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Policy Paper No. PP89-4-1

An Exploration of County Expenditures
and Revenues for Children’s Services

Paul D. Goren and Michael W. Kirst
February 1989

Paul D Goren is a graduate student at Stanford University and a former staff member in the
San Diego Unified School District Office of Planning, Research, and Evaluation.

Michael W. Kirst is professor of education at Stanford University and co—director of PACE.

This paper was sponsored and published by Policy Analysis for California Education,
PACE. PACE is funded by the William and Flora Hewlett Foundation and directed jointly
by James W. Guthrie and Michael W. Kirst. The analyses and conclusions in this paper
are those of the authors and are not necessarily endorsed by the Hewlett Foundation.

INSTITUTE OF GOVERNMENTAL
STUDIES LIBRARY

UNIVERSITY OF CALIFORNlA

 

Additional copies of this paper, PP89—4-l are available by sending $3.00 plus $1.50
shipping/handling per copy to:

PACE
School of Education
University of California
Berkeley, California 94720

CHECKS PAYABLE TO THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
(California residents add appropriate sales tax.)

Policy Paper No. PP89-4-1
Policy Analysis for California Education (PACE)
Berkeley, California
February 1989

 

An Exploration of County
Expenditures and Revenues
for Children’s Services

The changing conditions of children in California will necessitate significant increases in public
expenditures. For example, the annual enrollment growth in schools alone will increase education
expenditures by about 3 percent. Many of these additional children will require special services due
to recent immigration, working parents, poverty, or family disorganization. Great strain will be

placed on county and school district resources in order to keep pace with growth and tailor programs
to the particular circumstances of various localities.1

The current system for financing children’s services in California provides cities greater
fiscal flexibility and revenue-raising potential than counties and school districts. But counties and
school districts are the major providers of children’s services and provide a broad array of children’s
services, while cities have very limited responsibilities (mostly recreation and law enforcement).
Some county administrative responsibilities are presented below (Table 1).2

 

TABLE 1 Selected Children’s Programs Administered by California Counties

 

HEALTH AND NUTRITION CHILDREN’S PROTECTIVE SERVICES

Matemal and Child Health
Women, Infants, and Children Feeding (W1C)
Child Health and Disability Prevention
Early Periodic Screening and Diagnosis
Genetic Disease (newborn screening)
Rural Health
Indian Health
Family Worker Health
Family Planning
MediCal (includes medically indigent children)
Mental Health
California Children’s Services
(physical therapy)

Children’s Shelter

Child Abuse Prevention

Child Welfare Services

Aid for Adoptions of Children
Foster Care

 

JUVENILE JUSTICE
Juvenile Detention
Juvenile Prosecution

 

 

INCOME SUPPORT
Payments for Children (AFDC)
Child Support Incentives

 

 

EDUCATION
Juvenile Hall—Education Programs
Special Education for

Severely Handicapped Children

 

 

This paper’s objective is to provide information on county children’s services and
trends in county budgets. This will serve as a basis for further PACE research on the adequacy
of county financing for children’s services. In order to fully understand public financing for
California’ 3 children, one would need to compile comprehensive data from federal, state, and
local sources. Unfortunately, data on federal and state funds to support children in California
are not compiled anywhere. Some federal program analyses are available, but they also
encompass funding for adults through such programs as Medicaid. The state government
does not provide any overall children’s budget.

No data are available concerning total expenditures for children in all California
counties. A major study was needed to compile and analyze children’ 3 programs and budgets
in just one county (Los Angeles Roundtable for Children 1986). Los An geles County
contains 27 percent of California’s children, and six out of ten children there are nonwhite.
Obviously, it is not representative of the state as a whole. The next section illustrates overall
county responsibility for children through the example of revenue and expenditure patterns
within one specific county. Many counties are experiencing difficulty obtaining revenues for
children. Most county funds come from federal and state sources, and services are mandated
by these higher levels of government. The Los Angeles County example, however,
demonstrates the crucial importance of locally raised revenue in providing children’s
services designed to meet local circumstances.

