / 931

We reviewed the performance of 15 of the 19 counties, excluding Orange County, that operated FRED programs during 1985 using a methodology similar to the one used to prepare the DHHS report. Table 7
displays our estimate of the program's benefit-to-cost ratio, by county, as
it applies to the AFDC program only. The table also shows the estimatedbenefit-to-cost ratio for each of the three levels of government involvedin the program. The ratios are different because each level of government
pays a different share of what it costs to administer the program andbecause each receives a different share of the savings that result from theprogram. The table clearly indicates that the program is highly cost-effective. On average, the program returns $17.80 in AFDC savings to theGeneral Fund for every $1.00 in operating costs to the General Fund.
Table 7
The FRED Program
Estimated Benefit-to-Cost Ratio by Funding Source
1985

Total Funds"
El Dorado .................................... 11.9
Glenn ............................................ 12.9
Mendocino.................................... 15.8
Nevada ..........................................
3.5
San Luis Obispo ..........................
8.9
San Mateo .................................... 17.9
Santa Barbara .............................. 43.8
Sonoma.......................................... 45.1
Stanislaus .... .... .......... .... ................ 14.1
Sutter ............................................ 24.8
Trinity............................................
3.3
Tulare ............................................ 36.6
Ventura ........................................ 13.4
yolo................................................
72
Weighted average ...................... 10.1

General Fund
20.8
22.7
27.8
6.2
15.7
31.4
76.9
79.2
24.7
43.6
5.8
64.2
23.5
12.6
17.8

County Funds
2.5
2.7
3.4
0.7
1.9
3.8
9.3
9.6
3.0
5.3
0.7
7.8
2.9
1.5
2.1

Federal Funds"
11.9
12.9
15.8
3.5
8.9
17.9
43.8
45.1
14.1
24.8
3.3
36.6
13.4
7.2
10.1

"The federal funds benefit-to-cost ratio is the same as the total funds ratio because the federal government
pays the same percentage share of administrative costs as it pays of grant costs.

Conclusion. We conclude that the FRED program has been highly
cost-effective in the counties that have implemented it to date. In addition, the cost savings have been achieved while protecting the rights ofapplicants.
Why Haven't More Counties Implemented the FRED Program?

The 1983 Budget Act required that counties report to the DSS on the
cost-effectiveness of their existing fraud detection programs. Most counties reported that their existing fraud detection programs were at least as
cost-effective as Orange County's FRED program. Consequently, in thelast three years, only 23 counties have requested additional funds to implement the program. In other words, the majority of counties believe that
their current fraud detection programs are as effective as the FRED
program.
There are several reasons to believe that non-FRED counties have underestimated the potential savings from implementing the FRED program:

Item 5180

932 / HEALTH AND WELFARE
AID TO FAMILIES WITH DEPENDENT CHILDREN-Continued

1. When the non-FRED counties analyzed their existing fraud programs, they were not aware of the actual cost-effectiveness of the Orange
County FRED program. The DHHS report was not published untillate 1985-more than two years after the effective date of the 1983 Budget
Act which required counties to compare their existing detection programsto Orange County's program. Prior to the publication of the DHHS report,
the cost-effectiveness of Orange County's program had not been independently verified.
2. The benefit-to-cost ratios displayed in Table 7 reflect FRED savings
that have been achieved in addition to the savings generated by otherfraud detection programs. In general, the counties that have implemented FRED programs continue to operate other fraud detection programs. Our estimate of savings associated with the FRED program does
not include any savings from these other detection programs.
3. Most non-FRED counties emphasize detection of fraud in established cases, rather than prevention of fraud during the initial intake ofcases. Detection of fraud at intake is more effective than detection of
fraud in continuing cases for two reasons:• It eliminates the need to collect reimbursements from recipients who
have defrauded the program. This is because, when fraud is detected at intake, it prevents wrongful payments. This is importantbecause, on average, counties recoup only 55 percent of the money
wrongfully paid to fraudulent recipients .
• It reduces criminal justice costs. It does so by reducing the number of welfare fraud prosecutions. The FRED program results inprosecution for welfare fraud in 1.3 percent of the cases in which
fraud is established. Other fraud detection programs lead to prosecution in approximately 15 percent of the cases where fraud is established.
4. Orange County detects substantially more fraud than do the otherlarge counties. We compared the total number of fraud cases identified by Orange County through all of its fraud detection systems, including
FRED, as a percentage of the county's AFDC caseload with the same
figures for the other large counties. Table 8 displays the results of thiscomparison. As the table shows, Orange County detected three times
more fraud than did the other large counties. We believe the difference
can be attributed to the Orange County FRED program. This is because(a) the Orange County FRED program accounts for the bulk of the fraud
detected by the county and (b) prior to the implementation of the FRED
program, Orange County actually detected more fraud through its traditional detection programs than the other large counties were detecting
through their programs.
.
For these reasons, we conclude that most of the non-FRED counties
could significantly increase the effectiveness of their fraud detection programs by implementing a FRED program.
There are probably several reasons why the majority of counties (including most of the large counties) have not implemented a FRED program. Some counties may believe that the FRED program does notadequately protect the rights of clients. We have shown that this is not thecase. Others may believe that their current programs detect fraud aseffectively as the FRED program. We have shown that this is highly
unlikely. Perhaps the most likely reason that counties have not implemented FRED is revealed by Table 7: the FRED program is much lesscost-effective from a county's perspective than it is from the state orfederal government's perspective.
-------.,-~-----------

Item 5180

HEALTH AND WELFARE / 933
Table 8AFDC Fraud Detected as a Percent of Total Caseload
Orange County and Eleven Other Large Counties(July 1983 through December 1983)

Eleven Large Counties
Percent
Riverside ......................................................................................................................................................... . 3.2%
San Diego ....................................................................................................................................................... . 3.1
San Bernardino ............................................................................................................................................. . 2.7
Fresno" ........................................................................................................................................................... . 2.3
Los Angeles ................................................................................................................................................... . 2.2
Santa Clara" .................................................................................................................................................. . 1.8
Contra Costa ................................................................................................................................................. . 1.8
Alameda ......................................................................................................................................................... . 1.7
San Francisco ............................................................................................................................................... . 1.5
San Joaquin ................................................................................................................................................... . 1.3
Sacramento I> •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 1.2
Average ......................................................................................................................................................... . 2.2%
Orange County ............................................................................................................................................. . 7.4%
" Fresno and Santa Clara County plan to implement FRED programs in early 1986.
I> Sacramento County implemented a FRED program in May 1984.

Currently, counties finance 25 percent of the FRED program's operating costs (this sharing ratio also applies to other fraud detection programs). On the other hand, counties pay for only 5.4 percent of AFDC
grant costs and therefore share in only 5.4 percent of any savings generated by the FRED program. As a result, the effect of the program on
county budgets is much less favorable than it is on the state or federal
budget. As the table shows, counties, on average, save $2.10 for every $1.00
they spend on the program, while the state saves $17.80 for every dollar
it spends. For some counties, the program actually results in a net cost.
For these reasons, the counties' fiscal in~entives to implement the
FRED program, are relatively weak. Thus, counties-especially thosewith fiscal problems-may not consider the FRED program to be worthwhile, since costs must be incurred at the front end in order to achievesavings later on.
How Can the Legislature Encourage More Counties to Implement
FRED Programs?

We recommend Budget Bill language requiring DSS to (1) assess thecosts/savings of the FRED program in non-FRED counties and (2) report7
by December 17 1986 on the fiscal effects of mandating FRED on all
counties.
There are probably only two options available to the Legislature forincreasing the counties' use of the FRED program, other than increasing
the counties' share of AFDC costs (which would give counties a greater
stake in the savings associated with the program). We discuss these options below.
Wait and see. The first option is simply to wait and see if morecounties implement the FRED program. As the benefits associated withthe program become better understood, more counties may decide to
implement it. In fact, the recent decisions of Fresno and Santa Claracounties to implement FRED programs may indicate that counties are
becoming increasingly aware of the advantages to be gained from theprogram. On the other hand, other counties seem steadfast in their belief

934 / HEALTH AND WELFARE

Item 5180

AID TO FAMILIES WITH DEPENDENT CHILDREN-Continued

that their current detection programs are adequate. Thus, this option does
not guarantee that all of the counties which could improve their fraud
detection systems by implementing the FRED program will do so. To theextent counties which could benefit from the FRED program choose not
to implement it, the state foregoes an opportunity to: (1) achieve substantial savings and (2) enhance the integrity of California's welfare programs.
Mandate FRED for those counties in which it would be cost-effective
to do so. Under this option, the Legislature would authorize the department to require counties to implement FRED programs under specified circumstances. Specifically, the department would assess tpe
potential benefits and costs from implementing the FRED program inindividual counties, and require those counties where it would be costeffective to implement the program. The drawback to this option is that
it would create a state-mandated local program, obligating the state to pay
for 100 percent of the program's nonfederal costs. The obvious advantageof this option is that it would allow the Legislature to ensure that all
counties capable of operating a cost-effective FRED program are required
to do so.
We have estimated the costs and savings that would be associated withthe second option. The estimate assumes that all counties which currently
do not operate a FRED program would be required to do so. (It is likely,
however, that some counties would not be required to implement the
FRED program because it would not be cost-effective for them to do so.)
The estimate reflects a conservative assessment of the savings that would
result from implementing FRED programs in counties where a program
does not currently exist. This is because (1) it is based on the benefit-tocost ratio of the current FRED counties other than Orange (Orange
County's program is more cost-effective than the average FRED program) and (2) the savings used in the estimate include only grant savings;
we did not include in our calculations savings in AFDC administrative
costs, food stamp costs, or criminal justice system costs.
The estimate divides costs into two categories: (1) the state's 50 percent
share of program costs in those counties that do not currently operate a
FRED program (the federal government would pay for the other 50
percent of the program's costs) and (2) an additional 25 percent share of
FRED program costs in counties that already operate the program. (Thestate currently pays 25 percent of the costs in these counties, but because
the program would be mandated, rather than voluntary, the state would
have to pick up the current county share of costs.) Table 9 displays ourestimates of the costs and savings to be gained from mandating the FRED
program statewide.
Table 9Estimated Costs and Savings to the State of Mandating
Counties to Implement the FRED Program

Costs
Counties that already operate FRED
programs ................................................
Counties that do not currently operate
FRED programs ....................................
Totals ......................................................

Savings$558,000
7,706,000$8,264,000

Net Fiscal
EffectSavings-toCost Ratio$558,000-$68,651,000-$68,651,000-$60,945,000-$60,387,000

8.9 to 1 "8.3 to 1"The General Fund benefit-to-cost ratio displayed here is one-half of the benefit-to-cost ratio displayedin Table 7. This is because, under this option, the General Fund would support 50 percent of program
costs, instead of the 25 percent share currently paid in the counties listed in Table 7.

Item 5180

HEALTH AND WELFARE / 935

The table shows that mandating FRED on counties in which it would
be cost-effective to do so could result in a substantial savings to the state.
Given the track record of the FRED program in preventing fraud while
protecting client rights, we see no reason why the program should not be
mandated in counties where the DSS believes it would be cost-effective.
Therefore, we recommend that the Legislature adopt the following
Budget Bill language, directing the department to (1) assess the potential
costs and savings of the FRED program in counties that currently do not
operate the program and (2) report to the Legislature by December 1,
1986, on the potential costs and savings in 1987-88 and future years, of·
requiring counties to implement the FRED program where it would becost-effective to the state:"The DSS shall assess the potential costs and savings that would result
from implementation of FRED programs in counties that do not currently operate such programs. The DSS shall, by December 1, 1986,
submit a report to the Legislature providing its detailed estimates ofthese costs, on a county-by-county basis, for 1987-88 and subsequent
years. In preparing its report, the department shall consider the estimating methodology used in preparing federal report # 18-P-00241-9-01.
The department's report shall also provide an estimate of the increased
costs to the state that would result from mandating the FRED programon counties that currently operate it on a voluntary basis."
TECHNICAL BUDGETING ISSUES
Savings From Asset Clearance Match Underbudgeted

We rec()mmend a reduction of $4,337,000 ($1,931,000 General Fund,$2,173,000 federal funds, and $233,000 county funds) to reflect a moreaccurate estimate of the savings that will result from the asset clearance
match program in 1986-87.
The budget anticipates that the asset clearance match program will
result in savings of $8,674,000 ($3,861,000 General Fund, $4,346,000 federal
funds, and $467,000 county funds) in 1986-87. This program identifies
welfare recipients who have bank accounts that accrue interest of morethan $30 a year. Once these recipients are identified, county welfare
departments determine whether the recipients have correctly reported
these assets to their caseworkers. If these assets have resulted in the recipient receiving more money than he or she was entitled to receive, thecounty welfare department attempts to recoup the overpayment.
The department's estimate of the savings that will be generated by theasset clearance match in 1986-87 assumes that each investigator can complete 16 cases per month. Based on data provided by the department, weestimate that investigators currently process 24 cases per month. The 16
cases per month figure used by the department corresponds to the unweighted average number of cases per investigator in large, medium,small, and very small counties. Our estimate of 24 cases per month reflects
the weighted average for these four groups.
.
If the department's estimate is adjusted to reflect the weighted average
number of cases per investigator, the savings estimate increases by 50
percent. Specifically, we estimate that the asset clearance match program
will generate savings of $13,012,000 ($5,792,000 General Fund, $6,519,000

936 / HEALTH AND WELFARE

Item 5180

AID TO FAMILIES WITH DEPENDENT CHILDREN-Continued

federal funds, and $701,000 county funds). We therefore recommend a
reduction of $4,337,000 ($1,931,000 General Fund, $2,173,000 federal funds,
and $233,000 county funds) to reflect a more accurate estimate of theincreased savings that will result from the asset clearance match in 198687.
Savings From The Integrated Earnings Clearance Program Are Underbudgeted

We recommend a reduction of $3,243,000 ($1,436,000 General Fund,$1,633,000 federal funds, and $174,000 county funds) to reflect a moreaccurate estimate of the AFDC grant savings that can be expected to result
from the Integrated Earnings Clearance program in 1986-87.
The budget anticipates savings to the AFDC lrogram of $1,321,000($585,000 General Fund, $665,000 federal funds, an $71,000 county funds)
due to increased activity in the Integrated Earnings Clearance (1EC)
program. The IEC program is a welfare fraud detection program which
identifies recipients who have· income that they do not report to theircaseworkers. The program identifies these individuals by matching welfare records against the records of other governmental agencies such as
the Franchise Tax Board, the Social Security Administration, and the Internal Revenue Service. These records are matched once every quarter.
The department's estimate of the savings that will result from the IEC
program in 1986-87 is based, in part, on the assumption that 80 percent of
the individuals who are identified by the program as having failed toreport income in each quarter were also identified by the program in theprevious quarter. Based on data provided by the department, we estimatethat only 30 percent of the individuals identified each quarter have beenpreviously identified. If the department's estimate is adjusted using the 30
percent estimate, savings from the program grow by $3,243,000 ($1,436,000
General Fund, $1,633,000 federal funds, and $174,000 county funds).
Therefore, we recommend a reduction of $3,243,000 ($1,436,000 GeneralFund, $1,633,000 federal funds, and $174,000 county funds) to reflect amore accurate estimate -of the AFDC grant savings that can be expected
to result from the IEC program in 1986-87.

\Item 5180

HEALTH AND WELFARE / 937

Department of Social Services
STATE SUPPLEMENTARY PROGRAM FOR THE AGED, BLIND,
AND DISABLED

Item 5180-111 from the GeneralFund and Federal Trust Fund

Budget p. HW 152

Requested 1986-87 ................................................................... . $1,591,370,000 "Estimated 1985-86 ..... ,............................................................. . 1,410,536,000
Actual 1984-85 ........................................................................... . 1,248,571,000
Requested increase $180,834,000 (+ 12.8 percent)Total recommended reduction ............................................. .
Nonea This amount includes $104,732,000 proposed in Item 5180-181-001 (a)for cost-of-living increases.

1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
5180-111-001-Payments to aged, blind, and disabled
5180-111-890-Payments to aged, blind, and disabled
5180-181-001 (a)-Payments to aged, blind, anddisabled COLA
5180-181-890-Payments to aged, blind, and disabled COLA, refugees
Total

Fund
GeneralAmount$1,486,638,000

Federal(8,043,000)

General104,732,000

Federal(226,000)$1,591,370,000

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. Caseload Estimates. Recommend that the Departmentof Finance reconcile the discrepancy between the aged
caseload estimates of the Departments of Social Services
and Health Services.
2. Continuing Disability Reviews. Recommend that theLegislature adopt supplemental report language directing
the department to reconcile any discrepancy between its
estimate of savings due to the resumption of continuing
disability reviews (CDRs), and the savings actually realized
as a result of implementing the new CDR regulations.
3. State Monitoring of Federal Administration. Recommend that the Legislature adopt supplemental report language directing the department to outline its plan formonitoring the quality of federal administration of the Supplemental Security Income/State Supplementary Program.

Analysis
page

942

943

945

GENERAL PROGRAM STATEMENTThe Supplemental Security Income/State Supplementary Program(SSI/SSP) provides cash assistance to eligible aged, blind, and disabled
persons. A person may be eligible for the SSI/SSP program if he/she iselderly, blind, or disabled and meets the income and resource criteria
established by the federal government.
The federal government pays the cost of the SSI grant. California has

Item 5180

938 / HEALTH AND WELFARE

STATE SUPPLEMENTARY PROGRAM FOR THE AGED, BLIND, AND DISABLED-Continued

chosen to supplement the federal payment by providing an SSP grant. The
SSP grant is funded entirely from the state's General Fund. In California,
the SSI/SSP program is administered by the federal government throughlocal Social Security Administration (SSA) offices.
During the current year, an estimated 679,896 persons will receive assistance each month under this program.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes an appropriation of $1,591,370,000 from the General Fund for the state's share of the SSI/SSP program in 1986-87. This is
an increase of $180,834,000, or 13 percent, above estimated expendituresin the current year. The budget also assumes that federal expenditures for
the SSI/SSP program will be $1,322,109,000. This is an increase of $72,941,000, or 5.8 percent, above estimated federal expenditures in the current
year. The budget estimates that combined state and federal expenditures
for the SSI/SSP program in 1986-87 will be $2,913,479,000, which is anincrease of $253,775,000, or 9.5 percent, above estimated current-year expenditures.
Table 1 shows SSI/SSP expenditures, by category of recipient and by
funding source, for the years 1984-85 through 1986-87.
Table 1SSI/SSP
Expenditures 1984-85 through 1986-87(dollars in thousands)

Clltegory of Recipiellt
Aged ................................................................. .
Blind ................................................................ ..
Disabled ......................................................... .
Totals ...................................................... ..

Actual1984-85$751,845
80,174
1,549,426$2,381,445

Est.
1985-86$841,613
90,353
1,727,738$2,659,704

Prop.
1986-87"$920,020
98,812
1,894,647$2,913,479

Percellt
Chllllge
From
1985-86
9.3%
9.4
9.7
9.5%

Funding Source
Gelleml FUlld .............................................. ..
Federlll fUllds b ............................................ ..

$1,248,571
1,132,874$1,410,536
1,249,168$1,591,370
1,322,109

12.8%
5.8%

" Includes 4.9 percent COLA.
h Includes federal funds to support SSP costs for refugees.

Table 2 shows the budget adjustments that account for the increase in
SSI/SSP expenditures proposed for 1986-87. The increase in General Fundcosts can be attributed to the following significant changes proposed forthe budget year:• A $104.7 million increase needed to provide a 4.9 percent cost-ofliving adjustment (COLA) for grants, beginning January 1, 1987.
• A $74.8 million increase which reflects the effect of (1) the full-year
cost in 1986-87 of the 5.7 percent COLA provided for SSI/SSP grants
on January 1, 1986, and (2) the increase in recipient's unearned income (as a result of the 3.1 percent COLA provided for social security
benefits on January 1, 1986).
• A $33.9 million decrease made possible by increased federal funds that

Item 5180

HEALTH AND WELFARE / 939

are expected to be available for a COLA to SSI grants, beginning
January 1, 1987.
• A $45.3 million increase needed to fund an estimated 2.7 percent
increase in caseload.
• A $15.5 million decrease reflecting an anticipated increase in recipient's unearned income (primarily as a result of the estimated 3.5
percent COLA provided for social security benefits on January 1,1987), which reduces grant costs.
• A $14 million increase due to the cost of errors made by the federal
government in administering the SSI/SSP program in 1985-86 which
the federal government will no longer finance.
Table 2

SSI/SSP
Proposed Budget Changes
1986-87(dollars in thousands)

1985-86 expenditures (revised) ....................................... .
Proposed changes:
1. Basic caseload increases ............................................... .
2. Cost-of-Iiving adjustments
a. Proposed 4.9 percent grant increase (1/87) ..... .
b. Full-year cost of 1/86 grant increase ................... .
c. Estimated federal SSI increase (1/87) ................. .
d. Estimated social security benefit increase (1/87)
Subtotals ..................................................................... .
3. Program adjustments
a. Decreased federal reimbursement for errors ... .
b. Resumption of disability reviews ......................... .
c. $10 state supplement (Ch 1161/85) ..................... .
d. Court cases ................................................................. .
e. All others ..................................................................... .
Subtotals ..................................................................... .
1986-87 expenditures (proposed) ................................... .
Change from 1985-86:
Amount ............................................................................. .
Percent.. ............................................................................. .

GeneralFund$1,410,536

FederalFunds"$1,249,168$2,659,704

45,281

48,531

93,812

104,732
74,815-33,943-15,480($175,405)

226
22,40532,949-9,630($94,481)

104,958
97/lfl1J
994-25,110($271,874)$14,000-7,4001,167-1,852-486($5,429)$1,591,370-$14,000-7,900-126
487(-$21,539)$1,322,109$0-15,300
1,167-1,978(-$16,1ll)$2,913,479$180,834
12.8%$72,941
5.8%$253,775
9.5%

oTotal"oa Includes federal funds of $7,557,000 in 1985-86 and $8,043,000 in 1986-87 to support SSP costs for refugees.

ANALYSIS AND RECOMMENDATIONSEligibility Requirements

The Social Security Administration (SSA) administers the SSI program.
In addition, the SSA will administer a state's SSP program if it is requested
to do so by the state. When the SSA administers a state's SSP program, as
it does in California, federal eligibility requirements are used to determine
an applicant's eligibility for both the SSI and SSP programs.
To be eligible for the SSI/SSP program, individuals must fall into oneof three categories-aged, blind, or disabled. In addition, their income andresources cannot exceed certain specified limits. Table 3 summarizes theeligibility requirements for the SSI/SSP program.

Item 5180

940 / HEALTH AND WELFARE

STATE SUPPLEMENTARY PROGRAM FOR THE AGED, BLIND, AND DISABLED-Continued
Table 3

SSI/SSP
Basic Eligibility Requirements
A. Categorical Requirements

Category
1. AgedCriteria
a. 65 years of age or older.
a. Vision no better than 20/200; limited visual field of 20
degrees or less with the best corrective eyeglasses.
a. A physical or mental impairment which precludes"substantial gainful employment" and is expected tolast at least 12 months or result in death.

