Newsom’s mental health funding proposal comes at California counties’ expense

California Gov. Gavin Newsom’s newest policy thrust to reduce homelessness by improving mental health services — including a proposed $4.5 billion bond to add psychiatric beds — is likely to get some pushback from county governments.

An analysis from the Legislative Analyst’s Office estimates that Newsom’s overhaul of the state’s behavioral and mental health system is likely to take nearly $720 million away from services provided by county governments annually.

At question is revenue from the Mental Health Services Act.

California Gov. Gavin’s Newsom proposal to reallocate a millionaire’s tax designed to support mental health programs could face pushback from counties.

Bloomberg News

The act, approved by voters in 2004, places a 1% percent tax on personal income over $1 million and dedicates the revenues to mental health services.

“The vast majority­ of Mental Health Services Act revenues—at least 95 percent—goes directly to counties, which use it to support a variety of services for individuals with or at risk of mental illness,” according to the LAO report. “The MHSA establishes broad categories for how counties can spend the funding, including the percent of funds which must — or sometimes may — be spent on specific kinds of activities.”

Although the money would be reallocated within the system, the LAO analysts argue that Newsom and lawmakers supporting the proposal have not taken into account how the changes may negatively impact current services.

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

The state has already tapped Mental Health Services Act revenue to develop permanent supportive housing through its No Place Like home bond program. Former Gov. Jerry Brown signed the legislation into law in 2016, but it took several years to overcome lawsuits before it could be tapped.

The lawsuits challenged whether the money could be used for housing, even if it was supportive, meaning it includes counseling for mental health services, addiction problems and sometimes employment support.

The NPLH bond authorized $2 billion of bonds to provide funding to cities and counties to develop permanent supportive housing. The remaining authority was exhausted in 2022.

The California Health Facilities Financing Authority won the Bond Buyer’s Deal of the Year award for its inaugural No Place Like Home Program bonds in 2020.

Now, Newsom also wants to tap the tax to add psychiatric beds.

 In June, Sen. Susan Talamantes Eggman, D-Stockton, amended Senate Bill 326 to propose significant changes to the Mental Health Services Act. The legislation seeks to codify Newsom’s plan to modernize the state’s behavioral health system and create more behavioral housing.

Assemblymember Jacqui Irwin, D-Thousand Oaks, proposed a $4.68 billion Behavioral Health Infrastructure Bond Act of 2023 to finance the construction of community mental health facilities. The bonds would be general obligations of the state, outside the Mental Health Services Act, according to a committee staff analysis of Assembly Bill 531.

If the bills get over the line in the remaining month of the 2023 session, and the governor signs the legislation, they would go before voters in March 2024.

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