Existing law, the Lanterman Developmental Disabilities Services Act, requires the State Department of Developmental Services to contract with regional centers to provide services and supports to individuals with developmental disabilities. Existing law sets forth the departments and the regional centers authority to establish provider rates. Existing law prohibits certain provider rate increases, but authorizes increases to those rates as necessary to adjust employee wages to meet the state minimum wage law.

The bill would require the department to increase the funding provided to a regional center to enable the regional center and the regional centers purchase-of-service vendors to fund certain costs related to minimum wage requirements.

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 499 (Stone) - Developmental services: regional centers

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SB 499 would require the Department of Developmental Services to increase funding to regional centers to fund costs associated with state minimum wage increases, local minimum wage increases, and other wage costs associated with the minimum wage.

Fiscal Impact:

• Statewide minimum wage increases. Over the next several years, the state minimum wage will increase from $10.50 per hour to $15.00 per hour. Based on the currently budgeted amount for the initial rise in the minimum wage, the additional annual cost would be about $42 million per year in 2011 and would increase by an additional $82 million per year each year thereafter until 2023 (General Fund and federal funds).
• Local minimum wage increases. Estimated annual costs of $30 - $40 million per year to comply with existing local minimum wage levels that exceed the current state minimum wage (General Fund). It is important to note that as the state minimum wage increases, local governments may or may not further increase their minimum wage. Therefore, in the future this cost could be subsumed by the cost of statewide minimum wage increases.
• Increased exempt employee compensation. Estimated annual costs of $17 – $84 million per year to provide additional funding to increase compensation to exempt employees (General Fund and federal funds). The wide range of this estimate reflects the uncertainty about the number of exempt employees employed by regional center vendors and their current salary levels. Under current law, certain employees are exempt from overtime and other requirements if they perform managerial tasks. In order to qualify for this exemption, those employees must earn a salary equivalent to two times the minimum wage.

Background:

California provides community-based services to approximately 250,000 persons with developmental disabilities and their families through a statewide system of 21 regional centers. Regional centers are private, nonprofit agencies under contract with the Department of Developmental Services for the provision of various services and supports to people with developmental disabilities. As a single point of entry, regional centers provide diagnostic and assessment services to determine eligibility; convene planning teams to develop an Individual Program Plan for each eligible consumer; and either provide or obtain from generic agencies appropriate services for each consumer in accordance with the Individual Program Plan.

In recent years, a variety of rate freezes and rate reductions were imposed on the regional center system to help balance the state budget. Generally, funding for the regional centers and rates paid to regional center vendors have not automatically increased with cost of living expenses or increased state or local minimum wage requirements. However, the 2016-17 Budget Act did provide $22 million in additional funding to pay for the increased wage cost of the statewide minimum wage increase that took place in January 2017.

AB X2 1 (Thurmond, Statutes of 2016) appropriated $287 million from the General Fund for rate increases for the regional center system. That bill also requires the Department of Developmental Services to conduct a rate study, to assist the administration and the Legislature in determining the appropriate process for setting rates in the regional center system.

Under current law, the statewide minimum wage (for employers with more than 25 employees) increased to $10.50 per hour on January 1, 2017. It will increase to $11.00 per hour on January 1, 2018 and will increase by $1.00 per hour every year thereafter, until it reaches $15.00 per hour in 2022. After January 1, 2022, the minimum wage will be indexed to inflation. The minimum wage for employers with fewer than 25 employees will also increase, but with a one-year lag in the increases.

Under current regulation, certain employees are exempt from overtime pay, generally employees with managerial responsibilities. In order to be exempt from overtime pay requirements, exempt employees must earn a salary equivalent to twice the state minimum wage.

Proposed Law:

SB 499 would require the Department of Developmental Services to increase funding to regional centers to fund costs associated with minimum wage increases.

Specific provisions of the bill would require the Department to increase funding to regional centers to fund the costs of:

• Compliance with a statewide minimum wage requirement;
• Compliance with local minimum wage requirements that exceed the statewide requirement;
• Increased compensation for exempt salaried employees to comply with wage orders;
• Any other wage adjustments necessary for other minimum wage increases.