2. Blind
3. Disabled

B. Income and Resource Limits

Type
1. Home2. Personal and real property
3. Household goods/personal effects
4. Life insurance policies
5. Burial plots or spaces
6. Motor vehicle
7. General income exclusion
8. Earned income exclusiona. All categories
b. Blind and disabled
9. Income limit

Limit
Entire value exempt.
$1,700 for individual, $2,550 for couple.
$2,000 equity value.
$1,500 face value.
$1,500 per person.
Total exclusion, or exclusion to $4,500 of market value.
2nd automobile-no exclusion.
$20/month general exclusion.
a. First $65/month of earned income plus one-half ofremaining earned income.
a. Any income used toward gaining self-sufficiency.
Maximum SSl/SSP grant. (see Table 5).

The Deficit Reduction Act of 1984 (DEFRA) increased the limit on
personal and real property that an SSI / SSP recipient may own and stillretain eligibility for benefits. The limit will increase by $lOO for individuals
and $150 for couples for each year for five years, beginning January 1, 1985.
Thus, as a result of this provision, the resource limits will increase to $2,000
and $3,000, respectively, by 1989. Otherwise, the eligibility requirements
for the SSI/SSP program are essentially unchanged from last year.
Status of the Current-Year Budget

The department's latest estimate of General Fund costs for the SSI/SSP
program in 1985-86 is $1,4lO,536,000. This is $20,213,000, or l.5 percent,above the amount appropriated in the 1985 Budget Act. The major factorsthat account for the increase are as follows:• Costs have increased by $6.9 million because the amount provided by
the federal government to reimburse the state for errors it made inadministering the SSI/SSP program was less than expected.
• Costs have increased by $6 million because the amount of federal
funds provided for COLAs to SSI/SSP grant recipients and the increase in social security benefits in 1985 were less than anticipated.
The budget assumed an increase of 3.5 percent for both the SSI grantand social security benefits; the actual increase on January 1, 1986, was
3.1 percent.
• Costs have increased by $4.4 million because the moratorium on disability reviews was extended from March 1985 through January 1986.
• Costs have increased by $4.2 million due to a 0.5 percent increase incaseload.

Item 5180

HEALTH AND WELFARE / 941

Grant Levels and Cost-of-Living Adjustments

The maximum grant amount received by an SSI/SSP recipient varies
according to the recipient's eligibility category. For example, in 1986 anaged or disabled individual can receive up to $533 per month, while a blind
individual can receive up to $597. In addition to categorical differences,
grant levels vary according to the recipient's living situation. The majorityof SSI/ SSP recipients reside in independent living arrangements. Other
recipients reside in (1) independent living arrangements without cooking
facilities, (2) the household of another person, or (3) nonmedical board
and care facilities. The grants provided to these individuals differ from the
grants received by individuals in independent living arrangements.
Table 4 shows the maximum grant levels for the major recipient categories in 1985 and 1986, as well as what the grant levels will be in 1987 if the
4.9 percent increase proposed in the budget is approved.
Table 4

SSI/SSP
Maximum Monthly Grant Levels
Calendar Years
1985 through 1987

Category of Recipient
Aged or disabled:
Individual:
Total grant ..............................................
SSI ........................................................
SSp: .......................................................
Couple:Total gran t ..............................................
SSI ........................................................
SSP ........................................................
Blind:
Individual:
Total grant ..............................................
SSI ........................................................
SSP ........................................................
Couple:Total grant ..............................................
SS! ........................................................
SSP.;......................................................

Change From1986 to 1987
Amount Percent

1985

1986

Governor's
Budget"
1987

504
325
179

533
336
197

559
347
212

26
11
15

4.9%
3.3
7.6

936
488
448

989
504
485

1,037
521
516

4B
17
31

4.9
3.4
6.4

565
325
240

597
336
261

626
347
279

29
11
18

4.9
3.3
6.9

1,099
488
611

1,162
505
657

1,219
521
698

57
16
41

4.9
3.2
6.2

" Assumes a 3.5 percent increase in SSI grants, effective January 1, 1987.

Federal Requirements. The Social Security Act Amendments of1983 require California to maintain its SSP grants at or above the July 1983
level. This means that, for aged or disabled individuals-who represent
the largest groups of recipients-the state must provide at least $157 permonth in addition to the SSI grant provided by the federal government.
As Table 4 shows, the SSP grant levels proposed in the budget exceed
those required by federal law.
State Requirements. Existing state law requires that the total SSII
SSP payment levels be adjusted, effective January 1, 1987, based on thechange in the California Necessities Index (CNI) during calendar year
1985. The Commission on State Finance is required to calculate the eNI
and will announce the actual change in the CNI for calendar year 1985

942 / HEALTH AND WELFARE

Item 5180

STATE SUPPLEMENTARY PROGRAM FOR THE AGED, BLIND, AND DISABLED-Continued

during March 1986. The commission's calculation, therefore, will be available for use in calculating the actual grant adjustments required by current law, prior to when the Legislature completes action on the budget.
Budget Proposal. The budget proposes to provide the cost-of-living
increase required by state law. Based on a Department of Finance estimate of the change in the CNI during 1985, the budget proposes a 4.9
percent increase in the maximum grants at a cost of $104,732,000 to theGeneral Fund. Table 4 shows the effect of a 4.9 percent increase to the
grant levels for various recipient categories.
Caseload Estimates Need to be Reconciled

We recommend that the Department oE Finance (1) reconcile the discrepancy between the aged caseload estimates oE the Departments oE
Health Services (DHS) and Social Services (DSS) and (2) report to the
Eiscal committees, prior to budget hearings, regarding any changes that are
warranted in the amounts proposed under this item and under the MediCal program item (Item 4~60-101-001).
The budget proposes General Fund expenditures of $1,403 million tofund the SSI/SSP caseload in 1986--87. This is an increase of $45.3 million,
or 3.3 percent, above estimated current-year expenditures and is due tocaseload growth. The department estimates that the total SSI / SSP caseload will grow by 2.7 percent between 1985-86 and 1986--87, as shown in
Table 5. The SSI/SSP caseload is comprised of aged, disabled, and blindrecipients. The aged population is 39 percent of the total caseload, and thedepartment estimates that the aged case load will grow by 1.8 percent
between the current year and 1986-87.
For the most part, the aged caseloads for the Medi-Cal program (excluding the medically needy only), and for SSI/SSP consist of the same individuals. It is not possible, therefore, for one caseload to increase at thesame time that the other is decreasing. Despite this fact, DSS and DHS
have developed conflicting estimates of the aged SSI/SSP caseload for1986-87. While DSS projects that this caseload will increase by 1.8 percent
between the current and budget years, DHS projects that the aged population receiving medical assistance will decrease by 1.2 percent during thisperiod. Thus, the caseload projections of DSS and DHS are inconsistent
with one another. It is difficult to understand how a difference of thismagnitude-3 percentage points-could have occurred in a budget that,
presumably, was carefully reviewed by both the Health and Welfare
Agency and the Department of Finance.
Table 5

SSI/SSP
Average Monthly Caseload
19~5 through 1986-87

ActualEligibility Ciltegory
1984-85
Aged ................................................... . 264,283
Blind .................................................. ..
18,804
Disabled ............................. .-............... . 379,800
Totals ........................................ .. 662,887

Est.
1985-86
266,646
19,446
393,804
679,896Prop.
1986-87
271,500
20,067
406,542
698,109

Percent Change
From 1985-86
1.8%
3.2
3.2
2.7%"

"The Department of Health Services projects a 1.2 percent decrease in the aged population receiving
Medi-Cal between 1985-86 and 1986-87.

Item 5180

HEALTH AND WELFARE / 943

We are concerned about this inconsistency because it casts doubt on thevalidity of the administration's estimate of the costs of both the SSI/SSP
program and the Medi-Cal program. To the extent that there are more
aged SSI/SSP recipients in the Medi-Cal program than is reflected in the
DHS caseload estimate, the cost of the Medi-Cal program will be morethan the amount currently budgeted in the Medi-Cal item (4260-101-001).
We have no basis for determining which department's estimate of caseload is most reasonable. Consequently we cannot advise the Legislature
whether the amount of funds proposed to fund the caseload increase in
the SSI/SSP program is correct. We can only note that the budget asks theLegislature to appropriate money for two major budget items based on
two contradictory estimates of the same caseload. We therefore recommend that the Department of Finance reconcile this discrepancy between
the two department's caseload estimates and advise the fiscal committees,
prior to budget hearings, of any changes that are warranted in (1) theamounts proposed under this item for the SSI/SSP program and (2) theamounts proposed for the Medi-Cal program (Item 4260-101-001).
Savings Estimate from Continuing Disability Reviews May Be Overstated

We recommend that the Legislature adopt supplemental report language which requires the Department of Social Services (DSS) to submit
a report by December 1, 1986, that reconciles its estimate of savings dueto the resumption of continuing disability reviews (CDRs) with the savings actually realized.
In 1980, Congress enacted amendments to the social security Act (P.L.
96-265) which expanded the requirement for periodic reviews of bothdisabled social security and SSI/ SSP recipients, in order to determine theircontinued eligibility for benefits (referred to as "Continuing Disability
Reviews" (CDRs). These reviews resulted in thousands of appeals to thefederal courts by individuals whose grants were reduced or terminated,threats by federal courts to serve contempt of court citations on the Secretary of Health and Human Services (HHS) for refusing to pay benefits
when ordered, and the decision of several states not to follow federal CDR
regulations. As a result, on April 1, 1984, the Secretary of HHS imposed a
moratorium on the CDR process, pending further legislative action. Congress established new standards for disability reviews in the Social Security
Disability Benefits Reform Act of 1984 (P.L.98-460). Based on thislegislation, HHS prepared new CDR regulations which became effective December 6, 1985.
The most significant change in the regulations brought about by P.L.98460 was the addition of a "medical improvement standard." Under the oJd
regulations a recipient could be terminated from aid even though his/her
physical or mental condition was unchanged. Under the new regulations
a recipient can only be terminated from aid based on proof of improvement in his/her medical condition. In addition, the new regulations makeother changes such as requiring more extensive documentation of recipients' medical condition.
The department estimates that resumption of the CDRs will result insavings to the General Fund because these reviews will identify somecurrent SSI/SSP recipients as ineligible for assistance. The department
estimates that the General Fund savings from discontinuing benefits tothese persons will total $700,000 in 1985-86, and $8.1 million in 198~7.

944 / HEALTH AND WELFARE

Item 5180

STATE SUPPLEMENTARY PROGRAM FOR THE AGED, BLIND, AND DISABLED-Continued

We have reviewed the basis for the department's estimate, and we haveidentified a number of factors which could cause the savings from CDRs
to be either higher or lower than what the budget anticipates. Specifically,
we find that:• The SSIISSP cases which are determined to be ineligible for aid will
not be discontinued from assistance immediately, thereby reducing
the estimate of savings. The department assumes that savings will
start to accrue on March 1, 1986, as an average of 360 recipients permonth are terminated from aid. This estimate fails to consider thatrecipients will receive two additional months of benefits following thereceipt of a termination notice. Therefore, in the current year, costs
will continue to occui' for two months beyond the month that anindividual receives a notice of termination. We estimate that this will
reduce the current-year savings by $474,000. If the department isunable to make up for this loss by processing additional cases in 198687, savings for the budget year will be $914,000 lower than estimatedby the department. (This is because savings for 1986-87 are cumulative, based on. savings in the current year.)• The department's estimate fails to take into account appeals by individuals who have been notified that they are no longer eligible foraid. Individuals who appeal a termination notice can continue toreceive benefits during the appeals process, thereby reducing thesavings still further.While it is difficult to estimate the number of
appeals, it is important to note that prior to the moratorium on CDRs,
there was a very high rate of successful appeals. In general, the appeals process takes approximately two-to-eight months to complete.
If the appeal results in a reversal of the termination, the recipient willcontinue to receive benefits until the next review of his/her case.
• There is some uncertainty as to how many individuals will be foundineligible for aid under the new "medical improvement" standard.
The department estimates that an average of 20 percent of the cases
reviewed will be terminated from aid. The SSA indicates, however,that between 17jercent and 21 percent of cases reviewed will be
dropped from ai . The department based its estimate on its experi"ence in performing CDRs prior to the moratorium. During this period, the department was determining eligibility based on a decision ina court case which imposed a standard similar to the new "medical
improvement" standard. The new regulations, however, are moredetailed than the court standard, and include other changes in addition to the "medical improvement" standard. If the department terminates from aid fewer than 20 percent of those subject to the CDRs,
savings will be lower than projected. On the other hand, if more than
20 percent of the cases are terminated from aid, the savings will behigher than estimated.
• The number of cases which will be reviewed in the current year
probably will be lower than the number estimated in the budget,
thereby reducing the savings in the current year. This is primarily
because the department will not hire the staff necessary to performthe CDRs until February, but it assumes that the full workload of
CDRs will be performed beginning March 1, 1986. Although the department is requiring experienced staff to work overtime to help with

Item 5180

HEALTH AND WELFARE / 945

the reviews, it is unlikely that the department will be able to handle
the projected workload immediately because (1) the new staffrequires one year of training and work experience before becoming
fully productive and (2) the overtime may be insufficient to coverboth the incoming CD Rs and the regular workload. If the department
processes fewer cases than it estimates, then the savings will be lower
than it projects.
Because of these uncertainties it is difficult to assess the accuracy of thedepartment's savings estimate. Accordingly, we recommend that theLegislature adopt supplemental report language requiring the department to submit a report to the Legislature by December 1, 1986, thatreconciles its estimate of savings due to the resumption of CDRs withactual savings achieved.
The following language is consistent with this recommendation:"The Department of Social Services shall submit a report by December
1, 1986, that reconciles its estimate of savings due to the resumption of
CDRs with its actual experience in implementing the new CDR regulations."
State Monitoring of Federal Administration

We recommend that the Legislature adopt supplemental report language requiring the department to (1) review the findings of the State
Controller's audit of the SS/ISSP program and (2) submit a report by
September 1~ 198~ that outlines the state's contract proposal regarding thefederal quality assurance system.
The Social Security Administration (SSA) administers the SSI/SSP program in California pursuant to a contract between the federal and state
government. Under the provisions of the contract, the federal government is responsible for a number of activities, one of which is monitoring
the accuracy with which it administers the program. The federal government monitors its administration of the program based on quality assur~
ance (QA) reviews.
The state relies primarily on the findings from the federal QA system
in order to monitor federal administration of the program. In addition, thestate performs audits to monitor federal administration of the program.
The contract between the state and federal government specifies theconditions under which these audits are performed and describes thefederal QA system.
The department currently is negotiating a new contract with theSSA.
The department indicates that it has two major concerns with the newcontract proposed by SSA. The proposed contract:• Deletes a description of the federal QA system.
• Limits the effectiveness of state audits.
Federal QA System Changes. Prior to 1985-86, as part of its QA system, the federal government reviewed a sample ofSSIISSP cases in order
to identify erroneous payments to recipients. Subsequent to this review,
the state examined a portion of the federal sample to test the accuracy of
the federal review. The findings from these two reviews were combined
to produce an error rate. The error rate was the basis for reimbursing thestate for erroneous payments made by SSA to SSIISSP recipients.
On October 1, 1984, however, the SSA eliminated federal reimbursement for erroneous payments. As a result, the state eliminated the staff
which had reviewed the federal sample. The department explained that946 / HEALTH AND WELFARE

Item 5180

STATE SUPPLEMENTARY PROGRAM FOR THE AGED, BLIND, AND DISABLED-Continued

since the federal government was no longer going to reimburse states forerroneous payments, the state would have limited ability to influence thequality of the QA reviews. It indicated, however, that the risk of inaccurate QA reviews and misspent program funds could increase.
The state relies primarily on the federal QA system to monitor federal
program administration. The department informs us that the contract
proposed by the federal government does not describe the QA system. As
a result, the department does not know what type of system SSA is planning to operate in the future. Because the description of the QA system
was left out of the new contract proposal, several states, including California, New York, Michigan, and Nevada, have refused to sign the contract.
The department plans to propose that the contract include a descriptionof the QA system that will protect the state's interest in accurate programadministration. The department, however, has not yet decided what kindof QA system it will propose to the federal government.
State Audits of Federal Administration. In addition to the federal
QA system, the state continues to periodically audit federal administrationof the program. In 1983, the Department of Finance (DO F) , and the State
Controller's office performed the last major state audit of the program. As
a result of that audit, DOF estimated that SSA owed the state approximately $30 million due to erroneous payments to recipients. In addition,
the state recommended that SSA correct several administrative deficiencies.
The SSA agreed with most of the state's recommendations, but it did notagree that it owed the state $30 million. Currently, the SSA is reviewing
the state's claim.
Neither the old contract, nor the proposed contract provide a definite
time period for resolution of claims identified in state audits. The department informs us that it intends to propose a one-year period for resolutionof these claims. In addition, the new contract deletes the provision thatstate audit results may be used by the state to recommend improvementsin the federal government's QA process. This effectively eliminates stateoversite of the federal QA process.
State Controller's Report. A planned State Controller's audit reportwill provide the department with some of the information it needs inorder to develop a contract proposal which protects the state's interest inaccurate federal administration of this program. The State Controller's
office advises us that the three-part audit will:• Review SSA's current QA system and SSA's plans to modify it,• Review SSA's procedures for verifying the $30 million identified in
the 1983 audit and follow-up on other recommendations made in the1983 audit and• Review regional and district offices' administration of the program in
1981-82, 1982-83, and 1983-84.
The State Controller's office informs us that it will complete the first two
parts of the audit by July 1986, and the third part later in 1986-87. The firsttwo parts of the audit report will identify weaknesses in both the current
QA system, and any planned changes. The department can use that information to develop a contract proposal for a more effective QA system. If
the state's proposal succeeds, it will allow the state to:Item 5180

HEALTH AND WELFARE / 947• Identify administrative errors as a result of both the QA system andstate audits, and• Require the federal government to reimburse the state for some ofthose errors.
Accordingly, we recommend that the Legislature adopt supplemental
language requiring the department to (1) review the findings of the State
Controller's audit report on the SSI!SSP and (2) submit a report by September 1, 1986, that outlines the state's contract proposal regarding thefederal QA system.
The following language is consistent with this recommendation:"The Department of Social Services shall (1) review the findings of theState Controller's audit report of the SSI!SSP and (2) submit a report by
September 1, 1986, that provides the state's proposal for the contract withthe federal government regarding the federal quality assurance system."

Department of Social Services
SPECIAL ADULT PROGRAMS

Item 5180-121 from the GeneralFund and the Federal Trust
Fund

Budget p. HW 153

Requested 1986-87 ......................................................................... .
Estimated 1985-86 ........................................................................... .
Actual 1984-85 ................................................................................. .
Requested increase $196,000 (+10.8 percent)Total recommended reduction ................................................... .

$2,018,000
1,822,000
1,657,000
None

1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
5180-121-001-Special Adult Programs
5180-121-890-Special Adult Programs

Fund
GeneralFederalAmount$2,018,000(75,000)

GENERAL PROGRAM STATEMENTThe Special Adult programs consist of three distinct program elements
designed to fund the emergency and special needs of Supplemental Security Income/State Supplementary Program (SSI!SSP) recipients. Theseelements are the (1) Special Circumstances program, which provides
financial assistance for emergency needs, (2) Special Benefits program,which provides a monthly food allowance for guide dogs belonging toblind SSI!SSP recipients, and (3) Temporary Assistance for Repatriated
Americans program, which provides assistance to needy U.S. citizens returning from foreign countries.

Item 5180

948 / HEALTH AND WELFARE
SPECIAL ADULT PROGRAMS-Continued
OVERVIEW OF THE BUDGET REQUESTThe budget proposes a General Fund appropriation of $2,018,000 for theSpecial Adult programs in 1986-87. This is $196,000, or 11 percent, morethan estimated General Furld expenditures for this program in the current
year. This increase results primarily from projected caseload growth in theSpecial Circumstances program. The Department of Social Services(DSS) anticipates that the caseload for the Special Circumstances program will increase because the potential applicant pool-SSI/SSP recipients-is growing at an accelerating rate.
The budget also proposes $75,000 in federal funds to provide cash assistance to repatriated Americans. This is the same amount that will be spentin the current year.
ANALYSIS AND RECOMMENDATIONS

We recommend approval.
The 1985 Budget Act required DSS to limit state reimbursement for anindividual county's administrative costs under the Special Circumstances
program to 100 percent of the county's total benefit expenditures, or
actual administrative costs, whichever was less. The department estimatesthat total administrative costs for this program in 1986-87 will not exceed
100 percent of benefit expenditures. Furthermore, the department indicates that it will restrict each county's administrative costs to 100 percent
of benefit expenditures.

Department of Social Services
REFUGEE CASH ASSISTANCE PROGRAMS

Item 5180-131 from the Federal
Trust Fund

Budget p. HW 155

Requested 1986-87 .......................................................................... $57,857,000"
Estimated 1985-86............................................................................ 55,989,000
Actual 1984-85 .................................................................................. 52,783,000
Requested increase $1,868,000 (+3.3 percent)Total recommended reduction ....................................................
None"Includes $1,553,000 proposed in Item 5180-181-890 for a 4.9 percent cost-of-living increase.

1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
5180-131-866--Refugee programs, local assistance
5180-181-866{c)-Refugee programs, local assistance
Total

Fund
FederalFederalAmount$56,304,000
1,553,000$57,857,000

Item 5180

HEALTH AND WELFARE / 949

SUMMARY OF MAJOR ISSUES AND RECOMM':NDATIONS
1. Refugee Caseload Estimates. Recommend that prior tobudget hearings the Department of Finance reconcile theconflict in caseload estimates and advise the Legislature of
any changes that are warranted in the funds proposed.

