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White House Releases FY 2005 Budget Proposal, $39 Million Increase Proposed for NIMH, $44 Million in New Funds Requested for Transformation of Mental Health Services

As is being widely reported in the press, President Bush on Monday, February 2, laid out his $2.4 trillion budget plan for FY 2005 - with major increases proposed for defense and homeland security, but only a .5% increase for all other domestic discretionary programs. These tight constraints on domestic discretionary spending (which comprise only about 18% of all federal outlays) come against the backdrop of a growing federal budget deficit that is now projected at $521 billion in the current fiscal year. As a result, there is growing pressure in Congress to constrain spending – especially on discretionary programs that are funded by the annual appropriations bills that Congress must pass before FY 2005 begins on October 1, 2004. By contrast, mandatory entitlement programs (Social Security, Medicare, Medicaid, etc.) are expected to continue growing without intervention by Congress in an election year.

The result is that any increase in non-defense/non-homeland security discretionary activities (including biomedical research, housing assistance, human services and veterans’ medical care) will be difficult to achieve in the current budgetary environment. This includes activities for which President Bush is requesting an increase (e.g., NIMH research, mental health services modernization and veterans medical care) where fiscal conservatives will be opposing any increases for domestic programs and many Democrats will be opposing increases for the President’s priorities so close to the election.

Below is a detailed analysis of the proposed FY 2005 budgets for agencies and programs of importance to people with severe mental illnesses and their families. Comparisons are made to funding levels in the FY 2004 Omnibus Appropriation bill that was signed into law last week. Additional details on the President’s FY 2005 budget plan is available at:

NIMH – Smallest Proposed Increase in 8 Years

For FY 2005, the President is proposing $1.421 billion for scientific and clinical research at the National Institute of Mental Health (NIMH). This is a $39 million increase over the amount Congress appropriated for NIMH for FY 2004 ($1.39 billion), and represents a 2.2% increase. While this is far above the average .5% increase for all domestic discretionary spending, it is below the 2.7% increase proposed for the entire National Institutes of Health (NIH) – which would increase to $28.805 billion under the President’s budget. In addition, this proposed increase for NIMH for FY 2005 is below the 3.6% increase that Congress enacted for FY 2004 and far below the 8% and 9% annual increases that were achieved between FY 1998 and 2003.

This decline in budget increases is expected to have a devastating impact on the ability of NIMH (and NIH as a whole) to sustain the ongoing multi-year research grants that have been initiated over the past 3-4 years. This is especially the case if Congress accepts a proposal being floated by NIH to limit annual "cost of doing research" adjustments to individual grants to 1% per year. NAMI remains very concerned that this coming fall-off in budget increases for NIH does not wipe out the new research that has been undertaken at NIMH in recent years – particularly new grants that have been initiated in conjunction with NIMH’s research plan on bipolar disorder.

SAMHSA & CMHS – Initiatives Proposed for Public Mental Health System Reform and Chronic Homelessness

Overall, the President is proposing a $199 million increase for the Substance Abuse and Mental Health Services Administration (SAMHSA) – boosting funding to $3.6 bill in FY 2005. More than half of this increase is for the President’s "Access to Recovery" voucher initiative for substance abuse treatment (the Administration is proposing to double funding to $200 million).

The President’s budget includes a request for $44 million in new funding at SAMHSA’s Center for Mental Health Services (CMHS) for a new state incentive grant program for "Mental Health System Transformation." This initiative is intended to help states follow through on the July 2003 recommendations in the White House "New Freedom Initiative" Mental Health Commission report. Under the proposal, funds would be allocated to states on a competitive basis to support the development of comprehensive state mental health plans to reduce system fragmentation and increase access to evidence-based services that promote recovery from mental illnesses. States would be required to use funds to develop plans that cut across multiple systems such as housing, criminal justice, child welfare, employment and education. In subsequent years, up to 85% of funds could be used to support community-based programs, with the remaining 15% available for state planning and coordination.

The President’s budget also proposes increases to address the issue of chronic homelessness experienced by individuals with severe mental illness. The President is proposing to continue his "Samaritan Initiative" to end chronic homelessness over the next decade. This includes $10 million in new funding at SAMHSA for outreach and support services tied to new permanent housing that will be developed through $50 million in new funding at HUD (see below). In addition, the VA budget proposes a $10 million allocation, bringing total proposed FY 2005 funding for the Samaritan Initiative to $70 million.