Los Angeles County Funding for Children

A comprehensive study of the Los Angeles County children’s budget concluded that most
programs serve “vulnerable and at-risk children for whom various Los Angeles County
government agencies have special, often legally mandated responsibilities. They are boys
and girls endangered by poverty, physical or mental illness or handicapped conditions, child
abuse and neglect, conflict with the law, or other special circumstances” (Los Angeles
County Roundtable for Children 1986).

A few important county services are available to all children, such as child immu-
nization, libraries, parks, and recreation. The Los Angeles County children’s budget was
slightly less than half the size of the total budget for all eight—two county public school
districts combined, and accounted for one third of the Los Angeles County govemment’s
total expenditures.

Three quarters of the total children’s budget for Los Angeles County is spent on
children’s income support programs—five programs in four departments. Assistance to
Families with Dependent Children (AFDC) accounts for 95 percent of the funding for
children’s income support. A breakdown of the Los Angeles County children’s budget by

service areas (Table 2) reveals that, after income support, the second largest item—child
health services—consumes only 9.4 percent of the total children’s budget. But these figures
do not include a much larger amount of funding—some health services for poor children go
directly through MediCal payments to health providers who are not part of county govern-
ment. The Los Angeles County Department of Health provides a basic medical safety net for
the poorest children and administers preventative public health services to a broader child
population. Most spending for children’s health, however, would need to be compiled from
individual hospitals not run directly by Los Angeles County.

TABLE 2 The Children’s Budget of Los Angeles County, Expenditures 1984-85a

 

Percent of Total

 

 

Children’s
Service Areas Dollars Budget
Children’s Income Support Programs $1,478,188,526 75.55%
Child and Adolescent Health Servicesb 185,250,756 9.4%
138,526,395 (7.0)
46,724,361 (2.4)
Juvenile Justice System Services 131,386,176 6.72%
Children’s Protective Services 117,222,572 6.0%
Children’s Mental Health Services 26,772,884 1.4%
Children’s Programs: Recreation/Culture 17,253,846 0.9%
Child Care 671,485 0.3%
Total Children’s Budget $1,956,746,243 100.0%
Total Consolidated Los Angeles
County Budget, 1984-85c $6,049,542,759 100.0%
Total Children’s Budget as Percent of
Total County Budget $1,956,746,243 32.3%

 

3 Estimated expenditures for children’s programs during fiscal year 1984-85 as compiled from special
Department reports prepared by request of Los Angeles County Chief Administrative Officer.

b These figures include 7 percent for Department of Health Services and 2.4 percent for administrative costs
for MediCal and Food Stamps, part of the Department of Public Social Services budget.

° Communication from James C. Hankla, Chief Administrative Officer, Los Angeles County, May 16, 1985 .

The juvenile justice system includes ten Los Angeles County departments plus a
separate County Office of Education and accounts for 7 percent of the Los Angeles County
government budget. Child Protective Services encompasses nine county departments. Also,
Child Protective Services frequently deals with the same children that Juvenile Justice does
at a different time or under different circumstances, since there is a high probability that an
abused or neglected child may be subsequently involved in delinquency.

Children’s Mental Health consumes only 1.4 percent of the Los Angeles County
government budget and serves children in other county service systems such as probation or
protective services. Children with mental health problems are often served by more than one

county department. The county also pays for mental health programs administered by private
agencies.

Cultural and recreational services are provided by seven Los An geles County
departments, the largest expenditure being for the county library system. County government
provides child care only to specific targeted groups of children, primarily abused or neglected
children, AFDC recipients, or children of parents in specific job training programs. Of the
$98 million provided by government for child care within Los An geles County, 70 percent
was allocated through the education system, 23 percent went to various non-profit agencies,
and 6 percent went to public agencies other than the Los Angeles County government.

Who Pays for County Children’s Services

An overview of Los Angeles County children’s services and local budgets reveals heavy
county fiscal dependence on federal and state governments (Table 3). The combined federal
and state share of the budget amounts to 81 percent. By contrast, Santa Clara County’ 8 federal
and state funding share was 58 percent.

