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Mental Health Services Act
The State Could Better Ensure the Effective Use of Mental Health Services Act Funding

Report Number: 2017-117



The provision of effective services and treatment to those who suffer from mental illness or who are at risk of mental illness is an issue of statewide and national importance. According to the U.S. Department of Health and Human Services’ 2015 and 2016 data, 17 percent of California adults—nearly 5 million people—have mental health needs, while about 4 percent suffer from serious mental illnesses. Moreover, the U.S. Department of Housing and Urban Development estimated that in 2016 more than one‑fourth—31,000 individuals—of California’s homeless population suffered from serious mental illnesses.

To address California’s mental health needs, in 2004 California voters approved Proposition 63—the Mental Health Services Act (MHSA)—to expand services and treatment for those who suffer from mental illness or who are at risk of mental illness. To support its purposes, the MHSA imposes a 1 percent income tax on individuals earning more than $1 million a year. In fiscal year 2015–16, the MHSA generated $1.5 billion, of which the State allocated $1.4 billion to local mental health programs. The State deposits MHSA funds into the Mental Health Services Fund (MHS Fund) and distributes the majority of these funds to the 59 county and local mental health agencies (local mental health agencies).1 The local mental health agencies use the funds to expand existing mental health programs and services, to prevent mental illnesses from becoming severe and disabling, and to provide programs that use innovative approaches to increase the quality of mental health services and improve access to underserved groups. The local mental health agencies must spend MHSA funds to expand mental health services and cannot use them to replace existing state or county funding.

MHSA Programs

The MHSA requires that local mental health agencies use MHSA funds for five different mental health services program categories—Community Services and Supports (Community Support), Prevention and Early Intervention (Prevention), Innovation, Capital Facilities and Technological Needs (Capital Facilities), and Workforce Education and Training (Workforce Training). As Table 1 describes, each of these program categories targets different aspects of mental health services. The local mental health agencies either can contract with vendors to operate specific MHSA‑funded projects within these program categories or can operate the projects themselves. Figure 1 displays the State's allocation of MHSA funds to the five program categories in fiscal year 2015–16.

The Department of Health Care Services (Health Care Services) explained that it believes the requirement in state law that any funds left unspent within the statutory time frames must be returned—reverted—to the State for reallocation to the local mental health agencies is an incentive to make full use of their MHSA funding allocations. As Figure 1 shows, the law specifies that local mental health agencies have three years to spend Community Support, Prevention, and Innovation funds and 10 years to spend Capital Facilities and Workforce Training Funds.2

Table 1
MHSA Program Categories
Community Support
  • Provides mental health treatment, health care treatment, and housing assistance.
  • Includes full-service partnerships under which local mental health agencies—in collaboration with the consumers and their families, when appropriate—plan for and provide a full spectrum of community services. These services include mental health services and support, such as peer support and crisis intervention services, as well as other services and supports, such as food, clothing, housing, and medical treatment.
  • Example: Alameda County contracted with a vendor to provide a full-service partnership for homeless adults. The partnership provides a range of services, with a focus on community service, peer support, and stable housing.
  • Provides services to help prevent individuals’ mental illnesses from becoming severe and disabling, including reducing the stigma and discrimination associated with mental illness diagnoses or with seeking mental health services.
  • Requires that projects emphasize strategies to reduce seven negative outcomes that may result from untreated mental illness—suicide, incarcerations, school failure or dropout, unemployment, prolonged suffering, homelessness, and removal of children from their homes.
  • Example: San Diego County contracted with a vendor to conduct a media campaign to increase awareness and understanding of mental illness, prevent suicide, and reduce the stigma associated with mental illness.
  • Introduces either new mental health practices or approaches or changes to existing practices or approaches.
  • Requires that projects increase access to services, increase the quality of services, and promote interagency collaboration, among other things.
  • Example: Riverside County created a new service model that provides mental health services within the context of a partnership involving the consumers, their families, supportive individuals, and providers. The service is designed to empower family members to become the primary supports in facilitating the recoveries of individuals with mental illnesses.
Capital Facilities
  • Creates additional infrastructure, such as clinics and facilities, and develops technological infrastructure for the mental health system, such as electronic health records for mental health services.
  • Example: Alameda County purchased and renovated a property to develop a behavioral health care support center.
Workforce Training
  • Provides training for existing employees, recruitment of new employees, and financial incentives to recruit or retain employees within the public mental health system.
  • Example: San Diego County contracted with a vendor to provide training and continuing education for county staff working in mental health services.

Sources: Welfare and Institutions Code, California Code of Regulations, and local mental health agencies’ MHSA projects.

