Existing law, the Mental Health Services Act (MHSA), an initiative measure enacted by the voters as Proposition 63 at the November 2, 2004, statewide general election, establishes the continuously appropriated Mental Health Services Fund to fund various county mental health programs and establishes the Mental Health Services Oversight and Accountability Commission to oversee those programs. Existing law requires the State Department of Health Care Services, in consultation with the commission and the County Behavioral Health Directors Association of California, to develop and administer instructions for the Annual Mental Health Services Act Revenue and Expenditure Report, which gathers specified information on mental health spending as a result of the MHSA, including the expenditures of funds distributed to each county. Existing law requires counties to electronically submit the report to the department and the commission. Existing law authorizes the Legislature to add provisions to clarify procedures and terms of the MHSA by majority vote.

This bill would additionally require counties to adhere to uniform accounting standards and procedures prescribed by the Controller, as specified, in preparing the reports, with the exception of expenditures or receipts related to capital facilities and technology needs. The bill would instead require those receipts and expenditures to be reported using the cash basis of accounting. By imposing a higher level of service on counties, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law, the Mental Health Services Act (MHSA), an initiative measure enacted by the voters as Proposition 63 at the November 2, 2004, statewide general election, establishes the continuously appropriated Mental Health Services Fund to fund various county mental health programs and establishes the Mental Health Services Oversight and Accountability Commission to oversee those programs. Existing law requires the State Department of Health Care Services, in consultation with the commission and the County Behavioral Health Directors Association of California, to develop and administer instructions for the Annual Mental Health Services Act Revenue and Expenditure Report, which gathers specified information on mental health spending as a result of the MHSA, including the expenditures of funds distributed to each county. Existing law requires counties to electronically submit the report to the department and the commission. Existing law authorizes the Legislature to add provisions to clarify procedures and terms of the MHSA by majority vote.

This bill would additionally require counties to adhere to uniform accounting standards and procedures prescribed by the Controller, as specified, in preparing the reports, with the exception of expenditures or receipts related to capital facilities and technology needs. The bill would instead require those receipts and expenditures to be reported using the cash basis of accounting. By imposing a higher level of service on counties, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law, the Mental Health Services Act (MHSA), an initiative measure enacted by the voters as Proposition 63 at the November 2, 2004, statewide general election, establishes the continuously appropriated Mental Health Services Fund to fund various county mental health programs and establishes the Mental Health Services Oversight and Accountability Commission to oversee those programs. Existing law requires the State Department of Health Care Services, in consultation with the commission and the County Behavioral Health Directors Association of California, to develop and administer instructions for the Annual Mental Health Services Act Revenue and Expenditure Report, which gathers specified information on mental health spending as a result of the MHSA, including the expenditures of funds distributed to each county. Existing law requires counties to electronically submit the report to the department and the commission. Existing law authorizes the Legislature to add provisions to clarify procedures and terms of the MHSA by majority vote.

This bill would additionally require counties to adhere to uniform accounting standards and procedures prescribed by the Controller, as specified, in preparing the reports, with the exception of expenditures or receipts related to capital facilities and technology needs. The bill would instead require those receipts and expenditures to be reported using the cash basis of accounting. By imposing a higher level of service on counties, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law, the Mental Health Services Act (MHSA), an initiative measure enacted by the voters as Proposition 63 at the November 2, 2004, statewide general election, establishes the continuously appropriated Mental Health Services Fund to fund various county mental health programs and establishes the Mental Health Services Oversight and Accountability Commission to oversee those programs. Existing law requires the State Department of Health Care Services, in consultation with the commission and the County Behavioral Health Directors Association of California, to develop and administer instructions for the Annual Mental Health Services Act Revenue and Expenditure Report, which gathers specified information on mental health spending as a result of the MHSA, including the expenditures of funds distributed to each county. Existing law requires counties to electronically submit the report to the department and the commission. Existing law authorizes the Legislature to add provisions to clarify procedures and terms of the MHSA by majority vote.

This bill would additionally require counties to prepare the reports in accordance with generally accepted accounting principles, as specified. to adhere to uniform accounting standards and procedures prescribed by the Controller, as specified, in preparing the reports, with the exception of expenditures or receipts related to capital facilities and technology needs. The bill would instead require those receipts and expenditures to be reported using the cash basis of accounting. By imposing a higher level of service on counties, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law, the Mental Health Services Act (MHSA), an initiative measure enacted by the voters as Proposition 63 at the November 2, 2004, statewide general election, establishes the continuously appropriated Mental Health Services Fund to fund various county mental health programs and establishes the Mental Health Services Oversight and Accountability Commission to oversee those programs. Existing law requires the State Department of Health Care Services, in consultation with the commission and the County Behavioral Health Directors Association of California, to develop and administer instructions for the Annual Mental Health Services Act Revenue and Expenditure Report, which gathers specified information on mental health spending as a result of the MHSA, including the expenditures of funds distributed to each county. Existing law requires counties to electronically submit the report to the department and the commission. Existing law authorizes the Legislature to add provisions to clarify procedures and terms of the MHSA by majority vote.

This bill would additionally require counties to prepare the reports in accordance with generally accepted accounting principles and to electronically submit the report in a machine-readable format. principles, as specified. By imposing a higher level of service on counties, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Existing law, the Mental Health Services Act (MHSA), an initiative measure enacted by the voters as Proposition 63 at the November 2, 2004, statewide general election, establishes the continuously appropriated Mental Health Services Fund to fund various county mental health programs. Existing law requires the State Department of Health Care Services to, among other things, implement specified mental health services through contracts with county mental health programs or counties acting jointly. programs and establishes the Mental Health Services Oversight and Accountability Commission to oversee those programs. Existing law requires the State Department of Health Care Services, in consultation with the commission and the County Behavioral Health Directors Association of California, to develop and administer instructions for the Annual Mental Health Services Act Revenue and Expenditure Report, which gathers specified information on mental health spending as a result of the MHSA, including the expenditures of funds distributed to each county. Existing law requires counties to electronically submit the report to the department and the commission. Existing law authorizes the Legislature to add provisions to clarify procedures and terms of the MHSA by majority vote.

Existing law, the Mental Health Services Act (MHSA), an initiative measure enacted by the voters as Proposition 63 at the November 2, 2004, statewide general election, establishes the continuously appropriated Mental Health Services Fund to fund various county mental health programs. Existing law requires the State Department of Health Care Services to, among other things, implement specified mental health services through contracts with county mental health programs or counties acting jointly.

Existing law requires, prior to making allocations to specified programs and services, that funds be reserved for administrative costs for the department, among other specified entities, to implement duties pursuant to programs under the act, as specified. Existing law prohibits those costs from exceeding 5% of the total of annual revenues received for the Mental Health Services Fund. Existing law makes those administrative funds subject to appropriation in the annual Budget Act.

Existing law requires the amounts allocated for administration to include amounts sufficient to ensure adequate research and evaluation regarding the effectiveness of services being provided and achievement of the outcome measures set forth in specified provisions.

This bill would amend the act by requiring the amounts allocated for administration to include amounts sufficient for the department to establish a contract and an interagency data sharing agreement with the University of California to ensure adequate research and evaluation as described above. The bill would state the intent of the Legislature that the department model this research and this evaluation on the California Child Welfare Indicators Project, as defined. The bill would make these provisions apply to the university only to the extent that the Regents of the University of California, by resolution, make any of these provisions applicable to the university.

Existing law authorizes the act to be amended by a ²/₃ vote of the Legislature if the amendments are consistent with, and further the intent of, the act. Existing law authorizes the Legislature to add provisions to clarify procedures and terms of the act by majority vote.

By amending the provisions of the act, this bill would require a ²/₃ vote of the Legislature.

