By Jon Chown
Santa Cruz County supervisors on Tuesday, Feb. 10 got a detailed presentation on the changes that will be required under the new Behavioral Health Services Act, a state law approved by voters in 2024.
The BHSA replaces the Mental Health Services Act, which since 2004 has funded county mental health programs through a 1% tax on California residents whose personal income exceeds $1 million. The new law, created through Proposition 1, restructures how those funds are distributed and used. It also reduces the overall amount of funding counties receive and imposes new reporting, planning, and accountability requirements. County officials said the changes will significantly affect Santa Cruz County’s behavioral health programs beginning July 1, 2026.
“This is not a minor adjustment,” Connie Moreno-Pereza, Health Services director for Santa Cruz County. “It is a fundamental restructuring of how behavioral health services are funded, planned, and delivered.”
Under the BHSA, counties will receive about 5% less funding overall while facing tighter state restrictions on spending. For Santa Cruz County, projected BHSA revenue for fiscal year 2026–27 is approximately $26.4 million, down from about $27.9 million under the prior system. At the same time, the state will retain 10% of revenues for statewide initiatives, double the amount previously withheld under the MHSA.
One of the most consequential changes is a new requirement that 30% of behavioral health funding be dedicated to housing for people with mental health problems who are chronically homeless. County staff estimated this mandate will shift roughly $7 million to $8 million away from existing clinical services and provider contracts, resulting in the reduction or elimination of some long-standing community programs.
“In some ways this is exciting. There’s money for housing, and yet I don’t think anyone wants to see the reduction in services that we are faced with,” said Supervisor Manu Koenig.
Dr. Marni Sandoval, director of Behavioral Health for the County of Santa Cruz, told the supervisors that although it looks like a lot of new funding is being made available for housing, it will take funds away from needed services. She pointed out that the county is already partnering with a number of agencies to provide housing. In fact, the new money won’t even cover what the county is already spending. So, the county will have to reconfigure how it spends that money, and with which partners, to keep as many programs in place as possible.
“So this makes it seem like there’s a wonderful source of new money to fund all these things, but the flip side is that if we choose to do that, we absolutely will cut a significant number of existing programs,” she said.
In addition to funding changes, the law significantly expands administrative and reporting requirements. Counties must submit a three-year Behavioral Health Integrated Plan, or a BHIP. Santa Cruz County is required to submit its finalized plan to the state by June 30.
“It’s definitely a lot coming at us … all of these new requirements by the state,” said Koenig. “That 100-page report sounds daunting.”
The county must also comply with a new statewide reporting system known as the Behavioral Health Outcomes and Accountability, and Transparency Report, which will track spending, service utilization, and performance outcomes. The Board of Supervisors will be required to formally attest to the accuracy and compliance of those reports, which will be reviewed and published by the California Department of Health Care Services.
As part of the planning process, the county’s Behavioral Health Division met with the affected community between November and December 2025, gathering input from more than 200 people, providers, and partner organizations. Feedback was collected through public forums, surveys, and focus groups.
A draft plan is scheduled to be submitted to the state by March 31, followed by state feedback, review by the county’s Behavioral Health Advisory Board, and a 30-day public comment period before final approval by the Board of Supervisors.
County leaders emphasized that while the BHSA aims to improve access to care, it also forces difficult tradeoffs.
“Programs that have been built over decades and shown strong community outcomes may no longer fit neatly into the state’s new funding framework,” Dr. Sandoval said. “This transition will touch nearly every aspect of the behavioral health system.”
Supervisors directed the Health Services Agency to continue work on the county’s approach and return in 2026 with an updated analysis and recommendations ahead of the law’s full implementation.