Transcription
One of the reasons among many that it's not been a normal summer or a normal time is that on July 4th of this year, Congress passed and President Trump signed into law, HR1, the federal reconciliation measure that in these chambers for many months we had been discussing as it meandered its way through each house of Congress.
HR1 presents an extraordinary threat to core safety net services across the United States and a particularly acute threat to those services here in Santa Clara County. Core services provided by this county organization. And before we move into the specific recommended actions that I've brought before this board and the rationale for those, it's important, I think, to really take just a minute to walk through what we are facing as a result of HR1.
Let me just talk nationally for just one second before diving into what it means for our community here in Santa Clara County. At a national level, this bill that is now law presents an unprecedented one trillion dollar cut to the federal Medicaid program. Medicaid is the major insurance program for about one in five Americans and nearly one in two children in the United States. And the significance of that impact across the country is going to be profound.
But of course will be hugely significant here in Santa Clara County in particular and most obviously for the nearly one in four Santa Clara County residents who are on medical which is California's implementation of the federal Medicaid program. HR1 does a number of other things as well nationally, ones that we'll spend a little less time on because they have less of a direct fiscal impact to the county organization, but are nonetheless deeply significant, including to SNAP, which is known here in California as CalFresh, the federal food assistance program. Those changes, for example, to SNAP, including new work rule requirements, have already taken effect. They took effect immediately with the passage of HR1.
There's a variety of other changes included in the bill, too, to programs like Covered California, which affects health insurance here in our community, to immigration enforcement funding, to energy credits, and of course, very substantial tax cuts in particular for those who are most wellto-do nationally. But the impact on our county organization is significant. and mainly arises in the context of the Medicaid related reductions.
These projections that you see on your screen begin with the current fiscal year that we are in because there are impacts even though many of the larger impacts come in subsequent years. There are immediate impacts on our county organization. And I want to just emphasize at the outset again, these are just looking at HR1 related and associated state impacts on the county. They don't include any actions that the state may take to deal with its own separate budgetary challenges. Nor do they include our own county's local challenges due to slowed RO growth or other local sources of revenue. Those are all in addition to what you see here.
But looking just at the HR1 related impacts for the upcoming fiscal year, mainly in the form of healthcare related items, looking at over a $500 million revenue loss, growing to over a billion dollars thereafter. Now, these are based on reasonable assumptions. Looking at what the CBO has put out in scoring the impacts of HR1 nationally to the Medicaid program, looking at what that translates to in how California has implemented the program, and looking at what that means for our own county health system in particular.
And I'm going to just take a minute to focus to to drill down a little further on the health component, just the health care piece of those impacts fiscally on the county organization, which fall into a whole variety of categories. Several of which we've spoken about previously in these chambers as the bill was moving forward and several of which were significantly worsened in the version of the bill that was approved by the Senate compared to what originally came out of the House of Representatives and some impacts that uniquely and in particular affect hospital systems like ours that serve a disproportionate share of individuals on Medicaid or in California medical. I'm going to talk about a few of those categories specifically.
The largest and this is what the CBO scored as the largest single element of that trillion dollar federal Medicaid reduction is the imposition of work requirements associated in the Medicaid program. These will come into place next calendar year. Now, what does that actually represent from a human standpoint? It is literally a reflection at a national level and in California and in our own county of thousands of individuals who will lose health insurance coverage. That is the quote unquote savings scored at the national level.
What does that translate to for our local healthcare delivery system? is an extraordinary loss of revenue for care that is provided to individuals in our community including one of our most significant sources of medical related revenues which is our capitation payments that we get for taking care of medical members on a per member per month basis. Some of the other significant impacts include what are called directed payments. These are supplemental payments in various programs that have existed to help ensure continued access to services from hospital systems like ours. HR1 immediately froze any increases in those payments which has some immediate impacts on our organization. and ratchets those down substantially over time to the tune of several hundred million dollars in lost revenue on an annual basis.
Another category of significant impact are what are called Medicaid provider taxes, MCO taxes. The voters here in California passed Prop 35 last November, which increased MCO taxes here in California and included some dedicated funding for public hospitals. This the board of supervisors, the county supported that measure. The voters approved that measure. Unfortunately, HR1 took that off the table. So, that measure will not go into effect in California. That's an immediate impact for our county organization in this year's budget. And there's a growing impact over time because one of the other changes that was made in the Senate version of the bill that ultimately became law was a cap and a ratcheting down of the use of that mechanism. And that's a mechanism that's used in different forms in almost all states to help generate the state related match. That's part of how the federal state Medicaid program is put together.
There's a variety of other changes and impacts, but the bottom line is this. Medicaid is the most significant revenue source for our health and hospital system. It's a quarter of the behavioral health services department's budget. It's a significant revenue source for support of housing and other critical safety net services. And without that backbone of revenue, the magnitude of impact for our county organization and our ability to deliver those core services is extraordinary. This is the single largest revenue loss for the county organization and therefore the services that we're able to provide to the community since the passage of Proposition 13.
Santa Clair Valley Healthcare, as the board knows, operates four hospitals and 15 clinics. It's the primary care provider for about one in four county residents. But more significant than just that, it provides access to care for all 1.9 million residents in Santa Clara County. SCVH runs two of the three trauma centers in this county and we saw the direct impacts during the period of time last year when regional medical centers trauma center was closed. Valley Medical Center had the highest trauma volume in 2024 of any hospital in the state of California. And we operate one of only three burn trauma centers between Los Angeles and the Oregon border.