 UNFINISHED BUSINESS  

Bill No: SB 688

Author:

:

Vote:

SENATE HEALTH COMMITTEE: 8-0, 1/10/18

AYES: Hernandez, Nguyen, Mitchell, Monning, Newman, Nielsen, Pan, Roth

NO VOTE RECORDED: Leyva

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SENATE FLOOR: 39-0, 1/29/18

AYES: Allen, Anderson, Atkins, Bates, Beall, Berryhill, Bradford, Cannella, De León, Dodd, Fuller, Gaines, Galgiani, Glazer, Hernandez, Hertzberg, Hill, Hueso, Jackson, Lara, Leyva, McGuire, Mitchell, Monning, Moorlach, Morrell, Newman, Nguyen, Nielsen, Pan, Portantino, Roth, Skinner, Stern, Stone, Vidak, Wieckowski, Wiener, Wilk

NO VOTE RECORDED: Mendoza

ASSEMBLY FLOOR: 76-0, 8/16/18 - See last page for vote

SUBJECT:

SOURCE: County Behavioral Health Directors Association of California

DIGEST:

This bill requires each county to prepare its Annual Mental Health Services Act (MHSA) Revenue and Expenditure Report in accordance with generally accepted accounting principles (GAAP), as specified, and requires specified entities to post county reports in a machine-readable format on their respective Internet Web sites.

Assembly Amendments specify that counties are required to use the cash basis of accounting for reporting receipts and expenditures related to MHSA capital facilities and technology needs.

ANALYSIS:

Existing law:

1. Establishes the Mental Health Services Oversight and Accountability Commission (MHSOAC) to oversee the implementation of the MHSA, enacted by voters in 2004 as Proposition 63, to provide funds to counties to expand services, develop innovative programs, and integrate service plans for mentally ill children, adults, and seniors through a 1% income tax on personal income above $1 million. [WIC §5845]
2. Requires the Department of Health Care Services (DHCS), in consultation with the MHSOAC and the County Behavioral Health Directors Association of California (CBHDAC), to develop and administer instructions for the Annual MHSA Revenue and Expenditure Report (ARER), as specified. [WIC §5899]
3. Requires counties to submit ARERs electronically to DHCS and the MHSOAC, and for DHCS and the MHSOAC to post each county’s ARER on their respective Internet Web sites in a timely manner. [WIC §5899]

This bill:

1. Requires each county, except as specified, to prepare its ARER in accordance with GAAP.
2. Requires counties to report receipts and expenditures related to MHSA capital facilities and technology needs using the cash basis of accounting, which recognizes expenditures at the time payment is made, rather than GAAP.
3. Requires DHCS and the MHSOAC to post each county’s ARER in a text-searchable format on their respective Internet Web sites.

Background

1. MHSA. The MHSA requires each county mental health department to prepare and submit a three-year plan to DHCS that must be updated each year and approved by DHCS after review and comment by the MHSOAC. Some counties make ARERs available to the public on their own Web sites while others do not. In their three-year plans, counties are required to include a list of all programs for which MHSA funding is being requested and identify how the funds will be spent and what populations will be served. Counties must submit their plans for approval to the MHSOAC before they may spend MHSA funds for innovative projects.

Additionally, counties are annually required to submit electronically ARERs to DHCS and the MHSOAC. The purpose of the ARERs is to identify the expenditures of MHSA funds that were distributed to each county, quantify the amount of additional funds generated for the mental health system as a result of the MHSA, identify unexpended funds and interest earned on MHSA funds, and determine reversion amounts, if applicable, from prior fiscal year distributions. An ARER is intended to provide information that allows for the evaluation of all of the following:

1. Children’s system of care;
2. Prevention and early intervention strategies;
3. Innovative projects;
4. Workforce education and training;
5. Adults and older adults systems of care; and,
6. Capital facilities and technology needs.
7. GAAP. GAAP are accounting standards developed and established by the Financial Accounting Foundation’s (FAF) standard-setting boards, both the Financial Accounting Standards Board and the Governmental Accounting Standards Board, for public and private companies, not-for-profit organizations, and state and local governments in the United States. According to the FAF, one of the objectives of GAAP applies to financial reporting for state and local governments in order to provide information that enables taxpayers and others who use governmental financial statements to hold governments accountable. According to the FAF, GAAP includes principles on:
8. Recognition: what items should be recognized in financial statements;
9. Measurement: what amounts should be reported for each of the elements in financial statements;
10. Presentation: what line items, subtotals, and totals should be displayed in financial statements; and,
11. Disclosure: what specific information is most important to the users of the financial statements.
12. ARER compliance with GAAP. According to DHCS, ARER instructions issued by DHCS to counties for MHSA expenditure reporting currently require reports to adhere to the “Accounting Standards and Procedures for Counties, March 2013 Edition,” issued by the California State Controller’s Office. The standards and procedures require governmental accounting systems to make it possible both:
13. To present fairly and with full disclosure the financial position and results of financial operations of the governmental unit in conformity with GAAP; and,
14. To determine and demonstrate compliance with finance-related legal and contractual provisions.

One exception, according to DHCS, is the Capital Facility Technological Needs (CFTN) component of the MHSA, which is not required to adhere to GAAP reporting. DHCS states that GAAP requirements applied to the CFTN component would not allow for accurate reporting of funds that would be subject to reversion under MHSA rules. DHCS’s current reporting requirement for the CFTN component allows for purchases to be reported as one-time expenses, whereas GAAP reporting, according to DHCS, would create problems for the MHSA as funds that could be subject to reversion would be reported as being spent.

Comments

1. Author’s statement. According to the author, each county utilizes MHSA funds in their own unique way, in furtherance of the goal of providing mental health services to those in need. While the vast diversity of counties makes this flexibility vital for the success of the funded programs, lack of consistent reporting standards makes data collection and analysis extremely difficult. More than $1.5 billion of MHSA funds have been available in recent years, and up to 5% of the funds may be used for state administrative purposes. While some focused evaluation has shown MHSA programming is implemented with good intentions, there is a question about the effectiveness of some programs within the counties and a comprehensive evaluation is needed. Annually, each county must submit to DHCS an ARER. This report is required be submitted six months after the end of the fiscal year so DHCS may update its Web site with each county’s report. This bill improves reporting standards by requiring the ARER to comply with GAAP, and to be submitted electronically in machine-readable format to DHCS. This will ensure a consistency and transparency in reporting, and allows for further evaluation and analysis of the reports.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Assembly Appropriations Committee, this bill has negligible costs.

SUPPORT: (Verified 8/16/18)

County Behavioral Health Directors Association of California (source)

Association of California Cities—Orange County

California Access Coalition

California Council of Community Behavioral Health Agencies

California State Association of Counties

County of Orange

Depression and Bipolar Support Alliance

Mental Health Services Oversight and Accountability Commission

NAMI California

OPPOSITION: (Verified 8/16/18)

Department of Finance

ARGUMENTS IN SUPPORT: CBHDAC, sponsor of this bill, writes in support and states that GAAP is the accounting standard adopted by the Federal Securities and Exchange Commission. CBHDAC and supporters argue that in the past, it has been difficult for the state to consistently classify MHSA programs and services and that this bill will remedy this challenge by requiring these financial industry GAAP standards. Supporters state that this bill will help provide additional oversight of MHSA funds, and through this increased clarity, counties will more effectively demonstrate the value of the state’s investment in these critical services.

ARGUMENTS IN OPPOSITION: The Department of Finance (DOF) states that this bill imposes new costs on DHCS that are not included in the 2018-19 fiscal plan. DOF argues that to the extent MHSA ARERs are inconsistent or not in compliance with GAAP, DHCS can administratively issue guidance to counties to clarify reporting requirements.

