Memorandum
Date: June 23, 2026
To: The Honorable Brad Rasmussen, Chair, Lake County Board of Supervisors
From: Elise Jones, Director of Behavioral Health Services
Subject: Consideration of the Behavioral Health General Fund Loan Repayment Options and Fiscal Stabilization Update
Executive Summary:
Background
Behavioral Health previously received General Fund support in the form of bridge financing to maintain operations during a period of significant statewide behavioral health reform, electronic health record transition, delayed revenue conversion, and major changes to Medi-Cal payment methodology.
The remaining balance is $2 million.
This loan was not the result of a single-year operating deficit or a discretionary program expansion unsupported by revenue. Rather, it occurred during a period in which Lake County Behavioral Health Services was implementing major state-required reforms while simultaneously expanding access to care, increasing Medi-Cal service delivery, building the Drug Medi-Cal Organized Delivery System, implementing Mobile Crisis, transitioning through CalAIM payment reform, and absorbing delays and disruptions related to claims processing and cash conversion.
The Department has since taken substantial corrective action to stabilize operations, improve fiscal controls, strengthen revenue tracking, and reduce ongoing risk. The FY 2026-27 Mental Health and Substance Use Disorder Services budgets were approved by the Board, and the Department is continuing to implement fiscal stabilization measures intended to preserve access while improving long-term sustainability.
Current Fiscal Context
Behavioral Health’s current fiscal challenge is best understood as a cash-flow and timing issue rather than a simple budget variance. Under the current Medi-Cal behavioral health financing structure, the Department must deliver services, incur costs, pay providers, and front local match or Intergovernmental Transfer funding before reimbursement is fully realized as usable cash.
During the same period that service access and claiming volume increased, cash conversion lagged due to payment reform, EHR implementation, claiming disruption, contractor growth, state offsets/intercepts, and increased IGT/local match requirements.
As a result, Behavioral Health may appear positive on paper through receivables, claimed services, or anticipated reimbursement while still experiencing short-term cash pressure related to provider obligations, payroll, IGT deposits, and timing of state and federal reimbursement.
Corrective Actions Implemented
The Department has implemented or initiated several corrective actions, including:
• Strengthened cash-flow monitoring, including tracking of cash, receivables, payables, provider obligations, IGT/CFA capacity, and payroll needs;
• Renegotiation of provider rates and contract structures where appropriate;
• Increased contract discipline, including rate caps, scope-of-work review, productivity expectations, and payment timing controls;
• Improved claiming and revenue cycle monitoring;
• Focused review of fee-for-service, residential, and high-cost placement expenditures;
• Position-control review and proposed reduction of vacant or non-aligned Mental Health position authority;
• Continued collaboration with CalMHSA and Avela to improve administrative claiming and revenue capture;
• Continued advocacy with state partners regarding small-county cash-flow impacts, IGT timing, and payment reform implementation issues.
These corrective actions are intended to stabilize the Department without reducing access to mandated behavioral health services or recreating the cash-flow conditions that required bridge financing.
Administrative Claiming Update
CalMHSA is currently supporting completion of the FY 2024-25 administrative claim. The Department has been informed that the anticipated amount due to Lake County Behavioral Health Services is approximately $1.3 million.
This administrative claiming process is labor intensive and reflects the increased technical complexity of the post-CalAIM payment reform environment. Going forward, the Department expects that Avela, in coordination with tools developed through CalMHSA, will support more consistent administrative claiming and revenue capture.
This anticipated revenue is a positive fiscal stabilization development. However, it should not be viewed as eliminating the Department’s broader cash-flow risk, IGT/local match obligations, aged contractor payables, or the need for a realistic loan resolution strategy.
Options for Board Consideration
Option 1: Full or Partial Loan Forgiveness
The Board may forgive all or a portion of the remaining loan balance. This option recognizes that the loan supported continuation of mandated County behavioral health services during a period of state-driven reform, payment disruption, and cash-flow instability.
