LAO 2003-04 Budget Analysis: Health and Social Services

Legislative Analyst's Office

Analysis of the 2003-04 Budget Bill

Department of Rehabilitation (5160)

The Department of Rehabilitation (5160)Department of Rehabilitation (5160) Department of Rehabilitation (DR) provides basic vocational rehabilitation and habilitation services to persons with disabilities. The purpose of vocational rehabilitation services is to place disabled individuals in suitable employment, while habilitation services help individuals who are unable to participate in vocational rehabilitation programs achieve a higher level of functioning. Services are provided in sheltered workshops under the Work Activity Program (WAP) and to groups or individuals at job sites through the Supported Employment Program (SEP).

In addition, the department helps legally blind clients support themselves as operators of vending stands, snack bars, and cafeterias throughout the state; provides prevocational rehabilitation services to newly blind adults; develops cooperative agreements with school districts, state and community colleges, and county mental health programs to provide services to mutually served clients; and assists community-based rehabilitation facilities such as the independent living program, halfway houses, and alcoholic recovery homes.

The budget proposes an appropriation of $344 million from all funds for support of DR programs in 2003-04. This is a decrease of $137 million, or 28 percent, compared to estimated current-year expenditures. The budget proposes $43 million from the General Fund, which is $112 million, or 72 percent, below estimated current-year General Fund expenditures. This General Fund reduction is attributable to (1) shifting the Habilitation Services Program to the regional centers and (2) provider rate reductions.

Budget Achieves Savings From Rate Reductions and Freezes

The Governor's budget proposes to (1) reduce rates for the Supported Employment Program and the Work Activity Program (WAP) by 5 percent, effective April 2003, and (2) suspend the statutory WAP rate adjustment for three years. Together, these actions result in combined General Fund savings and cost avoidance of $19 million in 2003-04.

The Governor's December revision to the 2002-03 Budget Act proposed reducing SEP and WAP rates by 5 percent, effective April 1, 2003. This would result in lower payments to SEP and WAP service providers of approximately $2.1 million (all funds) in 2002-03 and $8.8 million (all funds) in 2003-04. The Governor's budget reflects this proposal, which would result in General Fund savings of $1.5 million in the current year and $6.3 million in the budget year.

The Governor's budget also reflects the December revision proposal to suspend the statutory WAP rate adjustment for three years. Current law requires the department to adjust rates for WAP providers every two years, based on actual service provider cost statements. The July 1, 2002, rate adjustment was suspended, and the next adjustment is scheduled to take effect July 1, 2003. Based on preliminary estimates, the department projects that WAP rates would increase by approximately 20 percent if the rate adjustment were provided. This would result in increased payments to WAP service providers of approximately $17 million ($12 million General Fund). The Governor proposes budget trailer bill language to suspend the statutory rate adjustment through 2005-06, resulting in a General Fund cost avoidance of $12 million in 2003-04.

Budget Shifts Habilitation Services Program to Regional Centers

The Governor proposes to shift the Habilitation Services Program from the Department of Rehabilitation (DOR) to the regional centers effective July 1, 2003. This proposal would result in (1) a shift of $115 million in local assistance funding from DOR to the Department of Developmental Services (DDS) and (2) net General Fund savings of $1.5 million in 2003-04, associated with a net reduction of 11 positions. Please see the DDS section of this Analysis for our discussion of the Governor's proposal.

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