ASSEMBLY FLOOR: 76-0, 8/16/18

AYES: Acosta, Aguiar-Curry, Travis Allen, Arambula, Baker, Berman, Bigelow, Bloom, Bonta, Brough, Burke, Caballero, Calderon, Carrillo, Cervantes, Chau, Chávez, Chen, Chiu, Choi, Chu, Cooley, Cooper, Cunningham, Dahle, Daly, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Eduardo Garcia, Gipson, Gloria, Gonzalez Fletcher, Gray, Grayson, Harper, Holden, Irwin, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Quirk-Silva, Reyes, Rodriguez, Rubio, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Voepel, Waldron, Weber, Wood, Rendon

NO VOTE RECORDED: Cristina Garcia, Jones-Sawyer, McCarty, Rivas

Prepared by:

8/18/18 12:32:59

**** END ****

SENATE THIRD READING

STR Bill Id:SB 688

Author:(Moorlach)

As Amended Ver:August 9, 2018

Majority vote

SENATE VOTE: 39-0

SUMMARY: Requires each county to prepare the Annual Mental Health Services Act Revenue and Expenditure Report (MHSA Report) in accordance with generally accepted accounting principles (GAAP), as specified, and to electronically submit the MHSA report to the Department of Health Care Services (DHCS) and the Mental Health Services Oversight and Accountability Commission (Commission). Requires DHCS and the Commission to post each county's report in a text-searchable format on its Internet Website in a timely manner.

FISCAL EFFECT: According to the Assembly Appropriations Committee, this bill has negligible costs.

COMMENTS: According to the author, each county in California utilizes Proposition 63 funds in their own unique way, in furtherance of the goal of providing mental health services to those in need. The author argues that while the vast diversity of counties makes this flexibility vital for the success of the funded programs, lack of consistent reporting standards makes data collection and analysis extremely difficult. The author states, more than $1.5 billion of MHSA funds have been available in recent years and up to 5% of the funds may be used for state administrative purposes. The author notes, while some focused evaluation has shown MHSA programming is implemented with good intentions, there is a question about the effectiveness of some programs within the counties and a comprehensive evaluation is needed. Annually, each county must submit to DHCS a MHSA Report. This report must be submitted six months after the end of the fiscal year so DHCS may update its Website with each county's report. The author states this bill improves reporting standards by requiring the MHSA Report to comply with generally accepted accounting principles, and to be posted electronically on the DHCS and the Commission's webpages. The author concludes this bill will ensure consistency and transparency in reporting, and allows for further evaluation and analysis of the reports.

According to the Steinburg Institute, mental illness affects one in four people in the U.S. and is the leading cause of disability worldwide. According to the U.S. Department of Health and Human Services' 2015 and 2016 data, 17% of California adults—nearly 5 million people—have mental health needs, while about 4% suffer from serious mental illnesses. The MHSA imposes a 1% income tax on personal income in excess of $1 million and creates the 16 member Commission charged with overseeing the implementation of MHSA and advising the Governor and the Legislature on mental health policy. The fiscal year (FY) 2017-18 Governor's Budget projected that $2.2 billion in revenue would be deposited into the MHSA Fund in FY 2018-19. The MHSA addresses a broad continuum of prevention, early intervention, and service needs, as well as provides funding for infrastructure, technology, and training needs for the community mental health system. Unspent MHSA funds are required to be placed in a reserve in accordance with an approved plan, and funds allocated to a county that have not been spent for their authorized purpose within three years are required to revert those funds back to the state.

Through existing law, DHCS is required, in consultation with the Commission and County Behavioral Health Directors Association (CBHDA), to administer and revise instructions for the MHSA Report as needed to improve the timely and accurate submission of the MHSA Report. The State Controller sets uniform accounting procedures, which must conform to GAAP, for all counties. GAAP is a common set of accounting principles which establishes uniform minimum standards and practices for financial accounting and reporting, such as the financial data that should be tallied and disclosed in a financial document and the manner in which that data is compiled. Compliance with GAAP assures uniformity of financial reporting and therefore a reasonable degree of comparability between financial reports.

The County Behavioral Health Directors Association of California (CBHDA), the sponsor of this bill, states that in the past it has been difficult for the state to consistently classify MHSA programs and services, but this bill will remedy this and create more efficient reporting. CBHDA notes that this bill increases the transparency and consistency of financial reporting for MHSA and ensures the MHSA Report can be fully analyzed and referenced. CBHDA argues that improving the reliability of reporting standards for MHSA revenues and expenditures will increase accountability of these funds and simplify accounting to provide a complete and cohesive view of MHSA funding. CBHDA states that this bill increases the standardization and comparability of MHSA spending data and will help provide additional oversight of these funds. CBHDA concludes that through this increased clarity counties will more effectively demonstrate the value of the state's investment in these critical services.

The Department of Finance (DOF) in opposition of this bill, states that currently DHCS requires counties to submit their MHSA Annual Expenditure and Revenue Reports (ARERs) to conform to the State Controller's Office Accounting Standards and Procedures for Counties, which includes GAAP. DOF notes that to the extent MHSA ARER are inconsistent or not in compliance with GAAP, DHCS can administratively issue guidance to counties to clarify reporting requirements. DOF states that this bill requires that reports be submitted in a machine-readable manner, such as a standardized computer language like HTML (not always English text), which can be read automatically by a web browser or computer system. DOF concludes that if this bill requires that the reports be submitted in a machine-readable format, DOF will have to manually reformat the reports after their submittal to meet the bill's ARER posting requirements. A technical amendment was made that satisfies DOF's opposition.

Analysis Prepared by: Monica Montano / HEALTH / (916) 319-2097 FN: 0003924

SENATE THIRD READING

STR Bill Id:SB 688

Author:(Moorlach)

As Amended Ver:June 14, 2018

Majority vote

SENATE VOTE: 39-0

SUMMARY: Requires each county to prepare the Annual Mental Health Services Act Revenue and Expenditure Report (MHSA Report) in accordance with generally accepted accounting principles (GAAP), as specified, and to electronically submit the MHSA report to the Department of Health Care Services (DHCS) and the Mental Health Services Oversight and Accountability Commission (Commission). Requires DHCS and the Commission to post each county's report in a machine-readable format on its Internet Website in a timely manner.

FISCAL EFFECT: According to the Assembly Appropriations Committee, this bill has negligible costs.

COMMENTS: According to the author, each county in California utilizes Proposition 63 funds in their own unique way, in furtherance of the goal of providing mental health services to those in need. The author argues that while the vast diversity of counties makes this flexibility vital for the success of the funded programs, lack of consistent reporting standards makes data collection and analysis extremely difficult. The author states, more than $1.5 billion of MHSA funds have been available in recent years and up to 5% of the funds may be used for state administrative purposes. The author notes, while some focused evaluation has shown MHSA programming is implemented with good intentions, there is a question about the effectiveness of some programs within the counties and a comprehensive evaluation is needed. Annually, each county must submit to DHCS a MHSA Report. This report must be submitted six months after the end of the fiscal year so DHCS may update its Website with each county's report. The author states this bill improves reporting standards by requiring the MHSA Report to comply with generally accepted accounting principles, and to be posted electronically in machine-readable format by DHCS and the Commission on their respective webpages. The author concludes this bill will ensure consistency and transparency in reporting, and allows for further evaluation and analysis of the reports.

According to the Steinburg Institute, mental illness affects one in four people in the United States (U.S.) and is the leading cause of disability worldwide. According to the U.S. Department of Health and Human Services' 2015 and 2016 data, 17% of California adults—nearly 5 million people—have mental health needs, while about 4% suffer from serious mental illnesses. The MHSA imposes a 1% income tax on personal income in excess of $1 million and creates the 16 member Commission charged with overseeing the implementation of MHSA and advising the Governor and the Legislature on mental health policy. The fiscal year (FY) 2017-18 Governor's Budget projected that $2.2 billion in revenue would be deposited into the MHSA Fund in FY 2018-19. The MHSA addresses a broad continuum of prevention, early intervention, and service needs, as well as provides funding for infrastructure, technology, and training needs for the community mental health system. Unspent MHSA funds are required to be placed in a reserve in accordance with an approved plan, and funds allocated to a county that have not been spent for their authorized purpose within three years are required to revert those funds back to the state.

