Shedding Light on County Behavioral Health Finances

I was fortunate to have two outstanding summer interns from the University of California: Monica Venegas and Deepika Dilip. They produced this report which is now as complete as it is going to get, so it is time to share what they found and provide some explanation.

Since this is not a formal report, but intended only to provide a meaningful snapshot of what information was available, I asked them only to develop information on the 20 largest counties (by population). While this excludes 38 counties it does cover about 95% of the state’s population and behavioral health funding.

In reviewing their report, first and foremost is their findings confirming the difficulty that providers and advocates have experienced in trying to get this type of information about their county. In general they could not find it online and could not get it by emailing or calling county behavioral health staff. However, they also confirmed the response of county officials, which is that the information is available. Acquiring the information generally took emails and phone calls – not to county behavioral health staff but to county budget staff. A most valuable page from their report is the one listing the contact information for the person who provided the information.

One of the key recommendations from the interns is that counties should establish a user friendly way to put all of this information online where it is easily found through the behavioral health department website.

Our figures confirmed the experience of providers – only a few counties provided significant expenditure increases in 2014-15 or 2015-16, but far more have done so for 2016-17.

What this appears to suggest is that most counties were cautious about expanding funding in response to the improving fiscal picture coming out of the deepest recession since the 1930s.

There appear to be several explanations for this but among these were the fact that in many counties county behavioral health staff did not have the autonomy to determine their available funding – either due to the fact that the figures were controlled by other county staff or that the behavioral health funding growth was significantly greater than other county revenues and there was a reluctance to expand mental health funding when other funding could not be expanded.

These factors will probably always be present, so counties and stakeholders need to identify ways to make sure it does not prevent progress in serving more people. In doing so advocates and behavioral health officials can document the value of behavioral health in reducing other county costs in criminal justice, child welfare and other programs.

Over time Mental Health Service Act (MHSA) revenues grow faster than any other state or local funding source.

In its roughly ten years, MHSA funds doubled from about $900 million in the first full year to $1.8 billion now. That 100% overall growth rate compares with about 60% for state income tax revenue and lower growth rates for sales and property taxes.

This pattern will continue for the obvious reason that the rich get richer. We have all heard the statements that over the past 30 years only the top 1% of the population has seen significant income growth. Prop 63 revenues come completely from that group – and actually from only the top 10% of that top 1% (those with taxable incomes over $1 million). This elite group of about 50,000 people makes up nearly half of all state revenue and over time their incomes grow much faster than anyone else’s.

In doing long range planning counties should count on average annual revenue growth from the MHSA of 8 to 9%!

When we wrote the MHSA we analyzed state revenues over the past 30 years and found that during that period (with several mild recessions or slow-downs but no great recession) overall state income taxes grew by an average of 9% per year. Based upon that we were told to expect 11% annual growth in the MHSA. The recent recession was so severe that it caused all financial forecasters to lower their estimates but the 7% MHSA growth over the last ten years was much lower than in previous periods and should also be exceeded by growth over the next ten years.

MHSA revenues are volatile but counties are well prepared for the next recession with more than adequate reserves and a built in delay in the impact of the next recession on MHSA funding.

Most of us have heard the governor and others warn that we have now had one of the longest ever periods of sustained economic growth so the next recession must be coming soon. While there is a lot of truth in that statement, the MHSA and county funding were built to withstand it.

We recognized that the incomes of the million dollar earners are mostly from investments and not salaries. Accordingly when the stock market goes down their incomes go down at a much faster rate than for most others. Indeed during the recession MHSA revenues went down by 40% compared to a 20% drop in other revenues.

That is the reason we required the establishment of prudent reserves in the MHSA. State guidelines recommended a reserve total of 50% of an average year of revenues. It appears that all counties have at least that amount of unspent funds available to prepare for a recession.

In addition the MHSA has a unique advance warning system due to the way its funding works. A substantial portion of the funding allocated to counties through the MHSA is from an annual adjustment that is based on the final settlement of state income taxes from the calendar year that ended 18 months before the start of the current fiscal year.

