Receive update on the Mental Health Services Act budget for fiscal year 2025-26, including options to address the existing structural deficit and an updated outlook for local implementation of the Behavioral Health Services Act. (No general fund impact) (Morales) (Est. Staff Presentation: 20 min)

Receive update on the Mental Health Services Act (MHSA) budget for fiscal year 2025-26, as it relates to the MHSA Annual Plan Update.  This presentation will include options for the Board to consider addressing the existing structural deficit in the FY 25-26 MHSA budget and an updated outlook for local implementation of the Behavioral Health Services Act (BHSA) that was implemented by Proposition 1, which will take effect on July 1, 2026. Board feedback will be solicited and incorporated in preparation for final Board action in October.

On June 3, 2025, the Yolo County Board of Supervisors received a report from the Yolo County Health and Human Services Agency (HHSA) regarding the Mental Health Services Act (MHSA) Annual Plan Update.  The current three-year MHSA Plan is in effect from July 1, 2023 through June 30, 2026, but requires an Annual Update each year to monitor the progress of the existing plan and to implement any necessary changes to the plan. The Annual Update process includes a community planning process that allows stakeholders to provide input on local behavioral health needs and priorities. 

As was noted at the June 3, 2025 presentation, the FY 2025-26 Annual Plan Update was far behind schedule, as MHSA requires multiple steps prior to approval (including a 30-day public comment period, a hearing at the Local Behavioral Health Board, and Board approval) prior to submission for final approval with the Behavioral Health Services Oversight and Accountability Commission (BHSOAC). MHSA requires for the FY 2025-26 MHSA Annual Update to be approved by June 30, 2025, and it was not going to be possible to meet this deadline because of uncertainties with the MHSA budget due to an approximately $11 million structural deficit. Thus, the need for the Board to quickly identify the future of the MHSA budget.    

The Board was also advised that FY 2025-26 would be the last year of the Mental Health Services Act due to the enactment of the Behavioral Health Services Act that was implemented by Proposition 1 in the 2024 California election. The Behavioral Health Services Act (BHSA) makes significant changes to the Mental Health Services Act, including alterations of funding allocations, increasing the scope of treatable conditions to include substance use disorders, and mandating increased spending on supportive housing. Proposition 1 also shifts the State's share of MHSA tax revenue from 5% to 10%, reducing the county allocation from 95% to 90%.  Most significantly, counties are now required to direct more of their funding toward housing and personalized support services for people with the most serious mental health and substance use needs, especially those who are homeless or at risk of homelessness. Beginning July 1, 2026, counties must dedicate 30% of their MHSA funding to housing interventions for individuals with the most significant behavioral health needs. 

At the June 3, 2025, the Board was advised that the $11 million structural deficit in MHSA for FY 2025-26 could be addressed by utilizing existing fund balances, but that this action would exhaust the fund balances without addressing the structural deficit.  Additionally, the structural deficit would likely be magnified in FY 2026-27 by the following factors:

HHSA staff advised that the culmination of these factors create a scenario where the actual structural deficit will continue to grow if we don’t start to implement reductions. HHSA staff also took into account the priorities established by the Board on June 3, 2025:

Various options will be presented to the Board for consideration to reduce the structural deficit. The options will include a comprehensive and balanced approach that includes reduction to contracts, HHSA staffing, and HHSA programming. It should be noted that none of the proposed options will fully eliminate the existing structural deficit, but all will reduce costs to some degree and set the path for a fiscally healthy FY 2026-27 BHSA Plan.