Skip Repetitive Navigation Links
California State Auditor Logo COMMITMENT • INTEGRITY • LEADERSHIP

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

Report Number: 2017-117



Summary

Providing effective services and treatment for those who suffer from mental illness or who are at risk of mental illness is an issue of statewide and national importance. 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 are at risk of mental illness. The MHSA imposes a 1 percent income tax on individuals earning more than $1 million a year in order to expand existing mental health programs and services, address the stigma and discrimination associated with seeking mental health services, and implement innovative programs that increase the quality of mental health services and improve access to underserved groups. For fiscal year 2015–16, the MHSA generated $1.5 billion, which the State distributed primarily to the 59 county and local mental health agencies (local mental health agencies). For this audit, we evaluated the effectiveness of two state entities, the Department of Health Care Services (Health Care Services) and the Mental Health Services Oversight and Accountability Commission (Oversight Commission), in providing oversight of MHSA funding. We also visited three local mental health agencies—Alameda, Riverside, and San Diego counties—to assess their monitoring of the projects that they support with MHSA funding. This report draws the following conclusions:


Health Care Services’ Ineffective Oversight of Local Mental Health Agencies and the Mental Health Services Fund Allowed Hundreds of Millions of Dollars to Remain Unspent

Despite having significant responsibility for the MHSA program since 2012, Health Care Services has not developed a process—known as reversion—to recover unspent MHSA funds from local mental health agencies after the statutory time frames for spending the funds have elapsed. As a result, the local mental health agencies have had less incentive to spend MHSA funds in a timely manner and had amassed unspent funds of $231 million—not including reserves—as of the end of fiscal year 2015–16 that they should have reverted to the State for it to reallocate to other local mental health agencies. However, the Legislature enacted a one‑time change in state law in 2017 that allowed local mental health agencies to retain all funds that were subject to reversion as of July 1, 2017. Nevertheless, this one‑time allowance does not resolve the larger issue that Health Care Services has been slow in implementing a process to revert unspent MHSA funds.

In addition, in the absence of Health Care Services’ guidance, local mental health agencies have been inconsistent in how they treat the interest they have earned on MHSA funds. As a result, the local mental health agencies had accumulated a total of $81 million in unspent MHSA interest through fiscal year 2015–16. Further, Health Care Services has not established a process for overseeing the sufficiency of local mental health agencies’ MHSA fund reserves, which totaled $535 million as of the end of fiscal year 2015–16. As a result of the absence of Health Care Services’ oversight, we estimate that local mental health agencies held between $157 million and $274 million in excessive reserves as of the end of fiscal year 2015–16. Finally, until our inquiry, Health Care Services had not questioned the reason for a $225 million fund balance in the Mental Health Services Fund (MHS Fund) and whether the amount represented funds due to local mental health agencies or was a long‑standing accounting error. As a result of our inquiry, Health Care Services is working with the State Controller's Office to resolve this issue.


Health Care Services Has Provided Only Minimal Oversight of the MHSA Funds That Local Mental Health Agencies Received

Health Care Services has made only minimal efforts to ensure that local mental health agencies submit their annual revenue and expenditure reports (annual reports) on MHSA funding on time. As a result, most local mental health agencies have failed to submit their annual reports in a timely manner; in fact, only one of the 59 local mental health agencies submitted its fiscal year 2015–16 annual report by the regulatory deadline. These late annual reports have significantly hampered Health Care Services’ ability to calculate MHSA reversion amounts and to properly oversee local mental health agencies’ MHSA spending. In addition, Health Care Services has been slow to implement MHSA fiscal and program oversight of local mental health agencies. Although Health Care Services developed an MHSA fiscal audit process in 2014, it has focused its audits on data and processes that are at least seven years old, and it has not developed regulations it believes are necessary to allow local mental health agencies to appeal findings. In addition, Health Care Services has not implemented a program review process to ensure MHSA projects that local mental health agencies operate comply with program requirements contained in state laws and regulations.


The Oversight Commission Is Implementing Processes to Evaluate the Effectiveness of MHSA‑Funded Programs

The Oversight Commission is undertaking efforts to provide technical assistance and improve dialogue with the local mental health agencies regarding its process for approving MHSA funds intended for innovative projects that address individuals’ mental health needs. One of the Oversight Commission’s responsibilities is approving local mental health agencies’ plans for developing such projects. However, the absence of clear guidance and understanding of the approval process may have contributed to the local mental health agencies’ failure to spend funds in a timely manner. As of the end of fiscal year 2015–16, $146 million of the $231 million in MHSA funds subject to reversion were intended for innovative projects. In addition, to promote accountability and oversight for certain MHSA programs, the Oversight Commission requires local mental health agencies to submit reports on an annual basis that describe the outcomes and progress of these programs, the first of which were due in December 2017. However, the Oversight Commission has not completed an internal process to review and analyze these reports. The Oversight Commission is also required to evaluate the effectiveness of grants to local mental health agencies to provide services to individuals with mental illnesses who require crisis intervention, yet it has not developed metrics to assess the outcomes of these grants on a statewide level.



Finally, our review of three local mental health agencies determined that their allocation of MHSA funds was consistent with MHSA planning requirements and that they generally monitored their MHSA‑funded projects effectively.


Summary of Recommendations

Health Care Services

To ensure that local mental health agencies spend MHSA funds in a timely manner, Health Care Services should implement a fiscal reversion process to reallocate to other local mental health agencies any MHSA funds that are unspent within the statutory reversion time frames. In addition, Health Care Services should clarify that the interest that local mental health agencies earn on unspent MHSA funds is also subject to reversion requirements and should establish an MHSA reserve level that is sufficient but not excessive.

Health Care Services should analyze the $225 million fund balance in the MHS Fund by May 1, 2018, to determine why it existed and, if there is any impact on funding to the local mental health agencies, distribute those funds accordingly. It should also regularly scrutinize the MHS Fund to identify excess fund balances and the reasons for such balances.

To ensure that the State provides effective oversight of local mental health agencies’ spending of MHSA funds, Health Care Services should implement MHSA fiscal and program oversight of local mental health agencies.

Oversight Commission

To ensure that local mental health agencies are able to spend funds intended for innovative projects in a timely manner, the Oversight Commission should continue its engagement and dialogue with local mental health agencies about the types of innovative approaches that would meet the requirements of the MHSA.

To ensure that it provides proper oversight and evaluation of the programs for which it is responsible, the Oversight Commission should complete its internal processes for reviewing and analyzing program status reports no later than July 2018.

To ensure that the MHSA grants for providing services to individuals with mental illnesses who require crisis intervention are an effective use of MHSA funds, the Oversight Commission should establish statewide outcome metrics for these grants no later than July 2018.

Agency Comments

The Oversight Commission and Alameda County agreed with our report's conclusions and indicated that they would implement our recommendations. Although Health Care Services generally agreed with our conclusions and recommendations, it disagreed with our recommendation to focus the timing of its MHSA fiscal audits on a more current period. Health Care Services also disagreed with our report text in several places and offered suggested changes. Finally, after initially stating that it would submit by June 2018 and September 2018 draft regulations it feels are necessary to implement elements of its MHSA responsibilities, Health Care Services pushed back these timelines in its response to January 2019 and Spring 2019, respectively.



Back to top