In every area of children’s resources, there is a partnership of funding, but in some
areas federal funding dominates; in others, the state or county dominates. The largest
expenditure is for the Children’s Income Support Program, provided through 48 percent
federal, 45 percent state, and 7 percent Los Angeles County sources. But health programs
are funded predominantly from county sources, which account for 55 percent of the total; the
state share is 30 percent, and the federal share only 0.5 percent. Children’s Protective
Services is funded 63 percent by the state, but the state uses Title XX bloc grant funding from
the federal government to provide much of its contribution to counties. The rapidly growing
Juvenile Justice budget, however, is 83 percent county-funded. County libraries also rely
overwhelmingly on county funds.

The funding of income support for children highlights some of the differences
between Los Angeles County and the rural counties. Currently, counties pay 5.4 percent of

4

AFDC costs, while the state finances 44.6 percent and the federal government 50 percent.
Even this 5.4 percent is difficult to raise in some rural counties which have experienced rapid
growth of low-income populations. Parents realize that their grants will purchase more
housing and other necessities in rural economies, so many people have moved to Colusa
County (welfare expenses climbed by 247 percent between 1981 and 1986) and Tehama
County (246 percent in the same period).

TABLE 3 Income Sources: The Children’s Budget and Total County Budget, 1984-85

 

 

 

Source Children’s Budget % Total County Budget %

Federal $765,429,213 39.0% $ 1 , 177,370,058 19%
State 813,613,575 42.0% 1,810,782,824 30%
County 337,321,739 17.0% 1,137,103,798 19%
Other (A) 24,666,265 1.2% 960,406,349 16%
Other (B) 15,715,451 0.8% 963,879,730 16%
Total $1,956,746,243 100.0% 6,049,542,759 100%

 

Note: Other (A) includes client fees, third party payments, and contributions from outside private sources.
Other (B) includes special districts and special earmarked funds that cannot be used for other purposes. Los
Angeles County Chief Administrative Officers separated this item out for the total County budget; the same
was done in the children’s budget in order to compare the two.

The Squeeze on County Children’s Budgets

Available evidence suggests that California counties are facing revenue constraints that will
have a significant impact on the conditions of children. State limitations on local ability to
raise revenue create shortages in the supply of services. These shortages are intensified by
child population growth and increased mandates from the federal and state levels for adult
serv1ces.

Most counties are unable to tailor children’s services to particular local needs because
this requires local discretionary revenues they do not have. Some counties cannot participate
in federal or state programs that require local matching funds. Many counties cannot fund
state-mandated programs, so they ration services by not seeking clients or by changing
eligibility requirements (Legislative Analyst 1987). If county budgets are squeezed,
outreach and referral services that are largely locally funded cannot increase at the same rate
as the child population.

In order to understand the roots of this budget squeeze, the overall nature of demands
on county services for both children and adults must first be examined. If funds are
insufficient, then services for children and adults are in direct competition. After this analysis

of demands, we examine two counties, one urban and the other rural, in order to specifically
demonstrate the impact of these fiscal trends.

County governments are the major providers of health, welfare, and justice services
to children and adults. As we have seen, counties deliver AFDC, food stamps, medical, and
other health services. Counties share law enforcement and fire responsibilities with cities,
but have the responsibility to conduct legal proceedings and house prisoners who are not in
state prisons. Cities arrest felons and turn them over to counties for subsequent processing.
The city role for children is very limited and encompasses mostly law enforcement and
recreation. Table 4 demonstrates the more rapid growth of total expenditures in cities,
compared to counties and school districts, and their greater ability to raise local revenues.

TABLE 4 California Local Government Expenditures, 1978-1986
(in constant 1986 dollars per capita)

 

 

1978 1986 Change
City Expenditures 547 671 22.7%
Net of Intergovernmental Assistance 350 567 61.6%
County Expenditures 655 636 -2.9%
Net of Intergovernmental Assistance 329 327 -0.6%
Local School Expenditures 3,356 3,789 12.9%
Net of Intergovernmental Assistance 1,851 908 -50.9%
Special District Expenditures* 102 365 257.8%
Net of Intergovernmental Assistance 75 207 176.0%
Community Redevelopment Agency Expenditures 56 100 79.9%
Net of Intergovernmental Assistance 48 98 105.7%

Total City Expenditures (City plus Community
Redevelopment Agency) 603 771 28.0%
Net of Intergovernmental Assistance 398 665 67.0%

 

* Excluding Community Redevelopment Agencies.