Figure 1
Allocation of MHSA Funds to the Local Mental Health Agencies
Fiscal Year 2015–16

Flow chart showing allocation of MHSA funds to local mental health agencies in fiscal year 2015-16.

Sources: Welfare and Institutions Code and the fiscal year 2017–18 California State Budget.

* In 2017 state law was amended to extend the time frame to spend Community Support, Prevention, and Innovation funds from three years to five years for local mental health agencies that serve populations of less than 200,000.

Oversight Responsibilities

From 2004 until 2012, the California Department of Mental Health (Mental Health) was the primary state agency responsible for overseeing the implementation of the MHSA. However, a 2012 change in state law dissolved Mental Health and transferred the majority of its MHSA duties to Health Care Services. In addition, the State’s responsibilities related to overseeing MHSA funding changed significantly in 2011. Specifically, before 2011, state law required the State to approve local mental health agencies’ plans to use MHSA funds before issuing those funds to them. Under this process, the MHSA required that the local mental health agencies submit plans to Mental Health detailing how they intended to use their MHSA funds over the next three years. Mental Health would then evaluate these plans, and if it approved them, the State Controller’s Office (State Controller) distributed funds to the local mental health agencies. However, the 2011 change in state law eliminated this requirement. Instead, the State Controller now distributes MHSA funding from the MHS Fund directly to the local mental health agencies each month.

Under current state law, the local mental health agencies must comply with a number of requirements to ensure that their spending is appropriate. For example, state law requires each local mental health agency to prepare a three‑year plan that details how it will use MHSA funds. Following a period for public review and comment by community stakeholders, the local mental health agency’s county board of supervisors must approve its plans. Further, each local mental health agency’s mental health director and auditor‑controller must certify the plan as MHSA‑compliant. Each local mental health agency must subsequently update its three‑year plan on an annual basis to reflect any changes in funding or adjustments to programs.

Nonetheless, the State still has certain responsibilities related to ensuring that the local mental health agencies spend MHSA funds appropriately. For example, state law requires Health Care Services to calculate the MHSA fund allocations for each local mental health agency. As part of its methodology for calculating the fund allocations, Health Care Services designed a formula based on several factors, including each one’s share of the total state population, population at the poverty level, and prevalence of mental illness in their areas. State law and regulations also require Health Care Services to develop instructions for the MHSA annual revenue and expenditure reports (annual reports) that the local mental health agencies must submit by December 31 following the end of each fiscal year and allows Health Care Services to withhold MHSA funding when local mental health agencies do not submit these reports on time. Further, under its agreements with local mental health agencies, Health Care Services has the authority to determine whether they appropriately disclose MHSA revenue and expenditures in their annual reports. In addition, a 2016 amendment to state law requires Health Care Services to conduct program reviews of the local mental health agencies to assess whether they are complying with the MHSA. Finally, Health Care Services has the authority under its agreements with local mental health agencies to conduct MHSA fiscal audits of the local mental health agencies’ use of MHSA funds and is responsible under state law for overseeing the reversion process to ensure that local mental health agencies return any unspent MHSA funds to the State for reallocation.

The State also provides oversight of the MHSA funds through the Mental Health Services Oversight and Accountability Commission (Oversight Commission), which consists of 16 voting commissioners (commissioners) and supporting staff, led by an executive director. Established by the MHSA, the Oversight Commission’s main statutory responsibilities include providing technical assistance to local mental health agencies, evaluating local and statewide projects and programs supported by MHSA funds, and approving local mental health agencies’ use of Innovation funds. Innovation is the only MHSA program that specifically requires state approval before the local mental health agencies can spend these funds. The Oversight Commission also oversees the triage grant program, which helps recipient local mental health agencies expand the number of mental health personnel available at various points of access throughout the community, such as emergency rooms, jails, homeless shelters, and clinics. The Oversight Commission also advises the Governor and the Legislature on mental health policy.

The MHSA provides the State with up to 5 percent of all MHSA annual revenues to cover its administrative costs, including costs associated with evaluating the local mental health agencies’ use of MHSA funds. Table 2 lists the state entities that received MHSA administrative funds in fiscal year 2015–16 and the purpose of the funding. Since fiscal year 2012–13, Health Care Services has annually spent between $7.9 million and $8.6 million to implement its oversight responsibility.3 Specifically, in fiscal year 2015–16, Health Care Services spent $7.9 million for staff salaries, contracts, and operating expenses. The Oversight Commission spent $38 million in fiscal year 2015–16, including $31 million for the triage grant program and the remaining $7 million for staff salaries, contracts, and operating expenses. Health Care Services and the Oversight Commission had the equivalent of 13.4 and 26.6 full‑time staff positions, respectively, in fiscal year 2015–16.

