California's proposed 2025-26 state budget includes historic investments in mental health services, focusing on expanding community-based care, strengthening the behavioral health workforce, and refining Medi-Cal coverage. The Department of Health Care Services (DHCS) aims to modernize the state's mental health system through major reforms, including new federal funding, expanded programs, and increased support for vulnerable populations.

However, broader fiscal constraints limit new investments in key areas, as outlined in the California Budget & Policy Center’s analysis. While mental health services remain a priority, the budget does not introduce significant new revenue streams, and some previously planned housing initiatives related to behavioral health have been cut.

Here’s an overview of the key mental health-related initiatives in the budget and what they mean for Californians.

BH-CONNECT: A New Era for Community-Based Mental Health

The Behavioral Health Community-Based Organized Networks of Equitable Care and Treatment (BH-CONNECT) Demonstration, recently approved by the federal government, will expand Medi-Cal mental health services from January 1, 2025, to December 31, 2029.

Key components include:

• Increased access to behavioral health care for Medi-Cal members with significant mental health needs.
• Short-term inpatient and residential mental health care in federally recognized institutions.
• Housing support, providing up to six months of rent assistance for at-risk individuals.
• Specialized services for children and youth, such as Multisystemic Therapy (MST) and High-Fidelity Wraparound care.
• Expanded peer support programs like Assertive Community Treatment (ACT) and Community Health Worker services.

$1.9 Billion Behavioral Health Workforce Initiative

A major workforce expansion plan will be launched to recruit, retain, and train behavioral health professionals. This initiative, administered by the Department of Health Care Access and Information, seeks to address the growing demand for mental health services across California, particularly for Medi-Cal patients and underserved communities.

However, the California Budget & Policy Center notes that while this investment is substantial, it does not fully address the existing behavioral health workforce shortage, particularly in rural and low-income communities.

Increased Funding for Counties to Administer Behavioral Health Services

The Behavioral Health Services Act (BHSA), restructured under the 2024 Budget Act, will receive $93.5 million in additional funding to help counties improve local mental health services. This expansion aims to provide more equitable and accessible behavioral health care across the state.

Medi-Cal Caseload Adjustments and Mental Health Coverage

Medi-Cal enrollment is projected to decline from 15.2 million to 14.5 million by 2025-26 due to redeterminations and federal policy shifts. However, senior enrollment is increasing, which will require enhanced geriatric mental health services.

Additionally, new funding models will support primary care and non-specialty mental health providers, ensuring better access to care for Medi-Cal patients. However, the state’s reliance on reserve withdrawals raises concerns about long-term sustainability, as highlighted in the California Budget & Policy Center’s report.

Minimum Wage Increases and Hospital Funding Adjustments

Senate Bill (SB 525) introduces higher wages for healthcare workers, impacting behavioral health providers. To offset increased costs, Medi-Cal hospital payments will rise, ensuring continued service availability.

Naloxone Expansion and Substance Use Treatment Improvements

The budget includes an augmentation of the Naloxone Distribution Project, aiming to expand access to the opioid overdose reversal drug. This measure aligns with broader efforts to enhance behavioral health services for individuals struggling with substance use disorders (SUDs).

Budget Constraints and Gaps in Behavioral Health Housing Investments

One notable gap in the proposed budget is the lack of new funding for housing programs for individuals with behavioral health conditions, despite prior commitments.

"The total amount in California’s outstanding unemployment insurance loans is expected to grow in coming years, as the taxes paid by businesses fall significantly short of what is needed to cover the cost of the unemployment benefits their workers need. Consequently, the state will likely see interest payments on these loans rise to about $1 billion annually in coming years.

This significant, ongoing cost — which the state traditionally pays for out of the state’s General Fund — will take crucial resources away from addressing Californians’ need for affordable housing, child care, and other essentials, and points to the need for state leaders to overhaul California’s broken unemployment insurance system." 

-California Budget & Policy Center

The California Budget & Policy Center breaks down the siatu points out that the governor’s proposal eliminates new affordable housing investments, potentially leaving vulnerable populations, including those with severe mental health needs, without necessary housing support.

Looking Ahead: What These Changes Mean for California

California’s 2025-26 mental health budget reflects a strong commitment to improving community-based services, expanding access to care, and addressing workforce shortages. These initiatives aim to modernize the mental health system, enhance equity, and ensure quality care for millions of residents.

However, the California Budget & Policy Center warns that without long-term revenue solutions, reliance on reserve withdrawals and the absence of broader tax reforms could weaken the sustainability of mental health funding in future years. Additionally, the lack of new housing investments leaves critical gaps in care for individuals with behavioral health needs.

As these programs roll out, we will publish in-depth analyses on each initiative, exploring how these changes will impact patients, providers, and policymakers. Stay tuned for detailed reports on BH-CONNECT, Medi-Cal mental health funding, workforce expansion, and more.