Analysispage

949

GENERAL PROGRAM STATEMENT
This item appropriates the federal funds that pay for the costs of cash
grants and medical assistance provided to refugees who are eligible forassistance and who have been in this country for less than 36 months.
These individuals are referred to as "time-eligible" refugees. Refugees
who have been in this country for more than 36 months, and who meet
applicable eligibility tests, receive assistance under the Aid to Families
with Dependent Children (AFDC), Supplemental Security Income/State
Supplementary Program (SSIISSP), Medi-Cal, and county general assistance programs.
ANALYSIS AND RECOMMENDATIONS
Refugee Caseload Estimates

We recommend that the Department of Finance (1) reconcile the discrepancy between the refugee caseload estimates of the Departments ofHealth Services (DHS) and Social Services (DSS) and (2) report to thefiscal committees prior to budg~t hearings any changes that are warrantedin the amounts proposed under this item and under the Medi-Cal program
item (Item 4260-101-001).
The budget proposes expenditures of $57,857,000 in federal funds forcash and medical assistance provided through Refugee Cash Assistanceprograms to refugees and entrants in 1986--87. This is an increase of $1,868,000, or 3 percent, above estimated current-year expenditures for this program.
The $1,868,000 increase reflects three principal changes: (1) a $1,553,000
increase proposed in Item 5180-181-866 for a 4.9 percent cost-of-living
adjustment to cash grant amounts provided to refugees, (2) an $825,000
increase to cover the costs of a 2.7 percent increase in caseload projectedby the DSS for its cash assistance program, and (3) a reduction of $510,000
in the projected costs of providing medical services to refugees that is
primarily due to a 3.6 percent reduction in caseload projected by the DHS.
For the most part, the same individuals make up the caseloads forrefugee cash assistance and medical assistance. It is not possible, therefore,
for one program's caseload to increase while the case load for the other isdecreasing. Thus, the DSS's and DRS's caseload projections are inconsistent with one another. It is difficult to understand how a difference of thismagnitude-6.3 percentage points-could have occurred in a budget that,
presumably, was carefully reviewed by both the Health and Welfare
Agency and the Department of Finance.
Not only does this inconsistency cast doubt on the administration's expenditure estimate for this item; it also brings into question the administration's estimate of General Fund costs under the Medi-Cal program.
This is because the General Fund cost estimates for the Medi-Cal program
depend, in part, on the amount of federal funds ava.ilable to reimburse the
DHS for medical assistance provided to time-eligible refugees. To theItem 5180

950 / HEALTH AND WELFAREREFUGEE CASH ASSISTANCE PROGRAMS-Continued
extent that the number of time-eligible refugees turns out to be more inline with DSS's caseload projections, the amount of federal funds available
to offset the General Fund costs of Medi-Cal services for refugees will
exceed the amount budgeted in this item. If this happens, the amountneeded from the General Fund to pay costs under the Medi-Cal prograin
will be less than the amount proposed in the Medi-Cal item (Item 4260101-001).
We have no basis for determining which department's estimate of caseload is the most reasonable. Consequently, we cannot advise the Legislature whether the amount of federal funds proposed for refugee cash andmedical assistance under this item is correct. We can only note that thebudget asks the Legislature to appropriate money for two major budget
items based on two contradictory estimates of the same caseload. We
therefore recommend that the Department of Finance reconcile the discrepancy between the two department's caseload estimates and advise
the fiscal committees, prior to budget hearings, of any changes that are
warranted in (1) the amounts proposed under this item for refugee cash
and medical assistance and (2) the amount needed from the GeneralFund for the Medi-Cal program item (Item 4260-101-001).

Department of Social Services
COUNTY ADMINISTRATION OF WELFARE PROGRAMS

Item 5180-141 from the GeneralFund and Federal Trust Fund

Budget p. HW 154

Requested 1986-87 .......................................................................... $133,848,000
Estimated 1985-86............................................................................ 129,181,000
Actual 1984-85 .................................................................................. 122,627,000
Requested increase $4,667,000 (+3.6 percent)Total recommended reduction ................................................... .
None
Recommendation pending ........................................................... .
999,000
198£Hl7 FUNDING BY ITEM AND SOURCE
Item-Description
5180-141-001-County Administration
5180-141-890-County Administration

Fund
GeneralFederalAmount$133,848,000(394,294,000)
AnalYSis

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. Productivity Targets. Recommend that the Legislature

adopt Budget Bill language requiring the Departments ofSocial Services (DSS) and Health Services, in conjunction
with the County Welfare Director's Association, to establish
productivity standards for the AFDC, Food Stamps' andMedi-Cal programs based on a "model" county methodology.

page

955

Item 5180

HEALTH AND WELFARE / 951

2. Overpayment Collections Report. Recommend that theLegislature adopt Budget Bill language allocating $122,000
from the General Fund to counties to cover their costs of
preparing an overpayment collection report, only after the
Director of Finance has certified that the DSS has taken
appropriate action to ensure that the counties will reportaccurately and on a timely basis.
3. Statewide Automated Welfare System (SAWS). Withhold recommendation on $2,244,000 ($999,000 GeneralFund and $1,245,000 federal funds) proposed for the SAWS
project, pending receipt of the annual SAWS progress report.

958

959

GENERAL PROGRAM STATEMENT

This item contains the General Fund appropriation for the state's shareof costs incurred by the counties in administering (1) the Aid to Families
with Dependent Children (AFDC) program, (2) the Food Stamp program, and (3) special benefits for aged, blind, and disabled recipients. It
also funds costs of training county eligibility and non service staff. In addition, this item identifies the federal and county costs of administering childsupport enforcement and cash assistance programs for refugees.
OVERVIEW OF THE BUDGET REQUESTThe budget proposes an appropriation of $133,848,000 from the GeneralFund as the state's share of the costs that counties will incur in administering welfare programs during 1986-87. This is an increase of $4,667,000, or
3.6 percent, over estimated current-year General Fund expenditures forthis purpose. The $~33.8 million includes $6,106,000 to fund the increased
General Fund costs resulting from the estimated 4.8 percent cost-of-living
adjustment (COLA) granted by the counties to their employees during
1985-86. In accordance with the policy established by the Legislature in
recent budget acts, during 1986-87 counties will pay for any COLAs thatthey grant their employees in the budget year using county and federal
funds. The state will fund its share of these costs starting in 1987-88.
The budget proposes total expenditures of $714,059,000 for county administration of welfare programs during 1986-87, as shown in Table 1. Thisis an increase of $28,226,000, or 4 percent, over estimated current-year
expenditures.
Proposed General Fund Changes

Table 2 displays the adjustments to General Fund expenditures forcou~ty administration proposed for 1986-87. The net increase of $4,667,-

000, III large part, reflects the $6,106,000 needed to fund the estimated 4.8
percent retroactive COLA, partially offset by the elimination of one-timeadministrative costs in 1985-86 associated with a variety of court cases($2,523,000) .

31-80960

n

oc
z....
~

Table 1
Expenditures for County Welfare Department Administration
1984--85 through 1981H17(in thousands)

Progrum
AFDC administration ................
Nonassistance Food Stamps ....
Child Support Enforcement ....
a. Welfare ................................
b. :..;onwelfare ..........................
Special Adult programs ............
Refugee cash assistance ............
Staff development ......................
Adoption assistance ....................
Subtotals ....................................
Local mandates ..........................
Employment programs" ..........
Totals. .........................................

»
CI~.......
:I:
tI::

>

tl:I:

z >Z
5;;a- oEstimuted 198~6
Pro/losed 1986-87
Actllul1984-85~
Federul COllnty
Totul
Stute
Totul
Stute
Fedeml COllnty
TotuJ.
Stute
Federul COlln(I'$95,536 $207,823 $108,786 $412,145 $99,942 $212,968 $109,418 $422,328 $102,807 $224,372 $114,749 $441,928 z
60,83727,329 107,684
25,012
27,859 113,708
26,854
66,982
29,617
123,453
23,25757,09892,542
39,661 132,203
92,542
39,661
92,11930,723 122,842
132,203 'TI(68,696) (29,442) (98,138)(68,696) (29,442) (98,138)(68,703) (22,917) (91,620)(23,846) (10,219) (34,065) m(23,846) (fO,219) (34,065)(23,416)(7,806) (32,222)
2,347
2,494
60
2,554
2,555
109
2,664 'TI
2,295
52
5,774
7,028
7,028
6,850
6,850 ;;a
5,774
m
6,595
1,611
3,538
1,781
6,930
1,611
3,538
1,781
1,781
1,524
3,333
1,738
31 _ ."
22
22
10
32
21
10
15
7
;;a
--- ----- ----$122,627. $366,154 $168,628 $657,409 $129,081 $376,923 $178,779 $684,783 $133,848 $394,294 $185,917 $714,059
Ci)
(291)
(-291)(-291)
(291)
;;a
1,000
100
900
~
$122,627 $366,154 $168;628 $657,409 $129,181 $377,823 -. $178,779 $685,783 $133,848 _$394,294 $185,917 $714,059"Funds to-support employment programs in 1986-87 are budgeted under Items 5180-151-001 and 5180-151-890, social services programs.

CD
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tIl

o >>r:
o

r'

~

tIl

:e
....

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o
»

~o

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~

c

CD

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......
.....
(1)

8
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Item 5180

HEALTH AND WELFARE / 953
Table 2
County Administration of Welfare Programs
General Fund Changes Proposed for 198&-37(dollars in thousands)

Cost
1985-86 Expenditures (Revised) ...................................................................... ..
A. Adjustments to Ongoing Costs
1. AFDC Administration
a. Basic Costs .............................................................................................. ..
b. Court Cases ........................................................................................... .
c. Fraud Detection Savings .................................................................... ..
d. Employment Programs Transfer .................................................... ..
e. Other ...................................................................................................... ..
Subtotal ................................................................................................. .
2. Nonassistance Food Stamps
a. Basic Costs ............................................................................................... .
b. Other ....................................................................................................... .
Subtotal ................................................................................................ ..
3. Other Programs ........................................................................................ ..
B. New Costs
1. SAWS
a. AFDC ...................................................................................................... ..
b. Nonassistance Food Stamps .............................................................. ..
Subtotal ................................................................................................. .
2. Retroactive COLA (4.8%) "a. AFDC ...................................................................................................... ..
b. Nonassistance Food Stamps .............................................................. ..
Subtotal ................................................................................................. .
1986-87 Expenditures (Proposed) .................................................................. ..
Change from 1985-86:
Amount ........................................................................................................ ..
Percent ......................................................................................................... .

Total$129,181$668-2,523-186-201
75-$2,167
56
-33
$23
-$40

169
576
$745
4,863

~
$6,106$133,848$4,667
3.6%

a This reflects the 1986-87 General Fund costs of the estimated 4.8 percent cost·of-Iiving increase granted

by counties to their employees in 1985--86.

COST CONTROL MEASURES IN COUNTY ADMINISTRATIONThe Department of Social Services (DSS) allocates funds to counties forthe administration of welfare programs using a formula that considers anumber of factors, including (1) caseload, (2) productivity targets for
eligibility workers, (3) the existing salary structure in each county, (4)allowable cost-of-living increases, and (5) allocated support (overhead)costs. One of the primary objectives of this formula is to control the growthin state-funded county costs for administering welfare programs.
The department calculates the county's allocation of funds for administrative costs in the following way. First, it determines the productivity
targets (the number of cases to be handled by an eligibility worker) andsupervisory ratios for the county. The cost control plan requires counties
to meet the average of the productivity standards achieved by counties
having a similar caseload during a specific base year, or their own performance during the base year if it was above average. Second, the department
determines the allowable salary costs per worker. Third, the department
calculates total administration costs by multiplying the DSS May estimatesof caseloads in AFDC and food stamps by the average cost per case, which
is derived from the productivity target and average salary costs. Several
other adjustments are made in order to fund overhead costs, fraud investigation activities, and other special items.

954 / HEALTH AND WELFARE

Item 5180

COUNTY ADMINISTRATION OF WELFARE PROGRAMS-Continued

The state's share of these costs is approximately 25 percent of the total.
The counties are notified of their allocation early in the budget year. The
amount actually paid to a county is determined by adjusting the allocation
for actual caseload during the year.
Current Productivity Targets

The cost control plan specifies productivity targets that provide a basis
for limiting allocations to counties. Currently, the base years used to set
these targets are 1980-81 for AFDC administration and 1979~0 for Food
Stamp administration.
Proposed Evaluation of Cost Control System

The 1985 Budget Act required the DSS and the Department of HealthServices (DHS) to submit to the Chairman of the Joint Legislative Budget
Committee (JLBC) , by October 1, 1985, a plan for conducting a study ofthe eligibility determination process under the AFDC, Food Stamps, andMedi-Cal programs. The Budget Act specified that the study should bedesigned to determine the appropriate productivity targets for these programs. It also prohibited the DSS from changing the productivity targets
for the AFDC and Food Stamps programs until the study is completed.
The Budget Act, however, required the DHS to update the base year used
to set Medi-Cal productivity targets for 1986-87. (We discuss the Medi-Cal
target update in our analysis of Item 4260-lO6-001).
The departments submitted their study plan to the JLBC in January
1986. The plan calls for reviewing three aspects of the current cost control
plan over a period of at least two to three years. Specifically, the plan sets
out the following schedule for the study.
Alternative Approaches to Grouping Counties According to Caseload
Size. Under the proposed plan, the two departments and the County
Welfare Director's Association would review the current method used togroup counties based on caseload size and set average productivity targets
for each group. Currently, the counties are grouped into four categories
based on caseload size for the purposes of setting productivity targets. The
proposed study would consider such alternatives as groupings based onlevel of automation and geography. The department believes it can complete this portion of the study during 1986-87, using available resources.
Alternative Approaches to Budgeting Support Costs. This part ofthe study would consider changes to the way the department budgets forsupport ("overhead") costs. Currently, DSS reviews, on a case-by-casebaSis, county requests to increase their total support costs. Overhead costs
are allocated to each program based on the ratio of each program's lineworker costs to total line-worker costs within the welfare department. The
proposed study would consider such alternatives as using targets for counties' support-to-line staff ratios and direct billing of some support costs.
The department believes it can complete this portion of the study during
1986-87, using available resources.
Evaluation of Current Productivity Targets. The two departments
propose a two-step approach to evaluating the productivity targets. The
first step would be to contract with an independent contractor, to provide(1) a list of the methodologies that could be used to evaluate the targetsand (2) the costs, benefits, and time frames associated with each methodology. The second step would be to select one of the methodologies
identified in the preliminary study and to conduct the actual productivity
target study. The departments advise that the contract for the preliminary

Item 5180

HEALTH AND WELFARE / 955

study would cost $50,000 and that the study could be completed by April
1987. (The DSS proposes to absorb the costs of the contract within theamounts budgeted for 1986-87.) The costs and time frames for the actual
study of the targets would depend on the methodology selected.
We believe that the department's proposal to study the way counties aregrouped for the purpose of setting productivity targets and to consider
alternative ways of budgeting for overhead costs could improve the current cost control plan. This would be true to the extent that these studies
identify ways of making the plan more reflective of the actual costs thatcounties incur to administer welfare programs. Moreover, these studies
could be completed on a timely basis. Therefore, we recommend that theLegislature approve these elements of the department's proposal.
Proposed Evaluation of Productivity Targets Would Unnecessarily Delay
Needed Improvements to System

We have two major concerns regarding the department's proposal forevaluating the current productivity targets. First, the scope and cost of theevaluation are unknown. Both would depend on the results of the methodology study to be completed by an independent contractor. Second,
it is unlikely that the evaluation itself would be completed in time to use
the results in budgeting for the 1987-88 fiscal year. In fact, the DSS advises
that, depending on the methodology selected, the evaluation could takeseveral years to complete.
It is important that the evaluation be completed as soon as possible fortwo reasons:• Potential Savings. The Budget Act prohibits any change in productivity targets until after the study has been completed. This meansthat under the department's plan, it could be several years before thetargets are adjusted. As we have noted above, the targets for AFDC
are based on actual performance in 1980-81, and the targets for Food
Stamps are based on performance in 1979-80. In recent years, there
have been major changes in the complexity of the cases that counties
process and in the extent to which counties rely on computers to
perform major components of the eligibility determination and benefit issuance process. To the extent that county productivity has improved as a result of these, or other changes, updating the targets
could result in major savings to the state .
• SA WS. If the Statewide Automated Welfare System (SAWS)
project meets its schedule for enhancing counties' computer systems,
it will have a major impact on county productivity during the next
several years. For example, the automated eligibility determination
component of SAWS, if it is implemented according to the current
schedule, could dramatically increase productivity in the next few
years. Should this occur, the department's proposed evaluation of thecurrent productivity targets might well be out-of-date before it iseven published.
We believe that the two departments could evaluate the current productivity targets during 1986-87, by using a methodology described in the1985 Budget Act.
Improvements in Productivity Targets are Possible, Within Reasonable
Timeframes

We recommend that the Legislature adopt Budget Bill language directing the DSS and the DHS, in conjunction with the County Welfare Direc-

Item 5180

956 / HEALTH AND WELFARE

COUNTY ADMINISTRATION OF WELFARE PROGRAMS-Continued

tor's Association, to use a "model" county methodology to evaluate thecurrent productivity targets for the AFDC, Food Stamps, and Medi-Cal
programs. We further recommend that the departments report to the
Chairman of the Joint Legislative Budget Committee, by December 1,
1986, on their progress in using this methodology to establish productivity
targets for 1987-88.
The 1985 Budget Act required that any methodology for evaluating the
productivity targets address the effect of the targets on program performance. (The Budget Act stated that program performance should be measured by the rates of overpayment and underpayment of program benefits
and the waiting times and processing delays experienced by clients.) In
our view, the effect of the targets on program performance is the critical,
perhaps the only issue to consider when setting the targets. We believethat the "correct" target for any county is that target which is consistent
with the sound operation of the program.
Obviously, the Legislature wants to provide counties with adequate
resources to operate welfare programs with minimal errors in the amounts
paid for benefits and with minimal delays for the recipients. On the other
hand, we know of no reason that the Legislature would want to pay
counties any more to operate the programs than they need in order to doa good job. Given this objective, the issue facing the Legislature withrespect to the current productivity targets is technical-how should thedepartment identify the highest productivity standard that is consistent
with the sound operation of welfare programs?
Table 3
Productivity, Error Rates, and Processing Delays
for the Twelve Largest Counties
1984-85
Eligibility
WorkerCilseloads a

Alameda ..............................................................................................
Contra Costa ......................................................................................
Fresno ..................................................................................................
Los Angeles ........................................................................................
Orange..................................................................................................
Riverside ..............................................................................................
Sacramento..........................................................................................
San Bernadino ....................................................................................
San Diego ............................................................................................
San Francisco......................................................................................
San Joaquin..........................................................................................
Santa Clara ..........................................................................................
Twelve county average............................................................
Average of the three "model"' counties ..............................

Error
Percent of Cases
Rlltes hOver 45 Days <"

105.8
85.5
123.8
110.4
80.8
102.8
93.5
95:7
91.4
98.7
113.9
89.0
99.3
109.0

3.6%
2.3
2.4
2.4
2.6
2.2
2.5
2.2
3.7
5.4
1.1
1.5

2.6%
1.9%

a Figures

13.0%
4.9
8.2
0.5
2.8
0.8
0.0
0.4
4.7
0.2
1.0
11.0

0.4%
0.8%

reflect the weighted average number of intake and continuing cases processed by AFDC
eligibility workers and first-line supervisors during 1984-85.
h Figures reflect the simple average of the percentage of benefit overpayments in the April 1984 throughSeptember 1984, and October 1984 through March 1985, quality control samples. Underpayment
errors were not available on a county-by-county basis at the time this analysis was prepared.
,. Figures reflect the simple average of the percentages of cases that were not processed within 45 days
during the March 1984 and June 1984 quarters.

- - - - - . _.. _-_. - - . - -Item 5180

HEALTH AND WELFARE / 957

The Budget Act language which requires the evaluation suggests a way
to do this. Specifically, it suggests that one option available for evaluating
the productivity targets is to use a peer grouping approach in whichcounties with exceptionally high error rates or long processing delays are
excluded from the sample used to establish the targets.
We analyzed the AFDC eligibilty worker caseloads, error rates, andprocessing delays of the state's 12 largest caseload counties during 1984-85(the most recent period for which this data was available) . Table 3 displays
the data used in this analysis. As the table shows, 3 of the 12 counties-Los
Angeles, Riverside, and San Joaquin-combined high productivity with
exemplary program performance.
The average productivity of these three "model" counties is 109.0 cases
per worker, which is about 10 percent higher than the average for theremaining counties. We refer to these counties as "model" counties because they represent the ideal combination of high productivity and solid
program performance. Their productivity, therefore, could be used as astandard for the other large counties. It is noteworthy that the average
productivity of the 12 large counties in 1980-81 (the base year used for thecurrent productivity targets) was 92.6 cases per worker. Thus a target of
109 cases per worker would represent a 17.7 percent increase over thecurrent target.
Before requiring the other nine large counties to move toward this levelof pro<iuctivity, of course, it would be important to determine whether thethree model counties differ in any "relevant way from the other large
counties. Do these counties, for example, have unusual caseload characteristics, geography, or degrees of computerization that could make it easierfor them to combine high productivity with good program performance
than it is for the other counties? To a large extent, the proposed studies
of groupings and of support costs would account for variations of this kind.
We believe that the departments could complete a productivity target
evaluation, based on the model county methodology described above, on
a timely basis and within available resources. This is not to say that the
department's study should take into account only the kinds of informationreflected in Table 3. It does, however, provide a good starting point fora more detailed evaluation of productivity targets.
It is important to note that our proposal does not require that all counties be moved immediately to the model level of productivity. In fact, we
would be reluctant to recommend any sudden, large increases in a county's productivity targets because of the potential effect that such a change
could have on the county's error rate. Over a period of several years,
however, we would expect the DSS to bring the lower productivity counties up to the level of the model counties, without adversely affecting error
rates.
Conclusion. In sum, we believe that the departments could use amodel county methodology to set achievable productivity standards thatwould reflect what it actually costs counties to administer the AFDC, Food
Stamps, and Medi-Cal programs effectively. Therefore, we recommendthat the Legislature adopt Budget Bill language directing the departments, in conjunction with the County Welfare'Director's Association, touse a model county methodology to evaluate the current productivity
targets for the AFDC, Food Stamps, and Medi-Cal programs. We further
recommend that the language require the departments to report to the958 / HEALTH AND WELFARE

Item 5180

COUNTY ADMINISTRATION OF WELFARE PROGRAMS-Continued

Joint Legislative Budget Committee and the fiscal committees, by December 1, 1986, on their progress in using this methodology to establish productivity targets for 1987-88. The following Budget Bill language isconsistent with this recommendation:"The Departments of Social Services and Health Services, in conjunction with the County Welfare Director's Association, shall conduct a
study of the productivity targets in the AFDC, Food Stamps, and MediCal programs during 1986-87. The study shall identify model counties
within the various peer groupings established by the departments.
These model counties shall be those that combine relatively high caseloads with relatively good program performance (as indicated by positive and negative error rates, processing delays, and any other performance indicators identified by the departments). The departments shallreport to the Joint Legislative Budget Committee, and the fiscal committees by December 1, 1986, on their progress in using this methodology to establish productivity targets for 1987-88."
OTHER ISSUES
What a Bargain: Useless Data, Only $509,000

We recommend that the Legislature adopt Budget Bill language prohibiting the DSS from allocating $122,000 from the General Fund to thecounties for their costs of preparing the overpayment collection report
until the Director of Finance certifies that the DSS has taken the appropriate steps to ensure accurate reporting.
The budget proposes $509,000 ($122,000 General Fund, $265,000 federal
funds, and $122,000 county funds) to cover the counties' costs of submitting a report to the state on overpayments to AFDC recipients. The
report, which is required by the federal government, also provides dataon overpayment collections.
Overpayments to AFDC recipients occur for one of three reasons: (1)administrative errors caused by Welfare Department staff, (2) errors
caused by clients, or (3) fraud committed by clients. When the county
becomes aware that an overpayment has occurred, it is required by law
to record the overpayment as an account receivable and to attempt torecoup the amount that was overpaid. If an individual who has been
overpaid is still receiving aid, the county is required to reduce the individual's welfare grant to recoup the overpayment. In the case of individuals
who are no longer receiving aid, counties are also required to attempt tocollect outstanding overpayments.
According to the overpayment collection report, accounts receivable
involving overpayments totaled $164.4 million as of September 30, 1985.
Of this amount, $51.6 million was identified as having been overpaid during FFY 1985 (October 1, 1984 through September 30,1985). In that year,
the counties report that they collected $23.7 million in overpayments and"wrote-off' $5.1 million in accounts receivable as uncollectible.
We attempted to assess the counties' performance in recouping overpayments by analyzing the data contained in the overpayment collection
report. We were prompted to do so because, on its face, a collection ratioof 46 percent ($23.7 million is 46 percent of $51.6 million) does not seem
adequate. The Franchise Tax Board, for example, collects more than 95
percent of accounts receivable from delinquent taxpayers.
Unfortunately, we were unable to assess the counties' performance because the DSS told us the data contained in the overpayment collection

Item 5180

HEALTH AND WELFARE / 959

report is useless in terms of assessing individual counties' success in collecting overpayments. Specifically, 12 counties (including 3 of the 12 largest
caseload counties) do not provide any data at all; several counties report
too late for their data to be included in monthly summary statistics, and4 counties (including 2 of the 12 "large" counties) provide estimated,rather than actual, data.
We asked the department what it is doing to improve the quality of thedata reported by counties in the overpayment collections report. Frankly,
the department's answer was not encouraging. The department advisesthat it simply notifies counties when the report is due and follows up thesenotifications with telephone contacts.
Until the department begins collecting accurate data on overpayment
collections, we see little hope for the Legislature's efforts to assess theadequacy of counties' collections efforts, much less improve their performance. Were these efforts successful, the benefits to the General Fundwould be considerable. In fact, we estimate that if the counties collected
all of the funds that currently go uncollected, 45 percent of the recoveries,
or roughly $75 million would be returned to the General Fund.
Given the amount at stake, it would seem that something more than atelephone call from the department is warranted when the counties do
not fulfill their reporting obligations. This is especially true in light of thedepartment's proposal to pay the counties $509,000 for preparing a reportwhich the department acknowledges has no value to the state. Therefore,
we recommend that the Legislature adopt Budget Bill language prohibiting the department from allocating state funds to the counties for overpayment collections reports until the Director of Finance has certified thatthe DSS has taken appropriate steps to ensure that the counties will reportaccurately, and on a timely basis. The following Budget Bill language isconsistent with this recommendation:"Of the General Fund monies appropriated by this item for allocation
to county welfare departments, the Department of Social Services shallhold $122,000 in reserve until such time as the Director of Financecertifies that the department has taken the appropriate action to ensurethat the counties provide accurate information, on a timely basis, in the
overpayment collection report."
Statewide Automated Welfare System (SAWS)

We withhold recommendation on $2,183,000 ($999,000 General Fund,$1,245,000 federal funds, and a savings to the counties of$61,000) proposed
for the SA WS project, pending receipt of the department's annual reporton the project (due in March).
The budget proposes $2,183,000 ($999,000 General Fund, $1,245,000 federal funds, and a savings to the counties of $61,000) to support the net
county costs of the Statewide Automated Welfare System (SAWS) projectin 1986-87. Chapter 268, Statutes of 1984, requires the DSS to report to theLegislature. on each year's progress in achieving the goals established in
the SAWS project. The annual report is due in March.
We withhold recommendation on the proposal for SAWS positions,pending review of the annual progress report on the SAWS project. Any
decision concerning CQntinued funding for this project must be made inlight of its progress in meeting its stated objectives.