Related Legislation:

• AB 279 (Holden) would provide the Department and regional centers with the authority to adjust vendor rates to adjust for local minimum wages that exceed the statewide minimum wage. That bill is on the Assembly Appropriations Committee’s Suspense File.
• SB 638 (Stone) would have increased specified rates paid to regional center vendors and increased other funding amounts for regional centers. That bill was held on this committee’s Suspense File.

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SENATE COMMITTEE ON HUMAN SERVICES

Senator Wiener, Chair

2017 - 2018 Regular

Bill No: SB 499

Subject: Developmental services: regional centers

SUMMARY

The bill requires the Department of Developmental Services (DDS) to increase funding provided to a regional center to enable the regional center and the regional center’s purchase-of-service vendors to fund certain costs related to minimum wage requirements, including local minimum wage mandates.

ABSTRACT

Existing law:

1. Establishes the Lanterman Developmental Disabilities Services Act, which states that California is responsible for providing an array of services and supports sufficiently complete to meet the needs and choices of each person with developmental disabilities, regardless of age or degree of disability, and at each stage of life, and to support their integration into the mainstream life of the community. (WIC 4500, et seq.)
2. Defines a “developmental disability” to mean a disability that originates before an individual attains 18 years of age which continues, or can be expected to continue, indefinitely and constitutes a substantial disability for that individual, including intellectual disability, cerebral palsy, epilepsy, and autism and related conditions, but excluding other handicapping conditions that are solely physical in nature. (WIC 4512)
3. Establishes a system of nonprofit Regional Centers, overseen by the Department of Developmental Services (DDS), to provide fixed points of contact in the community for all persons with developmental disabilities and their families, to coordinate services and supports best suited to them throughout their lifetime. (WIC 4620)
4. Requires DDS to establish, maintain, and revise, as necessary, an equitable process for setting rates of state payment for nonresidential services purchased by regional centers, as specified, in order to assure that regional centers may secure high-quality services for developmentally disabled persons from individuals or agencies vendored to provide these services. (WIC 4690)
5. Requires DDS to establish a rate structure and makes statutory adjustments to that structure for specified programs, including in-home respite services and community-based day programs, and mandates rate increases for other specified services including out-of-home respite. (WIC 4690.2, et seq.)
6. Establishes that a negotiated rate for Regional Center service providers may not be higher than the rate in effect on June 30, 2008, unless the increase is required by a contract between the regional center and the vendor that is in effect on June 30, 2008, or the regional center demonstrates that the approval is necessary to protect the consumer’s health or safety, and the department has granted prior written authorization. (WIC 4691.9)
7. Mandates increased rates in various service categories to make salary adjustments necessary to comply with state minimum wage adjustments, as specified. (WIC 4691.6, et seq.)

This bill:

1. Adds a new section to the Lanterman Act, WIC 4794, which requires DDS to increase the funding provided to a regional center to enable the regional center and regional center’s purchase-of-service vendors to fund all of the following costs associated with minimum wage requirements:
   1. The costs necessary to comply with a statewide minimum wage requirement.
   2. The costs necessary to comply with minimum wage requirements enacted by local governments that exceed the statewide minimum wage.
   3. The costs necessary to increase compensation for exempt, salaried employees to comply with wage orders issued by the Industrial Welfare Commission or any other state regulatory agency.
   4. Any other wage adjustments that vendors are required to make in response to minimum wage increases mandated by state or federal statutes, regulations, or other authorities.

FISCAL IMPACT

This bill has not been analyzed by a fiscal committee.

BACKGROUND AND DISCUSSION

Purpose of the bill:

According to the author, the vision of the Lanterman Act to create fulfilling lives for individuals with developmental disabilities who live in their communities is now threatened. “Neglect of the community service system in the past decade has shut down some small businesses and non-profits that serve developmentally disabled individuals,” the author states. He cites budget actions in recent years that reduced or froze reimbursement levels for service providers.