The President is also proposing a $5 million increase for the PATH program – boosting FY 2005 funding to $55 million. PATH is a formula grant program to the states that funds outreach and engagement services for homeless individuals with severe mental illnesses. CMHS estimates that this increase in the PATH program will result in 154,000 homeless individuals with severe mental illnesses being served by state and local PATH grantees.

CMHS’s largest program, the Mental Health Block Grant (state formula grant program), would receive a $2 million increase under the President’s budget (boosting funding to $436 million). The President is also requesting a $4 million increase for the Childrens’ Mental Health program at CMHS – increasing funding to $106 million. CMHS’s own discretionary budget – known as Programs of Regional and National Significance (PRNS) – would increase under the President’s budget to $271 million. However, the $44 million mental health system transformation initiative noted above is part of the PRNS budget and it is unclear at this time what activities currently mandated by Congress as part of PRNS would be discontinued. Finally, the PAIMI (protection and advocacy) program at CMHS is proposed for a freeze at its current $35 million level.

Housing – Section 811 Frozen, Housing Voucher Program Slated for Cut

The Bush Administration is proposing a $31.3 billion budget for the Department of Housing and Urban Development (HUD) – an increase of 2.8% over FY 2004 levels. For the Section 811 program the Administration is proposing to freeze funding at $249 million (this is lower level reflects the .59% cut that Congress imposed on all discretionary programs at part of the FY 2004 Omnibus Appropriations bill that was signed into law last week).

The Bush Administration’s budget also proposes to maintain the current structure of the Section 811 program, with 75% of funds going toward capital advances and project-based assistance to non-profit groups to build and manage housing for people with disabilities (including non-elderly adults with severe mental illnesses). The other 25% of the program would continue going toward tenant-based rental assistance (portable vouchers), also known as the Section 811 "mainstream" program.

In FY 2005, for both the capital advance/project-based side of the Section 811 program and for the tenant-based mainstream side, HUD faces a continued challenge to fund renewal of expiring rent subsidies. In both cases, these ongoing obligations to renew funding associated with units already in existence are expected to drain limited resources. For the capital advance/project-based side, HUD estimates that $2 million will be needed to renew expiring project- based rent subsidies (also known as PRACs).

On the tenant-based "mainstream" side, HUD projects that $50 million will be needed in FY 2005 to renew expiring tenant-based rent subsidies that were originally funded in prior years. The result is that fully 20% of HUD 811 funds in 2005 will be going toward maintaining the rent subsidies associated with the program (i.e., keeping current tenants in their housing), as opposed to developing new supportive housing for people with severe disabilities. So long as Congress and HUD continue to level fund the Section 811 program, funding for new housing (both capital/project-based and tenant-based) will continue to decline as the cost of renewals increases.

In addition, the President’s FY 2005 budget contains an unspecified proposal to link the 811 program to the Administration’s ongoing initiative to end chronic homelessness over the next decade. This proposal (known as the "Samaritan Initiative") is included in the HUD budget as a $50 million request for new permanent supportive housing and grants for outreach to people experiencing chronic homelessness (including homeless people with mental illness and co-occurring substance abuse). As noted above, SAMHSA and the VA are proposing to contribute $10 million each in FY 2005 for outreach and support services to accompany the program. The Samaritan Initiative is also part of the Administration’s proposed $1.257 billion request for the McKinney-Vento Homeless Assistance Act. This also includes the cost of renewing rent subsidies associated with the Shelter Plus Care program – currently estimated by HUD to cost $193 million in FY 2005.

The President’s budget proposes to reduce overall funding for he Section 8 voucher program by $1.66 billion in FY 2005 – cutting overall funds needed to renew all expiring Section 8 rental vouchers to $16.92 billion. This proposed reduction is part of a forthcoming legislative proposal to reform the Section 8 voucher program to give housing authorities more flexibility and reduce the long-term costs associated with renewing expiring Section 8 vouchers. This new "Flexible Voucher Program" would shift the current program away from a system that renews rental vouchers based on the overall number of units under lease (about 2.05 million in 2003), to one that provides funding to housing authorities on a dollar basis. Concerns are already being raised that this proposal could result in housing authorities either not receiving sufficient funds to renew all of the vouchers they have under lease, or having to cut the value of existing vouchers (thereby increasing tenant contributions).

