BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON HUMAN SERVICES
                               Senator McGuire, Chair
                                2015 - 2016  Regular 

          Bill No:              SB 638
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          |Author:   |Stone                                                 |
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          |----------+-----------------------+-----------+-----------------|
          |Version:  |April 21, 2015         |Hearing    |April 28, 2015   |
          |          |                       |Date:      |                 |
          |----------+-----------------------+-----------+-----------------|
          |Urgency:  |No                     |Fiscal:    |Yes              |
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          |Consultant|Mareva Brown                                          |
          |:         |                                                      |
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                     Subject:  Developmental services:  funding


            SUMMARY
          
          This bill requires the Department of Developmental Services  
          (DDS) to submit a plan to the Legislature by August 1, 2016, to  
          ensure the sustainability, quality, and transparency of  
          community-based services for individuals with developmental  
          disabilities. It requires DDS to regularly consult with  
          stakeholders in developing the plan, and to address specified  
          topics including recommendations for a comprehensive approach to  
          funding regional center operations in a sustainable and  
          transparent manner that enables regional centers to deliver  
          high-quality services to consumers. The bill also relaxes the  
          percentage of funds that vendors may spend on administrative  
          costs, based on various factors, and increases rates for  
          services that are established in statute. Additionally, the bill  
          requires an increase to the rates set by the department through  
          various methodologies and requires that DDS ensure that the  
          rates permit the viability of certain residential facilities by  
          establishing different rates for each facility size, as  
          specified.  Additionally, this bill requires DDS to increase  
          funding for regional center operating budgets, by 10% by July 1,  
          2015, and, beginning July 1, 2016, to increase operations  
          funding based on a calculation using the California Consumer  
          Price Index. The bill also requires DDS to increase regional  
          center vendor funding to cover costs related to minimum wage  
          requirements.









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            ABSTRACT
          
          Existing law:

             1)   Defines "developmental disability" as a disability that  
               originates before the age of 18, continues, or can be  
               expected to continue, indefinitely, and constitutes a  
               substantial disability. This term also includes autism.  
               (WIC 4512) 


             2)   Establishes the California Department of Developmental  
               Services (DDS) as the agency that oversees the state's  
               developmental centers, and specifies the duties of the  
               department and developmental center employees. (WIC 4400 et  
               seq.) 


             3)   Establishes that DDS contracts with private non-profit  
               regional centers to provide fixed points of contact in the  
               community for persons with developmental disabilities and  
               their families, so that these persons may have access to  
               the services and supports best suited to them throughout  
               their lifetime. (WIC 4620) 


             4)   Prohibits any contract or agreement with a service  
               provider in which rates are determined through negotiations  
               between the regional center and the service provider from  
               spending more than 15 percent of regional center funds on  
               administrative costs.  (WIC 4629.7)


             5)   Requires DDS to adopt regulations that specify rates for  
               community care facilities serving persons with  
               developmental disabilities and specifies elements of the  
               cost model, including facility size, geographic cost of  
               living variables, and common direct-care services specific  
               to an identifiable group of persons, among many factors.  
               (WIC 4681.1. (a))


             6)   Prohibits a regional center from paying an existing  
               residential provider, supported living provider or service  









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               provider a negotiated rate any rate higher than the rate  
               that was in effect on June 30, 2008, with limited  
               exceptions. (WIC 4681.6 (a)(1)) (WIC 4689.8(a)(1))   (WIC  
               4691.9 (a)(1))


             7)   Additionally, prohibits a regional center from  
               negotiating a rate with a new residential provider,  
               supported living provider, or service provider that is  
               higher than the regional center's median rate for the same  
               service, as defined, or the statewide median rate -  
               whichever is lower.  (WIC 4681.6 (a)(2))  (WIC 4689.8  
               (a)(2))  (WIC 4691.9 (a)(2))


             8)   Defines habilitation services as activities purchased  
               for regional center consumers, including services provided  
               under the Work Activity and Supported Employment programs  
               to prepare and maintain consumers at their highest level of  
               vocation functioning or to prepare them for referral to  
               vocational rehabilitation services. (WIC 4851)


             9)   Establishes the hourly rate for supported employment  
               services at $30.82. (WIC 4860)


             10)Establishes a series of fees to be paid to supported  
               employment providers upon completion of a consumer's  
               progress in the program, as follows:


                               A $360 fee to be paid to a program  
                      provider upon intake of a consumer into a supported  
                      employment program, as specified. 