Note: Deflated using the GNP deflator for state and local government purchases. City and Community
Redevelopment Agency expenditures are expressed per city population in the state, while Local School District
expenditures are expressed per Average Daily Attendance in the state. All other expenditures are expressed per
total state population.

SOURCES: State Controller, Annual Report of Financial Transactions, 1977-78 and 1985-86 volumes for
Cities, Counties, Special Districts, Community Redevelopment Agencies, and School Districts.

6

Ramifications of Proposition 13 and the Gann Limit

Proposition 13, passed by California voters in 1978, limited a local jurisdiction’s ability to
raise revenue via the property tax. The proposition, now Article XIIIA of Califomia’s
Constitution, decreased property taxes to 1 percent of assessed value, reducing the revenue
available to local government and schools by between $5 and $7 billion in 1978-79.
Proposition 13 all but eliminated a county’s ability to raise local revenue to support locally-
provided services (California Tax Foundation 1984). The only revenue source of any
significance remaining under counUy control is charges for current services, which account
for less than 10 percent of total county revenues (Legislative Analyst 1987). Cities have been
able to levy fees and taxes and thereby alleviate some of the effects of Proposition 13.

The Gann limit, passed as Proposition 4 in 1979 and now Article XIIIB of the state
constitution, limits state and local government spending relative to increases in population
and inflation. If local government has income greater than the limit for a particular year, it
must either return the money to the taxpayers or receive voter approval to increase the limit.
An increasing number of cities and counties are approaching their expenditure limits as this
report goes to press (California Tax Foundation 1987). As a consequence of Proposition 13,
property taxes as a source of county revenue declined from 35.4 percent in 1976—77 to 23.8
percent in 1984-85 and have continued to drop (Legislative Analyst 1987).

These predicaments, coupled with decreases in federal support of social service
programs in the 19805, result in counties becoming more dependent on the state for financial
assistance and more subject to state budget constraints or crises (California Tax Foundation
1984). State aid in California as a share of county revenues increased from 23.8 percent of
the county budgets in 1977-78 to 36.1 percent of the county budgets in 1985-86 (Reid and
Winkler 1987). Limited availability of local revenues restricts a county from providing
discretionary services for its children. Fiscal and service disparities can also occur in counties
across the state, depending on their ability to raise tax revenue and provide essential services
(California Legislative Analyst 1987).

Statewide Budget Factors

Since county revenue and ability to provide services are so closely tied to the state, it is
important to examine statewide budget factors, especially as they relate to social service
programs that may affect the condition of children. In the period from 1981 to 1987 the state
budget for education and youth/adult corrections grew by 20 percent and 81 percent
respectively in real terms adjusted for inflation. In the same time period, spending on health
and welfare programs decreased by 4 percent in real terms (California Legislative Analyst
1986). Revenue growth in current dollars between 1976-77 and 1984-85 shows increases for

counties by 70 percent, the state by 133 percent, and California cities by 175 percent. The
70 percent current dollar revenue growth for counties, when adjusted for inflation, actually
indicates a 7 percent decrease in this time period (California Legislative Analyst 1987). The
Legislative Analyst summarized county budget trends this way (reprinted from County
Legislative Analyst report The 1987-88 Budget Perspective and Issues 1987):

TABLE 5 County Fiscal Trends, dollars in thousands

 

Change
1983—84to
1983-84 1984-85 1985-86 1985-86

 

County General Purpose Revenuesa $5,435 $5,810 $6,152 13.2%
County Expenditures

State-Required Programe

Health and Welfare 994 1,123 1,266 27.3%
Trial Courts 559 780 900 61.0%
Jails 515 589 668 29.7%
All Other Programs 3,367 3,318 3,318 -1.5%

 

“ SOURCE: Department of Finance.

b SOURCE: Legislative Analyst’s Office estimates. These amounts are county costs net of specific state
and federal assistance.