Background

Approximately 300,000 children and adults with developmental disabilities receive services under the state’s Lanterman Developmental Disabilities Act, which established the right of individuals with developmental disabilities and their families to receive the services and supports necessary in order to live independently in the community. DDS is responsible for overseeing provision of care and allocating funds, however direct coordination of services is the responsibility of 21 nonprofit regional centers located throughout the state. DDS is in the process of shutting down its remaining three large institutions, which had a combined population of approximately 800 consumers as of April 19, 2017.

The Lanterman Act defines a developmental disability as a condition that originates before age 18, can be expected to continue indefinitely, and constitutes a substantial impairment in three or more areas of life activity. These may include intellectual disability, Autism Spectrum Disorders, epilepsy, cerebral palsy and other related conditions.

Regional Center system

California’s 21 nonprofit regional centers provide case management and case coordination for individuals within their catchment areas. Rates for services are set by regional centers in one of four ways:

• The Alternative Rate Model established funding for residential programs based on services provided and the number of direct-care hours provided to consumers in the facility.
• Non-Negotiated Rates for community-based programs are rates set based on a cost statement indicating initial program costs for day programs, independent living services, in-home respite agencies and others.
• Statutorily set rates are established for supported employment providers and are mirrored in service rates for providers retained by the Department of Rehabilitation for DDS consumers in similar programs.
• Negotiated rates once were used by service providers who submitted cost data to the regional center; however the ability of regional centers to negotiate rates was essentially eliminated during the Great Recession when DDS instead established a statewide median rate, which cannot be exceeded.

Additionally, regional centers may purchase services that are paid for under Medi-Cal rate structures or using “usual and customary rates,” which essentially are market rates for services available to the public. There are more than 150 service billing codes used by Regional Centers to establish contracts for services to vendors.

Beginning in 2007-2008 and extending through the Great Recession, California enacted a number of cost-savings measures intended to keep programs in place without undermining the fundamental promise to services under the Lanterman Act. In January 2014, the Association of Regional Center Agencies (ARCA) issued a report, “Inadequate Rates for Service Provision in California,” outlining the impact of years of freezes and cutbacks.

Rates for most community providers had been frozen since 2007-08, and generally had been increased only sporadically prior to that. Some rates were frozen prior to that, including supported living, socialization, and other services in 2003. Additionally, temporary rate reductions of up to 4.25 percent were enacted for most providers between 2009 and 2013. The ARCA report also identifies a series of unfunded mandates to providers in recent years, including a 15 percent administrative cost cap, independent audit or review requirements and a lack of compensation for wage changes in exempt employees.

In February 2015, ARCA issued another report, “On the Brink of Collapse: The Consequences of Underfunding California’s Developmental Services System,”^[1] which identified the closure of 435 licensed residential homes since the beginning of 2011-12, resulting in a loss of almost 2,300 available beds. The report said that less than 10 percent of the beds lost were in negotiated rate facilities, which have higher rates than others. In that same period, according to the report, 57 day and work programs have closed, reducing slots available for that service by 1,200. The job slots included individuals who are no longer participating in paid employment. The report drew a link between inadequate rates and provider closures, however it is unclear what other factors may have played a role in these businesses’ closures.

Extraordinary session

Responding to concerns from parents, providers and Regional Centers, the Governor and Legislature in 2016 made substantial rate increases to the regional center system with its 2^nd Extraordinary Session health care and developmental services package.

The package, which was substantially focused on enacting a managed care organization tax to provide funding for the Medi-Cal system, also provided approximately 10 percent in overall increases to regional centers and their providers. AB 2X1 (Thurmond, Chapter 3, Statutes of 2016) provided a 7.5 percent rate increase to enhance wages and benefits for staff who spend a minimum of 75 percent of their time providing direct services to consumers, a 5 percent increase to supportive and independent living service providers, transportation services and for in- and out-of-home respite services. The bill required an 11.1 percent increase in statutorily set wages for the supported employment program, restoring the wage level that was in effect in 2006, and made other changes, including targeted funding to reduce disparities in provision of services statewide.

Rate restructuring

In addition to rate increases, AB 2 X 1 requires DDS to undergo a rate study in an attempt to right-size the provider rate structure. The study must address the sustainability, quality, and transparency of community-based services for individuals with developmental disabilities. It must be submitted to the Legislature by March 1, 2019.

