Staff Report: Recommendations on March 2024 Statewide Ballot Proposition

February 6, 2024

Marin County Board of Supervisors
3501 Civic Center Drive
San Rafael, CA  94903

SUBJECT:  March 5, 2024 Statewide Ballot, Proposition 1

Dear Supervisors:

RECOMMENDATION: Receive informational report and provide direction to staff regarding Proposition 1 on the March 5, 2024 Statewide Ballot.

BACKGROUND: Each statewide election, the Office of the County Executive brings a report to your Board on the upcoming ballot propositions, and based on the County’s adopted Legislative Platform, provides a recommended ‘Support’, ‘Oppose’, or seeks Board direction for each ballot measure.

There is just one measure on the upcoming March 5, 2024 statewide ballot: Proposition 1, “Authorizes $6.38 Billion in Bonds to Build Mental Health Treatment Facilities for Those With Mental Health and Substance Use Challenges; Provides Housing for the Homeless. Legislative Statute.” Based on the Legislative Platform and prior Board policy, County staff are not recommending a ‘Support’ or ‘Oppose’ position at this time, and are seeking Board direction on whether to take a position on Proposition 1. Therefore, this report does not include a ‘Support’ or ‘Oppose’ resolution and is instead simply an informational report on Proposition 1.

Statewide ballot propositions require a simple majority of voters to pass. The nonpartisan Public Policy Institute of California (PPIC) most recently conducted polling on Proposition 1 in early December 2023, and found that 68% of likely voters would vote “yes” – meaning the measure is likely to pass.

The purpose of this report is a high-level overview of Proposition 1, however, if the measure does pass, Health and Human Services staff will return to your Board during the March 18-20 Budget Workshops with a more in-depth presentation on anticipated impacts to its divisions’ services and funding. Since Proposition 1 would not go into effect until January 2026, the March Budget Workshop presentation would be the start of a multi-year planning effort to mitigate any adverse local service impacts related to Proposition 1, and also to leverage new funding opportunities.

Attachment A to this report is the Quick-Reference Guide prepared by the California Secretary of State, and Attachment B is the Legislative Analyst’s Office (LAO) Analysis for Proposition 1.

INFORMATIONAL REPORT: Proposition 1 was put on the statewide ballot by the Legislature through Senate Bill 326 (Eggman, 2023) and Assembly Bill 531 (Irwin, 2023). The ballot measure would change how funds under the 2004 Mental Health Services Act (also known as Proposition 63) are spent by counties and approves a $6.4 billion State General Fund bond to build facilities for mental health and substance use treatment. Since MHSA was passed by voters as a statewide ballot measure, any changes to the structure or use of the tax revenues must also be approved by voters. This is what Proposition 1 aims to do.

This report will break down the high-level overview of Proposition 1 into (1) the changes for MHSA, and (2) the $6.4 billion bond.

1. Changes to the Mental Health Services Act (MHSA)

Current MHSA

The Mental Health Services Act (MHSA) was approved by 54% of California voters in 2004 as Proposition 63. The Act levied a 1% “surtax” on taxable incomes over $1 million for the purpose of providing California’s counties with a long-term funding stream to administer mental health programs and services tailored to their communities. 

Since MHSA is a tax on high-income earners, revenues have historically been volatile, but raise $2-$3.5 billion annually. The State retains 5% of MHSA funds for oversight and statewide programs, and the remaining 95% of funds are distributed directly to California’s 58 counties and 2 non-county Behavioral Health Departments. MHSA is the second largest source of funding for mental health programs for counties, behind federal reimbursements for Medi-Cal. Marin County receives around $27 million in MHSA revenues annually.

Counties must program their MHSA revenues according to the prescribed categories of spending written into the 2004 ballot measure. The majority of funds (80%) must be used for Crisis Services and Supports (CSS), and 51% of those CSS funds must be used for Full-Service Partnerships (FSP’s). The other 20% must be used for Prevention and Early Intervention (PEI), and similarly 51% of PEI must serve children and youth 25 years old or younger. This can include support to families and caregivers.

Current distribution of MHSA dollars to counties

Critically, MHSA funds may only be used to support treatment for mental illness. Individuals with substance use disorders may receive treatment with MHSA funds only if they have a co-occurring mental illness. It is estimated that 1 in 4 adults living with a serious mental illness also have a co-occurring substance use disorder.

The MHSA requires counties to undertake a robust community planning process every three years with stakeholders and community members for input and guidance on how MHSA dollars should be spent within these categories. In the interim years, counties produce “Annual Update” reports to incorporate new feedback from stakeholders and provide any program budgetary changes based on updated revenue estimates. The County of Marin is currently in the first year of the most recent 3-year plan, which was approved by your Board on June 13, 2023.

Under Proposition 1

It is important to note that Proposition 1 does not propose any changes or increases to the tax: it retains the current 1% “surtax” on incomes >$1 million structure.

So, while there is no revenue increase associated with Proposition 1, there is both a decrease in the total funding distributed to counties, and an expanded mandate on how counties should use MSHA funds. Under Proposition 1, the State share of annual revenues would increase from 5% to 10%, and the County share of revenues would decrease from 95% to 90%. This would result in a net shift of $140 million annually in revenues from counties to the State. The State proposes to use its additional funds to bolster the mental health and substance use treatment workforce, and for prevention initiatives.

Proposition 1 also explicitly expands the allowable use of MHSA funds for treatment for substance use disorder for people without a mental illness. The measure would change the name to the Behavioral Health Services Act (BHSA) to reflect this.