Through existing law, DHCS is required, in consultation with the Commission and CBHDA, to administer and revise instructions for the MHSA Report as needed to improve the timely and accurate submission of the MHSA Report. The State Controller sets uniform accounting procedures, which must conform to GAAP, for all counties. GAAP is a common set of accounting principles which establishes uniform minimum standards and practices for financial accounting and reporting, such as the financial data that should be tallied and disclosed in a financial document and the manner in which that data is compiled. Compliance with GAAP assures uniformity of financial reporting and therefore a reasonable degree of comparability between financial reports.

The County Behavioral Health Directors Association of California (CBHDA), the sponsor of this bill, states that in the past it has been difficult for the state to consistently classify MHSA programs and services, but this bill will remedy this and create more efficient reporting. CBHDA notes that this bill increases the transparency and consistency of financial reporting for MHSA and ensures the MHSA Report can be fully analyzed and referenced. CBHDA argues that improving the reliability of reporting standards for MHSA revenues and expenditures will increase accountability of these funds and simplify accounting to provide a complete and cohesive view of MHSA funding. CBHDA states that this bill increases the standardization and comparability of MHSA spending data and will help provide additional oversight of these funds. CBHDA concludes that through this increased clarity counties will more effectively demonstrate the value of the state's investment in these critical services.

The Department of Finance (DOF) in opposition of this bill, states that currently DHCS requires counties to submit their MHSA Annual Expenditure and Revenue Reports (ARERs) to conform to the State Controller's Office Accounting Standards and Procedures for Counties, which includes GAAP. DOF notes that to the extent MHSA ARER are inconsistent or not in compliance with GAAP, DHCS can administratively issue guidance to counties to clarify reporting requirements. DOF states that this bill requires that reports be submitted in a machine-readable manner, such as a standardized computer language like HTML (not always English text), which can be read automatically by a web browser or computer system. DOF concludes that if this bill requires that the reports be submitted in a machine-readable format, the Department will have to manually reformat the reports after their submittal to meet the bill's ARER posting requirements.

Analysis Prepared by: Monica Montano / HEALTH / (916) 319-2097 FN: 0003652

Date of Hearing: June 27, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SB 688

Author:(Moorlach) – As Amended Ver:June 14, 2018

Urgency: No State Mandated Local Program: Yes Reimbursable: Yes

SUMMARY:

This bill requires counties to adhere to uniform accounting standards and procedures that conform to Generally Accepted Accounting Principles (GAAP) prescribed by the controller when accounting for receipts and expenditures of Mental Health Services Act (MHSA) funds, with certain exceptions for capital facilities and technology needs.

FISCAL EFFECT:

Negligible.

COMMENTS:

1. Purpose. This bill is sponsored by the California Behavioral Health Directors Association to improve comparability and accessibility of county MHSA revenue and expenditure reports.
2. Background. Proposition 63, the MHSA, was passed by voters in November 2004. The MHSA imposes a 1% income tax on personal income in excess of $1 million to fund counties for a broad continuum of mental health prevention, early intervention, and other services. Implementation and oversight of MHSA funding and activities is shared between the Mental Health Services Oversight and Accountability Commission (commission) and the Department of Health Care Services (DHCS).

A February 2018 state audit found DHCS's oversight of local mental health agencies is minimal, and that DHCS does not enforce annual revenue and expenditure reporting, nor has it performed fiscal or program audits to ensure local mental health agencies comply with fiscal and program requirements contained in state laws and regulations. DHCS is now developing a regulations package to address some of these issues.

GAAP are accounting standards, conventions and rules. Counties already are required to comply with GAAP pursuant to DHCS guidance, but this requirement is not in statute.

1. Related Legislation. AB 2287 (Kiley), which was held on the suspense file of this committee, would have required the commission to conduct a number of oversight duties to promote transparency and accountability in the delivery of state and local mental health services, as specified.

SB 1019 (Beall), pending in Assembly Health Committee, requires the commission, in consultation with the State Department of Education and DHCS, to develop guidelines for the use of funds from the Mental Health Services Fund by a county for specified programs.

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: June 12, 2018

ASSEMBLY COMMITTEE ON HEALTH

Jim Wood, Chair

SBPCA Bill Id:SB 688

Author:(Moorlach) – As Amended Ver:January 23, 2018

SENATE VOTE: 39-0

SUBJECT: Mental Health Services Act: revenue and expenditure reports.

SUMMARY: Requires each county to prepare the Annual Mental Health Services Act Revenue and Expenditure Report (MHSA Report) in accordance with generally accepted accounting principles (GAAP), as determined by the Department of Health Care Services (DHCS) and to electronically submit the report to DHCS and the Mental Health Services Oversight and Accountability Commission (Commission). Requires DHCS and the Commission to post each county’s report in a machine-readable format on its Internet Website in a timely manner.

EXISTING LAW:

1. Establishes the Mental Health Services Act (MHSA), enacted by voters in 2004 as Proposition 63, to provide funds to counties to expand services, develop innovative programs, and integrated service plans for mentally ill children, adults, and seniors through a 1% income tax on personal income above $1 million.
2. Establishes the Commission to oversee the implementation of MHSA, made up of 16 members appointed by the Governor, and the Legislature, as specified.
3. Specifies that the MHSA can only be amended by a two-thirds vote of both houses of the Legislature and only as long as the amendment is consistent with and furthers the intent of the MHSA. Permits provisions clarifying the procedures and terms of the MHSA to be amended by majority vote.
4. Requires DHCS, in consultation with the Commission and the County Behavioral Health Directors Association of California (CBHDA), to develop and administer instructions for the MHSA Report and to revise the instructions as needed to improve the timely and accurate submission of county revenue and expenditure data.
5. Establishes the purpose of the MHSA Report as follows:
   1. Identify the expenditures of MHSA funds that were distributed to each county;
   2. Quantify the amount of additional funds generated for the mental health system as a result of the MHSA;
   3. Identify unexpended funds, and interest earned on MHSA funds; and,
   4. Determine what unspent MHSA funds, if any, are available from prior fiscal year distributions.
6. Establishes that the MHSA Report is intended to provide information for the evaluation of the following:
   1. Children's systems of care;
   2. Prevention and early intervention strategies;
   3. Innovative projects;
   4. Adults and older adults systems of care; and,
   5. Capital facilities and technology needs (CFTN).

FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs.

