Finding Funding

Longtime mental-health advocate Rusty Selix Jr. believed in 1999 that California had found the key to ending chronic homelessness among people with serious mental illnesses, such as bipolar disorder, schizophrenia, and major and severe depression. The solution was targeting them with a rich array of individual and intensive services, including better case management, help in securing federal entitlements, access to medications, supportive housing, and employment. Selix and other advocates persuaded the state Assembly that year to fund a $10 million pilot program in three counties, including Los Angeles, to test the treatment regime.

The results were stunning. Homelessness among the study population was reduced by 73.5 percent, hospitalizations decreased by 65 percent, and those mentally ill people who were hospitalized spent half as many days as before in psychiatric wards. There were 80 percent fewer arrests, too, and the length of time that mentally ill homeless people were incarcerated was halved. Buoyed by those results, Selix and a coalition of advocates persuaded California legislators the next year to approve what became known as AB2034, a bill that expanded the intensive treatment efforts into 38 counties at a cost of $55 million. They were poised for another increase, this time to $150 million, and further widening of AB2034?when disaster struck.

On March 10, 2000, the technology-heavy NASDAQ composite index hit an all-time high. Just as quickly, the dot-com bubble burst. NASDAQ lost 9 percent of its value in only three days. The dot-com bubble crash wiped out $5 trillion in the market value of technology companies between March 2000 and October 2002. California, home to Silicon Valley, was especially hard hit. Capital gains and stock options during fiscal year 2000 accounted for a whopping 40 percent of all personal income in the state, and taxes on wealthy individuals were responsible for a quarter of the state's entire income. That meant a quarter of the state budget was being paid by between 25,000 and 35,000 millionaires. Taxes on stock options and capital gains, which had risen from $2.5 billion in 1994 to $18 billion by 2000, vanished. By fiscal year 2002, California faced a $14 billion gap between expenses and expected revenues.

"There is a political tendency to have all programs rise when the economy is good and get cut back when it is bad," Selix explained during an interview. "We realized that we would only get modest increases and get those only in good years and then struggle to avoid cuts in bad years." If Selix and his peers hoped to get AB2034 broadened statewide, they needed reliable and large-scale funding. And Selix knew that would only happen if they found a way to lock into a dedicated revenue source.

California famously allows its citizens to put propositions on an election ballot if they can get sufficient petition backing. Enlisting the help of then-Assemblyman Darrell Steinberg, Selix began reviewing revenue strategies. One idea was raising property taxes, but that wasn't practical in California, where Proposition 13 had capped property-tax rates as part of a national taxpayer revolt led in 1978 by longtime anti-tax crusader Howard Jarvis.

Another logical source was bumping up sales taxes, especially so-called "sin taxes" -- revenues collected from the sale of alcohol and cigarettes. But Selix believed that the alcohol and tobacco industries were too well organized, too well financed, and too well schooled at fighting sales-tax increases in California. This left the third option: an increase on personal-income taxes.

At first glimpse, raising income taxes seemed unlikely even though Selix knew voters were concerned about homelessness. As the executive director and legislative lobbyist for the Mental Health Association in California, Selix had seen the results of four focus groups that had been conducted to assess voters' attitudes. When asked what they thought when they heard the words -- "mental illness" -- the participants had answered "street people."

"Everyone got it," Selix told me. The public understood that California had emptied and closed nearly all of its large state asylums during the deinstitutionalization movement of the 1970s and 1980s. The shutting down of the hospitals and massive cuts in federal housing programs during the Reagan administration had driven thousands of people with severe mental illnesses onto the streets. People wanted to know why the state was not taking care of individuals who were clearly mentally ill. "The focus groups told us this was a big issue -- a very big and important issue."

Even so, Selix, an attorney by education, and Steinberg were hesitant to call for a general income-tax increase. It was at this point that Selix, who has advocated for mental-health issues for nearly 20 years in California, remembered how the state budget had been impacted by the dot-com bust. What would happen, he asked, if an income-surtax tax were imposed -- but on a narrow group? Specifically, the dot-com millionaires, business moguls, and Hollywood actors with huge incomes.

As Selix and Steinberg considered options, they received unexpected help from Washington, D.C. In June 2001, President George W. Bush signed a federal tax cut tilted to the rich that Democrats immediately attacked as being unfair. Polls showed that many Americans agreed. Suddenly, the timing seemed perfect to propose a "Robin Hood" tax.