960 / HEALTH AND WELFARE

Item 5180

Department of Social Services
SOCIAL SERVICES PROGRAMS

Item 5180-151 from the GeneralFund and Federal Trust Fund

Budget p. HW 155

Requested 1986-87 .......................................................................... $388,274,000 a
Estimated 1985-86............................................................................ 308,315,000
Actual 1984-85 ..........................................................•....................... 232,237,000
Requested increase $79,959,000 (+26.0 percent)Total recommended reduction .................................................... 4,560,000
Recommendation pending ...................................... .............. ... ..... 28,064,000"This amount includes $624,000 proposed in Item 5180·181·001 (b) for cost·of-living increases.

1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
5180·151-001-Social Services Programs, local as·
sistance
5180-151·8~ocial Services Programs, local assistance
5180·181-001 (b)-Social Services Programs, local
assistance
5180-181·890-Social Services Programs, local assistance
Total

Fund
GeneralAmount$387,650,000

Federal(489,359,000)

General624,000

Federal(620,000)$388,274,000

Analysis

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. Child Welfare Services (CWS) Review. Recommendthat prior to budget hearings, the department report to thefiscal committees on tracking incidents of reabuse.
2. CWS-Caseloads. Recommend that prior to budget
hearings, the department advise the fiscal committees on
its progress in incorporating specific factors into its caseload estimate.
3. CWS-Allocation Formula. Recommend that the Legislature adopt Budget Bill language requiring the department to base its allocation formula 50 percent on caseload
in 1986-87 and 100 percent on caseload in 1987-88.
4. CWS-Cost Control. Recommend that the Legislature
adopt Budget Bill language requiring the department toadopt a cost control plan based on specific factors.
5. CWS-COLA. Recommend that prior to budget hearings, the Department of Finance advise the fiscal committees how the administration intends to support the state's
share of the CWS program given the CWS budget proposal.
6. Adult Protective Services. Recommend that the Legislature adopt supplemental report language requiring thedepartment to make specific changes in its data collection
for Adult Protective Services.

page

966
967

967

968
970

972

-.~-----

Item 5180

HEALTH AND WELFARE / 961

7. In-Home Supportive Services (IHSS)-County Match.

Recommend that prior to budget hearings, the department report to the fiscal committees on (a) its reason forrequiring the counties to exceed the matching amountspecified in state law and (b) how it intends to address the
problems resulting from the overmatch.
8. IHSS-Funding For Hours Growth. Recommend thatprior to budget hearings, the department tell the fiscal
committees how it plans to limit the growth in hours percase consistent with the assumptions on which the budget
is based.
9. IHSS-Refugee Expenditures. Reduce Item 5180-151-001
by $610,000 (General Fund). Recommend a reduction
to reflect savings that will result from requiring the counties to match the General Fund allocation for IHSS services
to refugees.
10. IHSS-Gatekeeper.
Withhold recommendation on$5,514,000 proposed for the Gatekeeper program, pending
receipt of the May revision. Recommend that the May
revision include a revised cost estimate and a revised allocation methodology for these funds.
11. IHSS-Service Providers. Recommend that the Legislature adopt supplemental report language directing the department to compile and evaluate information about IHSS
service providers.
12. Greater A venues for Independence (GAIN) ProgramProposed Budget. Withhold recommendation on the$45,100,000 ($22,550,000 General Fund, $22,550,000 federal
funds) proposed for the GAIN program, pending receipt ofan updated estimate reflecting the enabling legislation andincorporating changes that result from the department's
review of county plans.
13. GAIN-Impact on Other Programs. Recommend thedepartment advise the fiscal committees what it expects
the impact of GAIN to be on other state-administered programs.
14. GAIN-Federal Reimbursement for Subsidized Day Care.
Recommend that, prior to budget hearings, the Department of Finance report to the fiscal committees on theadministration's progress in developing accounting procedures needed to claim federal reimbursement for statesubsidized day care costs. Withhold recommendation on$31 million in federal funds requested for the purpose ofreimbursing the Department of Education, pending receipt of this report.
15. GAIN-Reappropriation. Reduce Item 5180-151-001 by $3,950,000 and reappropriate $3,950,000 from Ch 1025185.
Recommend that the Legislature reappropriate $3,950,000
remaining from Ch 1025/85 and reduce the General Fundappropriation proposed for GAIN in 1986--87 by the sameamount to reflect the availability of these funds.
16. GAIN-Refugee Social Services. Withhold recommendation on $37,705,000 in federal funds proposed for refugeesocial services, pending a determination of whether thesefunds are budgeted twice.

982

982

984

984

985

990

992

993

994

995

962 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued

17. GAIN-Unintended Overhead Cost Shifts. Recommendthat the Legislature adopt Budget Bill language directing
the department to eliminate, or minimize the potential for
unintended overhead cost shifts resulting from implementation of the GAIN program.
18. GAIN-Out-Year Fiscal Impact. Recommend that theLegislature adopt Budget Bill language requiring the department to (a) notify the Legislature when the department approves a county plan that implies ahigher-than-anticipated cost (given the caseload of thecounty), and (b) advise the affected county that approvalof its plan is subject to review by the Legislature as part ofthe 1987-88 budget process.
19. GAIN-Employment Development Department's (EDD)
Role. Recommend adoption of supplemental report
language directing the EDD and the DSS to advise thecounties that EDD is available to provide services under
the GAIN program on a contractual basis.

996

997

999

GENERAL PROGRAM STATEMENTThe Department of Social Services (DSS) administers various programs
that provide services, rather than cash, to eligible persons who need governmental assistance. The six major programs providing these services are(1) Other County Social Services (OCSS), (2) Specialized Adult Services,(3) Employment Services, (4) Adoptions, (5) Refugee programs, and (6)Child Abuse Prevention.
Federal funding for social services is provided pursuant to Titles IV-A,
IV-B, IV-C, IV-E, and XX of the Social Security Act and the Federal
Refugee Act of 1980. In addition, 10 percent of the funds available under
the federal Low-Income Rome Energy Assistance (UREA) block grant
are transferred to Title XX social services each year.
OVERVIEW OF THE BUDGET REQUESTThe budget requests an appropriation of $388.3 million from the General Fund to support social services programs in 1986-87. This is an increase of $80 million, or 26 percent, above estimated current-year
expenditures.
The budget proposes $974.3 million in expenditures from all funds tosupport social services. This amount consists of $883.4 million in appropriated funds (state and federal funds), $88.6 million in anticipated county
expenditures, and $2.3 million from the State Children's Trust Fund. Table
1 displays program expenditures and funding sources for these programsin the past, current, and budget years.

Item 5180

HEALTH AND WELFARE /Table 1
Department of Social Services
Social Services Programs
Expenditures From All Funds
1984-85 through 1986-87(dollars in thousands)

963

Q

Progmms
A. Other county social services ................
1. Child Welfare Services ....................
2. County Services Block Grant ........
B. Specialized Adult Services ..................
1. In·Home Supportive Services ........
2. Maternity Home Care ......................
3. Access Assistance for DeaL ............
C. Employment Services............................
1. GAIN ....................................................
2. WIN· Demo ..........................................
3. JTPA ....................................................
4. Other ....................................................
D. Adoptions ................................................
E. Refugee Assistance ................................
1. Social Services ....................................
2. Targeted Assistance ..........................
3. RDP ......................................................
F. Child Abuse Prevention ........................
Totals ..........................................................

Funding Source
General Fund c .•..•......•...••...•...••...••..•.••..••....•
Federul funds ................................................
COlllltl' funds ................................................
Chi/d;en s Trust Fund ................................

(-)

(-)

24,18252,850(19,733)(33,117)
11,60420,87341,707(22,928)(17,260)(1,519)19,654Prop.
1986-87"$326,205(252,590)(73,615)434,888(429,220)(2,254)(3,414)125,381(45,100)(37,903)(211)(42,167)
20,73843,803(27,109)(15,175)(1,519)23,297$712,961$829,494$233,833
419,239
60,933-1,044$328,448
423,264
76,870912

Actual1984-85$269,734(202,449)(67,285)
340,720(335,943)(2,167)(2,610)13,871(-)(10,682)(3,189)(-)

Est.
1985-86$295,857(222,813)(73,044)418,870(413,202)(2,254)(3,414)32,533(14,300)(13,535)(4,698)Change From
1985-86
Amount Percent
10.3%$30,348(29,777)
13.4
(571)
1.0
16,0183.8(16,018)
3.9
(-)
(-)

92,848(30,800)(24,368)(-4,487)(42,167)-135
2,096(4,181)(-2,085)

285.0
215.0
180.0
-95.5
100.0
-0.6
5.0
18.2
-12.1

(-)

$974,312

3,643$144,818

18.5
17.5%

$393,382
489,979
88,613
2,338$64,923
55,715
11,743
1,426

19.8%
15.8
15.3
156.4

" Includes actual 1984-85 and anticipated 1985-86 and 1986-87 county expenditures.
h Includes funds for COLAs ($19,675,000 from the General Fund, $6,233,000 in federal funds, and $6,733,000
in county funds). Included in these amounts is the Child Welfare Services COLA for 1981-82 through
1984-85.
C Includes General Fund expenditures of $388,274,000 requested in the Budget Bill and $5,108,000 fromother appropriations.

Significant Budget Changes

Table 2 shows that the proposed level of expenditures from all funds forsocial services in 1986-87 is $144.8 million, or 17.5 percent, above estimatedcurrent-year expenditures. It also shows the various changes in funding forsocial services programs that are proposed in the budget year. The moresignificant of these changes are as follows:• A $6.2 million increase due to anticipated growth in caseloads under
the Child Welfare Services (CWS) program.
• A $31.3 million increase to provide for prior-year cost-of-living adjustments (COLAs) in the CWS program.
• A $3.1 million increase for administration of the In-Home Supportive
Services (IHSS) program due to increased caseloads.
• A $3.2 million reduction due to savings associated with the IHSS Management Information System.
• A $36.8 million increase due to increased caseloads in the IHSS program.
• A $21.6 million decrease due to the one-time costs in the current yearof the settlement in the Miller v. Woods court case.

Item 5180

964 / HEALTH AND WELFARE
SOCIAL SERVICES PROGRAMS-Continued
Table 2
Department of Social Services
Proposed Budget Changes
Social Services Programs
1986-87

All Funds(dollars in thousands)
1985-86 expenditures (revised) ........................................................................... .

$829,495

A. Proposed changes:
1. Other County Social Services
a. CWS increased caseload ...................................................................... ..
b. Chapter 1426, Statutes of 1985, COLA augmentation .................. ..
c. CWS prior-year COLA ........................................................................... .
d. IHSS administration increased caseload .......................................... ..

$6,182-7,73331,3283,085-706-3,223265

e. Miller v. Woods ....................................................................................... .
f. Savings due to IHSS Management Information System .............. ..
g. Increased administrative costs attributed to Gatekeeper ............ ..
h. Chapter 1163, Statutes of 1985 Adult Protective Services Demonstration Project ......................................................................................... .
i. Chapter 1159, Statutes of 1985, Adult Shelter Demonstration
Project ........................................................................................................ ..

900
250
30,348

2. In-Home Supportive Services
a. Increased caseload ................................................................................... .
b. Adjustments to basic costs .................................................................. ..

c. Miller v. Woods ...................................................................................... ..
d. Time-per-task ........................................................................................... .
e. Gatekeeper ............................................................................................... .
f. Other .......................................................................................................... ..

38,334
2,828-21,600-5,7102,411-938
15,325

3. Employment services
a. WIN ............................................................................................................. .
b. JTP A child care ...................................................................................... ..
c. Employment Preparation Program .................................................. ..
d. GAIN ........................................................................................................ ..
e. San Diego EWEP ................................................................................... .
f. SDE child care transfer ........................................................................ ..

24,368-4,487
9,707
30,800840
31,00092,2284. Adoptions
a. Caseload adjustments ..............................................................................
b. Joint Assessment Facilitation ................................................................
c. Inter-country adoptions ..........................................................................

29
-125
-39
-135

5. Refugee programsa. Social services ........................................................................................... .
b. Targeted assistance ................................................................................ ..

4,181-2,0852,096

6. Child abuse prevention
a. Chapter 1618, child abuse prevention training .............................. ..
B. Proposed COLAs
1. IHSS Statutory maximum .......................................................................... ..
2. Employment Services ................................................................................. .

3,642
693
620

----hill

1986-87 expenditures (proposed) ...................................................................... ..
Change from 1985-86$974,312$144,817
17.5%

Amount ................................................................................................................ ..
Percent.. ................................................................................................................ ..

--

----

-

-

~----~

-~

~-~-~

~~--~

Item 5180

HEALTH AND WELFARE / 965• A $5.7 million decrease due to savings associated with the implementation of the time-per-task standards in the IHSS program.
• A $92.2 million increase in the cost of employment programs due to(1) the implementation of Chapter 1025 and (2) the transfers offunding for some of these programs from other parts of the statebudget into this item.
• A $4.2 million increase due to increased caseloads in the Refugee
Services Program.
.
• A $3.6 million increase in order to fund the Child Abuse Prevention
Training Act (Chapter 1618) as an ongoirig program.
The proposed increase of $144.8 million from all funds consists of (1) aGeneral Fund increase of $64.9 million, or 20 percent, (2) a federal funds
increase of $55.7 million, or 16 percent, (3.) an increase in county funds of$11.7 million, or 15 percent, and (4) an increase of $1.4 million from theState Children's Trust Fund. The General Fund bears a larger share of theincrease in the cost of social services programs for the following reasons:• State Law Limits. the Counties' Share of Costs. Chapter 978, Statutes of 1982, limits the increase in the counties' share of OCSS program costs to the percentage cost-of-living increase provided in the
program. As a result, the state will fund 82 percent of the increase in
nonfederal costs under the OCSS program in 1986-87; the counties
will pay for the remaining 18 percent. Similarly, state law (Chapter
69, Statutes of 1981) limits the counties' share of costs under the IHSS
program to 10 percent of any increase in total program costs over a
specified base amount. The administration, however, proposes that in
1986-87, counties be required to provide a match exceeding theamount specified in state law by 58 percent, or $9.6 million. (Wediscuss this issue in more qetail below.)• Limited Federal Funds. The amount of federal funds (Title XX,
Title IV-B, Title IV-C, Refugee, and LIHEAP) made available to
California is based on federal appropriation levels and the state's
share of the nation's population (or other demographic measures).
The amount of these funds is not provided based on program costs,
as is the case under programs such as Aid to Families with DependentChildren. Thus, although expenditures for the programs supported byTitle XX (IHSS) are budgeted to grow by 3.7 percent in 1986-87,
California's Title XX allocation for federal fiscal year (FFY) 1987 is
expected to be about 3 percent less than the state's allocation for FFY
1986.
ANALYSIS AND RECOMMENDATIONSOTHER COUNTY SOCIAL SERVICES
Proposed Funding for OCSS. The budget proposes total spendingof $326.2 millibn for the OCSS program in 1986-87. This amount consistsof $60.2 million in federal funds (Titles IV-A, IV-B, and IV-E), $204.6
million in General Fund support, and $61.4 million in county funds. The
total amount proposed for QCSS is $30.3 million, or 10.3 percent, larger
than the 1985-86 amount.
Of the amount requested for OCSS, $252.6 million is proposed for theChild Welfare Services (CWS) program. This amount includes $31.3 million (all funds) to fully fund COLA as provided by county welfare departments to their staffs between 1981-82 and 1984-85. The balance of the
OCSS request-$73.6 million-is proposed for the County Services Block966 / HEALTH AND 'WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued

Grant (CSBG). The budget does not propose a COLA for OCSS to compensate for inflation in 1986-87.
County Services Block Grant (CSGB). The CSBG programs include
IHSS administration, out-of-home care and protective services for adults,
information and referral, staff development, and 13 optional programs.
Child Welfare Services (CWS). The CWS program provides services to abused and neglected children and children in foster care and theirfamilies. The program has four separate elements:• The Emergency Response program requires counties to provide immediate social worker response to allegations of child abuse and neglect. In addition to initial investigation and intake, the programprovides supportive services for abused and neglected children andtheir parents or guardians. These services may include counseling,
emergency shelter and care, and transportation.
• The Family Maintenance program requires counties to provide ongoing services to children (and their families) who have been identified
through the Emergency Response program as victims, or potential
victims, of abuse or neglect. The primary goal of the program is toallow children to remain with their families under safe conditions,
thereby eliminating unnecessary placement in foster care. Services
provided through this program include social worker case management and planning, as well as' supportive services such as counseling,
emergency shelter and care, in-home caretakers, and teaching anddemonstrating homemakers.
• The Family Reunification program requires counties to provide services to children in foster care who have been temporarily removed
from their families because of abuse or neglect. The program also
provides services to the families of such children. The primary goalof the program is to safely reunite these children with their families.
Services provided through this program include social worker casemanagement and supportive· services.
'• The Permanent Placement program requires counties to provide casemanagement and planning services to children in foster care who
cannot be safely returned to their families. The primary goal of the
program is to ensure that these children are placed in the most familylike and stable setting available, with adoption being the placementof first choice.
Review of the Child Welfare Services Program

We recommend that prior to budget hearings, the department describe
for the fiscal committees (1) the type ofinformation yielded by its system
for tracking recidivism rates among children who have been reunited with
their families (that is, the rate at which children reenter the CWS system)and (2) the usefulness of this information.
In a May 1985 report entitled Child Welfare Services: A Review of theEffect of the 1982 Reform on Abused and Neglected Children and Their
Families (No. 85-13), we evaluated the performance of the CWS programand its effect on abused and neglected children and their families. That
report contains the recommendation listed above. This recommendationreflects the fact that no information is available which allows the Legislature to determine if a child is returned to foster care after having received
family reunification services.

Item 5180

HEALTH AND WELFARE / 967

Caseload Estimates for Family Reunification and Permanent Placement May
be UnderestimatedWe recommend that, prior to budget hearings, the department advise
the fiscal committees on its progress in incorporating specific factors into
its estimates of the family reunification and permanent placement caseloads.
In our analysis of the AFDC-Foster Care (AFDC-FC) program, wepoint out that the department's caseload projections for 1986-87 are notconsistent with recent experience. Specifically, the department assumed
that the foster care caseload will increase until December 1985, at whichtime it will flatten and remain level through 1986-87. Because the children
in the family reunification and permanent placement programs are essentially the same children served by the AFDC-FC program, DSS has also
assumed that the caseload for these two CWS programs will display asimilar no-growth pattern. The department's assumption may cause the
CWS program to be underfunded by about $11 million (all funds).
As we point out in our analysis of the foster care caseload, the department did not consider a number of factors which might explain why thefoster care caseload has been increasing. These factors include increased
reports of abuse and increased CWS activities made possible by the increased level of funding. These factors also may help to explain the increase in caseloads for family reunification and permanent placement
programs.
With this in mind, we recommend that DSS (1) consider the increasing
number of abuse reports, as well as the effects of the CWS system, whenestimating future caseload growth for the family reunification and permanent placement programs, and (2) report to the Legislature on its
progress in explaining recent caseload trends using these variables.
Child Welfare Services Allocation Formula Needs Improvement

We recommend that the Legislature adopt Budget Bill language modifying the formula used to allocate funds to counties.
As we have pointed out in recent years;there is a large d~sagreement
between the state and the counties as to whether the funds provided for
CWS have been adequate to fully fund the program. One of the reasonsfor this disagreement is that the department allocates funds to the counties based on measurements of need that are different from the measuresused to determine the statewide costs of the program.
The department estimates the' statewide costs of the program based
almost entirely on the actual and projected CWS caseloads. The department, however, allocates funds to the counties 'using a formula that is notbased primarily on CWS caseloads. This formula is based on the following
factors:
1. Number of AFDC-FC children in each county (weighted 26.6 percent).
2. Number of AFDC-FG/V children in each county (26.6 percent).
3. Population age 0-17 in each county (26.6 percent).
4. County reports on emergency response and family maintenancecaseloads (10 percent).
5. County reports on family reunification and permanent placement
caseloads (10 percent).
Thus, CWS caseload measures are given only a 20 percent weight in the
allocation formula. The other 80 percent is accounted for by broad indicators of need.