These are services that all of our residents, if you travel on 280 or 101, you travel 101 down in the south part of our county where we run the only hospital in that entire geographic region. These are essential services that you never know when you or a loved one will need them, when there might be a house fire or other disaster that occurs. And our system has been there time and again. Collectively, SCVH provides care and is responsible for about half of all emergency department visits in the whole county. It is also the single largest provider of Medicare hospital-based services to residents in our county, a fact that I think many don't know. and a growing piece of service that SCVH provides.
There's no way around having such a significant magnitude of impact on the core and most significant revenue source for a system. There's no way around what that could mean for services. And to put that in some context, the operating budget for OKConor regional and St. Louis hospitals combined is only about 1.3 billion a year. And of course, most of that is backed by revenue. And so that wouldn't be even the net cost. And I just share that because I think it's important. It's hard when you talk about big numbers. It's very hard for us to viscerally understand the magnitude of what we're discussing.
The magnitude here is extraordinary and it's going to call upon this county organization to do extraordinary things which we've done before in the past but cannot do alone. And so administration is recommending a multiaceted strategy. It is going to take a multitude of efforts and doing so with the speed necessary in order to help mitigate the significant impacts to core and literally life-saving services delivered by SCVH, but also the impacts that would be felt across all of the county's general funded services, public safety, supportive housing, public health, etc. Because what this county at its core spends its resources on is the delivery of those kinds of critical safety net services.
Those pillars fall into three categories and of course with many strategies within them. One is that we will need to work in deep partnership with the state. Medicaid and SNAP are federal programs that are operated as joint federal state initiatives. The details of how things are implemented and effectuated are determined by the state government. And there are important, very difficult, don't get me wrong, very difficult, but important choices and decisions that the state is going to have to grapple with on how it responds to HR1 and other related federal impacts.
We will need to work in deep partnership with the state to ensure that the 6% of hospitals in California that are public and that provide those 6% of hospitals provide over 50% of the trauma centers and burn centers and train over 50% of the doctors in California. that that backbone for the entire health care safety net for all Californians is appropriately recognized as part of the very difficult decisions that the state will have to make. And so our state partnerships and advocacy collectively falling in a whole variety of areas not one single thing is one prong of this strategy of dealing with this extraordinary challenge.
The second and largest prong of this strategy and I want to say largest is that we will have very difficult decisions and conversations and actions that we will need to take as a county organization in reorganization of services. consolidation of services, reductions which will require clear prioritization. There is no way around that reality for the county organization in order to ensure that we are doing our part to preserve the most critical services for those most in need in our community. And they will be very difficult actions.
But I know from our past history, including even going way back before my time here, the history of this organization in the wake of Prop 13. I know the resilience of the county organization in making it through that. But there is no doubt that the magnitude of those impacts will be significant, will require close and deep collaboration and partnership with our employees across the organization, and will be many orders of magnitude more significant than what we have had to tackle in the last three budget cycles where we've made much more modest reductions. And I share that with cander because the third prong in the strategy is the recommended action in front of the board today which is to ask our community to provide assistance in the form of a 5A cent general sales tax.
And I'll talk in a minute about that piece of things. It's always a big deal to ask the community to raise revenue in that way. It would raise about 330 million which is significant but obviously a modest piece of what we're staring down and that's why I say with cander that we are looking regardless at very significant impacts on the county organization and the services that we provide and how we provide those services. This third piece, we are constrained in our options. Now, we are very fortunate that pre-existing state legislation gives us the ability to ask voters in this community whether they wish to approve an additional 5A cent sales tax.
Counties in California don't have any general taxing authority. we are only able to levy the types and amounts of taxes that the legislature authorizes. That's different than for cities. And so as both a legal and practical matter, the only meaningful revenue option available to us in that vein is a sales tax and the authorization is up to 5/8 cent. So that is where the type of tax and the amount comes from as part of this conversation. It's no magic. It is literally what is available under applicable law.
This strategy will help give us a little breathing room. It's a short-term duration proposal that will allow us some opportunities to continue to seek the kinds of transformations that we will need to make in the wake of HR1 as well as continued engagement at the state level and national level where we certainly hope that there will be a revisiting of what's happened through this national measure.
From my perspective and in looking at the magnitude of what we're facing, looking at all of the different pieces of the puzzle, this ask is one that really is about ensuring continued access to essential and critical services for the community. It's why I make this recommendation to the board to consider this item knowing that we have mountains to move as a county organization and in having confidence that our employees and our partners across the county will roll up their sleeves to move those mountains to ensure continued access to healthcare and social services, behavioral health, and other vital services that are needed for all residents in our community.
And so that we can continue to have access to the kind of excellent care for all. That is one of the reasons so many of us, my family included, chosen to make our home here in Santa Clara County. And that makes this place such a special one. It's also a tangible way, a tangible and concrete way for us to say we will not just sit idly by as the federal government pulls the rug out from critical access to core services, but that we will together and in a multiaceted effort bring the pieces of our community in alignment to ensure that The things that make Santa Clair County special continue.