Note: The higher growth rates for state-required program costs, relative to the growth of general purpose
revenue, mean that other program requirements must be accommodated within a gradually shrinking pool of
funds. Although greater efficiencies have mitigated this problem to some extent, our review indicates that in
some counties, it has resulted in significant service reductions. County officials face pressures to avoid cuts
in programs which are considered vital by the majority of their citizens, such as law enforcement activities. As
a consequence, the cuts tend to fall on less visible programs, such as probation, building maintenance and
services to indigents.

Finally, the fiscal condition of counties is not uniform throughout the state. Certain counties are able to
raise more tax revenue than others, due to regional variations in the state’s economy. In addition, the proportion
of persons requiring public assistance and health care differs significantly between counties. These “fiscal
disparities” mean that some counties are less able to provide basic levels of services than other counties, and
that to some extent, the state’s objectives in some program areas are met to a greater or lesser degree depending
upon geographic location.

 

County expenditures for adult corrections, criminal justice, and health services are
increasing faster than revenue earmarked for these purposes by the state or federal govem-
ment. Between 1983-84 and 1985-86 state-mandated county costs increased 61 percent for
trial courts, 30 percent for jails, and 27 percent for health and welfare. The increases occurred

while overall county revenues increased by only 13 percent in the same two-year period,
resulting in program and service reductions, especially for services deemed nonessential
(California Legislative Analyst 1987). An example of a similar situation is projected by the
County Supervisors Association of California (CSAC). Their projections for Los Angeles
County in 1991 indicate thatdiscretionary revenue will increase by 163 percent over its 1979-
80 base, while court, jail, and public assistance expenditures will increase over the same base
by 219 percent, 332 percent and 361 percent respectively. Again, it is important to note that
almost all counties are in a fiscal straitjacket in terms of raising their own revenues,
constrained by both Proposition 13 and the Gann spending limit. A few counties are trying
to raise sales taxes that are not capped by Proposition 13 property tax restrictions, but this type
of increase requires a two—thirds local vote that is very difficault to obtain.

State-mandated services will continue to place pressures on counties in the next few
years. Local governments are responsible for the operating costs of correctional facilities.
County jail population increased by 71 percent between 1980 and 1985 (California Legisla—
tive Analyst 1987). Growth of the prison population may be connected to decreases in
preventive services for children (e.g., protective services, dropout prevention, and family
counseling). In the 1988 legislative session, the state provided some increased appropriations
for county court costs, but some counties are not accepting the state money because the same
statute requires them to provide tax relief to cities with low property values.

Health costs also continue to rise, in part because of increasing numbers of AIDS
cases. County hospitals serve a large number of AIDS patients and counties cover over 30
percent of the AIDS health care costs (California Legislative Analyst 1987). Projections
indicate a continuing increase in AIDS cases, resulting in increasing costs to counties.

The examples above describe the pressures counties face to provide mandated
services. County officials claim that in 1987 more than 90 percent of their budgets were spent
on state-mandated programs, including matching fund programs (Iwata 1988). Counties are
restricted in their ability to raise revenue for local children’s needs, while simultaneously
required to provide federal— and state-mandated services. The impact of this fiscal “squeeze”
on children is unclear, yet it deserves attention and further research. During interviews,
county officials reported that they were forced to cut children’s services in order to fund adult
justice costs. Ironically, those cuts may only be fueling spiraling demands on law enforce-
ment in the future as potentially violent children are not treated at an early stage. County
officials could not see any significant way to expand their present base funding for children’ 5
services. They could not increase participation in federal or state matching programs for
children, because there was no county money to pay the required match. State-mandated
services must be provided, but outreach and referral programs whose purpose is to locate
unserved children may be cut back. In this way, counties ration their children’s services in
order to stay within budget limits.

Fiscal Constraints: Examples in Two Counties

The two examples that follow indicate the types of problems facing counties in California.
The example of Santa Clara County shows how responsibilities are passed on to a county

without the requisite resources. Shasta County serves as an example of pressures facing rural
counties in the state.