                               A $720 fee to be paid upon placement of a  
                      consumer in an integrated job, as specified.


                               A $720 fee to be paid after a 90-day  
                      retention of a consumer in a job, as specified.










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          This bill:

             1)   Makes a variety of uncodified findings and declarations  
               about the effects of cuts, rate freezes and outdated  
               funding formulas. 

             2)   Adds section 4519.8 to the Welfare and Institutions code  
               requiring DDS submit a plan to the Legislature by August 1,  
               2016, to ensure the sustainability, quality, and  
               transparency of community-based services for individuals  
               with developmental disabilities. 

             3)   Requires the department to regularly consult with  
               stakeholders in developing the plan.

             4)   Requires the plan to include, but not be limited to, all  
               of the following:

                  a.        An assessment of the effectiveness of the  
                    methods used to pay each category of community service  
                    provider, including consideration of the following  
                    factors for each category of service provider:

                        i.             Whether the current method of  
                         ratesetting for a service category is ensuring an  
                         adequate supply of providers in that category,  
                         including, but not limited to, whether there is a  
                         sufficient supply of providers to enable a  
                         consumer to have a choice of providers.
                        ii.            A comparison of the likely fiscal  
                         effects of using the following methodologies for  
                         each service provider category:
                                       Negotiated rates, which may be  
                          limited to regional medians or other limits.
                                       Rates established through  
                          regulations on either a statewide or regionally  
                          adjusted basis.
                                       Alternate rate methodologies that  
                          may use combinations of negotiated or regulatory  
                          rates on either a statewide or regionally  
                          adjusted basis.

                  a.        An evaluation of the appropriateness of the  









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                    number and type of service codes for regional center  
                    services, including, but not limited to,  
                    recommendations for making service codes more  
                    reflective of the level and type of services provided  
                    and for reducing the number and type of services that  
                    are billed with a service code of "Miscellaneous."

                  b.        Recommendations for a comprehensive  
                    purchase-of-services rate structure that would ensure  
                    a sustainable, high-quality, and transparent community  
                    services system.

                  c.        An assessment of the adequacy of the number  
                    and locations of regional centers for providing timely  
                    service to consumers. This assessment shall consider,  
                    at a minimum, all of the following factors:

                               The waiting time for consumers to obtain  
                      appointments with regional center personnel.
                               The distance consumers must travel for  
                      in-person meetings with regional center personnel.
                               The type and frequency of interactions  
                      between consumers and regional center staff that can  
                      be accommodated remotely through electronic means,  
                      including, but not limited to, electronic mail,  
                      video conferencing, or telehealth.
                               Whether the number of consumers and the  
                      geographic size of the catchment area served by each  
                      regional center are reasonable for delivering  
                      high-quality service to consumers and their  
                      families.
                               Whether additional regional centers or  
                      regional center locations are necessary to address  
                      any identified deficiencies in access to regional  
                      center personnel, or whether technology-enabled  
                      means of access or other solutions are warranted.

                  a.        Recommendations for a comprehensive approach  
                    to funding regional center operations in a sustainable  
                    and transparent manner that enables regional centers  
                    to deliver high-quality services to their consumers,  
                    including, but not limited to, recommendations and  
                    estimated costs for increasing the number of regional  
                    centers or altering catchment areas.









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             1)   Amends existing law which mandated a 15 percent cap on  
               administrative costs for all service providers receiving  
               negotiator rates from a regional center. Instead, it  
               requires:

                  a.        For service providers who receive payments  
                    from one or more regional centers totaling $2 million  
                    or more annually, 15 percent of regional center funds  
                    may be spent on administrative costs.
                  b.        For service providers who receive payments  
                    from one or more regional centers totaling less than  
                    $2 million but more than $500,000 annually, 20 percent  
                    of regional center funds may be spent on  
                    administrative costs.
                  c.        For service providers who receive payments  
                    from one or more regional centers totaling $500,000 or  
                    less annually, 25 percent of regional center funds may  
                    be spent on administrative costs.