968 / HEALTH AND WELFARE

Itein 5180

SOCIAL SERVICES PROGRAMS.,.....Continued

While AFDC caseloads may be good indicators of the amount of poverty
in a courtty, we have never found any significant correlation between
poverty levels ahd child abuse. Moreover, while population age may be agood measure of the potentially abused and neglected population, it does
not measure need as adequately as CWS caseloads. As a result, the department's alloca,.tions to counties may not 'accurately reflect the counties'
actual CWS program costs.,
The requests from a number of counties to shift $1.9 million (net) of
their 1984-85 CWS allocations to their County Services Block Grant allocations is another indication that the allocation methodology is not reflectiveof individual county needs.
'
Historically, DSS has arguea that the CWS caseload data collected fromthe 'counties are not accurate enough to guide the allocation of CWS funds.
We believe, however, that caseload reports have become increasingly
more accurate since the beginning of the present CWS program, due tothe efforts of both the department and the counties. Moreover, DSS musthave a large degree of confidence in this data since it uses the data to
prepare the budget proposal for the CWS program. If the caseload information received from the counties is accurate enough to be used in thismanner, it is not clear why it should not be used as the basis for allocating
CWS funds to the counties.
We believe it is time to begin allocating CWS funds based on program
need as measured by program caseload. To allow fora smooth transition
to a new caseload-based allocation system, we suggest that the new systembe phased in over two years. Accordingly, we recommend that the Legislature adopt Budget ,Bill language requiring DSS to increase the weight
given to caselbad reports in its allocation formula from 20 percent to 50
percent in 1986--87, ,and from 50 percent to 100 percent in 1987-88. The
following language is consistent with this recommendation:"The Department of Social Services, in consultation with representatives from county welfare departments, shall implement a formula forallocating Child Welfare Services (CWS) funds to counties, that in 198687 is based 50 percent on CWS caseloads, and is based 100 percent on
CWS caseloads in 1987-88. The other factors currently used to allocate
funds-AFDC caseloads and population age 0-17-shall be reduced accordingly."
DSS Needs a CWS Cost Con,trol Plan

We recommend that the Legislature adopt Budget Bill language requiring DSS to adopt a cost conirol system For CWS based on specified Factors.
State law requires the department to establish "a plan whereby costs ofcounty-administered social services programs will be effectively controlled within the amount annually appropriated for these services." The
DSS currently uses its county allocation plan as its cost control plan.
We recognize that an allocation plan limits the amount of state andfederal funds that each county may spend, and is, therefore, a spending
plan. A spending plan, however, is not the same as a cost control plan, forthe following reasons:• An Allocation Plan Provides InFormation on How Much Money Will
be Spent For a Program: It Does Not Help Control Program Costs.
The state needs to exert some control over individual county expendi-

Item 5180

HEALTH AND WELFARE / 969

tures because the counties make decisions that directly affect the costof the CWS program. For example, counties are able to influence thefollowing factors:• Caseloads. To the extent that counties prioritize the types ofreferrals to which they respond, they affect caseload size. For
example, some counties may determine that they will respond
only to the most urgent, life-threatening of abuse reports. Other
counties may respond to reports of a less threatening nature (forexample, a report of a child occasionally being left alone).
• Salaries. Counties set the salary ranges for their employees.
While their flexibility in this area is constrained by collective
bargaining and labor market conditions, counties have a much
more direct impact on the staff costs of the CWS program thandoes the state. Because the budget proposes to remove the limit
on General Fund support for county-granted COLAs, the state
will no longer be able to rely on this mechanism to control costsin the program.
• Staff Size. Counties, rather than the state, decide how funding-and thus, staff-is allocated among the four CWS programs.
Counties may opt to place more social workers in a program thanare necessary in order to comply with state law. For example, ourMay 1985 report on CWS shows that counties have allocated moresocial workers to the family reunification and permanent placement programs than are needed in order to achieve the goals of
the program. Although DSS uses staffing "guidelines" when estimating the costs of the CWS program, these guidelines are notenforced at the county level. By enforcing workload standards atthe county level, DSS would be able to limit the state's share of
CWS program costs, while assuring that state aid is adequate toprovide for the social workers needed in order to comply with theservice requirements.
• An Allocation Plan Cannot Serve as the Basis for Determining theAppropriate Costs of Providing These Services. Specifically, theallocation plan provides no basis for determining workload standards(that is, the number of cases a social worker should carry). These
workload standards are important because they provide a means for
ensuring that staffing increases (and therefore increased. costs) are
the result of increases in workload (cases).
We believe that a cost control plan based on workload standards will
ensure that increased costs in the program are the result of increased
workload, rather than inefficiencies. These workload standards should:• Reflect the counties' actual experience in each of the four CWS program areas after full-funding of the program.
• Include a clear definition of what constitutes a "case." Currently,
the definition of a "case" can be a child, an entire family, or any
individual receiving services through the CWS system.
• Include a clear measure of what is a successful termination of service.
It is important that counties and DSS be able to measure the effectiveness of the CWS program, not just compliance with regulations.
Accordingly, we recommend that the Legislature adopt Budget Bill
language requiring DSS to adopt a cost control system based on (1) workload standards reflective of the increased level of staff allowed by theadditional funding of the program, (2) clear definitions of what constitutes

970 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued

a case, and (3) a clear measurement of the effectiveness of county-delivered CWS. These standards should be reviewed annually and revised asnecessary. In order to provide for a smooth transition to the new system,
we recommend that it be phased-in over a two-year period. The following
language is consistent with this recommendation:"The Department of Social Services shall, in consultation with representatives ofcl;mnty welfare departments, adopt a cost control systemthat employs workload standards for each of the four Child Welfare
Services programs. These standards shall be implemented over a twoyear period beginning in 1986-87. The standards shall be reviewed annually by the department and the counties and revised as necessary.
The department shall, also in consultation with county representatives,
develop a definition of what constitutes a "case" in all four Child Welfare Services programs, to be applied in regulation. The department andthe counties shall develop clear measures for the successfulness of service delivery in the Child Welfare Services program."
Underfunding of Child Welfare Services

We recommend that prior to budget hearings, the Department of Finance advise the fiscal committees how the administration intends tosupport the state's share of the Child Welfare Services (CWS) program.
Our review of the proposed budget for the CWS program finds that the
program is underfunded by approximately $2 million. The shortfall consists of $1.3 million in General Fund support and $0.7 million in federal andcounty funds.
The Department of Social Services (DSS) estimates that in 1985-86, thecounties will grant COLAs of 4.8 percent to their employees in the countyadministered welfare programs-Aid to Families with Dependent Children (AFDC), Food Stamps, and CWS. The budget proposals for AFDC
and Food Stamps include General Fund support for the state's share of thefull 4.8 percent COLA. The budget, however, provides General Fundsupport for COLAs amounting to only 4 percent in the case of the CWS
program. This results from a technical error in the budget proposal.
We recommend that prior to budget hearings, the Department of Finance advise the fiscal committees how the administration intends to fundthe state's share of the CWS program.
ADULT PROTECTIVE SERVICES

The Adult Protective Services (APS) program in California provides
protective services to dependent adults and elders in order to prevent orremedy neglect, abuse, or exploitation of these individuals. Under the APS
program, an elder is someone who is age 65 or over. A dependent adultis anyone over the age of 18 who is unable to live independently becauseof physical, mental, or emotional handicaps.
.
Examples of Service Delivery

The types and extent of services provided under the APS program varysignificantly among the counties. This is because state law and regulations
do not specify the type of services to be provided to eligible clients. As aresult, counties have established programs that differ depending on demo- .
graphics, history, and financial and political priorities.
Most counties offer a core of basic services which are designed to pro-

Item 5180

HEALTH AND WELFARE / 971

vide short-term, crisis intervention assistance to eligible adults. These
basic services include:• Direct telephone access to the county APS agency.
• Screening of telephone calls to determine the urgency of the situationand the appropriate action that should be taken.
• Emergency response to calls during working hours. Generally, APS
agencies can have a social worker respond to emergency situations
within several hours, depending on the urgency of the situation. In
most counties, this capability exists only during regular working
hours.
• Referral to other community services and law enforcement agencies.
Often APS agencies receive calls from individuals who are requesting
only information or who would be better served by another agency.
• Limited case management. In some instances, social workers provide
case management services by arranging for the provision of direct
services such as counseling and respite care, rather than providing
these services directly. In most counties, the goal is to limit casemanagement services to about 30 days. The length of time an individual case is carried by a social worker depends on the seriousness of thecase and the amount of funds available to the agency.
• Placement assistance. Social workers will arrange for out-of-homecare for an elder or dependent adult when the individual is unable toarrange such services. Placement is usually into a board and care or
skilled nursing facility or hospital.
In addition to these basic services, some counties elected to provide
other services. These additional services may include:• Transportation. Some counties provide transportation to medical
appointments, day care/treatment facilities, shopping, shelter, orplacement out-of-county.
• Counseling. Some counties provide this service directly if they
have the resources and expertise available.
• Twenty-Four Hour Emergency Response. A few counties havethe staff and resources to provide around-the-clock emergency assistance to eligible adults. This normally consists of face-to-face contact
between the social worker and the abused adult, and may include
finding emergency shelter or placement in a medical facility.
• Shelter Care. County-operated or funded shelters are available ina few counties. In counties that operate or fund their own shelters, thisservice usually is available to the eligible person for a very limited
period of time-usually 24 hours. Use of Salvation Army shelters andsimilar facilities is common in counties with and without their own
shelters.
• Emergency In-Home Supportive Services (IHSS). Counties areauthorized to arrange for IHSS before a person's eligibility has been
determined. Counties use this service to varying degrees.
Funding of Adult Protedive Services

The Other County Social Services (OCSS) program provides funds forChild Welfare Services (CWS) and the County Services Block Grant(CSBG). The CSBG funds are then divided between In-Home Supportive
Services (IHSS) administration and "other social services." Other social
services include Adult Protective Services, Information and Referral, staff
development, and several optional programs.

Item 5180

972 / HEALTH AND WELFARE
SOCIAL SERVICES PROGRAMS-Continued

Although funds for CWS and CSBG are provided to counties in separate
allocations, counties may request a transfer of funds between these two
programs. In 1984-85, 16 counties requested a shift of funds between their
CWS and CSBG allocations. This resulted in a net shift of $1.9 million out
of CWS and into CSBG. Counties also have wide discretion as to how they
allocate funds to the programs within the CSBG.
Table 3 shows the funding levels for CSBG between 1983-84 and 198687. Although the funds for IHSS administration and other social services
are identified separately, counties can shift funds to any program within
the block grant according to their own priorities. For this reason it isdifficult to estimate what the actual level of expenditure will be for theindividual programs within the block grant. Funding for APS at the county
level will depend on the emphasis placed on the program by the counties
in relation to the other block grant programs.
Table 3
County Services Block Grant
All Funds
1983-84 through 1986-87(in thousands)

Other
Social Services a
1983-84 ............................................................................. . $25,560
1984-85............................................................................. .
26,602
1985-86............................................................................. .
27,6651986-87............................................................................ ..
27,665IHSS
Administmtion h$36,93141,05345,37944,800Total$62,491
67,65573,044
72,465a Increases due to COLAs.

h Fluctuations due to changes in caseload and COLAs.

Legislature Needs Better Information on the Adult Protective
Services Program

We recommend that the Legislature adopt supplemental report language requiring the department to make specific changes in the data itcollects regarding Adult Protective Services.
During the last couple of years, the Legislature has expressed increasing
concern about California's Adult Protective Services Program. In order toaddress these concerns, the Legislature enacted several measures including the following:• Chapter 1273, Statutes of 1983 (SB 1210). This measure requires
specified professionals-primarily doctors, welfare and probation department workers, and employees of nursing homes-to report incidents of elder abuse. The measure also required the Department ofSocial Services to submit a report to the Legislature on various aspectsof elder abuse.
• Chapter 1163, Statutes of 1985 (SB 129). This measure appropriates $1.0 million from the General Fund in order to establish model
APS projects in a minimum of five counties.
• Chapter 1159, Statutes of 1985 (AB 57). This measure appropriates $560,000 from the General Fund to develop a pilot program toestablish emergency and temporary shelters for elderly and dependent adult victims of abuse, neglect, or abandonment.

Item 5180

HEALTH AND WELFARE / 973

In December 1985, the department submitted to the Legislature thereport required by Chapter 1273. We have reviewed the findings contained in the report.
In general, the report provides the Legislature with some valuable
information on the extent to which dependent adults and elders areabused. I -t offers statistical information on the number of dependent adultand elder abuse referrals received by counties during calendar year 1984.
The report also provides limited information on the nature of abuse situations and the relationship between the victiin and the abuser. The Legislature, ho~ever, should be aware that the data in the report have theselimitations:• In General the Report Does Not Distinguish Between Abuse and
SelF-Neglect. While the. report shows that in one month (July
1984) self-neglect accounted for about 52 percent of the reports ofabuse and neglect, it is 'not clear that this is representative of reports
recei ved in other months.
• To a Certain Extent, the Report Double-Counts Cases of Abuse andNeglect. This is because more than one person may report thesame case of abuse to an elder protective agency.
• The Characteristics Study of Abuse Victims and Their Abusers Was
Derived From Data Collected Duri{1g Only One Month-July 1984.
As a result, there is no information available about whether or not thecharacteristics of abuse victims and their abusers change over time.
The department advises us that it does not have any plans to collect
more data on the characteristics of the abused and the abusers.
• The Report Does Not Identify the Number of Reports of Abuse andNeglect Which Result in a Case for Which Ongoing Services Are
Provided. As a result, the department cannot identify the number of APS cases in a county.
The department advises that while it will continue to compile information on reports of abuse and neglect, ithas no plans to submit this information to the Legislature or to conduct another characteristic survey.
We believe the department should improve the reporting of dependentand elder abuse"and self-neglect and submit this information to the LegislatiIre: Such information will assist the Legislature in determining thepotential fiscal impact of expanding statewide the pilot projects established by Chapters 1159 and 1163.
In order to improve the reporting of dependent adult and elder abuse
and self-neglect, we recommend that the department modify the current
reporting system so that it:• Prevents duplicate counting of abuse reports.
• Distinguishes between abuse by others and self-neglect.
• Identifies the type of abuse or neglect that has occurred (for example,
physical, sexual, fiduciary).
• Indicates the person (friend, relative, medical practitioner, etc.) who
identified the abuse or neglect.
• Identifies the action taken by the county in response to the report ofabuse or neglect.
• Identifies the number of APS cases in a county, using a consistentdefinition of a case.
• Collects information once a year on the characteristics of dependent
adults and elders who are abused or suffer from self-neglect.
To assure that this occurs, we recommend that the Legislature adopt thefollowing supplemental report language:974 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued"The Department of Social Services shall report to the Legislature by
March 1, 1987, on the characteristics and frequency of dependent adultand elder abuse and self-neglect in the state during 1986. The reportshall:". Identify the number of dependent adults and elders who are victimsof abuse according to the type of abuse that has occurred (physical,etc.).
". Identify separately the number of dependent adult and elder abuse
and self-neglect cases.
". Identify the sources of reports of abuse or neglect.
". Identify the action taken by the county for each report of abuse orneglect.
". Identify the APS caseloads in each county, using a consistent definition.
". Include a characteristic survey of abuse victims and abusers for atleast one month during 1986."
IN-HOME SUPPORTIVE SERVICES

The In-Home Supportive Services (IHSS) program provides assistanceto· eligible aged, blind, and disabled persons who are unable to remainsafely in their own homes without assistance. This criterion implies that
the IHSS program prevents the institutionalization of recipients. Eligibilic
ty for the program, however, is not based on the individual's risk of institutionalization. Instead, an individual is eligible for IHSS if he / she lives in
his or her own home, or is capable of safely doing so, if IHSS is provided
and meets one of the following conditions:• Satisfies all SSI/SSP eligiblity criteria.
• Was once eligible for SSI/SSP due to disability, and although currently
employed, still has the disability.
• Has income that exceeds the SSI/SSP limits, but is otherwise eligible
for SSI/SSP and is willing to pay a share of the costs of services provided by IHSS.
An eligible individual will receive IHSS services if the county determines that (1) these services are not available through alternative resources and (2) the individual is unable to remain safely at home without
the services.
The following services are available through the IHSS program:• Domestic and related services such as routine cleaning, meal preparation, shopping, and other household chore services.
• Nonmedical personal services such as feeding, bathing, bowel andbladder care, dressing, and other services.
• Essential transportation.
• Yard hazard abatement.
• Protective supervision, such as observing the recipient's behavior tosafeguard him or her against injury.
• Teaching and demonstration to enable recipients to perform services
that they currently receive from IHSS.
• Paramedical services which are (1) performed under the direction ofa licensed health care professional, (2) necessary to maintain therecipient's health, and (3) activities the recipient would normally
perform but for their functional limitations.

Item 5180

HEALTH AND WELFARE / 975

The IHSS program is administered by county welfare departments.
Each county may choose to deliver services in one or a combination of
three ways: (1) directly, by county employees, (2) by private agencies
under contract with the counties, or (3) by individual providers hired
directly by the recipients. The most common services delivery method
involves the use of individual providers. The department estimates that
individual providers will provide services to 80 percent of all IHSSrecipients in 1985-86.
IHSS Faces Major Deficit in the Current YearThe department estimates that expenditures for the IHSS program in
1985-86 will exceed the current-year appropriation by $23,270,000. This
increase includes:• $20 million due to average hours per case being 5.7 percent higher
than what was estimated in the 1985 Budget Act.
• $3.3 million due to a caseload that is 1 percent higher than what wasestimated in the 1985 Budget Act.
The department indicates that it will not implement program reductions in order to keep the IHSS program within the amounts appropriatedby the 1985 Budget Act. Instead, the department proposes to fund $17.1
million through a deficiency appropriation that will consist of $15.6 million
from the General Fund and $1.5 million in county funds. In addition, thedepartment indicates that (1) it will allocate $585,000 in federal Title XX
funds to the program and (2) the counties will fund an additional $5.6
million of the deficit. (The department's plan to fund the deficit is discussed further later in this analysis.)
Deficit May Be Higher Than the Department Projects

Our analysis indicates that the 1985-86 deficit actually is $26,070,000, or$2.8 million higher than the department currently projects. The department reduced the estimate of the deficit by $2.8 million on the assumptionthat the growth in hours per case will decline slightly as a result of county
controls. The department, however, has provided us with no information
to document this assumption.
Proposed Budget-Year Expenditures

The budget proposes $428,527,000 in expenditures for the IHSS programin 1986-87. This is an increase of $15.3 million, or 3.7 percent, above estimated current-year expenditures. The significant changes that accountfor the increase are as follows:• A $36.8 million increase to fund an estimated 8 percent increase inbasic caseload, and a 2.5 percent increase in average hours per case.
• A $2.8 million increase in adjustments to basic costs because savingsof a like amount will not occur in 1986-87.
• A $2.4 million increase to fund increased basic costs, which the department attributes to the Gatekeeper program.
• A $1.5 million increase to fund the 1985-86 provider COLA.
• A $21.6 million decrease reflecting one-time costs in the current year
associated with the settlement in the Miller v. Woods court case.
• A $5.7 million decrease resulting from full-year implementation oftime-per-task standards.
Table 4 displays IHSS program expenditures, by funding sources, for thepast, current, and budget years.

976 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued
Table 4
Department of Social Services
IHSS Program
Expenditures and Funding Sources
1984-85 through 1986-87(dollars in thousands)

Funding Sources
General Fund ......................................................................... .
Federal funds ......................................................................... .
County fund ............................................................................. .
Totals ..................................................................................

Actual1984-85$161,587
166,774
7,582$335,943

Est.
1985-86$90,034
303,221
19,947$413,202

Percent
ChangeFrom

Prop.
1986-87 19~6
$103,639"
15.1 %
298,673-1.5
26,215"31.4$428,527"
3.7%"Includes $693,000 to provide a 4.9 percent statutory cost-of-living adjustment to raise the maximum
payment level for specified recipients.

Table 4 shows that, while expenditures for the IHSS program from allfunds are expected to increase by 3.7 percent, expenditures from theGeneral Fund are expected to increase by 15 percent, and expendituresfrom county funds are expected to increase by 31 percent. The increasein General Fund expenditures results from the fact that federal Title XX
funds carried over from 198~5 to 1985-86 will not be available in 1986-87.
The increase in county expenditures results from (1) the department's
proposal to increase the county matching amount (discussed later in thisanalysis) and (2) the fact that statute requires the counties to fund 10
percent of a growing proportion of the total IHSS program costs. .
The budget estimates that the number of persons served by the IHSS
program will increase by 9,145, or 7.9 percent, above the estimated number of persons served in the current year. Table 5 displays the averagemonthly caseload, by service delivery type, for the past, current, andbudget years.
Table 5
Department of Social Services
IHSS Program
Average Monthly Caseload
By Provider Type
1984-85 through 1986-87

ActualSen'ice Provider Types
1984-85
Individual providers ............................................... .
84,545Contract provider agencies ................................ ..
20,298County welfare staff. .............................................. .
1,487
Totals ................................................................. . 106,330

Est.
19~6

92,852
21,536
1,350
115,738

Prop.
1986-87
101,375
22,1581,350
124,883

Percent
Percent Changeof Total From
1986-87 19~6
81.2% 9.2%
17.7
2.9
1.1
100.0% 7.9%

Item 5180

HEALTH AND WELFARE / 977

Expenditures and Program Growth Returning to Pre-58 633 levels

Chapter 69, Statutes of 1981 (SB 633), made significant changes in the
IHSS program that slowed the growth of program expenditures for several
years. Senate Bill 633 required counties to (1) share in the costs of the
program and (2) submit expenditure plans to DSS. The bill also authorizedcounties· to make specified program cuts in order to stay within their
allocation of funds. In addition, Senate Bill 633 eliminated "comfort" as abasis for assessing an individual's need for services. As a result of thesechanges, counties are required to provide only those services that recipients need in order to ensure that they can live safeJy at home.
Chart 1 displays expenditures in the IHSS program for a nine-year
period. During the period prior to implementation of SB 633 (1978-79
through 198<W31), the program grew at an average annual rate of 22
percent. Following the implementation of SB 633 in 1981-82, the annual
growth rate slowed to 2.9 percent for three years. Between 1983-84 and1985-86, however, expenditures climbed by an average annual rate of 20
percent.
Chart 1

In-Home Supportive Services'
Expenditures Continue to Increase
1978-79 through 1986-87 (in millions)
$450

350

D County Funds
l1li Federal Funds

300•

General Fund

78-79

79-80

400

250
200
150
100

50

80-81

81-82

82-83

83-84

84-85

85-86
(est.)

86-87(prop.)In spite of the recent growth in IHSS expenditures, DSS proposes anincrease of only 3.7 percent for the IHSS program in 1986-87. The department asserts that the following three factors will cause IHSS expendituresto grow more slowly than in previous years:• The average number of hours per case will not grow as fast as it has.

