Crain’s Health Pulse re: Tax Policy to Boost Funding for MH

April 20, 2023

The article below from today’s Crain’s Health Pulse (CHP) includes pieces of the discussion I had with CHP reporter Amanda D’Ambrosio.  The topic and the call from Amanda came out of the blue but I was happy to provide some background on the use of ballot initiatives and other state revenue policies that have generated increased funding for mental health and substance use disorder systems of care. (and, given ongoing state budget negotiations, to redirect the conversation towards our ongoing efforts to secure an 8.5% COLA and other essential investments). 

During the interview, I explained that New York State does not currently have a mechanism to allow a ballot initiative such as the Millionaire’s Tax that was enacted in California in 2005, and driving these policy changes through the legislative process (as is required in NYS) often results in political warfare.  

The use of fees and other tax policies that generate funds for targeted purposes are often used to plug holes in systems of care but should never replace robust federal and state funding that is essential to ensure all New Yorkers have on demand access to high quality low cost care in local communities across New York.  As we know, supplantation of permanent state contributions via revenue generators, windfalls and awards generated through litigation, will fluctuate from year to year, and they are  (in most instances) temporary.   While it is enticing for state leaders to rely on these mechanisms, we can never let the state off the hook for adequately funding services to meet the needs of our most vulnerable citizens. 

The Milbank Study that appears to have generated interest by Crain’s is attachedand a link to a map that documents what’s happening in various states around the country is linked here:

This tax policy could bolster state funding for mental health services, experts say

Crain’s Health Pulse, 4/20

Amid a nationwide mental health crisis, a rising proportion of the U.S. population lives in a part of the country that has decided to earmark taxes to fund mental health care services. While New York attempts to invest in its own underfunded mental health system, this type of tax policy could supplement state mental health funding, experts say.

Nearly a third of the U.S. population lives in states or localities that dedicate tax dollars to behavioral health resources, according to a study published in the peer-reviewed health policy journal The Milbank Quarterly on Tuesday.

Mental health funding generated by these earmarked taxes surpassed $3.5 billion annually—nearly double what the federal Substance Abuse and Mental Health Services Administration spends on mental health care, the study said.

The median per capita annual revenue generated by these taxes was less than $19, the researchers found. In 63 jurisdictions, per capita annual revenue exceeded $25, which is approximately five times more than annual per capita spending for mental health provided by SAMHSA, they added.

“Oftentimes, this money is used to fill in the cracks in a broken mental health system,” said Dr. Jonathan Purtle, lead author of the study and associate professor of public health policy and management at the NYU School of Global Public Health.

Generally, earmarked taxes are used to pay for direct services, such as covering populations or services that are not funded by Medicaid, Purtle said.

Earmarked taxes dedicate revenue to a specific purpose, as opposed to allocating it to a general fund that is subject to political decision-making. State and local governments have increasingly used this policy strategy to fund policy areas such as transportation or education.

There were 207 policies that designate taxes to mental health care—96% of which were local policies and 4% of which were state policies, Purtle’s group found. The most common taxes used for mental health funding were property and sales taxes.

Nearly 96% of earmarked tax policies were passed through ballot initiatives, the study found. Purtle said that the majority of policies passed through ballot proposals speaks to public concern about mental health.

New York does not have policies that earmark taxes for mental health funding. People who file personal income taxes in the state can make a voluntary contribution to a mental illness anti-stigma fund, which will be used by the Office of Mental Health, or a substance use education and recovery fund, to be used by the Office of Addiction Services and Supports.

The governor’s office did not respond to a request for comment on mental health-related tax policy as of publication time.

Other states have adopted earmarked tax policies through ballot initiatives. In 2005, voters in California passed a ballot proposition that increased the income tax by 1% on all state residents with a taxable income over $1 million. Revenue from these taxes paid for services including community services, prevention, capital facilities and technology, workforce training, and innovation, the study said.

Washington state also passed a law in 2005 that allowed counties to adopt a 0.1% sales tax increase to support mental health services. Counties could authorize the tax increase through a ballot initiative.

New York cannot pass state laws through a ballot proposal, according to the National Conference of State Legislatures. The state could pass an earmarked tax law through the state legislatures, but that pathway is less likely.

Lauri Cole, executive director of the NYS Council for Community Behavioral Healthcare, said that earmarked taxes to support mental health services are innovative solutions to further support mental health care services. However, if these policies were able to pass, they should be used to supplement—and not replace—state funding, she added.

“Gimmicks, which are well intentioned and make a difference, can’t replace civic, constitutional responsibility to care for vulnerable populations,” Cole said.

Mental health care has been chronically underfunded both nationwide and in New York. Earlier this year, Gov. Kathy Hochul announced a $1 billion, multi-year investment in the behavioral health system that would open 1,000 psychiatric inpatient beds, expand outpatient services and increase insurance reimbursements. While mental health advocates have praised the investment, some are still skeptical that it will be enough to support the severity of the mental health crisis across the state.

While the state or local governments in New York could certainly benefit from additional funding for mental health from tax revenues, Cole said that the governor should focus on further investment in the workforce. She has called for the state to increase the cost-of-living adjustment for mental health providers by 8.5% to meet workforce needs.

Purtle also proposed a 25% excise tax on cannabis, to be invested in mental health and substance use services.

Cole said it is “absolutely essential” to return some of those dollars to the substance use system—on top of investments from the state.

“It can certainly supplement its contribution,” Cole said. “But the question at hand is the contribution.”—Amanda D’Ambrosio