             2)   Requires DDS to ensure that rates established for  
               community care facilities serving persons with  
               developmental disabilities permit the viability of those  
               facilities, including, but not limited to, four-bed  
               facilities, by establishing different rates for each  
               facility size, as determined by the number of beds  
               available, that reflect reasonable differences in the cost  
               structure of facilities with differing numbers of beds.

             3)   Requires DDS to adopt emergency regulations by July 1,  
               2016, to implement the establishment of different rates for  
               each facility size and deems any adoption, amendment,  
               repeal, or re-adoption of a regulation to be necessary for  
               the immediate preservation of the public peace, health and  
               safety, or general welfare, and therefore DDS is exempted  
               from the requirement that it describe specific facts  
               showing the need for immediate action, as required for  
               regulations under Gov Codes 11346.1 and 11349.6.

             4)   Requires DDS to increase by 10 percent rates for various  
               regional center services, effective July 1, 2015. It  
               further requires that, commencing July 1, 2016, DDS shall  
               increase those rates in accordance with the California  
               Consumer Price Index, unless the Budget Act of 2016  









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               includes alternative rate increases or rate reforms, as  
               specified, or the increase would not imperil the amount of  
               federal matching funds available for these services. The  
               rate categories include:

                  a.        Community care facilities 
                  b.        Residential service providers with negotiated  
                    rates
                  c.        Supported Living Services providers with  
                    negotiated rates
                  d.        Non-residential service providers
                  e.        Service providers with negotiated rates
                  f.        The regional centers' core staffing formula.

             5)   Requires DDS to increase the funding to enable a  
               regional center to fund all of the following costs  
               associated with minimum wage requirements for the centers  
               and purchase-of service vendors:

                  a.        Costs necessary to comply with a statewide  
                    minimum wage requirement.
                  b.        Costs necessary to comply with minimum wage  
                    requirements enacted by local governments that exceed  
                    the statewide minimum wage.
                  c.        Costs necessary to increase compensation for  
                    exempt, salaried employees to comply with wage orders  
                    issued by the Industrial Welfare Commission or any  
                    other state regulatory agency.
                  d.        Any other wage adjustments that vendors are  
                    required to make in response to minimum wage increases  
                    mandated by state or federal statutes, regulations, or  
                    other authorities.

             6)   Requires that funding increases related to minimum wage  
               mandates be in addition to the 10 percent and Consumer  
               Price Index funding increases mandated in other sections of  
               this bill, and the increases to Supported Employment Rates  
               set in statute.

             7)   Increases the hourly rate paid to providers of  
               individualized and group-supported employment services from  
               $30.82 to $34.24, and increases the fees paid to program  
               providers from $360 to $400 and from $720 to $800,  
               respectively, for achieving various client milestones in  









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               employment. 

             8)   Effective July 1, 2016, increases the hourly rate paid  
               to providers of individualized and group-supported  
               employment services to $37.66, providing the Budget Act of  
               2016 does not implement alternative rate increases or  
               regional center funding reforms.

             9)   States codified Legislative intent that the changes made  
               by this act are not intended to result in the substantial  
               impairment of any contract, and that if any contract is  
               substantially impaired as a result of the application of  
               any change made by this act, it is the intent of the  
               Legislature that the change apply only to contracts renewed  
               or entered into on or after January 1, 2016.
          
            FISCAL IMPACT
          
          This bill has not been analyzed by a fiscal committee.

            BACKGROUND AND DISCUSSION
          
          Purpose of the bill:

          According to the author, neglect of the community service system  
          in the past decade has shut down some small businesses and  
          non-profits that serve developmentally disabled individuals.  
          State budget actions in recent years reduced or froze  
          reimbursement levels for service providers, and imposed mandates  
          and administrative hurdles that added little or no value, the  
          author states. Additionally, the author states, archaic methods  
          for funding and overseeing services through the non-profit  
          regional centers have resulted in understaffing at those  
          centers, which has created challenges for persons with  
          developmental disabilities and their families to identify and  
          obtain the services they need.  

          According to the author, these obstacles continue to threaten  
          the viability of the community system. SB 638 takes both  
          short-term and long-term steps to sustain the promise that  
          individuals with developmental disabilities can thrive in their  
          own communities, the author states.