Item 5180

978 / HEALTH AND WELFARE
SOCIAL SERVICES PROGRAMS-Continued

in recent years. Although the average hours per case have grown at
an annual rate of 4~5 percent in the past, the department estimatesthat these hours will increase by only 2.5 percent in 1986-87. This
reduces estimated costs by $9 million (all funds) .
• The budget does not provide a discretionary cost-of-living (COLA)
increase for service providers, resulting in a decrease of $3.6 million
for each 1 percent increment .
• The budget anticipates that a settlement in the Miller v. Woods courtcase covering retroactive costs will result in a one-time cost of $21
million in the current year which will not occur in 1986-87.
It is important to note that if the department (1) proposed to fund theaverage hours per case based on recent experience and (2) provided a 4
percent COLA as it did in the current year, expenditures for 1986-87
would increase by 9.4 percent over the current year, instead of by 3.7
percent as the department projects. This rate is less than the 1985-86 rate
because of the one-time costs in the current year resulting from Miller v.
Woods.
Growing Demand for Services Explains Expenditure Growth. In
general, two factors account for the growth in IHSS expenditures: (1)increased caseloads and (2) increases in the average hours of service
provided to recipients. For example, the 20 percent average annual
growth in expenditures between 1983-84 and 1985-86 can be attributed to(1) an average annual growth of 5.5 percent in hours per case and (2) a
7.6 percent average annual growth in caseload. Chart 2 shows that the
IHSS caseload has increased steadly since 1982-83.
Chart 2

In-Home Supportive Services'
Caseload is Growin9
1979-80 throu9h 1986-87 (in thousands)
Cases

130
120
110
100
90

80
70

60

79-80

80-81

81-82

82-83

83-84

84-85

85-86

86--87(est.)(prop.)

Item 5180

HEALTH AND WELFARE / 979

The rate of growth in caseload and average hours per case is unlikely
to diminish. This is because factors that are external to the program willcontinue t:o increase public demand for IHSS. These factors include thefollowing demographic trends and governmental initiatives:• The Population That Is Potentially Eligible for IHSS in California Is
Increasing. The SSII SSP caseload-which is the primary source
for IHSS cases-has been increasing steadily since 1983-84. The department projects that the average monthly SSIISSP caseload will
increase by 18,213 recipients, or 2.7 percent, between 1985-86 and1986-87. In addition, between 1980 and 1990 the population over theage of 65 is expected to increase at approximately double the rate forthe under age 65 group, and the population which is 85 years of age
and. over is expected to increase at three times that rate.
• Hospitals Are Accelerating the Rate of Patient Discharges Because.
the Government and Private Insurers Are Reducing Reimbursements
to Hospitals. For example, Medicare payments to hospitals havebeen curtailed by the new prospective payment system based on
diagnostically related groups (DRGs). The payment system provides
an incentive for hospitals to discharge patients "quicker"-and po~si­
bly "sicker" than they might have been in the past. Counties reportthat hospital discharge planners are referring an increasing numberof these patients to IHSS so that they can safely recover in their own
homes. As a result, many counties report an increase in referrals from
hospitals.
• The Legislature Has Initiated Several Programs Which May Channel
Individuals into the IHSS Program, Such as Adult Protective Services(APS)~ the Gatekeeper Program, Linkages, and the Multipurpose
Senior Services Program (MSSP). In 1985, the Legislature also
passed Ch 1286/85 (AB 2541), which provides funds to counties toserve the mentally ill homeless. All of these programs provide referral
services to individuals that (1) are eligible for IHSS and (2) may bein need of IHSS.
• Advances in Medical Technology, Such as Portable Respirators andTreatment, Allow More Seriously Disabled Individuals Who Need
More Hours of Service to Live at Home.
• Demand for Services Is Accelerating in Those Counties That Have theLargest Share of Both the State's IHSS and SSIISSP Populations.
Therefore, in those countries that are already adding more than theirshare of new IHSS recipients, a greater number of individuals arepotentially eligible for services than in other counties. For example,
between 198~4 and 1984-85, the eight counties that serve 71 percentof the state's IHSS caseload added 78 percent of the new IHSS recipi-'
ents, while the other 50 counties that serve 29 percent of the caseload
added only 22 percent of the new recipients. If this trend continues,
it will drive the caseload upward.
.
.
• A Portion of the Eligible Population (1) are Unserved and (2) May
Demand Services in the Future. Table 6 shows that counties provide IHSS to between 7 and 22 percent of their SSIISSP recipients.
The difference in the percentage served may represent (1) variationin the distribution of the elderly and disabled population, (2) availability of alternative resources, and (3) an unmet needEor IHSS services. To the degree that there is unmet need, SSIISSP recipients who
do not currently receive services may demand IHSS in the future.

980 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued

We are unable to identify an accurate assessment of the total statewide
need for IHSS. In the Perspectives and Issues, we recommend that the
Department of Aging estimate the need for various long-term care programs, including IHSS, and provide that information as part of their annual report to the Legislature.
Table 6Counties Provide IHSS to Different
Percentages of Their SSI/SSP Recipients

Percelltage of
SSI/SSP Caseload
Receivillg IHSS"

COllllties
Highest Percentage
Marin ...............:................................................................................................................................. .
Amador ............................................................................................................................................ ..
Glenn ................................................................................................................................................ ..
Los Angeles ..................................................;.................................................................................. .
Santa Cruz ...................................................................................................................................... ..
Lake ................................................................................................................................................... .
Tulare................................................................................................................................................. .
Contra Costa .................................................................................................................................. ..
Fresno ............................................................................................................................................... .

22.3%

21.9
21.2
19.7
19.5
18.8
18.2
18.1
18.1

STATEWIDE AVERAGE..................................................................................................................

16.0%

Lowest Percentage
San Joaquin........................................................................................................................................
Sacramento ........................................................................................................................................
Colusa..................................................................................................................................................
Modoc ................................................................................................................................................
Imperial..............................................................................................................................................
Trinity ................................................................................................................................................
San Luis Obispo ..............................................................................................................................
Del Norte ..........................................................................................................................................
Kern....................................................................................................................................................
Siskiyou ..............................................................................................................................................

10.0%
9.5
9.5
9.0
8.9
8.9
8.7
8.0
7.8
7.0

" Based on data from 1984-85.

Program Uniformity Is Necessary to Manage Growth. Although external factors create increased demand for services, it is program management that determines how efficiently the services are provided. Within
broad state guidelines, the counties apply varied policies and standards fordetermining (1) the client's level of impairment and (2) the number ofservice hours that an individual will receive. As a result, the number ofservice hours awarded to clients with similar levels of impairment vary
widely among counties. This variation not only results in inequitable treatment of recipients; it also leads to the inefficient use of funds. Establishingprogram uniformity therefore becomes more important as expenditures
and the demand for services grow.
The data indicates that some IHSS recipients receive too many hours ofservice; and some receive too few, relative to other recipients. To theextent that some of these service hours can be shifted to more needy

Item 5180

HEALTH AND 'WELFARE / 981

recipients, state and federal funds will be used more efficiently. In addition; to the extent that the program can identify clients with similar levelsof impairment, it can more effectively target funds to those individuals
who will benefit the most from IHSS services.
.
The department and the Legislature recently have taken several steps
to promote program uniformify. Specifically, the Legislature required thedepartment to prepare a report by March 1, 1986, that establishes (1) its
objectives for achieving uniformity in the provision of IHSS and (2) animplementationschequle for achieving these objectives. The department
informs us that the report will be submitted on schedule.
.
In addition, the department (1) implemented time-per-task standards
statewide in three new areas (laundry, food shopping, and errands), beginning January 1986, (2) is implementing a new Case Management, Information, and Payrolling System (CMIPS) statewide that will provide an
information base beginning in June 1986 for monitoring counties' assessment and service award practices, and (3) is preparing to demonstrate inSanta Cruz County, the use of a computer-assisted assessment programthat is designed to produce more equitable awards. Three other counties
have utilized the program, but it is now undergoing modifications so thatit can be used in conjunction with CMIPS.
IHSS Deficits Reappear. For three years following the passage ofSB 633, there were no funding deficits in the IHSS program. In 1984-85,
however, as demand for services caused expenditures to climb, the department projected a $7 million deficit.
Although SB 633 provided a mechanism for counties to implement program reductions if projected costs exceeded their allocations, the department did not use this mechanism to deal with the shortfall in 1984-85.
Instead, the Legislature enacted Ch 86/85 (AB 1470) in order to fully fundthe projected deficit in 1984-85.
In addition to funding the counties' deficits, AB 1470 made various
changes in the IHSS program in order to reduce the likelihood of future
program deficits. Specifically it:• Requires DSS to notify the counties of their allocations by July 31 ofeach fiscal year.
• Requires that within 30 days following the DSS notification, counties
submit their plans to the department showing how they intend tokeep their expenditures within the amount allocated.
• Requires counties that plan service reductions in order to keep within
the amount of their allocations to specify in the plan which types ofservices will be reduced and which client groups will be affected by
the reductioris.
.
• Prohibits counties from making service reductions without the approval of the department.
• Requires each county to report on the expected impact of any new
or expanded programs on the IHSS program.
• Requires the department to consider using the information reportedby the counties to develop its annual budget request.
Despite implementation of AB 1470, the department currently projects
a $23.3 million deficit in the IHSS program for 1985-86.

982 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued
Department Increases County Match

We recommend that prior to budget hearings, the department report tothe fiscal committees on (1) the basis for its decision to require the counties to pay a greater portion of IHSS program costs than what is specifiedin state law and (2) how it intends to address the problems created byincreasing the county match.
Chapter 69, Statutes of 1981 (SB 633), requires counties to share in thecosts of the IHSS program. That measure requires counties to pay 10
percent of the General Fund costs in excess of the expenditures for the
IHSS program in 1980-81-$255.5 million. In both the current and budget
years, the department proposes to require that the counties provide amatch exceeding what SB 633 requires. Specifically, the department estimates that the counties will fund $20 million of the costs of the IHSS
program in 1985-86 and $26.2 million of these costs in 1986-87. Theseamounts exceed what SB 633 requires by $4.8 million (32 percent) and $9.6
million (58 percent), respectively.
We do not know why the department proposes to increase the counties'
share of costs above that required by state law. Our analysis indicates that
this proposal could create funding problems for the IHSS program in the
future. This is because it builds a potential deficit into the IHSS programfor 1986-87. If the counties choose not to provide the additional $9.6 million, the IHSS program will be underfunded in 1986-87. Moreover, to thedegree that the department continues to require a county match above
the limit set by SB 633, counties will be unable to estimate their share ofcosts based on a matching formula, and budget their funds accordingly.
During the current year, for example, the department's estimate of thecounties' share of costs jumped from $12.8 million to $20 million.
With this in mind, we recommend that prior to budget hearings, thedepartment advise the fiscal committees on (1) the basis for its decision
to require that the counties exceed the matching amount established forthe IHSS program by state law and (2) how it intends to address the
problems that may result from increasing the county match.
Deficit Caused by Underfunding

We recommend that prior to budget hearings, the department advise thefiscal committees how it plans to limit the growth in hours per case as
called for by the 1986-87 budget.
The budget projects that the average hours per IHSS case will increaseby 2.5 percent between the current and budget years. This estimate assumes that hours of service per case will continue to increase until June
1986, at which time the average will flatten and remain level during
1986-87. (Because the department "flattens" the hours at the June 1986
level, the average for 1986-87 is 2.5 percent higher than the average forall of 1985-86.)
Our analysis indicates that the average hours per case may continue toincrease at the same rate experienced during the past two years, or approximately 4.5 percent, for the following reasons:• The Department Has Not Provided the Legislature With a Plan toManage the Program Differently in 1986-87 Than How it Was
As a result, we have no reason to believe
Managed in 1985-86.
that growth in hours will slow down during the budget year.

HEALTH AND WELFARE / 983

Item 5180• The Percentage of Total Clients That Are Severely Impaired Is Increasing. These clients require over three times more hours percase than all other recipients .
• Data on A verage Hours Per Case for the First Three Months of 198586, Indicate No Difference From Last Year's Pattern of Growth.
The growth rate in 1986-87 could be higher or lower than what it has
been in recent years, depending on what percentage of recipients (1)receive services from different provider modes (which vary in cost) and(2) are severely impaired and therefore receive a higher number of hours
per case than those who are not severely impaired. Chart 3 shows that if
the hours per case increase by 4.5 percent, this would result in a deficit
of$9 million (all funds) in 1986-87. The chart also shows that in the current
year, about $20 million of the projected $23.3 million deficit is due to thefact that the department failed to propose a budget that allowed for any
growth in hours.
Chart 3

In-Home Supportive Services'
Hours Per Case Are Increasing
1982-83 through 1986-87
Hours76_ _ _ Actual_ _ _ Projected
72
Department's 1986-87 Budget projection
Department's 1985-86 Budget projection

6

IlIJ Projected deficit

64

60

56

82-83

83-84

84-85

85-86

86-87

We r~commend.that prior to ~udget hearings, the department reportto th~ fIscal commltt~es on h.ow It plans to limit the growth in hours percase III 1986-87 consIstent WIth the assumptions on which the budget isbased.

32--80960

984 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued
Counties Should Match State Refugee Expenditures

We recommend that the Legislature reduce the General Fund appropriation by $610,000 in order to reflect the savings that will result fromrequiring the counties to match the General Fund allocation for IHSS
services to refugees.
Currently, the counties are fully reimbursed by the state for the costsof providing IHSS to those refugees who (1) have been in the UnitedStates for less than 36 months and (2) receive services from individual
providers. In 1986-87, the department proposes to allocate $6,098,000 fromthe General Fund to pay for IHSS services to these refugees. The department does not require the counties to match the General Fund costs ofproviding services to these IHSS recipients, even though SB 633 reqt:iresthe counties to share in the costs of the program. Specifically, SB 633
requires counties to pay for 10 percent of all expenditures above $255.5
million which was the amount expended for the IHSS program in 1980-81,
adjusted for several factors.
The federal government funds state programs that provide social services to refugees. In the past, the state used some of these funds to support
the IHSS services it provided to refugees.
In 1984-85, the federal government restricted its payments to the states
for social services like IHSS provided to refugees. As a result in 1986-87,
less than $3 million in federal funds is available to pay for these refugeesocial services. The department has decided not to allocate any of thesefunds to the IHSS program. Instead, it is providing $6.1 million of state
funds to pay for IHSS services to refugees.
Given the requirements of SB 633, the counties should be required to
pay for 10 percent of the costs of providing IHSS services to refugees. The
refugee costs are part of the basic program costs, and therefore should not
be excluded from the county match required by state law. In addition, thecurrent system is inequitable because it only provides 100 percent reimbursement for those refugees who receive services from individual providers (IPs). Counties currently are required to pay a 10 percent share of thecosts for refugees who receive services from contract providers or county
employees.
For these reasons, we recommend that the Legislature reduce the General Fund appropriation by $610,000 in order to reflect the savings that will
result from requiring the counties to match the General Fund allocation
for IHSS services to refugees.
Gatekeeper Estimate is Inaccurate

We withhold recommendation on $5,514,000 requested to fund the Gatekeeper program, pending receipt of (1) the May revision and (2) a revised
methodology for distributing the Gatekeeper funds to counties.
Chapter 1637, Statutes of 1984 (AB 2226), required the Department of
Health Services (DHS) to implement a preadmission screening program(referred to as the "Gatekeeper" program) in five of its field offices
starting in 1984-85. The purpose of the program is to screen Medi-Cal
recipients who are applicants for nursing home placement, in orderto determine if such individuals could be more appropriately maintainedin the community using home-based health and social services. Since
1984-85, DSS has attributed a portion of its total IHSS costs to the Gate-

Item 5180

HEALTH AND WELFARE / 985

keeper program. These costs are based on the assumption that the Gatekeeper program increases the number of persons who are referred to
IHSS. In 1986-87, the department estimates that the Gatekeeper program
will result in General Fund costs of $5,514,000 to the IHSS program.
It is important to note that the IHSS costs which the department attributes to the Gatekeeper program do not represent an increase in thedepartment's total estimate of program costs. Instead, the costs represent
the department's estimate of what portion of existing IHSS program costs
might be due to the Gatekeeper program.
Our review has identified problems with (1) the department's estimate
for 1986-87 and (2) how the department allocates the Gatekeeper funds
to counties.
First, the estimate of costs attributable to the Gatekeeper program isbased on outdated and inaccurate information. Specifically, it assumes thatthe program will increase the IHSS caseload by 708 clients annually. Thisestimate is based on a pilot study conducted by DHS in 1983. Based on
actual experience, however, the DHS has determined that the Gatekeeper program was responsible for only 36 new referrals to the IHSS programin 1984-85. Therefore, the department's estimate of the IHSS costs attributable to Gatekeeper in 1986-87 is not accurate.
Second, the department does not allocate the Gatekeeper funds tocounties based on an estimate of how Gatekeeper affects individual counties. Instead, during the current year it will allocate unidentified portionsof the $3.6 million in Gatekeeper funds to counties that have (1) a program deficit and (2) a Gatekeeper program. We do not know how it
intends to allocate these funds in the budget year.
The department advises us that it will re-examine its methodology for
determining the IHSS costs associated with the Gatekeeper program in
preparing the May revision. The department further indicates that it plansto obtain new information about the impact of Gatekeeper on each county
from its new Case Management, Information and Payrolling System(CMIPS).
Therefore, we withhold recommendation on $5,514,000 requested tofund the Gatekeeper program'lending receipt of (1) the May revision,
which should include a revise estimate of the Gatekeeper program's
impact on IHSS caseloads and (2) a revised methodology for distributing
the Gatekeeper funds.
Facts About IHSS Service Providers Are Unknown

We recommend that the Legislature adopt supplemental report language requiring the department to submit a report by December 1,1986,
containing specified information regarding IHSS providers.
Currently, each county welfare department may choose to deliver services in one or a combination of th~ following three ways: (1) by individual
providers hired directly by the recipients, (2) by private agencies undercontract to the county, or (3) directly, by county employees. The department estimates that in 1986-87, individual providers (IP) will serve 81
percent of all IHSS recipients, private agencies will provide services to 18
percent of IHSS clients, and county employees will provide services to 1
percent of IHSS clients.
In California, most counties use the IP mode primarily because it is lesscostly than contracting with private agencies or using county staff toprovide services. The state's reliance on the IP mode has allowed it toprovide IHSS to an increasing number of recipients at a lower cost than986 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued

that for contracting or using county staff. The department estimates thatover 116,000 individuals will receive IHSS in 1986-87, at an average costof approximately $4.00 per hour. The method used to provide services to
IHSS recipients warrants the Legislature's attention. This is because thefollowing questions have not been answered:
How Widespread Are Recipients' Provider Problems?
• When IHSS recipients have problems locating or keeping providers,county-employed social workers must spend their time resolving
these problems. Some counties say this is a significant problem that
requires a lot of social worker time. To the degree that the IP method
creates work for county employees, the costs of this method are partially hidden. In contrast, when provider problems arise under thecontract mode, the contractors, rather than the counties, bear the costof resolving some of these problems.
• The department is unable to provide us with information regarding
how frequently provider problems arise, how much time county employees spend resolving them, or how effectively county employees
are able to resolve them. Therefore we do not know (1) how muchthese problems cost the county, (2) whether or not these are the kindof problems that contractors can address, or (3) whether or not the
problems are serious enough to warrant a legislative solution.
Does the IP Mode Expose Counties or the State to Financial Liability?
• IPs generally (1) are not trained and (2) are supervised only by therecipients. It is not clear who would incur the financial liability in theevent that an IP injured a client.
The department informs us that the recipient is the IP's employer,
and consequently is liable for the IP's actions. The courts, however,
do not always agree with the department. In two recent cases, thecourts have found that IHSS workers are the "employees" of (1) thestate for purposes of workers' compensation coverage (In-Home Supportive Services v. Workers' Compensation Appeals Board [1984], and(2) the counties and the state for purposes of the minimum wage
provisions of the Fair Labor Standards Act (Bonnette v. California
Health and Welfare Agency [9th Cir. 1983]).
Although these decisions do not determine liability for providers'
actions, they do define the state, county, and recipient as co-employers of the IPs for some purposes. As a result, there is increasing concern about both county and state liability for the actions of the IPs
when delivering services to clients.
• Counties are taking defensive action by evaluating their procedures
for assisting recipients to locate their own providers. While somecounties provide extensive assistance to clients in order to prevent theemployment of incompetent IPs, other counties provide no assistanceso as to avoid becoming identified as the IPs employers. State regulations require counties to "make a reasonable effort" to locate providers for recipients who are unable to find a provider. The regulations
do not, however, specify what actions the counties must take.
• The department indicates that it does not know what kind of assistance the counties actually offer to recipients who are in need of aprovider.
Which Provider Mode Is the Most Cost-Effective, and Resultsin Better
Quality Services?

Item 5180

HEALTH AND WELFARE / 987• Some individuals argue that the contract mode offers higher quality
services than the IP mode because (1) the contract providers' work
is supervised and (2) the contract providers are more professional
because they receive training and many of them work full-time asproviders. Others argue that the IP mode offers higher quality services because many IPs are relatives and friends of the recipients andtherefore (1) they offer a "personal touch" and (2) they are willingto perform additional tasks that are needed by the client, but are notallowed by the IHSS social worker.
• Some observers also argue that the contract mode offers more costeffective care because (1) the contractor supervises the providers, (2)the providers receive training and therefore are able to work more
quickly than IPs and (3) the contractor handles employee problems,
and therefore relieves the county-employed IHSS social worker of this
responsibility. Other observers argue that IPs are more cost-effective
because (1) they can be hired for less since the county avoids theoverhead costs incurred when services are procured through a contract and (2) they may be more willing to provide additional services
for free.
• The department indicates that it cannot determine which mode isactually more cost-effective, or which mode offers a higher quality ofcare.
Santa Cruz Demonstration Project. In order to answer some ofthese questions, the Legislature authorized a three-year demonstration
project in Santa Cruz County to evaluate the quality of care and costeffectiveness of delivering services through a mixed contract and IP modecompared to an IP-only mode of service delivery. This demonstration
project should answer the question: which provider mode is the mostcost-effective and results in better quality of services? The second reporton the project, issued December 1985, describes the comparative data thatthe project will provide, which includes information on (1) the cost of
IHSS per case, (2) recipient satisfaction, and (3) whether or not theefficiency of contract providers results in a lesser number of service hours
per client. Santa Cruz County will provide a preliminary analysis of thefirst available data to the department by April 1986, and the department
will provide its annual report on the project to the Legislature by December 1986.
Unanswered Questions. The Santa Cruz demonstration project, hoewever, will not answer the question of how the provider system is performing statewide. For example, it will not determine (1) the costs andbenefits of the three modes as the counties currently use them, (2) the
extent of recipients' problems with locating providers, or (3) the kind ofassistance counties currently provide to those in need of a provider. Without this information, it will be difficult to determine how to improve thesystem, or how to apply the demonstration project's results statewide. In
order to "fix" the current system, the Legislature needs additional information on the extent to which the system is "broken."
Our analysis indicates that the department cannot provide the Legislature with the information that is needed to determine how IHSS services
are delivered to clients. Specifically, we are unable to determine (1) the
number of service providers in each mode, (2) the average provider wage
for each mode in each county, (3) the screening and referral practices ofeach county, and (4) the extent of recipient problems with locating andretaining competent providers.

