For weeks, Sacramento County officials and mental health providers have been battling over how to cope with a $18.5 million shortfall in the county’s mental health services budget.

According to county officials, Gov. Arnold Schwarzenegger’s revised 2010-11 budget proposal would add $24 million to this hole.

“It is too early to determine exactly how the governor’s proposed reductions to counties providing mental health services would impact these services,” said Laura McCasland, a spokeswoman for the Sacramento County Department of Health & Human Services. “But we can say with certainty that if this proposal were to pass, it would devastate services to the community.”

The administration unveiled its revised budget proposal last Friday. It attempts to bridge a nearly $20 billion budget gap, mainly with social services and education cuts. Among these is a 60 percent cut in the state’s remaining funding to community mental health programs.

This got the attention of Senate Pro Tem Darrell Steinberg, D-Sacramento, who mentioned the mental health cuts in his response to the fiscal year 2010-2011 proposals.

“His (the governor’s) actions say it is more terrible to impose a tax on oil profits than complete elimination of county mental health services and child care,” Steinberg said.

The governor’s office defended the proposals, citing the severity of the state budget crisis. Even if the administration were amenable to tax increases or major cuts in prisons, these changes would be unlikely to get enough Republicans votes in the Legislature to pass the two-thirds vote threshold.

While state mental health cuts have been hitting county-run programs around the state, Sacramento has become ground zero in a debate over how to cope with these reductions. Like most counties, Sacramento has long relied on a mixture of County run services and a collection of non-profits which provide a lot of the actual counseling services to people with mental illness. Many counties have coped with cuts by spreading the pain around to these different groups.

But Sacramento has gone a different direction. The county came up with a plan to essentially take over the services provided by outside non-profits, shifting hundreds of mental health clients to new treatments centers that would have to be opened in a matter of weeks.

The legal rationale for the plan rests on a previously-obscure section of the county charter. However, opponents of the plan say the county’s interpretation of the law contradicts an opinion issued by one of the county’s own lawyers back in 2001.

Section 71-J of the county code states that the county can contract out services as long as the “contract does not cause the displacement of civil service employees.” It goes on to say that the county must meet “with an organization that represents County employees who perform the type of services to be contracted.”

This code was added to the charter when Sacramento County voters passed Measure B in 1996. At the time, the county was facing a $21 million budget deficit. The current gap in mental health services is nearly that large already, due to combination of loan repayments, past salary increase agreements with county workers, and other issues.

Nearly a third of the current gap comes from increased salary and wage costs. According to the county’s Mental Health director, Mary Ann Bennett, some of this cost comes from short-term severance and unemployment costs from laying off county employees.

But the list of state budget cuts that impacts the system is long, Bennett said. According to a list put together by her department, the county is facing $2.4 million in unfunded state mandates for drug and alcohol treatment. Steinberg has even brought up the idea loosening restrictions that make it difficult for cities and counties to raise taxes and fees to cover these mandates, though his staff said these changes would not happen in time to help counties in the coming fiscal year.

The state also owes about $850,000 for mental health treatment center funds, and also faced a general fund reduction from the state of $196,000.

But some of the shortfall also comes from mandated salary and wage increases with department employees. Those date from a labor agreement signed four years ago.

This doesn’t sit well with some of the non-profits that have been providing mental health services for the county. The four outside mental health providers have been pushing for an alternative to the county’s current plan — which they say protects 29 county employees at the expense of laying off 151 non-profit employees, who make far less while providing the actual counseling services to clients.

According to Roleda Bates, executive director of Visions Unlimited, one of the county’s providers, 71-J was written to clarify when the county could outsource services, not to bar them. Measure B stated that the county can contract out services “for reasons of economy and efficiency.” Most counties don’t have these types of provisions, Bates said,

“It does seem like there is an emphasis on keeping county jobs,” Bates said. In her view, she said, 71-J  “was set up to basically allow outsourcing services.”

The four providers are not currently party to a lawsuit against the county filed by the group Disability Rights California. But they do endorse the logic of that lawsuit — that the county is violating its own rules by putting forth a plan that won’t save money but will cause huge disruption for mental health clients.

“It appears based on the county’s own numbers that their own vague plan would cost more,” said Stuart Seaborn, an attorney with Disability Rights California. “We haven’t seen anything that indicates there is any cost savings from this new proposal.”

In fact, Seaborn said, his group’s analysis found that the county’s plan would likely cost $2 million more per year than the current mix of services. In the meantime, he said, there is a great deal of fear among those receiving county-sponsored mental health services. People are afraid they will lose access to their medications and counselors which, in many cases, allow them to hold jobs and lead somewhat normal lives.

“We’ve been bombarded from the consumer community,” Seaborn said. “Folks are going to lose the providers they’ve come to know and trust. Trust is a big issue is mental health. The relationships take a long time to build.”