The big increase in revenues counties are seeing for 16-17 comes from 2014 income tax receipts.

So if a big recession hits in early 2017 it will impact most revenue sources for 17-18 but won’t significantly impact MHSA revenues until 2019-20. That means counties will generally have a two year advance warning on the recession and can manage their way through the economic downturn that will almost certainly be showing signs of renewed growth before the full impact hits the MHSA funded programs. Accordingly counties should be spending with confidence this year.

Affordable Care Act (ACA or Obamacare): significant growth in federal funds peaking now and will gradually level off over next few years.

The number of people enrolled in MediCal has dramatically increased due to the passage of this landmark law that passed in 2010 but mainly went into effect in 2014. MediCal enrollment increased from less than 25% of the state population to more than 1/3.

Many enrolled as adults without dependent children, with federal funding paying 100% of the cost of care. Nearly as many enrolled under traditional MediCal, reflecting the large number who had already been eligible but had not enrolled. Both the extensive outreach efforts and the expectation that everyone had to have insurance contributed to this dramatic increase.

16-17 shows the greatest growth in federal funds for county behavioral health as the efforts over three years are now getting to most of the people that could become enrolled as well as the fact that people don’t generally come in on their own to seek behavioral health care.

Growth from this law should continue for a few more years and then level off. However, the number of people with significant behavioral health challenges who still need to be enrolled will likely continue to be higher than the overall number (based on experience in Massachusetts which began a universal health care system several years earlier). There will continue to be homeless people who need to be enrolled and most will have significant behavioral health needs.

Hospitalizations should go down if MHSA and ACA are working as expected.

We included hospitalization data because it is one of the best measures of the overall success of the system (for adults). Every hospitalization takes resources out of community programs whose main measure of success is keeping people out of the hospital.

As we bring more people into community services we should see fewer hospitalizations which should then free up more funds to further expand community services. The patterns and trends among counties and years is one of the best ways to see when and where things are working and when and where they are not. The economy is one factor, but the variations among the counties suggest that some are having greater success than others. It should be a priority, both locally and at the state level, to understand why and to develop guidance from the practices of those who are most successful to inform and lead to better results in other counties.

Prevention and early intervention is hard to measure, but it’s key to better results for children.


Children are hospitalized at a far lower rate than adults, so hospital data does not tell us much. A better measure of success is the reduction in the number of children who get mental health services before they fail in school due to an untreated – or unsuccessfully treated – serious emotional disturbance.

One should expect that the number placed in special education due to emotional disturbance should fall as prevention and early intervention programs expand. In the long term this would happen but in the short term it might not because our current number of students placed is among the lowest in the nation suggesting that there are many who already meet special education criteria but are not getting the care that they should be already receiving.

A better measure will be increases in the penetration rates for MediCal (something the EPSDT performance outcome system tracks), school graduation rates for those who receive mental health services in special education (legislation SB 884 Beall proposes this) and reduced numbers of children in high cost non-public schools, child welfare and juvenile justice with serious emotional disturbance.

I don’t think we will see much progress until we fully implement a comprehensive screening and follow up care system in health care as well as three tiered comprehensive school based models to help children before they meet special education criteria. But some counties may experience more success than others and we should look to see where and why.

This is a time of growth and opportunity.


The Affordable Care Act is now more than two years old and appears to be here to stay. System reforms such as the County Organized Delivery System for Substance Use Disorders, Whole Person Care Pilots, Certified Community Behavioral Health Centers, and Physical Health Behavioral Health Integration offer performance and revenue enhancing improvements.

The past recession is over. The next recession is not yet here, and even when it arrives behavioral health funding will be sustained for at least the first two years. Revenues are up now and the long term forecast is for significant continued growth.

So there really is no reason that counties and their behavioral health stakeholders should not be thinking about how to make their systems really work to reduce unmet needs and to avoid more of the most costly institutional placements that not only represent a failure of our systems but drain it of community resources needed to serve the many we don’t currently reach.
August 22, 2016

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