          The Lanterman Act









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          The Lanterman Developmental Disabilities Services Act  
          establishes an entitlement to services and supports for  
          Californians with developmental disabilities who are living in  
          their communities. A developmental disability is one that  
          originates before the age of 18, continues, or can be expected  
          to continue, indefinitely, and constitutes a substantial  
          disability. Approximately 280,000 children and adults with  
          developmental disabilities are served in community-based  
          programs and supported by state- and federally funded services  
          that are coordinated by local, nonprofit regional centers. An  
          additional 1,100 individuals are served in four state-run  
          institutions, including three Developmental Centers. About 74  
          percent of consumers live in the home of a parent or guardian,  
          according to 2014 DDS data.


          The state's 21 nonprofit regional centers vary considerably in  
          size and organization, from Redwood Coast Regional Center, which  
          serves approximately 3,300 consumers, to Inland Regional Center,  
          with a caseload of nearly 29,000. The average is around 12,000  
          consumers. Services are developed locally and regional centers  
          "vendorize" providers to deliver services in local catchment  
          areas. Approximately 45,000 agencies provide services in more  
          than 150 service category types including residential care, day  
          programs, behavioral therapies, independent and supported  
          living, supported employment, respite, transportation and many  
          others. The Governor's January budget includes funding for DDS  
          of $5.7 billion.


          Determination of service needs 

          Determining and coordinating the services for an individual  
          consumer is done through the process of developing an  
          Individualized Program Plan (IPP), or an Individual Family  
          Service Plan (IFSP), if the consumer is an infant or toddler  
          three years of age or younger. The IPP or IFSP is prepared  
          jointly by an interdisciplinary team consisting of the consumer,  
          a parent or guardian, persons who have important roles in  
          evaluating or assisting the consumer, and representatives from  
          the Regional Center. The IPP or IFSP includes a description of  
          the consumer's needs and of the services to be provided to meet  









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          those needs.

          Cost-saving measures 
          
          Although consumers have an entitlement to services that meet  
          their needs, a variety of restrictions on service provision have  
          been implemented over the past 10 years. Since 2009, the state  
          has reduced costs to developmental services programs by more  
          than $1 billion (GF) including restrictions on payments for  
          specific services, caps on costs or provided for other services,  
          across-the-board reductions, mandated holidays and other cuts.  
          Prior to the 2009 cost-containment measures, the state had  
          frozen rates to providers in order to contain costs. 

          A Senate Human Services Committee oversight hearing in Los  
          Angeles on October 9, 2014, focused on the sustainability of the  
          Regional Center system in the wake of significant cuts and  
          freezes.<1> Panelists and members of the public testified that  
          years of rate freezes and payment cuts have left the system  
          fragile and unable to withstand even minor fiscal challenges.  
          The Association of Regional Center Agencies reports that 435  
          licensed residential homes and 57 day and work programs have  
          closed since July 2011, and while the exact cause of these  
          closures is unclear and may be related to other factors, some of  
          these are a result of unsustainable reimbursement rates. 

          Widespread rate freezes began in 2003-04 for community-based and  
          similar day programs, in-home respite care, supported living  
          services and transportation. In 2008-09, as a part of  
          Recession-prompted rate controls, new regional center vendors  
          statewide were no longer permitted to negotiate a rate higher  
          than the statewide median rate or regional center median rate  
          for the same service - whichever was lower. In 2011-12, a new  
          rate survey was conducted resulting in lower median rates for  
          new providers. This practice continues today.

          Provider payment reductions also were imposed as cost savings  
          mechanisms. In 2009-10, providers were required to take a 3  
          percent across the board reduction to save an estimated $51  
          million annually. In the following two fiscal years, provider  
          ---------------------------
          <1> The Lanterman Act: Promises and Challenges, Senate Human  
          Services Committee, Edward R. Roybal Board of Public Works  
          Session Room, October 9, 2014









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          payments were reduced by 4.25 percent, to save an estimated $75  
          million and $94 million respectively, and in 2012-13, providers  
          phased out the payment reductions with a 1.25 percent decrease.  
          Rates returned to their 2008-09 levels in 2013-14. 