State minimum wage compensation

SB 3 (Leno, Chapter 4, Statutes of 2016) established incremental increases in California’s minimum wage based on a business’s size through 2023. For businesses with 26 or more employees, the minimum wage increased to $10.50 per hour in 2017, will increase to $11 per hour in 2018, and will continue to increase one dollar for every year thereafter until $15 per hour is reached in 2022. For businesses with 25 or fewer employees, increases are delayed by one year, so the minimum wage will not reach $15 per hour for smaller businesses until 2023.

Under federal law, local entities may enact local minimum wage ordinances to address higher costs of living in certain areas. A number of California municipalities have done this, including San Francisco, where a minimum wage ordinance required employees be paid at least $13.00 per hour as of July 1, 2016. The state’s minimum wage was $10 per hour at that time. The city of San Jose and county of Los Angeles intend to raise the local minimum wage to $12 per hour on July 1, 2017, at a time when the state minimum wage, which will be $10.50 per hour.

DDS estimates that there are 13 local minimum wage ordinances that would be higher than the state’s requirement. While DDS has adjusted rates to comply with state minimum wage requirements, the state will not compensate employers for additional pay required by local minimum wage ordinances.

Wage orders

The state Industrial Relations Commission sets wage orders to ensure fairness in compensation for various professions. Among those orders is the option for employers to create exempt status from overtime pay for employees that perform specialized, largely managerial tasks. One requirement of the exemption is that exempt employees earn a monthly salary equivalent to no less than two times the state minimum wage for full-time employment, as defined.

Although regional centers and providers have asked that this compensation be passed through to employers via increased rates for care, DDS has said it will not alter rates to cover the cost of higher exempt employee compensation. DDS does not have an estimate of how many employees may be in exempt positions, but providers say it is a significant number.

Related legislation:

AB 279 (Holden, 2017) provides DDS and regional centers with the statutory authority to adjust rates for providers who operate in regions where the local minimum wage is higher than the minimum wage provided for in state law.

AB2x1 (Thurmond, Chapter 3, Statutes of 2016) appropriated $287 million General Fund for increases to regional centers and community service providers in 2016-17, imposed reporting requirements to ensure proper allocation of funds and program accountability, and mandated DDS complete a rate study, among other statutory changes.

SB 3 (Leno, Chapter 4, Statutes of 2016) increases the state minimum wage each year to $15 by 2022 for employers with 25 or more employees and by 2023 for employers with 25 or fewer employees.

SB 638 (Stone, 2015) would have increased specific rates to service providers, authorized specific administrative costs, and increased funding to regional centers for staffing. SB 638 was held in the Senate Appropriations Committee.

COMMENTS

This bill seeks to remedy a situation that regional center vendors have been raising with DDS for the past several years. If services are provided in a location where a local minimum wage is higher than the state’s, the rate for that provider does not recognize a higher minimum wage. When an employee is placed into an exempt status – which requires a wage at least twice the minimum wage – the rate for that employee’s job no longer takes into consideration minimum wage increases by the state or local municipalities.

However, the bill is very broadly written, granting rate increases to all providers in cases of local minimum wage increases. Some providers are not subject to rate setting by the Regional Center, such as those working under Medi-Cal rates and providers using usual and customary rates. Should this bill move from the Human Services Committee, the author may wish to specify which providers are to receive wage increases and how those increases are to be provided by the state. Statutory authority for statewide minimum wage increases and for the increases related to the 2^nd Extraordinary Session package included specific language providing increases to identified categories of services.

Similarly, the author may want to clarify how the exempt employee rates are to be identified, authorized and how those increases are applied to the provider. This bill allows adjustments for exempt employees to accommodate the Industrial Welfare Commission’s wage order, “or any other regulatory agency,” which may be too broad to easily implement. Staff recommends the author clarify these specific increases.

POSITIONS

Support:

The Association of Regional Center Agencies

Oppose:

None.

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1. http://arcanet.org/wp-content/uploads/2015/02/on-the-brink-of-collapse.pdf ↑