This option would provide the strongest stabilization benefit and would allow Behavioral Health to focus available cash on provider obligations, Medi-Cal match requirements, mandated services, and continued implementation of state-required reforms.
Option 2: Structured Repayment Plan
The Board may approve a structured repayment plan based on demonstrated Behavioral Health cash capacity. Under this option, repayment should be tied to available cash after accounting for payroll, provider obligations, IGT/CFA deposits, mandated services, and other required operating needs.
A structured repayment plan could be reviewed periodically and adjusted if repayment would destabilize operations or impair the Department’s ability to meet provider obligations, claim Medi-Cal reimbursement, or maintain required services.
Option 3: Immediate or Aggressive Repayment
Immediate or aggressive repayment is not recommended. Requiring repayment faster than the Department’s cash capacity allows would risk recreating the same cash-flow issue the Department is working to resolve. It could also delay provider payments, reduce IGT/CFA capacity, impair claiming, and create new operational instability.
Department Recommendation
The Department recommends that the Board resolve the remaining loan balance in a way that protects fiscal stabilization and avoids recreating the cash-flow problem.
The primary recommendation is full or partial forgiveness of the remaining loan balance, recognizing that the loan supported mandated behavioral health access during a period of state-driven reform and cash-flow disruption.
If full or partial forgiveness is not supported, the Department recommends an affordable repayment plan tied to actual available cash capacity and reviewed periodically. Any repayment plan should be structured to ensure that Behavioral Health can continue meeting provider obligations, maintaining mandated services, supporting IGT/local match requirements, and stabilizing operations without requesting additional General Fund bridge financing.
Conclusion
Lake County Behavioral Health Services has made measurable progress toward stabilization. The Department has maintained access to care during a period of generational behavioral health reform, implemented major state requirements, improved fiscal controls, and is taking additional steps to right-size operations and strengthen revenue capture.
The remaining loan balance is now the key policy decision before the Board. The Department is requesting direction that allows Behavioral Health to resolve the prior obligation while preserving the stabilization path already underway.
If not budgeted, fill in the blanks below only:
Estimated Cost: ________ Amount Budgeted: ________ Additional Requested: ________ Future Annual Cost: ________
Purchasing Considerations (check all that apply): ☒ Not applicable
☐ Fully Article X. <https://library.municode.com/ca/lake_county/codes/code_of_ordinances?nodeId=COOR_CH2AD_ARTXPU_S2-38EXCOBI>- and/or Consultant Selection Policy <http://lcnet.co.lake.ca.us/Assets/Intranet/Policy/Policies+$!26+Procedures+Manual/Ch4_2021v2.pdf>-Compliant (describe process undertaken in “Executive Summary”)
☐ Section 2-38 <https://library.municode.com/ca/lake_county/codes/code_of_ordinances?nodeId=COOR_CH2AD_ARTXPU_S2-38EXCOBI> Exemption from Competitive Bidding (rationale in “Executive Summary,” attach documentation, as needed)
☐ For Technology Purchases: Vetted and Supported by the Technology Governance Committee <http://lcnet.co.lake.ca.us/Assets/Intranet/Intranet+Forms/Information+Technology/AdvPlan.pdf> (“Yes,” if checked)
☐ Other (Please describe in Executive Summary)
Consistency with Vision 2028 <http://www.lakecountyca.gov/Government/Directory/Administration/Visioning/Vision2028.htm> (check all that apply): ☒ Not applicable
☐ Well-being of Residents ☐ Public Safety ☐ Disaster Prevention, Preparedness, Recovery
☐ Economic Development ☐ Infrastructure ☐ County Workforce
☐ Community Collaboration ☐ Business Process Efficiency ☐ Clear Lake
Recommended Action:
Provide direction regarding the remaining General Fund loan balance owed by Behavioral Health, including consideration of one of the following options:
1. Forgive all or a portion of the remaining loan balance; or
2. Approve a structured repayment plan based on demonstrated Behavioral Health cash capacity, with repayment reviewed periodically to ensure it does not impair mandated service delivery, provider payment obligations, or required Medi-Cal financing activities.