So Selix and Steinberg drafted Proposition 63, mandating a 1 percent tax on incomes of $1 million or greater, with revenues dedicated for mental-health services. Their efforts were aided by a diverse coalition of supporters, including public and nonprofit mental-health providers, advocates such as the National Alliance on Mental Illness (NAMI) and the state's Mental Health Association, consumer groups, and others with a vested interest in the outcome. Notably, many of these partners remain stakeholders in local and statewide decision-making to this day.

The proposal appeared on the November 2004 ballot. The publicity before the vote focused on the success of AB2034 programs. There was no opposition from the dot-com millionaires. The only organized opposition came from the Scientologists. Proposition 63 passed with 54 percent of the vote in favor and 46 percent against.

Before the election, the California Legislative Analyst's Office had estimated that if enacted, Proposition 63 would generate $800 million yearly. But because many incomes in the upper tax brackets increased significantly during 2005, revenues from the millionaires' tax hit an astonishing $1.3 billion.

The success of Proposition 63 was noticed by mental-health advocates in other states. Mental-health funding needed to be linked to a dedicated revenue source independent of the political whims of legislators.

Historically, mental-health funding has been a low political priority. In Wyatt v. Stickney, the country's first major civil-rights battle about mental illness, attorneys sued Alabama and introduced horrific evidence that showed how patients in state asylums in the 1970s were being abused, neglected, and, in some cases, tortured. Yet, when a disgusted Alabama judge ordered the state legislature to overhaul its shameful system by pumping in millions of new tax dollars for improvements, legislators balked. They cried poor. There was no money, they insisted, until an enterprising attorney released state financial records that revealed Alabama was spending more each year to host the Alabama Junior Miss Pageant and swine shows at county fairs than it spent caring for people with mental illnesses. Red-faced legislators approved limited funds. Such legislative priorities proved typical. When choosing between new highways, more police, bigger jails, and improved schools, legislators always pushed mental-health treatment aside.

Advocates in other states began following California's lead. In 2005, Illinois passed a law that provided rent subsidies to the homeless, including those with severe mental illnesses. It was financed by a $10 fee collected from every real-estate document recording. Washington state financed a homeless housing program by charging a similar $10 surcharge on each document recorded by a county auditor. New Jersey turned to a different income source -- traffic tickets. It created a homeless trust fund that received annual revenues from the collection of fines and tickets from convictions for unsafe driving violations.


I became interested in alternative-funding sources after my own college-age son, Mike, developed a serious mental disorder. During a psychotic episode, he broke into a stranger's house to take a bubble bath. He was arrested and charged with two felonies. I discovered that his encounter with the criminal-justice system was not an aberration. According to the Bureau of Justice Statistics, there are 345,000 people with bipolar disorder, schizophrenia, and major depression in jails and prisons. The largest mental-health facility in the U.S. is not a hospital; it is the Los Angeles County Jail.

I was so outraged by what happened to my son that I decided to write a book about how our jails and prisons have become our new mental asylums. As part of my research, I spent nine months inside the Miami Dade County jail where I followed a handful of psychotic prisoners through the judicial process and out onto the streets. Since then, I have visited 27 states and toured nearly 50 treatment programs. I discovered that we know how to help many people who are ill. The problem is getting meaningful treatment programs into place, modifying legal criteria to help ill people receive services, and convincing legislators to think beyond short-term fiscal calculations and treat ill individuals rather than punish them.

My home state of Virginia is a prime example of timidity. Because of the murders at Virginia Polytechnic Institute and State University (Virginia Tech) on April 16, 2007, the state legislature was forced to address our state's badly fractured and neglected system. The massacre of 32 students by Seung-Hui Cho, who then killed himself, led the governor and legislature to loosen the state's involuntary commitment language and to approve $42 million in new revenues to be spent over the next two years, mostly to expand jail-diversion programs and hire 146 additional therapists and case workers. Gov. Timothy Kaine acknowledged that $42 million would not pay for a much-needed system overhaul, but he explained it was the best anyone could expect given a recession and corresponding drop in state revenues. At a press conference held to sign the legislation, the governor and major legislators slapped themselves on the back.