The President’s budget proposes no funding in FY 2005 for Section 8 vouchers for non-elderly people with disabilities adversely affected by designation of public and assisted housing as "elderly only." Congress had funded this allocation of tenant-based vouchers from 1996 through 2002 in response to the erosion of affordable housing resources for non-elderly people with disabilities that has occurred as a result of the growth of "elderly only" housing.

Veterans Health Care – Increases Fall Short of Projected Need

Overall, the President’s budget proposes $65.3 billion for the Department of Veterans’ Affairs, a $5 billion increase or an 8.3% boost. Roughly half of these funds are mandatory (cash benefits to veterans). On the discretionary side, the President is seeking $27.1 billion for VA medical care, a $347 million increase (1.3% above the FY 2004 level). The budget also assumes an additional $2.4 billion for VA medical care expected to be raised in FY 2005 through private insurance reimbursements. Veterans’ service organizations are already pressing Congress to increase VA medical care to $30.3 billion for 2005 (not including additional private insurance fees), as part of the Independent Budget recommendations that the NAMI Veterans Committee is supporting.

In addition, the President’s budget proposes several reforms to increase fees for certain veterans with no service-connected impairment whose incomes are above certain limits. Congress has rejected many of these proposals in previous years. Among these are a $250 user fee and higher co-payments for veterans in categories 7 and 8. The President is also proposing to end pharmacy cost sharing for veterans in categories 2 through 5 with incomes below $16,500.

The overall request for VA medical care does not separate out spending for either inpatient or community-based psychiatric care for veterans with severe mental illnesses. It is estimated that the VA provides treatment to more than 4.1 million veterans, including over 886,000 veterans who receive mental health services – more than 460,000 of whom are veterans who are service connected for a mental illness.

Education – Increases Proposed for IDEA

The President’s budget includes an increase of $1 billion for special education to help states and localities meet their obligations under the Individuals With Disabilities Education Act (IDEA) – increasing IDEA Part B state grant funding to $11.1 billion. NAMI has strongly advocated that IDEA be fully funded during the reauthorization this year to ensure that Congress makes good on the promise to schools for the funding of special education programs. When IDEA was enacted, Congress agreed to fund up to 40% of the excess cost associated with educating a child with a disability. Congress has never funded more than 15%.

The President is proposing to increase funding for state grants in support of the vocational rehabilitation program by $113.5 million – boosting funding to $2.7 billion. However, most of this increase results from consolidation of a number of separate discretionary programs funded under Rehabilitation Act (e.g., Supported Employment and Projects With Industry) into the VR state grants program.

Health Care Initiatives – Medicaid Reform Proposal Dropped

The President’s FY 2005 budget plan does NOT contain a proposal made last year to make structural changes to the Medicaid program to grant states greater flexibility. This 10-year proposal would have provided states with additional flexibility and federal matching funds for the first 7 years, with fixed payments in later years. NAMI expressed strong concerns about this proposal and its potential to have forced states to reduce both eligibility and services for vulnerable Medicaid beneficiaries with mental illnesses. In 2003, Democratic governors objected to the proposal. The fact that the President does not want to pursue the proposal in 2004 is further evidence that consensus on Medicaid reform between the Bush Administration and the states is elusive. However, growing expenditures and pressure on state budgets is expected to bring the issue to the forefront after the 2004 elections.

Finally, the President’s budget does propose to continue and expand a number of current state Medicaid waiver and demonstration programs. This includes HIFA waivers designed to expand coverage for the uninsured and home and community-based waivers as alternatives to nursing home and institutional care. This includes a waiver program to allow states to fund community-based services for children in psychiatric residential treatment facilities and a "money follows the individual" initiative to promote consumer directed services. While NAMI strongly supports these initiatives, it is important to note that the Medicaid IMD (Institutions for Mental Disease) Exclusion prevents states from using these waivers and demonstration options to fund community-based alternatives for non-elderly adults with severe mental illness.