California Passed Prop. 1: What’s Next for Behavioral Health System Reform?

Millions of Californians, including many facing housing insecurity, rely on county-provided services to address mental health conditions and substance use disorders. Strengthening the state’s behavioral health system is essential to guaranteeing that every Californian — regardless of race, age, gender identity, sexual orientation, or where they live — can access the care they need.

In March 2024, California voters narrowly passed Proposition 1 on the promise to improve the state’s behavioral health system and provide the housing support needed to successfully maintain mental health and substance use disorder services for all Californians.

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Prop. 1 was a two-part measure that 1) amended California’s Mental Health Services Act and 2) created a $6.38 billion general obligation bond. The bond will fund behavioral health treatment and residential facilities, and supportive housing for veterans and individuals at risk of or experiencing homelessness with behavioral health challenges.

As the transformation of California’s county-based behavioral health system brings both benefits and potential challenges for Californians, this Q&A highlights key developments of Prop. 1 since its passage and addresses important questions and considerations that remain.

Key Acronyms

• BHSA: Behavioral Health Services Act (formerly the Mental Health Services Act)
• BHIBA: Behavioral Health Infrastructure Bond Act 
• BHCIP: Behavioral Health Continuum Infrastructure Program
• CalHHS: California Health and Human Services Agency
• CalVet:  California Department of Veteran Affairs
• DHCS: California Department of Health Care Services
• HCD: California Department of Housing and Community Development

Key Terms

What does Prop. 1 do?

Prop. 1 significantly amended the Mental Health Services Act (MHSA), a law that California voters passed in 2004 that created a millionaire’s tax to provide increased funding for mental health services. Revenue from this tax is crucial to California’s behavioral health system as it accounts for nearly one-third of county behavioral health services funding. Prop. 1 renamed the law the Behavioral Health Services Act (BHSA) and made other changes, including:

• Expanding its scope to encompass treatment for substance use disorders.
• Modifying how revenue from the millionaire’s tax is allocated for behavioral health services.
• Changing the requirements for counties’ three-year program and expenditure plan for behavioral health services and outcomes.
• Revising accountability and transparency requirements for counties.

Prop. 1 additionally established a $6.38 billion behavioral health infrastructure bond. Roughly $4.4 billion is dedicated to the infrastructure development of treatment and residential care facilities. The remaining $2 billion is reserved for permanent supportive housing units specifically for veterans and other Californians with serious mental health conditions or substance use disorders. 

This initiative was designed to create targeted funding for mental health services and housing or treatment units for people with behavioral health conditions who are experiencing or at risk of homelessness. As such, these reforms will only serve a subset of Californians, as they do not cover everyone at risk of homelessness or all individuals with behavioral health conditions.

What do we know about the behavioral health infrastructure bond?

Major developments regarding Prop. 1 have primarily related to the Behavioral Health Infrastructure Bond Act (BHIBA). BHIBA created a $6.38 billion general obligation bond to fund the infrastructure development of treatment and residential sites as well as supportive housing. There are two programs funded by the bond which are overseen by different state departments:

HCD is aggregating two main funding sources for Homekey+ for a total of $2.25 billion for the upcoming November application cycle:

• $1.98 billion from Prop. 1 bond funding, with $1.065 billion designated for veterans and $922 million for other people experiencing or at risk of homelessness. 
• $323 million Homeless Housing, Assistance, and Prevention Program (HHAP) Homekey Supplemental funding appropriated in the 2023 and 2024 Budget Acts.

Homekey+ projects are required to demonstrate a funding match of at least 3 years for operating costs. For long-term sustainability, HCD is encouraging counties to pair the restructured BHSA housing intervention dollars and other funding sources for behavioral health treatment to provide long-term service and operating costs for Homekey+ projects. However, Homekey+ projects will be awarded before counties are required to have their new three-year BHSA expenditure plans approved, which may create budgeting challenges.

How are counties allocating Behavioral Health Services Act (BHSA) funds under Prop. 1?

Prop. 1 significantly reforms the allocation of MHSA (now BHSA) dollars to prioritize Californians who are most affected by severe behavioral health conditions (mental illness and substance use disorders) and homelessness.¹SB 326 created the legislative language for the BHSA.

Under Prop. 1, counties continue to receive the bulk of BHSA funds (90%). However, the allocation across different spending categories would change. Counties would allocate their BHSA funds as follows:

Prop. 1 shifts a small percentage of dollars from counties to the state (from about 5% of total MHSA funding to about 10%). This would result in about $140 million annually redirected to the state budget. However, this amount could be higher or lower depending on the total amount of revenue collected from the tax.