COMMENTS:

1. PURPOSE OF THIS BILL. According to the author, each county in California utilizes Proposition 63 funds in their own unique way, in furtherance of the goal of providing mental health services to those in need. The author argues that while the vast diversity of counties makes this flexibility vital for the success of the funded programs, lack of consistent reporting standards makes data collection and analysis extremely difficult. The author states, more than $1.5 billion of MHSA funds have been available in recent years and up to 5% of the funds may be used for state administrative purposes. The author notes, while some focused evaluation has shown MHSA programming is implemented with good intentions, there is a question about the effectiveness of some programs within the counties and a comprehensive evaluation is needed. Annually, each county must submit to DHCS a MHSA Report. This report must be submitted six months after the end of the fiscal year so DHCS may update its Website with each county’s report. The author states this bill improves reporting standards by requiring the MHSA Report to comply with generally accepted accounting principles, and to be posted electronically in machine-readable format by DHCS and the Commission on their respective webpages. The author concludes this bill will ensure consistency and transparency in reporting, and allows for further evaluation and analysis of the reports.
2. BACKGROUND.
   1. Mental Health Needs. According to the Steinburg Institute, mental illness affects one in four people in the U.S. and is the leading cause of disability worldwide. According to the U.S. Department of Health and Human Services’ 2015 and 2016 data, 17% of California adults—nearly 5 million people—have mental health needs, while about 4% suffer from serious mental illnesses. In a recent report from the California HealthCare Foundation, about two-thirds of adults with mental illness and two-thirds of adolescents with major depressive episodes do not receive treatment. The incidence of some mental illnesses continues to rise; many Californians still fail to receive treatment which can lead to overall poor health outcomes.
   2. MHSA. Proposition 63 was passed by voters in November 2004. The MHSA imposes a 1% income tax on personal income in excess of $1 million and creates the 16 member Commission charged with overseeing the implementation of MHSA and advising the Governor and the Legislature on mental health policy. The fiscal year (FY) 2017-18 Governor’s Budget projected that $2.2 billion in revenue would be deposited into the MHSA Fund in FY 2018-19. The MHSA addresses a broad continuum of prevention, early intervention, and service needs, as well as provides funding for infrastructure, technology, and training needs for the community mental health system. Unspent MHSA funds are required to be placed in a reserve in accordance with an approved plan, and funds allocated to a county that have not been spent for their authorized purpose within three years are required to revert those funds back to the state.
   3. Funding. The MHSA provides funding for programs within five components:
      
      1. Community Services and Supports: Provides direct mental health services to the severely and seriously mentally ill, such as mental health treatment, cost of health care treatment, and housing supports. Regulation requires counties to direct the majority of its Community Services and Supports funds to Full‑Service Partnerships (FSPs). FSPs are county coordinated plans, in collaboration with the client and the family to provide the full spectrum of community services. These services consist of mental health services and supports, such as peer support and crisis intervention services; and, non-mental health services and supports, such as food, clothing, housing, and the cost of medical treatment;
         
      2. Prevention and Early Intervention: Provides services to mental health clients in order to help prevent mental illness from becoming severe and disabling;
      3. Innovation: Provides services and approaches that are creative in an effort to address mental health clients’ persistent issues, such as improving services for underserved or unserved populations within the community;
         
      4. CFTN: Creates additional county infrastructure such as additional clinics and facilities and/or development of a technological infrastructure for the mental health system, such as electronic health records for mental health services; and,
         
      5. Workforce Education and Training: Provides training for existing county mental health employees, outreach and recruitment to increase employment in the mental health system, and financial incentives to recruit or retain employees within the public mental health system.
   4. MHSA Report and GAAP. Through existing law, DHCS is required, in consultation with the Commission and CBHDA, to administer and revise instructions for the MHSA Report as needed to improve the timely and accurate submission of the MHSA Report. According to the most recent MHSA Report instructions, counties must adhere to the “Accounting Standards and Procedures for Counties, State Controller’s Office, March 2013.” The State Controller sets uniform accounting procedures, which must conform to GAAP, for all counties. GAAP is a common set of accounting principles which establishes uniform minimum standards and practices for financial accounting and reporting, such as the financial data that should be tallied and disclosed in a financial document and the manner in which that data is compiled. Compliance with GAAP assures uniformity of financial reporting and therefore a reasonable degree of comparability between financial reports.
   5. California State Auditor (CSA) report. Early in 2018, the CSA released a report entitled, “The State Could Better Ensure the Effective Use of Mental Health Services Act Funding,” (Audit Report) at the request of the Joint Legislative Audit Committee. The CSA evaluated the effectiveness of both DHCS and the Commission in providing oversight of MHSA funding. The Audit Report found that DHCS does not enforce annual revenue and expenditure reporting nor has it performed fiscal or program audits to ensure local mental health agencies comply with fiscal and program requirements. The Audit Report concluded that despite having significant responsibility for the MHSA program since 2012, DHCS has not developed a process to recover unspent MHSA funds from local mental health agencies after the statutory time frames for spending the funds have elapsed, known as reversion. The Commission stated in the Audit Report that the fiscal transparency tool is a first step in its plan to develop online tools to enhance public accountability for the local mental health agencies’ spending of the MHSA funds. The State Auditor recommended, in order to ensure that local mental health agencies spend MHSA funds in a timely manner, that DHCS 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.
3. SUPPORT. CBHDA states in the past it has been difficult for the state to consistently classify MHSA programs and services, but this bill will remedy this and create more efficient reporting. CBHDA notes that this bill increases the transparency and consistency of financial reporting for MHSA and ensures the MHSA Report can be fully analyzed and referenced. CBHDA argues that improving the reliability of reporting standards for MHSA revenues and expenditures will increase accountability of these funds and simplify accounting to provide a complete and cohesive view of MHSA funding. CBHDA states that this bill increases the standardization and comparability of MHSA spending data and will help provide additional oversight of these funds. CBHDA concludes that through this increased clarity counties will more effectively demonstrate the value of the state’s investment in these critical services.
4. RELATED LEGISLATION.
   1. SB 98 (Committee on Budget and Fiscal Review), is a trailer bill and among other provisions, requires DHCS, on or before July 1, 2018, in consultation with counties and other stakeholders, to prepare and submit a report to the Legislature identifying the amounts that were subject to reversion prior to July 1, 2017.
   2. SB 1101 (Pan) would have required the Commission to establish statewide objectives and metrics, as specified, to bring focus on the state’s mental health system and to assist the public in understanding whether progress is being made toward meeting the goals of MHSA, as specified. SB 1101 was held on suspense in the Senate Appropriations Committee.
   3. SB 1004 (Weiner and Moorlach) would require the Commission to establish priorities for the use of MSHA prevention and early intervention (PEI) funds and to develop a statewide strategy for monitoring the implementation of PEI programs, as specified. SB 1004 is awaiting referral in the Assembly.
   4. SB 1019 (Beall), would require the Commission in consultation with the State Department of Education and DHCS to develop guidelines for the use of funds from the Mental Health Services Fund by a county for innovative programs and PEI programs. SB 1019 is awaiting referral in the Assembly.
   5. AB 2287 (Kiley) would have required the Commission to develop a transparency and accountability strategy that includes fiscal, program, and outcome components, as specified. AB 2287 was held on suspense file in the Assembly Appropriations Committee.
   6. AB 2843 (Gloria) would add cities, special districts, or other public entities to the list of entities eligible to receive an excess of MHSA funds subject to reversion for the provision of mental health services consistent with the intent of MHSA. AB 2843 failed passage in the Assembly Floor.
5. PREVIOUS LEGISLATION.
   1. AB 974 (Quirk-Silva), Chapter 411, Statutes of 2017, requires counties to report the amount of MHSA funds spent on mental health services for veterans to DHCS and the Commission for purposes of the MHSA Report.
   2. AB 2279 (Cooley) of 2015 would have required DHCS to develop and administer instructions for the compilation of revenue and expenditure information related to the MHSA by counties, in consultation with the Commission and CBHDA, as specified. AB 2279 was vetoed, by the Governor, who stated:
      
      “I am returning Assembly Bill 2279 without my signature. This bill requires the DHCS to annually compile and publicly report financial data and program information from counties on their MHSA expenditures. DHCS is already in the process of collecting and posting county revenue and expenditure reports as well as updated three year program expenditure plans, which will provide much of the information outlined in this bill. I encourage the Legislature and interested stakeholders to continue to work with the department to identify useful information that can be integrated into the existing reports to improve transparency and accountability in the use of these funds.”
      