          In 2009-10, at the height of the recessionary cutbacks, a DDS  
          budget workgroup discussed the importance of using generic  
          resources before tapping into regional center funds to serve  
          consumers. The state imposed the requirement that year.  
                                                                            Increased use of private insurance, for example, was estimated  
          to save $51 million annually, increased use of public  
          transportation saved $37 million, and the increased use of  
          public education for consumers between ages 18 and 22 saved $14  
          million, among other examples.

          The 2011 developmental service budget trailer bill (SB 74,  
          Chapter 9, Statutes of 2011) additionally capped administration  
          costs for all negotiated rate providers and contractors at 15  
          percent and defined what must be included in administrative  
          costs.

          Regional Center caseloads

          Regional centers struggled with heavy caseloads and low salary  
          reimbursements during this time period. Caseloads are  
          statutorily mandated to be no higher than 1:62 for most  
          consumers, or 1:45 for consumers who have moved out of a  
          developmental center in the previous 12 months, and 1:66 for  
          consumers not receiving federally reimbursed waiver services and  
          who had not recently moved from a developmental center. 

          Some regional center caseworkers have testified of caseloads  
          substantially higher than 62 and ARCA reports one regional  
          center in 2014 reported a ratio of 1:136 for consumers without  
          waiver services. In 2007, before the recession began, 11  
          regional centers were reportedly out of compliance with the  
          caseload ratio requirements. In 2014, all 21 regional centers  
          reported being out of compliance in at least one category. As  
          part of the cost cutting solutions, the mandated ratio of 1:66  
          for some consumers was statutorily lifted between February 2009  
          and June 2013. As a comparison, the National Association of  
          State Directors of Developmental Disabilities Services (NASDDDS)  
          surveyed states about their caseloads and found that 32 out of  
          37 states had caseload ratios below 1:59, and more than half of  









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          the 37 had caseloads below 1:39.<2>  

          The persistent inability of regional centers to adhere to  
          caseload mandates has caused some concern. A similar lack of  
          oversight in 1997 drew a federal rebuke and significant  
          restrictions on the use of the federal Home and Community Based  
          Services (HCBS) waiver, which provides matched funding to many  
          services for consumers who qualify for subsidized benefits.  
          After extensive state compliance efforts, in which regional  
          centers had to certify compliance one by one, the federal waiver  
          enrollment freeze was gradually lifted. The six-year freeze cost  
          California $933 million in lost reimbursements. 

          Central to the caseload conversation is the regional centers'  
          "core staffing formula" which defines the way regional centers  
          are funded. The core staffing formula has not been updated since  
          1991, meaning that regional centers are funded for positions at  
          significantly lower rates than the actual salaries they are  
          paying. One consequence of this is that regional centers will  
          hire fewer staffers in order to pay the staffers they have a  
          competitive wage. Additionally, the core staffing formula does  
          not fully reflect current demands on mid-level managers and  
          other staff. 

          Rate Restructuring
          
          In 2001, DDS and its stakeholders completed a four-year review  
          of the community based service delivery system and released a  
          67-page document with that year's May budget revision.  The  
          report, prompted by SB 1038 (Chapter 1043, Statutes of 1998),  
          underscored the need to shift the current system to one of  
          quality-based outcomes. Inherent in this process was the need  
          restructure rates to reflect the actual cost of providing  
          services. A recession in late 2001, forced the state to postpone  
          implementation, although DDS committed to continue focusing on  
          the effort with workgroups. 

          In 2014, the Legislature again tried to establish a rate reform  
          process in its budget bill, however the Governor rejected the  
          language, noting that the issue would be taken up by a task  
          ---------------------------
          <2> "On the Brink of Collapse: The Consequences of Underfunding  
          California's Developmental Services System," Association of  
          Regional Center Agencies, February 2015, pg 31.









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          force convened by the Health and Human Services Agency.

          Agency task force

          In July 2014, Health and Human Services Secretary Diana Dooley  
          convened a task force to study the community service delivery  
          system and to recommend reforms. The Developmental Services task  
          force and its subcommittees have met several times since fall,  
          including last week. The task force will be considering whether  
          to revise the existing rate structure and rate-setting  
          methodology, how to streamline billing codes, how to allow more  
          flexible rates, establish standards of quality and outcome  
          measurements and consider other new state, local and federal  
          mandates. It also is looking into staffing levels and the core  
          staffing formula at the 21 regional centers. The task force has  
          no specific end date for its work.