Prop. 1 also revised the allocation of state-level funds:

• At least 3% to the Department of Health Care Access and Information to implement a statewide behavioral health workforce initiative.
• At least 4% to the California Department of Public Health for population-based mental health and substance use disorder prevention programs. A minimum of 51% of these funds must be used for programs serving Californians who are age 25 years or younger.

What are the new county reporting requirements under Prop. 1?

Prop. 1 changes the way counties plan and report behavioral health funding. 

Starting in 2025, counties will need to develop integrated county plans for the 2026-29 fiscal years. The steps for developing plans are similar to how counties developed plans under the MHSA — counties will still gather community input and receive approval from County Boards of Supervisors. However, a key change is that counties will now report on all behavioral health funding, not just BHSA dollars. This includes local, state, and federal funding sources such as opioid settlement funds, SAMHSA and PATH grants, realignment funding, and federal financial participation.

Counties will also be required to report on unspent funds, service utilization data, outcomes with a focus on health equity, workforce metrics, and other information. The Department of Health Care Services (DHCS) has the authority to impose corrective action plans on counties that fail to meet these requirements. Additionally, the State Auditor will release a report on the implementation of the BHSA by December 31, 2029, with follow-up reports every three years thereafter.

What do we know about implementation timelines?

Since the passage of Prop. 1 in March, various developments regarding both the behavioral health infrastructure bond and county guidance for BHSA reforms have surfaced.

Behavioral Health Infrastructure Bond

Treatment and Residential Sites — BHCIP

In July, the Department of Health Care Services (DHCS) released an expedited timeline to roll out $3.3 billion for the construction, renovation, or expansion of treatment and residential care facilities through the existing Behavioral Health Continuum Infrastructure Program (BHCIP). Round 1 applications for “launch ready” projects are currently being accepted through mid-December 2024. DHCS is prioritizing applicants working in regional models or collaborative partnerships focused on expanding residential treatment facilities. Awards for Round 1 are anticipated to be announced in May 2025 and Round 2 “unmet needs” project applications will be opened in the same timeframe for the remaining $1.1 billion bond funds.

Permanent Supportive Housing — Homekey+

The Department of Housing and Community Development (HCD), in conjunction with the Department of Veteran Affairs (CalVet), engaged with stakeholders on the roll out of the Homekey Plus (Homekey+) program. Homekey+ is expanding on the Homekey Program which funded the acquisition and conversion of property for permanent supportive housing during and after the COVID-19 pandemic. It is receiving roughly $2 billion in bond funds to develop supportive housing for people with behavioral health conditions, with $1.065 billion designated for veterans and $922 million for other people experiencing or at risk of homelessness. HCD was collecting stakeholder input through the end of September. Applications will open November 2024 with continuous award announcements beginning in May 2025.

Behavioral Health Services Act Reform

Since the passage of Prop. 1 in March 2024, the California Health and Human Services Agency (CalHHS) and the State Department of Health Care Services (DHCS) have held public listening sessions to share Prop. 1 implementation updates and collect feedback from counties and other interested groups.

DHCS, in coordination with other agencies and departments, is currently in the midst of stakeholder engagement to inform new county expenditure plans and reporting requirements under the BHSA.²Other departments and agencies include: CalHHS, the California Behavioral Health Planning Council, and the Behavioral Health Services Oversight and Accountability Commission. CalHHS plans to share full guidance to counties in early 2025.

In addition, Prop. 1 created a Behavioral Health Services Act Revenue and Stability Workgroup, which has held two meetings. This group is charged with developing and recommending solutions to reduce BHSA revenue volatility and to propose appropriate prudent reserve levels to support the sustainability of county programs and services.

To support Prop. 1 implementation, the Department of Health Care Access and Information (HCAI) is taking steps to improve the behavioral health workforce. HCAI recently presented its strategy on how to grow and diversify the behavioral health workforce to the California Health Workforce Education and Training Council, and will provide additional updates in November 2024. The behavioral health workforce shortage in California is a major obstacle to addressing the growing need for mental health and substance use disorder services.

What don’t we know about Prop. 1 implementation?

There are several critical questions and considerations surrounding the BHSA reforms and behavioral health bond funds that are yet to be addressed. As key Prop. 1 players continue to engage with stakeholders, roll out program details, and prepare to release additional county guidance in early 2025, the following fundamental questions are essential to understanding how these reforms will impact Californians and current behavioral health and housing systems. Key questions include:

Supported by the California Health Care Foundation (CHCF), which works to ensure that people have access to the care they need, when they need it, at a price they can afford. Visit chcf.org to learn more.