6. SUGGESTED AMENDMENTS. According to DHCS, there are specific components of the MHSA Report that require a different set of accounting principles beyond the GAAP standards.  For example, through MHSA funds, under CFTN, counties may purchase infrastructure.  However, under GAAP standards, infrastructure would be considered an asset and would not be reflected as an expense from the county’s overall MHSA fund balance.  Allowing counties to report CFTN under a cash basis standard would immediately and accurately capture each county’s MHSA fund balance.  DHCS suggests the following amendments:
   

SECTION 1. Section 5899 of the Welfare and Institutions Code is amended to read:

5899. (a) The State Department of Health Care Services, in consultation with the Mental Health Services Oversight and Accountability Commission and the County Behavioral Health Directors Association of California, shall develop and administer instructions for the Annual Mental Health Services Act Revenue and Expenditure Report. The instructions shall include a requirement that the county certify the accuracy of this report. Each county shall prepare the report in accordance with generally accepted accounting principles, as determined by the department, and When the exception of expenditures and receipts related to the capital facilities and technology needs component described in paragraph (6) of subdivision (d), each county shall adhere to uniform accounting standards and procedures that conform to the Generally Accepted Accounting Principles prescribed by the Controller pursuant to Section 30200 of the Government Code when accounting for receipts and expenditures of Mental Health Services Act (MHSA) funds in preparing the report. Counties shall report receipts and expenditures related to capital facilities and technology needs using the cash basis of accounting, which recognizes expenditures at the time payment is made. Each county shall electronically submit the report to the department and to the Mental Health Services Oversight and Accountability Commission. The department and the commission shall annually post each county’s report in a machine-readable format on its Internet Web site in a timely manner.

REGISTERED SUPPORT / OPPOSITION:

Support

County Behavioral Health Directors Association of California (sponsor)

California Access Coalition

California Council of Community Behavioral Health Agencies

Depression and Bipolar Support Alliance

Mental Health Services Oversight and Accountability Commission

National Alliance on Mental Illness-California

Orange County Board of Supervisors

Opposition

None on file.

Analysis Prepared by: Monica Montano / HEALTH / (916) 319-2097

 THIRD READING  

Bill No: SB 688

Author:

:

Vote:

SENATE HEALTH COMMITTEE: 8-0, 1/10/18

AYES: Hernandez, Nguyen, Mitchell, Monning, Newman, Nielsen, Pan, Roth

NO VOTE RECORDED: Leyva

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT:

SOURCE: Author

DIGEST:

This bill requires each county to prepare its Annual Mental Health Services Act Revenue and Expenditure Report in accordance with generally accepted accounting principles (GAAP), as specified, and requires specified entities to post county reports in a machine-readable format on their respective Internet Web sites.

Senate Floor Amendments of 1/23/18 clarify that county reports are required to be prepared in accordance with GAAP, as determined by the Department of Health Care Services (DHCS), and that DHCS and the Mental Health Services Oversight and Accountability Commission (MHSOAC) are required to post county reports on their respective Internet Web sites in a machine-readable format.

ANALYSIS:

Existing law:

1. Establishes the Mental Health Services Act (MHSA), enacted by voters in 2004 as Proposition 63, which provides funds to counties to expand services and develop innovative programs and integrated service plans for mentally ill children, adults, and seniors through a 1% income tax on personal income above $1 million to be deposited to the Mental Health Services Fund (the Fund), administered by DHCS.
2. Requires DHCS, in consultation with the MHSOAC and the County Behavioral Health Directors Association of California (CBHDAC), to develop and administer instructions for the Annual MHSA Revenue and Expenditure Report (ARER), as specified.
3. Requires counties to submit ARERs electronically to DHCS and the MHSOAC, and for DHCS and the MHSOAC to post each county’s ARER on their respective Internet Web sites in a timely manner.
4. Establishes the MHSOAC to oversee the implementation of the MHSA, develop strategies to overcome stigma, and advise the Governor and the Legislature on ways the state can improve care and services to people with mental illness.

This bill:

1. Requires each county to prepare its ARER in accordance with GAAP, as determined by DHCS.
2. Requires DHCS and the MHSOAC to post each county’s ARER in a machine-readable format on their respective Internet Web sites.

Background

1. MHSA. The MHSA requires each county mental health department to prepare and submit a three-year plan to DHCS that must be updated each year and approved by DHCS after review and comment by the MHSOAC. Some counties make ARERs available to the public on their own Web sites while others do not. In their three-year plans, counties are required to include a list of all programs for which MHSA funding is being requested and identify how the funds will be spent and what populations will be served. Counties must submit their plans for approval to the MHSOAC before they may spend MHSA funds for innovative projects.

Additionally, counties are annually required to submit electronically ARERs to DHCS and the MHSOAC. The purpose of the ARERs is to identify the expenditures of MHSA funds that were distributed to each county, quantify the amount of additional funds generated for the mental health system as a result of the MHSA, identify unexpended funds and interest earned on MHSA funds, and determine reversion amounts, if applicable, from prior fiscal year distributions. An ARER is intended to provide information that allows for the evaluation of all of the following:

1. Children’s system of care;
2. Prevention and early intervention strategies;
3. Innovative projects;
4. Workforce education and training;
5. Adults and older adults systems of care; and,
6. Capital facilities and technology needs.
7. GAAP. GAAP are accounting standards developed and established by the Financial Accounting Foundation’s (FAF) standard-setting boards, both the Financial Accounting Standards Board and the Governmental Accounting Standards Board, for public and private companies, not-for-profit organizations, and state and local governments in the United States. According to the FAF, one of the objectives of GAAP applies to financial reporting for state and local governments in order to provide information that enables taxpayers and others who use governmental financial statements to hold governments accountable. According to the FAF, GAAP includes principles on:
8. Recognition: what items should be recognized in financial statements;
9. Measurement: what amounts should be reported for each of the elements in financial statements;
10. Presentation: what line items, subtotals, and totals should be displayed in financial statements; and,
11. Disclosure: what specific information is most important to the users of the financial statements.
12. ARER compliance with GAAP. According to DHCS, ARER instructions issued by DHCS to counties for MHSA expenditure reporting currently require reports to adhere to the “Accounting Standards and Procedures for Counties, March 2013 Edition,” issued by the California State Controller’s Office. The standards and procedures require governmental accounting systems to make it possible both:
13. To present fairly and with full disclosure the financial position and results of financial operations of the governmental unit in conformity with GAAP; and,
14. To determine and demonstrate compliance with finance-related legal and contractual provisions.

One exception, according to DHCS, is the Capital Facility Technological Needs (CFTN) component of the MHSA, which is not required to adhere to GAAP reporting. DHCS states that GAAP requirements applied to the CFTN component would not allow for accurate reporting of funds that would be subject to reversion under MHSA rules. DHCS’s current reporting requirement for the CFTN component allows for purchases to be reported as one-time expenses, whereas GAAP reporting, according to DHCS, would create problems for the MHSA as funds that could be subject to reversion would be reported as being spent.

Comments

1. Author’s statement. According to the author, each county utilizes MHSA funds in their own unique way, in furtherance of the goal of providing mental health services to those in need. While the vast diversity of counties makes this flexibility vital for the success of the funded programs, lack of consistent reporting standards makes data collection and analysis extremely difficult. More than $1.5 billion of MHSA funds have been available in recent years, and up to 5% of the funds may be used for state administrative purposes. While some focused evaluation has shown MHSA programming is implemented with good intentions, there is a question about the effectiveness of some programs within the counties and a comprehensive evaluation is needed. Annually, each county must submit to DHCS an ARER. This report is required be submitted six months after the end of the fiscal year so DHCS may update its Web site with each county’s report. This bill improves reporting standards by requiring the ARER to comply with GAAP, and to be submitted electronically in machine-readable format to DHCS. This will ensure a consistency and transparency in reporting, and allows for further evaluation and analysis of the reports.