Counties are often required to carry out state legislation without being provided the
resources necessary to comply. State legislation passed in 19853 shifted the responsibility of
delivering mental health services to handicapped and disabled students from local education
agencies to county mental health agencies. Legal counsel for Santa Clara County claimed
that the net cost to Santa Clara County for these services would be $3,081,000, a sum the
county could not afford. Santa Clara County filed a claim to the California Commission on
State Mandates to classify this program as a mandate in order to be eligible for more state
support (Santa Clara County Counsel 1987).

Shasta County, located in Northern California and having a population of 132,000,
is a rural county suffering from limited resources. Approximately 75 percent of Shasta
County’s $110 million 1987—88 budget is set aside for state-mandated programs. The county,
faced with a $2.6 million deficit, was forced to make cuts from available discretionary funds
that had previously supported the library, hospital, and sheriff’s department. On October 15,
1987 Shasta County closed its library system. In early November 1987, Shasta County
General Hospital stopped taking new patients and has now closed. The hospital mainly
served indigent patients; these patients are now treated in a mobile “clinic” composed of
trailers. Shasta’s problems are indicative of the financial pressures faced by California’s
fifty-eight counties as they attempt to meet state mandates while providing other services to
their residents (Raymond 1988). Shasta has constructed a new prison, so correctional
services will consume a larger part of the budget than in prior years.

It is important to investigate the potential effects of county fiscal constraints on the
condition of children in the state. The Assembly Office of Research, California Tax
Foundation, and County Supervisors Association of California, among other groups, have
expressed concern about the limited money available at the local level to fund discretionary
programs. What are the direct or indirect effects on children of this fiscal squeeze on
nonmandated and locally generated services? How much support is actually being with—
drawn from children’s services delivery? Policy makers must address these questions in
order to determine the direction the state and counties should take to improve children’s
servrces.

 

1 See the PACE report Conditions of Children in California.

2 PACE reports detailing school district expenditures and revenues include: J amcs Guthrie and Michael Kirst
(eds), Conditions of Education 1988; Gerald Hayward, The Two Million Dollar School (1988); and Allan
Odden, CaliforniaPuinc School F inancePrograms (1987). These studies hi ghlightthe fiscal challenge caused
by pupil growth above and per-pupil expenditures below the national average.

3 Chapter 1747, Statutes of 1984 and Chapter 1274, Statutes of 1985.

10

References

Assembly Office of Research. 1983. Realigning State and County Responsibilities.
Sacramento, CA: California Assembly Committee on Policy Research
Management.

California Legislative Analyst. 1987. The 1 987-88 Budget Perspective and Issues.
Report of the Legislative Analyst to the Joint Legislative Committee.
Sacramento, CA: California Legislative Analyst.

California Tax Foundation. 1984. California Local Government Finance: Issues for the
1980’s. Sacramento, CA: California Tax Foundation.

. 1987. Up to the Limit, Article XIIB Seven Years Later. Sacramento, CA:
California Tax Foundation.

County Supervisors Association of California. 1986. Report of the Task Force on
Criminal Justice Revenue Enhancement. Sacramento, CA: County Supervisors
Association of California.

Iwata, E. 1988. “Counties Still Hungry for State Dollars.” California Journal.

King, P. 1987. “Budget Crunch Forces Counties to Cut Services.” Los Angeles Times.

Los Angeles County Roundtable for Children. . Children’s Budget of Los Angeles
County. Los Angeles, CA: Los Angeles County Roundtable for Children.

Raymond, V. 1988. Surviving Proposition 13: Fiscal Crisis in California Counties.
Berkeley, CA: University of California, Institute of Governmental Studies.

Reid, G., and Winkler, D. 1987. Intergovernmental Fiscal Relations in California: The
Impact of Fiscal Limits. Los Angeles, CA: University of Southern California
School of Public Administration.

Santa Clara County Counsel. 1987. Mental Health Services to Handicapped and Disabled
Students—Test Claim. Memorandum to the Board of Supervisors of Santa

Clara County. San Jose, CA: Santa Clara County Counsel.

Santa Clara County Department of Social Services. 1987. Social Services Guide.
San Jose, CA: Santa Clara County Department of Social Services.

11

 

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