California counties are sitting on money from a special tax on millionaires that should be spent on mental health programs, but the state isn’t moving fast enough to reclaim the funds, according to a state audit released on Tuesday.
California State Auditor Elaine Howle found that county mental health programs had stashed $231 million from the tax that should have been returned to the state by the end of the 2015-16 budget year.
That’s on top of $535 million that counties said they held in reserves for their mental health programs that year, according to the audit. All together, local governments had $2.5 billion on hand to spend in 2015-16
The funds come from Proposition 63, a 2004 initiative that levies a 1 percent income tax on people who earn $1 million or more in a year. It steadied mental health services during the recession, but the audit said local governments could be doing more with the money now if they had better direction from state government.
Sacramento Mayor Darrel Steinberg, who wrote Proposition 63, said the audit pointed out a missed opportunity.
“What’s happened here is that the reserves have just grown too large and the needs are too great to justify that,” he said. “We need strong state leadership to be sure that these resources are spent toward the state’s highest goals.”
California expects to collect $2.1 billion from the mental health tax this budget year and $2.2 billion next year.
The tax is a volatile income source because it’s tied to high-earning households having very good financial years, often from irregular sources like capital gains.
Counties are encouraged to save some money so they don’t have to slash services if their revenue falls, but not to the extent that Howle’s audit discovered.
The biggest drop in revenue over the past decade took place in 2010, when revenue from the tax fell by 33 percent. Counties in the 2015-16 budget year had enough money to cover a 47 percent drop in revenue, the audit said.
Counties also earned $81 million in interest by holding on to the money. Counties did not have clear guidance on what they were supposed to do with interest earned from the mental health tax.
San Luis Obispo County was among the counties piling up enough revenue to earn interest. It had $14.7 million on hand from the tax in 2015-16, and gained $667,000 in interest.
Fresno County had $95.4 million available, but did not report earning interest on its mental health funds.
The auditor called for more accountability from the Department of Health Care Services and the Mental Health Services Oversight Commission, which Howle wrote could give better guidance to local governments and develop a clear process for the state to recover unused money.
The department told the auditor’s office that it would offer regulations by 2019 to describe best practices and lay out the counties’ financial responsibilities for the program.
“Health Care Services’ poor oversight of the MHSA program is troubling given the importance of providing mental health services to Californians,” Howle wrote.