          The task force was convened as a follow up to the work of a  
          similar task force that looked into the state's developmental  
          centers and produced a report on "The Plan for the Future of  
          Developmental Centers in California." That task force's report  
          included a request to "develop recommendations to strengthen the  
          community system in the context of a growing and aging  
          population, resource constraints and availability of community  
          resources to meet the specialized needs of clients and past  
          reductions to the community system."7

          New federal HCBS requirements
          
          In March 2014, the federal Centers for Medicaid and Medicare  
          Services (CMS) released new regulations for federal  
          reimbursement of home and community based services. Among the  
          changes are requirements for consumers to live in and receive  
          services in the most integrated setting possible, leaving open,  
          for now, exact definitions of what changes could be required in  
          California to comply. The new regulations affect federal HCBS  
          waivers used by DDS to pay for consumer services. California and  
          other states are required to submit state transition plans and  
          DDS has begun a stakeholder process to identify service types  
          that may be out of compliance. The state is required to have its  
          plan in place and to shift consumers to the more-integrated  
          models of care in 2019.

          Related legislation:









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          SB 490 (Beall, 2015) revises the threshold for vendor financial  
          audit requirements imposed as budget cost savings measures.

          AB 1400 (Santiago, 2015) requires that all regional center  
          contracts with in-home respite providers expressly require that  
          at least 85 percent of regional center funds be spent on direct  
          service expenditures, as defined. 

          AB 1626 (Maienschein, 2014) would have made identical increases  
          to the supported employment rates and fees. It died in the  
          Senate Appropriations Committee. An Appropriations committee  
          analysis estimated the cost of these rate and fee increases to  
          be at least $10.1 million (GF) per year.


          AB 954 (Maienschein, 2013) would have made identical increases  
          to the supported employment rates and fees. It died in the  
          Assembly Appropriations Committee. A committee analysis  
          estimated the cost of these rate and fee increases to be  
          approximately $12.5 million (GF) per year.


          SB 468 (Emmerson, Chapter 683, Statutes of 2013) established the  
          self-determination program which gives consumers the option of  
          having an individual budget with which to purchase services as  
          they choose, with defined approval processes, rather than having  
          services coordinated by the regional center.

          AB 1041 (Chesbro, Chapter 677, Statures of 2013) established the  
          Employment First policy, requiring the state to prioritize  
          integrated, competitive employment when planning activities for  
          working age adults with developmental disabilities. 

            COMMENTS
          
          A series of reports issued by the Association of Regional Center  
          Agencies (ARCA) in the past several years have described  
          systemic underfunding of the system. In its February 2015  
          report, "On the Brink of Collapse: The Consequences of  
          Underfunding California's Developmental Services System," ARCA  
          concludes that erosion of funding coupled with additional  
          unfunded mandates have left it struggling to maintain many  
          consumers, rather than providing them with the robust supports  









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          and services they need to thrive.<3> 

          To the degree that this bill overlaps efforts already in place  
          by the Health and Human Services Agency's task force, the  
          language in SB 638 imposes a time line on completion of the  
          evaluation of service rates and regional center staffing  
          formulas. This bill also reflects advocacy efforts for a 10  
          percent increase to provider rates, satisfies the regional  
          center's request for a 10 percent increase to its core staffing  
          formula and includes a statutory rate increase to supported  
          employment providers that was attempted last year in SB 1626  
          (Maienschein). 

          Should the author need to trim costs in this bill, he may want  
          to consider prioritizing language that remedies identified needs  
          in the system that are not being addressed by the task force or  
          in the budget committee, such as restructuring rates for  
          four-bed facilities to comply with new federal integrated  
          setting requirements, or to identify the most critical rate  
          stabilization efforts. The Autism Society of Los Angeles, which  
          did not take a position on this bill, submitted a letter  
          encouraged the author to consider prioriting funding for  
          purchase of services for consumers to improve individual  
          outcomes. 


            POSITIONS
                                          
          Support:
               
               California Association of State Hospital Parent Councils  
               for the Retarded
               California Disability Services Association 
               Futures Explored, Inc.
               ResCoalition   
          

          Opposition:

               None received




          ---------------------------
          <3> Ibid P 55









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