1. REALIGNMENT 101

2. The Road to Realignment 1978 Proposition 13  1% property tax rate (average was 2.5%)  Loss of $6.8 billion  State assumes allocation of property tax  1-year bailout: shift of property tax  State assumption of certain health and welfare shares of cost  Limits local ability to raise revenue

3. 1979 AB 8 Long Term Fiscal Relief  Same formula as the 1978 1-year bailout  State created AB 8 health program – block grant  State assumed county shares of Medi-Cal and SSI/SSP  Other shares of cost changed  Included a Deflator – activated if state General Fund revenues insufficient to maintain funding

4. What Happened Next?  1982-83 Deflator would have been activated but VLF reductions instead  1983-84 Governor Deukmejian called special session. Deflator would have activated but VLF reductions instead  Local governments complained loudly  Governor called for New Partnership Task Force

5. Task Force Recommendations  Constitutional protection of VLF  Repeal AB 8 Deflator  Shift a portion of existing state sales tax to locals to replace subventions  Realign programs shared by state and counties  Capitated health and welfare programs  Shift a portion of state sales tax to fund  Entitlement programs stay as they are

6. The 80’s. What ? No Realignment? If at first you don’t succeed …….. Realignment Restructuring Disengagement Attempt to swap AFDC and Trial Courts but little interest and hard to accomplish

7. 1991 – The Stars Are Aligned  1989 and 1990 significant budget reductions to county programs including AB 8 Health and Mental Health  Governor Wilson elected  January $7 billion budget gap  Discretionary programs: AB 8 Health, Indigent Health and Mental Health proposed for elimination  Willing to tax? Could “realign” programs

8. 1991 January Budget Proposal  Transfer responsibility for AB 8, Indigent Health, Community Mental Health and Local Health Services to counties ($942 million)  Increase the alcoholic beverage tax to national average; change the VLF depreciation schedule and allocate revenues to counties for programs ($942 million)  Provide local agencies authority to increase sales tax ½% for drug enforcement and crime prevention

9. Reactions LAO Report: The County-State Partnership plus principles Legislature: Realignment Task Force – 7 Members plus principles reporting to the Budget Conference Committee CSAC: Work groups plus principles

10. How Did Realignment Change?  Grew to $2.2 billion  Swapped taxes to VLF depreciation increase and ½ cent sales tax  Added changing shares of cost in primarily social services programs  Got much more complicated  Chapters 87, 89 and 91, Statutes of 1991

11. Complications  Other calls on the money?  How many accounts are needed?  Shares of cost = mandate?  VLF constitutionally protected – specify use?  Potential loss of federal funds  Allocation and structure of the funds  Flexibility  Pending lawsuits and legal challenges

12. What Was Realigned (in millions) Community Mental Health$452 State Hospitals/County Clients210 IMDs88 AB 8 Health Care503 Local Health Services3 Indigent Health435 Local Block Grants52 Stabilization15 Juvenile Justice Grants37 TOTAL$1,795

13. State/County Shares of Cost ($s in m) CCS75/2550/50$30 Foster Care95/540/60363 CWS76/2470/3042 IHSS97/365/35235 CSBG84/1670/3013 Adoptions100/075/2512 GAIN100/070/3026 AFDC89/1195/5-155 County Adm50/5070/30-95 $549

14. Structure of Realignment  A State “Local Revenue Fund” with 3 accounts  Needed a Social Services Account - mandates  Programs wanted their own accounts  Each County establish a Local Health and Welfare Trust Account with 3 accounts  The allocation of funds and how the number of “pots” grew  What is equity?

15. Lawsuits/Challenges/ Poison Pills  Medically Indigent Adult transfer of 1982 – if mandate, Poison Pill to repeal VLF increase  Proposition 98 – share in the sales tax? Poison Pill to repeal new ½ cent sales tax  If any provision determined to be a reimbursable state mandate, Poison Pill to render Realignment inoperative

16. Other Issues  First year estimates short – had to redefine the base  MOEs  What happens when a formula changes – IHSS to PCSP with federal funds  MIA mandate case decision  Policy changes imposed by the State  Does Realignment affect Net County Costs  Transfers between accounts

17. Issues For Consideration  Lessons Learned  What program level being realigned  What authority over the program  What might the State require in the future  Are there new “equity” issues  Data and reviews

18. What Does the Future Hold  Governor’s May Revision Proposal – move money from “discretionary” mental health to shares of cost in Social Services Account  Federal Health Care Reform  The Unknown