988 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued

To close this information gap, we recommend that the Legislature adopt
the following supplemental report language:"The Department of Social Services shall submit a report regarding
IHSS providers to the Legislature by December 1, 1987, that includes
the following information:"1. The number of providers currently employed in each service
delivery mode, including the number of IPs that are relatives orfriends of recipients.
"2. The average provider wage for each service delivery mode ineach county, including:"a. The hourly cost of each service delivery contract.
"b. The cost of providing employee benefits to providers on a percapita basis.
"c. The total cost of IHSS contracts, and the number of recipients
served by contract providers.
"3. The screening and referral practices of each county, including:"a. An estimate of the time spent by social workers on these
activities.
"b. Contractual agreements with private or public agencies forprovider screening and referral.
"4. An evaluation of the extent of recipient problems with locating
and retaining competent providers, according to measurable criteria, including:"a. The amount of time between service authorization and provider start date.
"b. The provider turnover rate.
"c. The number of requests for services on an emergency basis.
"d. An estimate of the time spent by social workers on activities
related to these recipient problems."
EMPLOYMENT PROGRAMS FOR AFDC RECIPIENTS

Chapter 1025, Statutes of 1985, created the Greater Avenues for Independence (GAIN) program. The purpose of this program is to provide
employment and training services to Aid to Families with DependentChildren (AFDC) recipients in order to help them find employment andto become financially independent. Chapter 1025 allows counties a threeyear period to phase in the program. The department anticipates thatsome counties will begin providing services under the GAIN program inlate 1985-86 or early 1986-87, and that other counties will wait one or two
years to begin providing services.
Once the GAIN program is fully operational on a statewide basis, county
welfare departments will provide a range of Job Search, Training, andWork program services to mandatory GAIN participants and to any AFDC
recipients who volunteer to participate in GAIN. Specifically, the following services will be available to GAIN participants:• Registration. Counties will register mandatory and voluntary participants. Based on the information collected at the time of registration, counties will determine which additional services to provide to
the participant .
• Remedial Education. Counties are required to refer every GAIN
participant who lacks a high school diploma or basic literacy or math-

Item 5180

HEALTH AND WELFARE / 989

ematics skills, or the ability to speak English, to remedial educational
services such as English as a second language and high school equivalency instruction.
.
• Job Club. Counties will offer Job Club as one of the services
available under GAIN. Job Club includes (1) Job Search workshops,
which consist of group training in job-finding skills, followed by (2)supervised Job Search, which consists of participants using telephones(and other methods) to look for work.
• Assessment. Participants who have been on aid more than twice
during the three years preceding their most recent application fot aid
will be referred immediately to assessment. Other participants will bereferred to assessment if they remain in the program after going
through Job Club or Job Search. The purpose of the assessment is todetermine what kinds of services the participant will need in orderto achieve his or her employment goal.
• Short-Term Training. Based on the results of the assessment, participants will be referred to one of several short-term training programs or to unsupervised Job Search. Chapter 1025 requires large
counties to provide all of the following short-term training programs(small counties can request the state to exempt them from having toprovide one or more of these programs):• Short-Term Preemployment Preparation (PREP). Participantsin Short-Term PREP will work for a public or nonprofit organization, for up to three months, in order to learn work behavior skills(basic PREP) or to enhance existing skills (advanced PREP). Participants will be required to work up to the number of hours permonth that they would have to work to earn the amount of the
AFDC grant, plus the value of their food stamp allotment, assuming
an hourly wage equal to the average hourly wage of job orders
placed by the Employment Development Department (EDD).
• On-the-Job Training (OJT). Participants in OJT will work at astarting wage, for a private or public employer while they receive
training.
• Vocational Training. Participants in Vocational Training would
be trained in specific occupational skills.
• Grant Diversion. Participants in Grant Diversion will work for
public or private employers and receive a wage comparable to what
other employees of the company or agency receive. The employer
will receive all or a portion of the recipient's cash grant as a wage
subsidy.
• Supported Work. Supported Work is a form of Grant Diversion
in which a service provider (such as a private nonprofit organization) receives all or part of the recipient's grant and, in return,provides services such as day care, counseling, money management, etc., to help the recipient maintain a subsidized or unsubsidized job.

•

• Long-Term PREP. Participants that remain in the GAIN program after going through short-term training will be referred toLong-Term PREP. Long-Term PREP is simply an extended form of
the Short-Term PREP program described above. Participants will
be referred to Long-Term PREP for one year, but will be reassessed
every six months.
Prior to the statewide implementation of the GAIN program, counties
will continue to provide employment services to AFDC recipients under
one or more of the following existing programs:

990 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued• Employment Preparation Program (EPP). In six counties AFDC
recipients receive two to three weeks of job club or other employment services under the EPP.
• Work Incentive Demonstration (Win-Demo) Program. AFDC
recipients in 26 counties receive three days of job club under the
Win-Demo program. Some Win-Demo participants also receive training and employment placement services upon completion of job club.
• Experimental Work Experience Program (EWEP). Recipients in
San Diego receive a variety of employment and. training services
under the EWEP.
Budget Proposal

The budget proposes spending $124,761,000 ($32,496,000 General Fund,$91,302,000 federal funds, and $963,000 county funds) for employmentrelated services provided to AFDC recipients in 1986-87. Of the total
amount proposed, $45,100,000 ($22,550,000 General Fund and $22,550,000
federal funds) would be used to reimburse counties for the costs of providing employment-related services to AFDC recipients under the GAIN
program. The remaining $79,661,000 ($9,946,000 General Fund), $68,752,000 federal funds and $963,000 county funds) would fund the costs of the
EPP, Win-Demo, and EWEP programs.
Budget Proposal Is Based on an Out-of-Date Estimate

We withhold recommendation on the $45,100,000 ($22,550,000 .GeneralFund and $22,550,000 federal funds) proposed for the .GAIN program,pending receipt of an updated estimate.
The $45.1 million proposed for the GAIN program during 1986-87 isbased on (1) the department's estimate of the costs of the program once
it is fully operational on a statewide basis and (2) the department's assumptions regarding the portion of the state's total AFDC caseload thatwill be covered by the GAIN program during 1986-87. Table 7 shows thatonce the GAIN program is fully implemented, the department expects
that it will result in additional annual costs of $158.0 million. (These funds
are in addition to existing resources, totaling $146.0 million, which thedepartment believes will be available to support the program.)
The annual costs of the program during the next few years will be
substantially less than what is shown in Table 7 for 1990-91 because theprogram will be phased in over a three-year period. Consequently, theamount proposed in the budget assumes that the counties implementing
GAIN during 1986-87 will account for roughly one-third of the statewide
AFDC caseload.
We have several concerns regarding the department's estimate of (1)the costs of the GAIN program in 1986-87 and (2) the ultimate costs of the
program once it is fully operational on a statewide basis.

Item 5180

HEALTH AND WELFARE /991

Table 7DSS Estimate of Costs Associated With the Gain Program
1986-87 and Ongoing Costs Once Implementation Is Complete(dollars in millions)

1990-91
1986-87
Costs toCosts to
Other
Other
Program Compollent
DSS Costs Programs Totals DSS Costs Programs
Registration I Orientation .................. ..
$1.2
$1.2
$1.2
Remedial Education .......................... ..
5.6
5.6
15.6
Job Club ................................................ ..
43.3
43.3
46.1
Assessment ............................................ ..
7.4
7.4
15.6
Short-Term Training .......................... ..
22.7
$32.3
55
83.5
64.4
9O-Day Job Search .............................. ..
0.8
0.8
3.2
Long-Term PREP .............................. ..
12.4
12.4
70.6
0.7
Transitional Child Care .................... ..
0.7
2.3
State Administrative Costs a ............ ..
1.5
1.5
1.5
---Subtotals ......................................... . $95.60$32.30 $127.90$220.50$83.50Totals
$1.2
15.6
46.1
15.6
147.9
3.2
70.6
2.3
1.5
$304.00

Resources available fromexisting programs ........................ ..
Net new costs .................................. ..

($146.0)$158.0($49.0)$46.6($32.3)($81.3)$46.6($62.5)$158.0($83.5)a Includes

costs for marketing. These costs are budgeted under the department's support item, Item
5180-001-00 1.
Source: DSS

The Estimate is Out-of-Date. The department's estimate was prepared during the summer of 1985, while AB 2580 was moving through theLegislatqre. This estimate has long been out-of-date. For example, theestimate assumes that some counties began implementing the GAIN program on January 1, 1986. This, however, did not occur. In fact, the department advises that few, if any, counties will actually begin providing
services under the GAIN program prior to July 1986. As a result, weestimate that the costs of the GAIN program in 1986-87 will be reduced
by $15.0 Illillion ($7.5 million General Fund and $7.5 million federal
funds). This reflects the fact that, due to the later start-up date, fewer
participants will reach the relatively more expensive program components (for example, short-term training and long-term PREP) during thebudget year.
The Estimate Does Not Reflect AB 2580 as Enacted by the Legislature.
The estimate used in the budget was based on the August 26, 1985, versionof AB 2580. Subsequently, the Legislature made several significant
changes to the program which are not taken into account in the estimate
used in the budget. For example, the department's estimate assumes that
15 percent of the AFDC recipients who enter the GAIN program will be
immediately diverted to remedial education programs to receive highschool equivalency training or instruction in English as a second language(ESL). As enacted, however, Chapter lO25 requires that all GAIN participants who do not have a high school diploma or basic literacy or mathematical skills be diverted to remedial education programs.
While we cannot estimate the fiscal effect of this and other changes, it
is likely to be substantial. In fact, we note that the department believes 60
percent of all GAIN participants will meet the criteria contained in Chapter lO25 for mandatory referral to remedial education programs. The
estimate used in preparing the budget assumed that only 15 percent of thecaseload would meet these criteria.

992 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued

Major Assumptions in the Estimate Will Change When the Department
Has Had an Opportunity to Review County Plans. Chapter 1025 allows individual counties a great deal of discretion in determining how .
services will be delivered under the GAIN program. For example, counties can decide which services to provide with county staff and which toprovide through contracts with private service providers or with governmental entities (such as the community colleges, EDD, and the localJTPA
private industry councils). These decisions have cost implications that canbe determined only through a review of individual county's GAIN plans.
Moreover, the county plans will address the specific service needs ofGAIN participants and the service resources already available to participants. Thus, the current estimate is apt to change substantially, once thedepartment has had an opportunity to review the county plans. It is important to note that these changes will affect not only the estimated costs ofthe program in 1986-87 but the full implementation costs as well.
The Estimate Is Technically Flawed. Our analysis has identified
several technical flaws in the department's estimate of the 198&:.87 costsof the program. The department acknowledges these technical problems
and indicates that it will correct them in time for the May revision.
For these reasons, the Legislature cannot rely on the budget estimateof GAIN-related costs in deciding how much should be appropriated for
the GAIN program in 198&:.87. We therefore withhold recommendationon the $45,100,000 ($22,550,000 General Fund and $22,550,000 federal
funds.) proposed for support of the GAIN program in 198&:.87, pending
receipt of an updated estimate that reflects the legislation as enacted aswell as the county plans that are submitted in early 1986.
The Affect of the GAIN Program on Other State-Administered Programs Could
Be Substantial

We recommend that the department advise the fiscal committees what
effect th.e GAIN program will have on other state programs.
The GAIN program will affect several state programs other than thoseadministered by the DSS. It will affect enrollments in the community
colleges, the adult education program, the regipnal occupational centersand programs (ROC/P), the Job Training Partnership Act (JTPA) Program, the child care resources and referral (R and Rs) centers, and the
Employment Development Department (EDD).
The Legislature will need reliable and up-to-date estimates of theseeffects before it acts on the budget for 198&:.87. To date, however, thisinformation has not been provided. For example, although the department indicates that GAIN ultimately will refer 6,200 participants to community colleges, it does not indicate (1) the types or duration of theservices that these participants will need or (2) which community college
districts will be affected in 198&:.87. It should be possible for the department to provide this information once it has (1) reviewed the plans of
those counties that will implement the program in 198&:.87 and (2) reestimated the basic caseloads under the GAIN program. Accordingly, we
recommend that at the time of the May revision, the department advise
the fiscal committees what impact GAIN will have on other state programs. In particular, the department should provide the following information:
1. The number of GAIN participants that will be referred to community
colleges in 198&:.87 and in the first full-year of statewide implementation(1990-91), and the types and duration of services that these participants

Item 5180

HEALTH AND WELFARE / 993

will require. The estimate should also specify which districts are likely tobe affected in 1986-87.
2. The number of GAIN participants that will be referred to the adulteducation and ROC/P programs in 1986-87 and 1990-91, and the types andduration of services that these participants will require. The estimate
should also specify which local ROC/Ps will be affected in 1986-87.
3. The number of GAIN participants that will be referred to the JTPA
program in 1986-87 and 1990-91, and an estimate of the types and durationof services that these participants will re~uire. The estimate should also
identify the service delivery areas that will be affected in 1986-87.
4. The number of GAIN participants that will be referred to Rand Rs
in 1986-87 and 1990-91, and the number of these participants that willneed referral to local child care providers~ The estimate should also identify the Rand Rs that will be affected in 1986-87.
5. The number of GAINtarticipants that will participate in job clubs
conducted by the EDD an the number that will be referred to the Job
Agent and Service Center programs in 1986-87 and 1990-91. The estimate
should also specify which counties will contract with the EDD to provide
GAIN services in 1986-87.
Budget Proposal Could Leave SDE Holding the Bag

We recommend that prior to budget hearings, the Department of Finance report to the fiscal committees on the administration's progress indeveloping the accounting procedures that will be needed to claim federal
reimbursement for state-subsidized day care costs. We withhold recommendation on $31 million in federal funds which are requested to· reimburse the SDE, pending receipt of this report.
The budget proposes to use $31 million in federal funds to reimburse theState Department of Education (SDE) for its costs of providing day careservices to the children of AFDC recipients. This proposal assumes that(1) the SDE will spend a total of $62 million during 1986-87 to provide day
care services to AFDC recipients and (2) the federal government willfund 50 percent, or $31 million, of the costs of providing these services.
Based on these assumptions, the Department of Finance proposes toreduce the amount budgeted from the General Fund to support SDE's
subsidized child care program by $31 million.
We have two major concerns regarding the Department of Finance's
estimate:• The Department of Finance Estimate Overstates the Amount of Federal Funds That Will be Available to Offset General Fund Costs.
The estimate assumes that all AFDC recipients who currently receive
state-subsidized day care will be eligible for federal financial participation. In our judgment, this is highly unlikely. The federal government will pay for only (1) the day care costs to participants inapproved employment programs and (2) the hours of care that areneeded according to federal rules. It is all but certain that some AFDC
recipients receiving state-subsidized day care will not be participants
in approved employment programs. In addition, the rules for determining hours of care used by the SD E are more generous than thefederal rules. For example, the SDE subsidizes day care during thehours needed for studying, while the federal government does not.
Accordingly, it is likely that some of the $62 million which the SDE
is expected to spend for child care on behalf of AFDC families will not
qualify for federal funding.

- - - - - - - - - ---994 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued• The Department of Finance Estimate Assumes That the DSS and
SDE Can Develop Accounting and Claiming Procedures That Will
IdentiFy Costs That Are Eligible For Federal Funding. In order toclaim federal reimbursements for a portion of SDE's costs, the DSS
will have to provide the federal government with documentation thatthe costs are eligible for federal support. According to the federal
government's current accounting standards, this will involve setting
up an "audit trail" for each program participant in order to verify (1)the participant's eligibility, (2) the appropriateness, under federal
rules, of the amount of day care provided, and (3) the reasonablenessof the cost of care provided. The DSS currently has accounting procedures in place that track participant eligibility. The SDE advises,
however, that it would have a hard time implementing the accounting procedures needed to track the last two criteria.
The two departments are exploring the options available for satisfying the federal claiming procedures. Until an acceptable claiming
process is in place, however, the state will not be able to receive
federal reimbursement for these costs.
It is important to note, that there is probably a substantial amount offederal money that can be used to fund subsidized child care services. In
fact, it is possible that the state could begin claiming federal reimbursements for SDE's costs during the current year iFthe two departments candevelop the appropriate accounting procedures soon enough. Therefore,
we recommend that prior to budget hearings, the Department of Financereport to the fiscal committees on the administration's progress in developing the accounting procedures needed to claim federal reimbursements
for the costs of state-subsidized child care provided to AFDC recipients.
We withhold recommendation on the $31 million in federal funds requested to reimburse the SDE, pending receipt of this report.
The Department of Finance has reduced the General Fund appropriation to the SDE by $31 million and has added $31 million in reimbursements from the DSS. To the extent that the Department of Finance's
estimate of the federal funds available for this purpose is too high-and
we believe there is good reason to conclude that this is the case-the DSS
will not be able to reimburse the SDE for the full $31 million. Should thisoccur, SDE will incur a deficiency in its state-subsidized day care programs. (Please see our discussion of Child Care Programs in Item 6100-196001.)
Funds Appropriated by Chapter 1025 Will Be Available for Reappropriationin 1986-87

We recommend that the Legislature (1) add an item to the Budget Bill
which reappropriates $3,950,000 available under Chapter 1025 and (2)reduce the amount requested From the General Fund to support the GAIN
program by $3,950,000 in 1986-87 in order to reflect the availability oE theamount reappropriated From Chapter 1025.
Chapter 1025 appropriated $15.8 million ($7.9 million General Fund and$7.9 million federal funds) for the GAIN program in 1985-86. This appropriation was based on the department's assumption that counties would
begin implementing the GAIN program on January 1, 1986.
The department now advises that few, if any, counties will begin providing services to GAIN participants prior to July 1, 1986. This is primarily due

Item 5180

HEALTH AND WELFARE / 995

to the fact that counties must prepare a detailed GAIN plan, which must
be approved by the department before they can actually implement the
program.
Our analysis indicates that the department will spend only $7.9 millionof the $15.8 million appropriated by Chapter 1025 for the costs of the GAIN
program in the current year. This consists of:• $5.2 million which the department indicates it will allocate to counties
to support the preparation of GAIN plans;• $1.5 million to cover the department's administrative costs; and• up to $1.2 million for services provided to GAIN clients by those four
counties that we believe could implement the program beginning inlate 1985-86.
This means that $7.9 million ($3.95 million General Fund and $3.95
million federal funds) will remain unexpended at the end of 1985-86.
We recommend that the Legislature reappropriate these funds for the
GAIN program in 1986-87. This would make available $3,950,000 in General Fund monies for the Legislature's use in achieving its priorities.
The following Budget Bill language is consistent with this recommendation:"51BO-890-Reappropriation, Department of Social Services. As of June30, 1986, the unexpended balance of the appropriation made for the
GAIN program by Chapter 1025, Statutes of 1985, is hereby appropriated for transfer to the item and in the amount as follows: in augmentationof Item 5180-151-001, $3,950,000."
Double-Budgeting for the Costs of Employment Services Provided to Refugees

We withhold recommendation on $37, 705,000 in federal funds proposed
for refugee social services, pending a determination of whether thesefunds are budgeted twice.
The budget requests $37,705,000 in federal Refugee Resettlement Program (RRP) and Targeted Assistance Program (TAP) funds to provide
social services to refugees. Of the total amount proposed, $2.5 million willbe spent to provide nonemployment-related social services to refugees(for example, child welfare services to refugee families). The remaining$35.2 million will be used to provide employment and training services torefugees.
These employment and training services will be provided to refugees
who come within one of the following categories:• Refugees who are participating in the Refugee Demonstration Program (RDP).
• Refugees who are receiving general assistance or are participating in
the Refugee Cash Assistance (RCA) program.
• Refugees who are not receiving public assistance.
• Refugees who are receiving AFDC benefits.
The derartment is unable to provide us with an estimate of the amountof federa RRP and TAP funds that counties and service providers will
spend for AFDC refugees in 1986-87. The department advises, however,that a substantial portion of these funds will be used to provide employment-related services to these individuals.
To the extent that RRP and TAP funds are used for the cost of employment-related services provided to AFDC refugees in counties that implement the GAIN program in 1986-87, funding for these services isdouble-budgeted. This is because the budget contains funds to provide
services to GAIN participants, including refugees, in 1986-87.