What the governor and legislature didn't mention was that Virginia had cut $50 million from its mental-health services between 2002 and 2004 during a budget crunch, and when former Gov. Mark Warner left office in 2005, he had warned that it would take $460 million to bring Virginia's anemic system up to par.

What's frustrating about Virginia -- and most state systems -- is that funds can be found. But it takes legislators with guts to go after them. In Virginia, the most obvious source is a sales tax on cigarettes. Because Virginia is a tobacco state -- it was the first -- the fight would be bloody. But there are precedents elsewhere. In 1998, California passed Proposition 10, sometimes called the Reiner Initiative, named after the film director and actor Rob Reiner, who promoted it. The measure imposed an additional 50-cent tax on cigarettes to fund early childhood development and prenatal care. The tobacco industry reportedly spent $20 million fighting Proposition 10, but lost. The Reiner tax generates some $700 million annually. It was preceded by Proposition 99, which passed in 1988, and was billed as the first anti-tobacco tax. Funds from its 25-cents-per-pack fee were used to underwrite environmental and health-care programs aimed at reducing smoking.

Virginia ranks 47 in the nation on cigarette taxes, charging only a 30-cents-per-pack fee. Dr. Yad M. Jabbarpour, a University of Virginia professor, estimates that the state could generate as much as $100 million in new revenues for each dime increase in the cigarette tax. If accurate, even a modest doubling of the current fee to 60 cents per pack would generate upward of $300 million and still keep the state's cigarette-tax rate under the dollar-per-pack national median.

Why tie a cigarette tax to financing better mental-health services? One reason is that people with severe mental illnesses are disproportionate buyers of cigarettes, which means their health suffers accordingly, including premature illness and death. Dr. Steven Schroeder, a University of California, San Francisco physician who has helped launch an anti-smoking campaign targeted at people with mental illnesses, reports that at least 50 percent of people who have been diagnosed with severe mental illnesses are smokers. Because they smoke more heavily, he calculates that as many as 44 percent of all cigarettes sold in America are bought by people who have had a mental-health diagnosis. Forty-four percent!


States, in fact, are spending plenty of money on people with mental illnesses, but not on strategies that help homeless, chronically ill individuals get better. Instead, they simply keep shuffling them from hospital emergency rooms to jails to shelters to the streets. How much in new revenue would be needed to maximize proven strategies? In 2002, estimates showed that expanding AB2034 services statewide would cost California $500 million. But, in return, the state would save $300 million by reducing prison costs. If substance abusers were included under the AB2034 treatment umbrella, Selix claims the state would break even, expending about $800 million on AB2034 and reaping about $800 million in cost savings. (Homeless people with chronic mental illnesses frequently have co-occurring alcohol and drug addiction problems.) It should be noted that money from Proposition 63 does not necessarily go to AB2034 programs. Instead, it is distributed to counties for use in a variety of ways that they see fit, including housing.

California's model is spreading. Connecticut recently passed legislation -- the Connecticut Justice Reinvestment program -- that shifts costs away from corrections and homeless shelters into supportive housing. Legislators in Kansas have already adopted a similar measure, and Rhode Island is considering following suit.

In the past, critics have complained that cost-shifting looks great on paper but doesn't actually save money. The fixed costs of jails and homeless shelters don't necessarily decrease simply because they have fewer prisoners or homeless tenants. Cost-avoidance is difficult to quantify. As one frustrated county commissioner told me, "We still have to have a jail and have to pay electricity even if there are [fewer] prisoners in it."

But that argument is shortsighted, according to Richard Cho, associate director of the Corporation for Supportive Housing, which helps finance housing and services to prevent homelessness. "By redirecting funds from institutions and crisis-driven services to supportive housing and treatment services, state and local governments can invest up front in the kinds of initiatives that will result in savings to their systems and returns on investment over the long run," Cho explained. "This is a far more rational way to do business than the current approach to public investment, which only considers the immediate impact of spending in the current year, and which therefore results in the kind of unending growth we see in Medicaid, corrections, and other budgets."

That logic appeals to me, so much so, that I joined the board of the Corporation for Supportive Housing. It is the first and only board that I have ever participated in during my 35 years as a journalist and author. I did it to help advocate for improvements in our nation's mental-health system. I did it for my son.