Related/Prior Legislation

SB 742 (Moorlach, Chapter 77, Statutes of 2017) required, among other things, the city treasurer, if the city has issued bonds, to use a system of accounting and auditing that adheres to GAAP.

AB 2279 (Cooley, 2016) would have required DHCS, based on the ARER, to compile information that includes, among other things, the total amount of MHSA revenue, the amount of MHSA money received and expended for each specified component of the MHSA program, and the amount of MHSA money spent on program administration, as specified. AB 2279 was vetoed by Governor Brown who stated that DHCS was already in the process of collecting and posting ARERs as well as updated three year program expenditure plans, which would provide much of the information outlined in AB 2279.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 1/23/18)

County Behavioral Health Directors Association of California

OPPOSITION: (Verified 1/23/18)

None received

ARGUMENTS IN SUPPORT: The CBHDAC writes in support and states that GAAP is the accounting standard adopted by the Federal Securities and Exchange Commission. CBHDAC argues that in the past, it has been difficult for the state to consistently classify MHSA programs and services and that this bill will remedy this challenge by requiring these financial industry GAAP standards. CBHDAC states that this bill will help provide additional oversight of MHSA funds, and through this increased clarity, counties will more effectively demonstrate the value of the state’s investment in these critical services.

Prepared by:

1/24/18 15:33:30

**** END ****

 THIRD READING  

Bill No: SB 688

Author:

:

Vote:

SENATE HEALTH COMMITTEE: 8-0, 1/10/18

AYES: Hernandez, Nguyen, Mitchell, Monning, Newman, Nielsen, Pan, Roth

NO VOTE RECORDED: Leyva

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT:

SOURCE: Author

DIGEST:

This bill requires each county to prepare its Annual Mental Health Services Act Revenue and Expenditure Report in accordance with generally accepted accounting principles and to electronically submit the report in a machine-readable format to specified entities.

ANALYSIS:

Existing law:

1. Establishes the Mental Health Services Act (MHSA), enacted by voters in 2004 as Proposition 63, which provides funds to counties to expand services and develop innovative programs and integrated service plans for mentally ill children, adults, and seniors through a 1% income tax on personal income above $1 million to be deposited to the Mental Health Services Fund (the Fund), administered by the Department of Health Care Services (DHCS).
2. Requires DHCS, in consultation with the Mental Health Services Oversight and Accountability Commission (MHSOAC) and the County Behavioral Health Directors Association of California, to develop and administer instructions for the Annual MHSA Revenue and Expenditure Report (ARER), as specified.
3. Requires counties to submit ARERs electronically to DHCS and the MHSOAC, and for DHCS and the MHSOAC to post each county’s ARER on their respective Internet Web sites in a timely manner.
4. Establishes the MHSOAC to oversee the implementation of the MHSA, develop strategies to overcome stigma, and advise the Governor and the Legislature on ways the state can improve care and services to people with mental illness.

This bill requires each county to prepare its ARER in accordance with generally accepted accounting principles (GAAP) and to electronically submit the ARER in a machine-readable format to DHCS and the MHSOAC.

Background

1. Mental Health Services Act. The MHSA requires each county mental health department to prepare and submit a three-year plan to DHCS that must be updated each year and approved by DHCS after review and comment by the MHSOAC. Some counties make ARERs available to the public on their own Web sites while others do not. In their three-year plans, counties are required to include a list of all programs for which MHSA funding is being requested and identify how the funds will be spent and what populations will be served. Counties must submit their plans for approval to the MHSOAC before they may spend MHSA funds for innovative projects.

Additionally, counties are annually required to submit electronically ARERs to DHCS and the MHSOAC. The purpose of the ARERs is to identify the expenditures of MHSA funds that were distributed to each county, quantify the amount of additional funds generated for the mental health system as a result of the MHSA, identify unexpended funds and interest earned on MHSA funds, and determine reversion amounts, if applicable, from prior fiscal year distributions. An ARER is intended to provide information that allows for the evaluation of all of the following:

1. Children’s system of care;
2. Prevention and early intervention strategies;
3. Innovative projects;
4. Workforce education and training;
5. Adults and older adults systems of care; and,
6. Capital facilities and technology needs.
7. GAAP. GAAP are accounting standards developed and established by the Financial Accounting Foundation’s (FAF) standard-setting boards, both the Financial Accounting Standards Board and the Governmental Accounting Standards Board, for public and private companies, not-for-profit organizations, and state and local governments in the United States. According to the FAF Web site, one of the objectives of GAAP applies to financial reporting for state and local governments in order to provide information that enables taxpayers and others who use governmental financial statements to hold governments accountable. According to the FAF, GAAP includes principles on:
8. Recognition: what items should be recognized in financial statements;
9. Measurement: what amounts should be reported for each of the elements in financial statements;
10. Presentation: what line items, subtotals, and totals should be displayed in financial statements; and,
11. Disclosure: what specific information is most important to the users of the financial statements.
12. ARER compliance with GAAP. According to DHCS, ARER instructions issued by DHCS to counties for MHSA expenditure reporting currently require reports to adhere to the “Accounting Standards and Procedures for Counties, March 2013 Edition,” issued by the California State Controller’s Office. The standards and procedures require governmental accounting systems to make it possible both:
13. To present fairly and with full disclosure the financial position and results of financial operations of the governmental unit in conformity with GAAP; and,
14. To determine and demonstrate compliance with finance-related legal and contractual provisions.

One exception, according to DHCS, is the Capital Facility Technological Needs (CFTN) component of the MHSA, which is not required to adhere to GAAP reporting. DHCS states that GAAP requirements applied to the CFTN component would not allow for accurate reporting of funds that would be subject to reversion under MHSA rules. DHCS’s current reporting requirement for the CFTN component allows for purchases to be reported as one-time expenses, whereas GAAP reporting, according to DHCS, would create problems for the MHSA as funds that could be subject to reversion would be reported as being spent.

Comments

1. Author’s statement. According to the author, each county utilizes MHSA funds in their own unique way, in furtherance of the goal of providing mental health services to those in need. While the vast diversity of counties makes this flexibility vital for the success of the funded programs, lack of consistent reporting standards makes data collection and analysis extremely difficult. More than $1.5 billion of MHSA funds have been available in recent years, and up to 5% of the funds may be used for state administrative purposes. While some focused evaluation has shown MHSA programming is implemented with good intentions, there is a question about the effectiveness of some programs within the counties and a comprehensive evaluation is needed. Annually, each county must submit to DHCS an ARER. This report is required be submitted six months after the end of the fiscal year so DHCS may update its Web site with each county’s report. This bill improves reporting standards by requiring the ARER to comply with GAAP, and to be submitted electronically in machine-readable format to DHCS. This will ensure a consistency and transparency in reporting, and allows for further evaluation and analysis of the reports.

Related/Prior Legislation

SB 742 (Moorlach, Chapter 77, Statutes of 2017) required, among other things, the city treasurer, if the city has issued bonds, to use a system of accounting and auditing that adheres to GAAP.

AB 2279 (Cooley, 2016) would have required DHCS, based on the ARER, to compile information that includes, among other things, the total amount of MHSA revenue, the amount of MHSA money received and expended for each specified component of the MHSA program, and the amount of MHSA money spent on program administration, as specified. AB 2279 was vetoed by Governor Brown who stated that DHCS was already in the process of collecting and posting ARERs as well as updated three year program expenditure plans, which would provide much of the information outlined in AB 2279.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 1/16/18)

County Behavioral Health Directors Association of California

OPPOSITION: (Verified 1/16/18)

None received

ARGUMENTS IN SUPPORT: The County Behavioral Health Directors Association of California (CBHDAC) writes in support and states that GAAP is the accounting standard adopted by the Federal Securities and Exchange Commission. CBHDAC argues that in the past, it has been difficult for the state to consistently classify MHSA programs and services and that this bill will remedy this challenge by requiring these financial industry GAAP standards. CBHDAC states that this bill will help provide additional oversight of MHSA funds, and through this increased clarity, counties will more effectively demonstrate the value of the state’s investment in these critical services.