996 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued

According to the department's caseload projections, AFDC refugees
make up 8.6 percent of the total AFDC caseload. Based on this, we estimate that approximately $3.9 million ($1.95 million General Fund and$1.95 million federal funds), of the $45.1 million proposed for the GAIN
program in 1986-87 will be spent for services to AFDC refugees. To theextent that some of the federal RRP and TAP funds proposed in thebudget are used to provide services to these same AFDC refugees, aportion of the $3.9 million of General Fund and federal fund monies
proposed to provide GAIN services to AFDC refugees will not be needed.
Because the department does not keep track of how much RRP and
TAP funds are spent on services to refugees in each of the four categories
described above, we cannot provide the Legislature with an estimate of
the extent to which funds for employment services to AFDC refugees aredouble-budgeted. The department should be able to shed light on thismatter when it reviews the GAIN plans that counties will submit in thespring. We, therefore, withhold recommendation on $37,705,000 in federal
funds proposed for refugee social services, pending a determination of theextent to which these funds are double-budgeted.
GAIN Could Result in Unintended Overhead Cost Shifts

We recommend that the Legislature adopt Budget Bill language directing the department to eliminate, or minimize, the likelihood that implementation of the GAIN program will result in unintended overhead
cost shifts.
Chapter 1025 allows counties broad discretion in administering the
GAIN program. In particular, the counties can provide services to participants through contracts, using county staff, or some combination of theseapproaches. For example, counties could provide job club services (1)through contracts with the EDD, (2) through contracts with private agencies, (3) by hiring additional county staff to conduct the workshops, or (4)by hiring county staff to conduct the workshops jointly with a contract
provider who would also provide workshop staff (the latter arrangement
reflects the way counties and the EDD currently provide job club services
in some EPP counties).
Our analysis indicates that the way counties deliver services under the
GAIN program could result in administrative costs being shifted to thestate from the counties or from the counties to the state. For example,
under current law, administrative costs are allocated among the AFDC,
Medi-Cal, Social Services, Food Stamps, county General Assistance, andother programs based on a cost allocation plan. Under this plan, the counties identify the costs of salaries and benefits paid to those county employees who directly provide services to the clients of the various
programs. (These employees include eligibility and social workers.) The
administrative overhead costs are then allocated to each program, basedon the program's share of total costs incurred by the welfare departments
for employees that provide direct services to clients. (These overhead
costs include the costs of salaries and benefits of administrative and support staff, as well as such operating costs as rent, utilities, supplies, andequipment.) The purpose of the cost allocation plan is to ensure that eachprogram pays for its appropriate share of the costs of operating the welfare
department.
It is important to keep track of these costs on a program-by-programbasis because each program is funded differently. For example, the costs

Item 5180

HEALTH AND WELFARE / 997

of administering the AFDC program are shared between the state (25percent), federal (50 percent), and county (25 percent) governments.
The Medi-Cal program, on the other hand, is paid for by the state (50percent) and federal (50 percent) governments only. Obviously, if part of
the administrative costs properly attributable to the Medi-Cal program isallocated to the AFDC program, counties would pay more than theirfair-share of these costs. The cost allocation plan is designed to avoid such
unintended cost shifts.
Chapter 1025 sets the cost-sharing ratio for the GAIN program at 50
percent state and 50 percent federal; counties do not share in these costs.
Because of the way the cost allocation plan works, however, it is possiblethat a county which chooses to provide most of the services required
under Chapter 1025 through contractual arrangements with service providers, could actually end up paying for a substantial share of the overhead
associated with the GAIN program. This would occur because under acounty plan calling for services to be provided primarily by contractors,
the county would hire few if any additional county staff to provide services
to participants directly. The county, however, would have to hire administrative staff to supervise and evaluate the contractor and to account for
program expenditures and results.
The effect of a county hiring relatively few line workers and at the sametime incurring relatively high administrative cost, would be to increase
the amount of administrative costs allocated to other programs, including
those programs which the counties help pay for. In a large county, this
could increase county-funded welfare department costs by more than$100,000, even though counties are not supposed to pay a share of GAIN
program costs.
.
.
The cost shift could also go in the other direction, putting the state at
a disadvantage. If, for example, a county chooses to hire a relatively large
number of new direct line staff to provide services through the GAIN
program, this could shift costs from programs such as AFDC to the GAIN
program, causing the state to, in effect, pay more for AFDC and allowing
the counties to pay less.
The department is aware of the potential for unintended overhead costshifts to occur when the GAIN program is implemented. The department
advises that it will develop a policy for avoiding these shifts. To assure that
this happens, we recommend that the Legislature adopt the following
Budget Bill language directing the DSS to implement its cost allocation
plan in such a way as to eliminate or minimize the potential for unintended overhead cost shifts:"In administering the cost allocation plan for 1986-87, and in reviewing
and approving county GAIN plans submitted during 1986-87, the DSS
shall ensure that no significant overhead cost shifts occur as a result of
the implementation of the GAIN program."
County GAIN Plans Have Out-Year Fiscal Implications

We recommend that the Legislature adopt Budget Bill language requiring the DSS to compare each county plan with the department's statewide
cost estimate and, in the event that the plan implies higher-than-anticipated costs (1) notify the Chairpersons of the fiscal committees in each houseand (2) advise the county that final approval ofits plan is subject to review
by the Legislature as part of the 1987-88 budget process.
As we noted above, Chapter 1025 provides for a three-year phase-in of
the GAIN program. The department estimates that, even after all counties

998 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued

have implemented the program, it will take an additional two years to
fully implement the various program components. This is due to two
factors: (1) some recipients will remain in the program for an extended
period of time and may not reach the "tail-end" long-term PREP component until they have been in the GAIN program for a year or more and(2) some counties may not require every mandatory participant to enter
GAIN immediately-they may wait for up to two years after implementation to bring all of the mandatory recipients into the GAIN program.
The department estimates that the counties which implement the
GAIN program in 1986-87 will account for one-third of the statewide
caseload and will spend $45,100,000 to provide GAIN services. This represents approximately 28 percent of what the department anticipates all 58
counties will spend for the program once it is fully operational on a statewide basis. (The 1986-87 costs of the GAIN program are expected to beless than one-third of the ongoing costs primarily because of the lag
between the time when a participant enters the program and the time
when the participant reaches the relatively more expensive "tail-end"
components such as short-term training and long term PREP.)
The fact that the GAIN program will be phased-in over a three-year
period, and that the costs will be phased-in over a five-year period, raises
issues that are not usually relevant to legislative decision making in social
welfare programs-issues which are more common in capital outlay programs. Frequently, the Legislature is requested to appropriate a relatively
small amount of money in the budget for capital outlay programs, recognizing that this represents a much larger commitment of funds in subsequent years. For example, a particular project may involve a contract forwork in the budget year costing $1 million. Funding this contra~t, however, may commit the Legislature to the entire project, which may costseveral tens of millions of dollars to complete over several years.
This is similar to the situation presented by implementation of the GAIN
program. According to the department's estimate, the GAIN program will
cost $45.1 million in 1986-87, but its yearly cost will be $156.5 million(excluding state administrative costs) when the program is fully phased
in. Thus, there is a need for more legislative oversight than is common
when a new social welfare program is launched.
Accordingly, we suggest that the Legislature establish guidelines for the
department to follow in the event that the initial county plans prove to
be more costly than anticipated. The purpose of such guidelines would beto ensure that the decisions made by the department on proposed county
GAIN plans during 1986-87 do not foreclose the Legislature's options withrespect to the long-term costs of the GAIN program.
Specifically, we recommend that the Legislature adopt the following
Budget Bill language directing DSS to (1) compare each county plan with
its statewide cost estimate and (2) in the event the plan implies a higherthan-anticipated cost (given the size of the county involved relative to thestate's total AFDC caseload), notify the Chairpersons of the fiscal committees of each house and inform the county in writing that the approval of
its plan is subject to legislative review as part of the budget process for
1987-88:"The Department of Social Services shall compare the costs of eachcounty's proposed GAIN plan with the department's estimate of thestatewide costs of the GAIN program. If the department approves any

--------- - - - - - - - - - -Item 5180

HEALTH AND WELFARE / 999

county plan which has a cost in excess of what would be expected fora county with a caseload of comparable size, based on the department's
statewide estimate, the department shall (1) so notify the Chairpersonsof the fiscal committee of each house and (2) notify the county that the
final approval of its plan is subject to legislative review as part of the
1987-88 budget process."
EDD's Role in the GAIN Program is Unclear

We recommend the Legislature adopt supplemental report language
directing the EDD and the DSS to advise counties that EDD is available
as a resource for counties to use, on a contractual basis, to provide services
under the GAIN program.
The EDD currently provides a variety of employment services that are
similar to several of the services that will be provided under the GAIN
program. Specifically, EDD staff (1) conduct job search workshops inconjunction with several county welfare departments under the EPP and
Win-Demo programs, (2) assess the employability and training needs of
AFDC recipients under the EPP and Win-Demo programs, (3) provide
intensive employability and placement services to AFDC recipients andother individuals under the Job Agent and Service Center programs, and(4) place AFDC recipients and other individuals in employment throughthe Employment Services program.
Chapter 1025 allows counties to contract with EDD to provide services
to GAIN participants. The measure also requires counties to provide services under the GAIN program in a cost-effective manner. For some counties, contracting with EDD may represent the most cost-effective
alternative for providing some of these services. The administration,
however, seems to be sending mixed signals to counties regarding theavailability of EDD staff to provide GAIN services.
For example, in a letter sent to all county welfare departments, dated
September 27, 1985, DSS stated that "we would encourage you to consider
assuming the activities that are now performed by EDD under the WinDemo program as part of your (GAIN) implementation effort." Morever,representatives of the DSS and the EDD have advised counties on several
occasions that the EDD will not be available in the future as a resource
for counties to use in implementing the GAIN program.
On the other hand, DSS has advised us that it encourages counties toconsider contracting with the EDD, as one of several alternatives forproviding these services under the GAIN program. In addition, EDD has
advised us that "during implementation (of GAIN), EDD anticipates being involved in job search workshops for AFDC recipients either in atechnical assistance capacity or providing specific services under interagencyagreements."
In view of these conflicting statements, we are uncertain as to what theadministration's policy is with respect to EDD's future role in the GAIN
program. One thing is clear, however: if the counties believe that EDD
will not be available to provide services, they are unlikely to consider
contracting with EDD as an alternative means of providing services.
Given the uncertainty regarding EDD's role, we believe the Legislature
should make clear that if the EDD represents a cost-effective alternative
for providing services under the GAIN program, this alternative is available to the counties. We, therefore, recommend that the Legislature adopt
the following supplemental report language directing (1) DSS to issue an
all-county letter stating that EDD is available to provide services to GAIN

1000 / HEALTH AND WELFARE

Item 5180

SOCIAL SERVICES PROGRAMS-Continued
recipients pursuant to contracts entered into with the counties and (2)EDD to provide (a) a description of the services it can provide, (b) a pricelist for those services, and (c) a list of the provisions that must be included
in any contract with the EDD for the provision of each of the services.
"The Department of Social Services shall issue an all-county letter, by
July 15, 1986, stating that the EDD is available to provide services to
GAIN particip~nts, on a contractual basis. The letter shall include astatement, which the EDD shall prepare by July 10, 1986, laying out (1)the types of services that the EDD can provide, (2) the price that EDD
will charge the counties for those services, and (3) the conditions tmder
which the EDD will provide the services."

Department of Social Services
COMMUNITY CARE LICENSING

Item 5180-161 from the GeneralFund and Federal Trust Fund

Budget p. HW 160

Requested 1986-87 ......................................................................... .
Estimated 1985-86 ........................................................................... .
Actual 1984-85 ................................................................................. .
Requested increase-None
Total recommended reduction ................................................... .
Recommendation pending ........................................................... .

$8,342,000
8,342,000
7,085,000
None
8,342,000

1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
5180-161-001-Community Care Licensing
5180-161-890-Community Care Licensing

Fund
GeneralFederalAmount$8,342,000(2,856,000)
AnalysiS

SUMMARY OF MAJOR ISSUES· AND RECOMMENDATIONS
1. Proposed Program Expenditures. We withhold recommendation on funds requested for Community Care Licensing, pending receipt of a workload standard study.

page

1001

GENERAL PROGRAM STATEMENT
This item contains the General Fund appropriation for the state's costof contracting with counties to license foster family homes and family day
care homes. Funds for direct state licensing activities are proposed in Item
5180-001-001--departmental support.
Foster family homes are licensed to provide 24-hour residential care tochildren in foster care. In order to qualify for a license, the home must be
the residence of the foster parents and must provide services to no morethan six children. Family day care homes are licensed to provide day careservices for up to 12 children in the provider's own home.

Item 5180

HEALTH AND WELFARE / 1001

OVERVIEW OF THE BUDGET RiCQUESTThe budget proposes an appropriation of $8,342,000 from the GeneralFund to reimburse counties for licensing activities in 1986-87. The only
funding change proposed for community care licensing in 1986-87 is continuation of the $1.0 million appropriation added by the Legislature in
1985-86 for use in recruiting foster family home providers.
ANALYSIS AND RECOMMENDATIONS
No Workload Standard for Licensing Activities

We withhold recommendation on funds requested for Community Care
Licensing activities because the department has no workload standard
upon which to base its budget request.
In general, the costs of the Community Care Licensing program aredetermined by two factors: (1) the number of community care facilities
to be licensed or reviewed and (2) the number of staff needed to performthe various licensing functions. The number of facilities to be licensed orreviewed is estimated based on historical trends and current caseload. The
number of staff needed to perform these licensing functions is determinedby applying a "workload standard" to the estimated caseload. The workload standard is the average number of facilities that a license evaluator·
is able to review.
We conclude that the budget proposal for the Community Care Licensing program may not be appropriate since it is not based on the mostrecent estimate of staffing needed to carry out the functions of the program. During the subcommittee hearings on the 1985 Budget Bill, thedepartment advised the Legislature that by July 1985 it would revise its
workload standard. At the time we prepared this analysis, the department
still had not completed these revisions. It indicated that the revised licensing workload standard will be completed by April 1986 and will be appliedin 1986-87.
Because the department's budget is not based on the most recent estimate of the number of staff required to license facilities, we withholdrecommendation on funds requested for the Community Care Licensing
program, pending receipt of the new workload standard.

1002 / HEALTH AND WELFARE

Item 5180

Department of Social Services
COST·Of·LlVING ADJUSTMENTS

Item 5180-181 from the GeneralFund and Federal Trust Fund

Budget p. HW 163

Requested 1986-87 .......................................................................... $186,034,000
1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
5180-181-001-Cost-of-living adjustments
5180-181-890-Cost-of-living adjustments

Fund
GeneralFederalAmount$186,034,000(96,993,000)

Analysis

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS

page

1. Child Welfare Services COLA. Recommend that the 1004
Legislature adopt Budget Bill language specifying that the$31,611,000 appropriated for prior-year county-granted
COLAs for the Child Welfare Services program be matchedby the required county share of $8,225,000.
2. Adoptions Prior-Year COLA. Recommend that the De- 1005
partment of Finance report, prior to budget hearings, on
how the administration intends to fund the state's share of
the full costs of the Adoptions program.
GENERAL PROGRAM STATEMENT

This item contains the General Fund appropriation to provide cost-ofliving adjustments (COLAs) to various welfare and social services programs. In general, this item provides funds to compensate for the effects
of inflation on the purchasing power of grants to welfare recipients.
In accordance with the policy established by the Legislature in previous
budget acts, the state will fund its share of COLAs granted to county
welfare department employees one year in arrears (referred to as "retroactive" COLAs). Thus, the budget proposes to fund in 1986-87, the General Fund costs of COLAs granted to county welfare department
employees in 1985-86. (These funds are appropriated in Items 5180-141001 and 5180-151-001.) For COLAs granted by counties in 1986-87, thestate will fund its share of the costs beginning in 1987-88.
OVERVIEW OF THE BUDGET REQUEST
Statutory COLAs for Welfare Recipients

The budget proposes a General Fund appropriation of $186,034,000 tofund those cost-of-living increases that are required by state law. Specifically, current law requires that Aid to Families with Dependent Children(AFDC) grants, Supplemental Security Income/State Supplementary
Program (SSIISSP) grants, and the maximum service award under the
In-Home Supportive Services (IHSS) program be adjusted to reflect the
yearly increases in the California Necessities Index (CNI). The Commission on State Finance is the state agency responsible for estimating thechange in the CN!. The amounts proposed for statutory COLAs are as
follows:

Item 5180

HEALTH AND WELFARE / 1003

• AFDC Cash Grants. The budget proposes to· provide a 4.9 percent COLA to AFDC cash grants, effective July 1, 1986, at a cost of$185,041,000 ($80,678,000 General Fund, $94,594,000 federal funds, and$9,769,000 county funds).
• SSIISSP. The budget proposes to provide a 4.9 percent COLA for
SSIISSP recipients, effective January 1, 1987,.it a cost of $104,958,000($lO4,732,000 General Fund and $226,000 federal funds).
• IHSS Statutory Maximum. The budget proposes to provide a 4.9
percent COLA to the maximum amount of service that each IHSS
recipient is allowed by statute, at a cost of $693,000 ($624,000 GeneralFund, $69,000 county funds). As a result, approximately one percent
of IHSS recipients will be allowed to receive an increase in theirmaximum hours of service.
ANALYSIS AND RECOMMENDATIONSRetroactive COLAs

The department administers three programs which receive retroactive
COLAs-the county welfare department administration of theAFDC,
Food Stamps, and Child Welfare Services (CWS) programs. The state pays
for its share of the COLAs granted by counties to the employees assigned
to these programs one year in arrears. The budget includes funds for these
retroactive COLAs as follows:• County Administration of AFDC and Food Stamps Programs.
The budget proposes an appropriation of $8,823,000 from the GeneralFund to pay for the cost of COLAs granted by counties in 1985-86 toeligibility determination staff who are assigned to the AFDC andFood Stamps programs. The budget includes these funds under theappropriation for the baseline costs of the county administration program (please see Item 5180-141-001).
• Child Welfare Services. The budget proposes an appropriation of$31,611,000 ($24,526,000 General Fund and $7,085,000 federal funds)·
for the cost of COLAs granted by counties to CWS staff from 1982-83.
through 1985-86. The budget includes these funds under the appropriation for the baseline costs of CWS (please see Item 5180-151-001).
Discretionary COLAs

In addition to the programs that receive statutorily mandated COLAs
and retroactive COLAs, the DSS administers the following programs
which have in the past received cost-of-living increases on a discretionary
basis:• IHSS. Under this program, counties provide supportive services
to aged, blind, and disabled individuals to help them live in their own
homes. The 1985 Budget Act included $13,629,000 to provide a 4 percent COLA to IHSS providers. It would cost $3,999,000 ($3,599,000
General Fund and $400,000 county funds) to provide a 1 percent
COLA to IHSS providers in 1986-87. Funds appropriated for a COLA
for the IHSS program would be used to increase the wages paid toproviders.
• County Services Block Grant (CSBG) Program. Under this program, counties provide adult protective services, IHSS eligibility
determination and case management services, and a variety of optional social services. The 1985 Budget Act included $2,819,040 ($2,275,840
General Fund and $543,200 county funds) to provide a 4 percent

1004 / HEALTH AND WELFARE

Item 5180

COST-OF-LIVING ADJUSTMENTS-Continued

COLA for this program. It would cost $725,000 ($584,000 GeneralFund and $141,000 county funds) to provide a 1 percent COLA for the
program in 1986-87. In general, the counties would use any funds
provided to this program for a cost-of-living increase to finance thecosts of the COLAs they have granted to the social workers assigned
to the program .
• Foster Care. Under this program, counties pay grants to foster
family homes and foster care group homes to cover their costs ofproviding 24-hour residential care to abused, neglected, and delin. quent children. The 1985 Budget Act included $4,133,000 ($2,687,000
General Fund, $1,305,000 federal funds, and $141,000 county funds) toprovide a 4 percent COLA to foster care providers. It would cost
$3,201,000 ($2,320,000 General Fund, $758,000 federal funds, and $123,000 county funds) to provide a 1 percent COLA to foster care providers in 1986-87.
• Adoptions. Under this program, counties provide services to prospectiveadoptive parents and to children awaiting adoption. The
Governor vetoed funds from the 1985 Budget Bill which had been
added by the Legislature to provide a retroactive COLA for the Adoptions program. It would cost $3,330,000 ($3,147,000 General Fund and$183,000 federal funds) to provide a retroactive COLA to the Adoptions program. in 1986-87. In general, counties would use any funds
provided for a COLA to finance the costs of the COLAs they have
granted to adoptions social workers.
The budget does not request funds to provide a COLA for any of these
programs in 1986-87.
;', ,', .
Child Welfare Services COLA Should Be Separately Identified

We recommend that the Legislature adopt Budget Bill language specifying that the $31,611,000 (General Fund and federal funds) appropriatedfor prior-year county-granted COLAs for the Child Welfare Services program be matched by the required county share of $8,225,000.
The budget proposes $31,611,000 ($24,526,000 General Fund and $7,085,000 federal funds) to fund COLAs provided to CWS staff from 1982-83
through 1985-86. Under current law, counties are required to provide a 25
percent match for COLAs provided to CWS staff. The county share ofcosts for these prior-year COLAs totals $8,225,000.
We recommend the Legislature specify that the $31.6 million budgeted
for CWS is a COLA and therefore is subject to the 25 percent county
match. This is necessary because the additional funding is proposed under
Item 5180-151-00l-the item which appropriates funds for CWS-and notin the COLA item (5180-181-001). Because the $31.6 million is proposed
under Item 5180-151, the counties could refuse to provide their 25 percent
share of the proposed increase in funding for the CWS program.
In order t6 ensure that the counties contribute toward the COLAs
which. they have granted, we recommend that the Legislature adopt thefollowing Budget Bill language specifying that the $31,611,000 appropriated in Item 5180-151 for prior-year COLAs be matched by the required
county share of .$8,225,000:"Funds totaling $31,611,000 appropriated in Items 5180-151-001 and5180~151-890for Child Welfare Services are for funding of county-granted, frior-year COLAs. These General Fund monies and federal funds
shal be matched by counties in the amount of $8,225,000."

Item 5180

HEALTH AND WELFARE / 1005

Funding for Adoptions Program Inconsistent with Other County-Administered
Programs

We recommend that prior to budget hearings, the Department of Finance advise the fiscal committees how the administration intends tosupport the state's share of the costs of the Adoptions program.
In the 1985 Budget Act, the Legislature and the Governor establishedthe policy of funding the state's share of COLAs for administration of the
AFDC, Food Stamps, and Medi-Cal programs one-year in arrears (referred to as "retroactive" COLAs). The 1986 Budget Bill proposes toexpand this policy to the Child Welfare Services program in 1986-87.
The ~udget does not propose to apply this retroactive COLA policy to
the Adoptions program. (The cost to the General Fund to provide a
retroactive COLA to the Adoptions program would be about $3.1 million.)
As a result, the budget for the Adoptions program is not consistent withthe budgets for other county-administered welfare programs (that is,
AFDC, Food Stamps, Medi-Cal, and Child Welfare Services).
We know of no reason why the Adoptions program should be funded at
a level that is lower than actual county costs-especially in light of thefunding proposals for the other welfare programs. We also note that theLegislature adopted the policy of providing a retroactive COLA to the
Adoptions program when it passed the 1985 Budget Bill. (The Governor,
subsequently vetoed this proposal.)Accordingly, we recommend that prior to budget hearings, the Department of Finance advise the fiscal committees on how the administration
intends to support the state's share of the costs of the Adoptions program
under the current budget proposal.

DEPARTMENT OF SOCIAL SERVICES-REAPPROPRIATION

Item 5180-490 from the GeneralFund and the Federal Trust
Fund

Budget p. HW 167

ANALYSIS AND RECOMMENDATIONS

We recommend approval.
This item reappropriates $3,958,000 of the funds appropriated from theGeneral Fund by Ch 1638/84. These funds originally were provided forChild Abuse Prevention Training, and would be used for the same purposein 1986-87. This item also reappropriates the unexpended portion of federal funds appropriated for Title XX (social services) training by the 1985
Budget Act. These funds would be used to support Title XX training
activities in 1986-87. We recommend that both reappropriations be approved.

1006 / YOUTH AND ADULT CORRECTIONAL

Item 5240

DEPARTMENT OF SOCIAL SERVICES-REVERSION

Item 5180-495 to the General
Fund

Bl'dget p. HW 167

ANALYSIS AND RECOMMENDATIONS

We recommend approval.
This item reverts $5,000 to the General Fund. This money was returnedto the department by counties that received excess child support incentive payments for child support collection activities during 1981-82. Basedon our review, we conclude that this reversion is appropriate.

Youth and Adult Correctional Agency
DEPARTMENT OF CORRECTIONS

Item 5240 from the GeneralFund and various funds

Budget p. YAC 1

Requested 1986-87 ......................................................................... $1,239,765,000
Estimated 1985-86 ............................................................................ 1,021,385,000
Actual 1984-85 .................................................................................. 786,260,000
Requested increase $218,380,000 (+21.4 percent)Total recommended reduction ....................................................
17,410,000
Recommendation pending ............................................................ 134,767,000
1986-87 FUNDING BY ITEM AND SOURCE
Item-Description
5240-001-001-Support
5240-001-036,-Support
5240-001-723-Support
5240-001-890-Support
5240-001-917-Inmate Welfare Fund
5240-10l-001-Local Assistance
Reimbursements
Total

Fund
GeneralSpecial Account for Capital
OutlayNew Prison Construction
Bond FundFederal
Revolving
GeneralAmount$1,151,854,000
24,155,000
3,632,000(208,000)
16,878,000
32,687,000
10,559,000$1,239,765,000

SUMMARY OF MAJOR ISSUES AND RECOMMENDATIONS
1. Funding for Inmate and Parolee Population Growth.

Withhold recommendation, pending analysis of the population proposal to be contained in the May revision.

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AnaJysis
page1015