May revision would eliminate most Prop 56 supplemental payments for family planning and women’s health; LAO warns of lost federal match

The Assembly's health budget subcommittee reviewed the governor’s proposal to change how Proposition 56 revenue is used. Proposition 56 revenue (a tobacco tax measure) historically funded supplemental payments to providers for dental, family planning and other health services. The administration proposes stopping supplemental payments for dental and family planning and redirecting Prop 56 funds to support base physician rate increases and general‑fund savings.

Why it matters

Proposition 56 revenues have declined over time as tobacco use decreased; the administration told the committee that continuing to use state general fund to backfill Prop 56 supplemental payments is not sustainable. The Legislative Analyst’s Office (LAO) warned eliminating family planning supplemental payments would cause the state to forego a higher federal match — family planning services draw a roughly 90% federal match for covered services — and estimated that cutting about $151 million general fund in family planning supplementals would reduce federal funds by roughly $300 million in 2025–26, meaning total fund reductions of roughly $470 million.

Administration rationale and details

The Department of Finance and DHCS representatives said Prop 56 receipts have fallen (DOF noted a decline from roughly $1.5 billion to about $800 million in recent years) and that the state has been using general fund to support supplemental payments historically covered by Prop 56. The May revision proposal would: - Eliminate supplemental payments for dental services, family planning and women’s health that were funded through Prop 56 and instead use available Prop 56 funds for base physician rate increases and other uses in the administration’s Prop 35 plan. - The administration estimated general‑fund savings of roughly $156 million from the change; LAO estimated the combined total‑fund reduction (state + federal) would be larger because the reduction eliminates federal match dollars currently drawn.

LAO and member concerns

LAO staff urged the legislature to weigh maximizing federal dollars when considering budget solutions and to request programmatic impact assessments. Committee members and reproductive‑health advocates warned that a reduction in state funding for family planning and women’s health would undercut clinics that rely on the supplemental payments and could force clinic closures. Several members said cutting Prop 56‑funded supplemental payments to reproductive and family planning providers would undermine the state’s efforts to protect reproductive access.

Selected figures and testimony

- LAO: Prop 56 revenues have fallen significantly from prior years; supplemental payments previously funded by Prop 56 have been partially backfilled with state general fund. - DOF: The administration estimated the proposed change will free roughly $156 million general fund in the budget year but will eliminate approximately $310 million in federal matching funds and other total funds associated with family planning funding in 2025–26 (combined total reduction ~ $466–470 million).

Ending

The LAO recommended the legislature be strategic about maximizing federal dollars and assessing access impacts before approving sweeping changes to Prop 56 spending. Reproductive‑health providers, hospitals and hospital associations urged the subcommittee to preserve family planning supplemental payments, warning programmatic and access impacts could be significant.