Governor Gavin Newsom’s proposal to issue a $4.7 billion bond for veteran housing and behavioral health facilities is broadly reasonable but gives too much power to Newsom in determining how the proceeds are spent, according to a new report from the state’s Legislative Analyst’s Office.

The LAO criticized the lack of legislative oversight and recommended the governor cede some control over determining the methodology for allocating grants from the bond’s proceeds, entities that would be eligible and distribution between veteran housing and the health facilities.

“The Governor, however, proposes a limited role for the Legislature in the design and implementation of the bond,” according to the report by the LAO, a nonpartisan government agency that assesses policy proposals. “We recommend amendments that would ensure the Legislature would have an active and ongoing role in ensuring the bond’s success.”

The proposed $4.7 billion general obligation bond measure would be on California’s March 2024 ballot and proceeds would go toward increasing the number of beds available to veterans and people struggling with mental illness and substance use disorders.

If the measure is approved, up to $865 million would be set aside for housing grants and at least $3.8 billion would be used to award grants to construct and rehabilitate beds in unlocked, voluntary, community-based treatment and residential care settings, the report says.

Mental Health Priorities

The Newsom administration is also proposing a change to how the state allocates money under the Mental Health Services Act, a 20-year-old ballot initiative that annually raises billions of dollars for mental health programs through a 1% tax on incomes over $1 million. Under the governor’s plan, counties would be required to spend 30% of the revenue generated by the proverbial Millionaires Tax on housing, including rental subsidies, for homeless individuals with severe mental illness or drug addiction.

The proposals are currently making their way through the Legislature in two bills — SB 326 and AB 531.

The Newsom administration’s plan could create unfunded mandates that might result in cuts to services for children, the LAO said in a separate report published Wednesday.

“Current regulations require a certain level of MHSA funding for children and youth mental health services, but there is no such statutory requirement included in the Governor’s proposal,” according to the LAO’s report on Wednesday.

The agency is also concerned that county reserves are not currently high enough to provide reasonable protection against revenue declines. MHSA funding has experienced a bout of volatility as weakness in the technology sector and a decline in investment in California businesses weigh on compensation for higher income taxpayers.