Prepared by:

1/17/18 13:29:28

**** END ****

SENATE COMMITTEE ON HEALTH

Senator Ed Hernandez, O.D., Chair

BILL NO: SB 688

SUBJECT: Mental Health Services Act: revenue and expenditure reports

SUMMARY:

Requires each county to prepare its Annual Mental Health Services Act Revenue and Expenditure Report in accordance with generally accepted accounting principles and to electronically submit the report in a machine-readable format to specified entities.

Existing law:

1. Establishes the Mental Health Services Act (MHSA), enacted by voters in 2004 as Proposition 63, which provides funds to counties to expand services and develop innovative programs and integrated service plans for mentally ill children, adults, and seniors through a 1% income tax on personal income above $1 million to be deposited to the Mental Health Services Fund (the Fund), administered by the Department of Health Care Services (DHCS).
2. Requires DHCS, in consultation with the Mental Health Services Oversight and Accountability Commission (MHSOAC) and the County Behavioral Health Directors Association of California, to develop and administer instructions for the Annual MHSA Revenue and Expenditure Report (ARER), as specified.
3. Requires counties to submit ARERs electronically to DHCS and the MHSOAC, and for DHCS and the MHSOAC to post each county’s ARER on their respective Internet Web sites in a timely manner.
4. Establishes the MHSOAC to oversee the implementation of the MHSA, develop strategies to overcome stigma, and advise the Governor and the Legislature on ways the state can improve care and services to people with mental illness.

This bill: Requires each county to prepare its ARER in accordance with generally accepted accounting principles (GAAP) and to electronically submit the ARER in a machine-readable format to DHCS and the MHSOAC.

FISCAL EFFECT:

This bill has not been analyzed by a fiscal committee.

COMMENTS:

1. Author’s statement. According to the author, each county utilizes MHSA funds in their own unique way, in furtherance of the goal of providing mental health services to those in need. While the vast diversity of counties makes this flexibility vital for the success of the funded programs, lack of consistent reporting standards makes data collection and analysis extremely difficult. More than $1.5 billion of MHSA funds have been available in recent years, and up to 5% of the funds may be used for state administrative purposes. While some focused evaluation has shown MHSA programming is implemented with good intentions, there is a question about the effectiveness of some programs within the counties and a comprehensive evaluation is needed. Annually, each county must submit to DHCS an ARER. This report is required be submitted six months after the end of the fiscal year so DHCS may update its Web site with each county’s report. This bill improves reporting standards by requiring the ARER to comply with GAAP, and to be submitted electronically in machine-readable format to DHCS. This will ensure a consistency and transparency in reporting, and allows for further evaluation and analysis of the reports.
2. Background. The MHSA requires each county mental health department to prepare and submit a three-year plan to DHCS that must be updated each year and approved by DHCS after review and comment by the MHSOAC. Some counties make ARERs available to the public on their own Web sites while others do not. In their three-year plans, counties are required to include a list of all programs for which MHSA funding is being requested and identify how the funds will be spent and what populations will be served. Counties must submit their plans for approval to the MHSOAC before they may spend MHSA funds for innovative projects.

Additionally, counties are annually required to submit electronically ARERs to DHCS and the MHSOAC. The purpose of the ARERs is to identify the expenditures of MHSA funds that were distributed to each county, quantify the amount of additional funds generated for the mental health system as a result of the MHSA, identify unexpended funds and interest earned on MHSA funds, and determine reversion amounts, if applicable, from prior fiscal year distributions. An ARER is intended to provide information that allows for the evaluation of all of the following:

1. Children’s system of care;
2. Prevention and early intervention strategies;
3. Innovative projects;
4. Workforce education and training;
5. Adults and older adults systems of care; and,
6. Capital facilities and technology needs.
7. GAAP. GAAP are accounting standards developed and established by the Financial Accounting Foundation’s (FAF) standard-setting boards, both the Financial Accounting Standards Board and the Governmental Accounting Standards Board, for public and private companies, not-for-profit organizations, and state and local governments in the United States. According to the FAF Web site, one of the objectives of GAAP applies to financial reporting for state and local governments in order to provide information that enables taxpayers and others who use governmental financial statements to hold governments accountable. According to the FAF, GAAP includes principles on:
8. Recognition: what items should be recognized in financial statements;
9. Measurement: what amounts should be reported for each of the elements in financial statements;
10. Presentation: what line items, subtotals, and totals should be displayed in financial statements; and,
11. Disclosure: what specific information is most important to the users of the financial statements.
12. ARER compliance with GAAP. According to DHCS, ARER instructions issued by DHCS to counties for MHSA expenditure reporting currently require reports to adhere to the “Accounting Standards and Procedures for Counties, March 2013 Edition,” issued by the California State Controller’s Office. The standards and procedures require governmental accounting systems to make it possible both:
13. To present fairly and with full disclosure the financial position and results of financial operations of the governmental unit in conformity with GAAP; and,
14. To determine and demonstrate compliance with finance-related legal and contractual provisions.

One exception, according to DHCS, is the Capital Facility Technological Needs (CFTN) component of the MHSA, which is not required to adhere to GAAP reporting. DHCS states that GAAP requirements applied to the CFTN component would not allow for accurate reporting of funds that would be subject to reversion under MHSA rules. DHCS’s current reporting requirement for the CFTN component allows for purchases to be reported as one-time expenses, whereas GAAP reporting, according to DHCS, would create problems for the MHSA as funds that could be subject to reversion would be reported as being spent.

1. Prior legislation. SB 742 (Moorlach, Chapter 77, Statutes of 2017) requires, among other things, the city treasurer, if the city has issued bonds, to use a system of accounting and auditing that adheres to GAAP.

AB 2279 (Cooley of 2016) would have required DHCS, based on the ARER, to compile information that includes, among other things, the total amount of MHSA revenue, the amount of MHSA money received and expended for each specified component of the MHSA program, and the amount of MHSA money spent on program administration, as specified. AB 2279 was vetoed by Governor Brown who stated that DHCS was already in the process of collecting and posting ARERs as well as updated three year program expenditure plans, which would provide much of the information outlined in AB 2279.

1. Support. The County Behavioral Health Directors Association of California (CBHDAC) writes in support and states that GAAP is the accounting standard adopted by the Federal Securities and Exchange Commission. CBHDAC argues that in the past, it has been difficult for the state to consistently classify MHSA programs and services and that this bill will remedy this challenge by requiring these financial industry GAAP standards. CBHDAC states that this bill will help provide additional oversight of MHSA funds, and through this increased clarity, counties will more effectively demonstrate the value of the state’s investment in these critical services.
2. Amendments. The author may wish to consider the following amendments in bold, italics, and underline in order to allow for DHCS to maintain its exception for the CFTN component of the MHSA:

Section 5899 of the Welfare and Institutions Code is amended to read:

5899. (a) The State Department of Health Care Services, in consultation with the Mental Health Services Oversight and Accountability Commission and the County Behavioral Health Directors Association of California, shall develop and administer instructions for the Annual Mental Health Services Act Revenue and Expenditure Report. The instructions shall include a requirement that the county certify the accuracy of this report. This report shall be submitted electronically Each county shall prepare the report in accordance with generally accepted accounting principles, as determined by the department, and shall electronically submit the report in a machine-readable format to the department and to the Mental Health Services Oversight and Accountability Commission. The department and the commission shall annually post each county’s report in a machine-readable format on its Internet Web site in a timely manner.

SUPPORT AND OPPOSITION:

Support: County Behavioral Health Directors Association of California

Oppose: None received

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