Proposition 1 creates a new requirement for Counties to spend 30% of BHSA revenues on housing for individuals with serious mental illness and/or substance use disorders, with the option to transfer up to 7% from one category to another following community planning and approval by the state. ‘Housing’ could include rent, operating subsidies, project-based housing, and master leases. Some amount may be used towards Housing Support Services. Of the total ‘Housing’ category, at least half must be used for individuals that are chronically homeless.

Another 35% of county revenues must be used for Full-Service Partnerships; recovery-oriented, comprehensive services targeted to individuals who are unhoused, or at risk of becoming unhoused, and who have a severe mental illness often with a history of criminal justice involvement, and repeat hospitalizations.

The final 35% may be used for behavioral health services and supports. This last category would support workforce education and training, innovation, early intervention, and capital facilities. At least 51% of these behavioral health services and supports dollars must be directed towards early intervention supports for children and youth 25 years and younger.

Proposed distribution of MHSA dollars to counties under Proposition 1

2. $6.4 Billion Bond for Behavioral Health Treatment and Housing

The other component of Proposition 1 is the $6.38 billion in General Obligation bonds, to be used towards grants/loans for treatment and residential care facilities, as well as supportive housing units. The bond would be repaid over a 30-year period, at a cost of $310 million annually to the state general fund.

California has a known shortage of treatment beds and facilities for mental health and/or substance use disorders. It is estimated that there is a current gap of 10,000 treatment beds; between what is available within in the state and what is needed. Some of these funds would be allocated to counties on a per capita basis, and some would be competitive grant programs.

In recent years, the state has allocated one-time funding to build more places for mental health and substance use disorder treatment and longer-term housing. This has been in the form of grants to local governments, tribes, nonprofits, and companies – and many of those projects are currently under construction or have opened. However, there is no ongoing funding source to continue these capital programs. Proposition 1 aims to provide bond funding to ensure these programs can continue and expand.

Of the $6.4 billion in bonds under Proposition 1, $4.4 billion would be allocated to building facilities for mental health care and substance use disorder treatment. Under this portion, at least $1.5 billion would go to local governments and tribes under the framework of the Behavioral Health Continuum Infrastructure Program (BHCIP). This includes short-term crisis stabilization facilities, acute and subacute care, crisis and community-based mental health residential, substance use disorder residential, community and outpatient behavioral health services, and other longer-term treatment and rehabilitation options.

The remaining $2 billion from the total $6.4 billion would go towards constructing new supportive housing units for individuals experiencing or at risk of homelessness and who have a mental health and/or substance use disorder. Half of this allocation would be set aside for supportive housing for veterans.

It is estimated that the bond would create up to 6,800 mental health and substance use treatment beds and 4,350 supportive housing units statewide – totaling 11,150 new behavioral health and supporting housing units. The bond could also create up to 26,700 outpatient slots.

It is important to note that the bond funding provides capital and construction costs for new facilities for local government, but not ongoing operational costs. However, it is presumed that the proposed changes to the MHSA under Proposition 1 would provide counties the ability to use their MHSA funds for ongoing operating costs for such facilities.

Supporters include Governor Newsom, who has been outspoken that Proposition 1 was his highest legislative priority last year. Other supporters include the League of California Cities, Big City Mayors, Hospital and Medical associations, unions including SEIU and Professional Firefighters, NAMI California, and Veterans Associations, and news outlets including the Los Angeles Times.

Arguments in support include that it is a significant General Obligation bond that will create much-needed funding for the construction of new mental health beds, of which there is a known severe shortage in the state. Related, the increased state share of base revenues under Proposition 1 (from 5% to 10%) would support statewide investments in growing and retaining the mental health and substance use treatment workforce to staff these facilities and also deliver preventative services. Additionally, many argue that the 2004 MHSA needs to be updated to reflect California’s current needs, including a much greater focus on acute mental health and substance use needs closely tied to the state’s homelessness crisis.

Opponents include Disability Rights California, the League of Women Voters and the California Association of Mental Health Peer-Run Organizations.

Arguments against include that Proposition 1’s net reduction in funding to counties from MHSA (from 95% to 90% of base revenues), combined with the expanded mandate on what the funds must be used for (adding substance use disorder treatment and housing) mean that existing mental health services will need to be cut if they cannot be funded by alternative sources. This may mean local mental health programs and the valued workers who serve them may be at risk of losing their main funding source.

Several statewide county associations have elected to not taken a position, including the California State Association of Counties (CSAC), Rural County Representatives of California (RCRC), California Behavioral Health Directors Association (CBHDA), and the California Welfare Directors Association, and Chief Probation Officers of California. However, many have expressed concerns with the MHSA changes component of the measure.

In alignment with these statewide associations, and with our adopted Legislative Platform, County staff are not recommending a ‘Support’ or ‘Oppose’ position at this time, and instead seek Board direction on whether to take a position on Proposition 1. We welcome your feedback, questions, or concerns.

As noted, should Proposition 1 pass, County staff will return to your Board during the March 18-20 Budget Workshops for a more in-depth presentation on specific anticipated impacts to Health and Human Services operations, and to get your Board’s feedback on planning for the implementation of Proposition 1 in 2026.

Sincerely, 

Talia Smith
Principal Administrative Analyst  

Reviewed By,

Ariel Espiritu Santo
Assistant County Administrator

Attachment A: Quick-Reference Guide, California Secretary of State

Attachment B: LAO Fiscal Summary and Analysis