Table 2
MHSA Funding Actuals for State Administration, by State Agency
Fiscal Year 2015–16
Oversight Commission $38,049,000 To oversee MHSA-funded projects, among other responsibilities. Since 2013 the Oversight Commission received $32 million annually from its appropriation to provide triage grants to local mental health agencies to expand the number of crisis intervention personnel available throughout the community.
Office of Statewide Health
  Planning and Development
15,501,000 To administer statewide Workforce Training funds and develop mental health programs that support qualified medical services personnel serving individuals with mental illnesses.
Health Care Services 8,415,000 To provide fiscal and program oversight of local mental health agencies.
California Department of
  Public Health
5,097,000 To oversee the California Reducing Disparities Project to improve access and to better provide services to underserved populations.
University of California 3,564,000 To support funding for research centers at the Davis and Los Angeles campuses of the University of California. This grant funding allows researchers to explore areas such as the delivery of behavioral health care, the economics of prevention, and the better integration of medical and mental health services into clinical settings.
California Military Department 1,467,000 To support an outreach program to improve coordination of care between the California National Guard, County Veteran Service Officers, county mental health departments, and other public and private support agencies.
Judicial Branch of California 1,070,000 To address the increased workload relating to mental health issues in the area of prevention and early intervention for juveniles with mental illness who are in the juvenile court system or at risk for involvement in the system.
Department of
  Developmental Services
482,000 To oversee funding for regional-based mental health services for those with developmental disabilities and co-occurring mental health diagnoses.
California Department of
  Veterans Affairs
236,000 To support statewide administration to inform veterans and their family members about federal benefits, local mental health agencies, and other services.
Financial Information System
  for California (FI$Cal)
188,000 To support the development of the State’s new financial management system.
California Department
  of Education
129,000 To support student mental health needs throughout the State.
Board of Governors of the
  California Community Colleges
85,000 To assist in developing policies and practices that address the mental health needs of California’s community college students.
Total $74,283,000  

Sources: Fiscal year 2017–18 California State Budget and Health Care Services’ Mental Health Services Act Expenditure Report for Fiscal Year 2017–18.

Prior Audits

In our August 2013 audit report titled Mental Health Services Act: The State’s Oversight Has Provided Little Assurance of the Act’s Effectiveness, and Some Counties Can Improve Measurements of Their Program Performance, Report 2012‑122, we determined that Mental Health and the Oversight Commission had provided little oversight of local mental health agencies’ implementation of MHSA programs. As we describe above, Health Care Services received most of Mental Health’s MHSA oversight responsibility in 2012. In our September 2013 High Risk report, we designated Health Care Services as a high‑risk agency because of its new responsibilities under the MHSA. Subsequently, in a March 2015 letter report, we continued to designate Health Care Services as high risk, in part because it had not fully implemented nine of the 12 recommendations from our August 2013 audit.

As of August 2017, Health Care Services had still not fully implemented seven recommendations from our August 2013 audit report. These recommendations include conducting comprehensive on‑site reviews of county MHSA‑funded projects, coordinating with the Oversight Commission to issue necessary guidance or regulations to ensure that local mental health agencies effectively implement and evaluate their MHSA projects, collecting complete and relevant MHSA data from local mental health agencies for evaluation, and providing technical assistance to local mental health agencies on the MHSA local planning review process. We discuss later in this report Health Care Services’ lack of progress in conducting fiscal and program reviews and providing guidance regarding MHSA requirements, such as maintaining a prudent reserve. In response to our 2013 recommendations, Health Care Services has stated that it is working to improve its data collection so that it will have accurate and complete data to track project outcomes and that it will complete this project by early 2019. In addition, Health Care Services has stated that it is planning to provide training and technical assistance to the local mental health agencies regarding stakeholder regulations through a vendor contract.


1 The 59 local mental health agencies consist of the city of Berkeley, Tri‑City Mental Health Services (a joint powers authority that the cities of Claremont, La Verne, and Pomona adopted), Sutter‑Yuba Behavioral Services (a joint powers authority that the counties of Sutter and Yuba adopted), and agencies representing the remaining 56 California counties. Go back to text

2 In 2017 state law was amended to extend the time frame to spend Community Support, Prevention, and Innovation program funds from three years to five years for local mental health agencies that serve populations of less than 200,000. Go back to text

3 In fiscal year 2011–12, prior to assuming Mental Health's oversight responsibilities, Health Care Services spent $452,000 for its MHSA state operations. Go back to text

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