A 7 percent reduction in state funding for the Hubbard County Developmental Achievement Center (DAC) will result in an $85,000 to $100,000 annual loss of revenue.
The cut goes into effect July 1.
A nonprofit organization, the DAC offers day training services, habilitation services, community-supported employment and center-based employment for people with developmental disabilities and mental illness.
About 95 clients complete jobs at the DAC facility on Pleasant Avenue, the Tin Ceiling, Bearly Used Thrift Store and Salvage Depot.
"We are currently looking at ways that we can cut spending without causing any disruption to services," said DAC Executive Director Laura Johnson. "The team is committed to continuing the high-quality services people have come to expect from the DAC, so we are planning some fundraising events, applying for grants and looking at cost-cutting measures."
In late February, the Minnesota Department of Human Services (DHS) received notification from the federal Centers for Medicare and Medicaid Services (CMS) of a problem with Minnesota's rate-setting policy for Minnesotans receiving home and community-based services.
Minnesota uses a standard formula, called the Disability Waiver Rate System (DWRS), to set reimbursement rates for services received by several thousand Minnesotans with disabilities.
DWRS was created in 2013 as part of new, federal government requirements and uses a complex formula to generate a uniform system of rate setting across the state.
There are two components of DWRS: "banding" and automatic increases.
"Banding" was established for individuals who were already receiving a waiver rate in December 2013. The state did this to ensure that individuals who would see a drastic change in their rate once they converted to the DWRS could do so gradually, allowing for services to be adjusted. Individuals who were not receiving a waiver rate when DWRS was implemented in 2014 were put directly onto a DWRS rate, known as an "unbanded" rate. Banding is set to expire on Dec. 31, 2019.
When DWRS was established, a mechanism was included to automatically adjust DWRS rates every five years for inflation. The first adjustment occured in July 2017, with an overall system increase of 8.5 percent.
Over the course of three years, Minnesota lawmakers approved additional increases in order to support service enhancements, staff recruitment and staff retention. Called "after-model adjustments," the Legislature passed a 1 percent increase in 2013, 5 percent in 2014 and 1 percent in 2015.
That legislation covered cost-of-living adjustments that "we hadn't gotten in years and years and years," said Johnson.
This year, CMS determined those three adjustments, along with the 8.5 percent inflationary increase, were "redundant" and denied the adjustments. CMS withdrew the federal match of 7 percent, triggering DHS to remove 7 percent from the state budget - $10 million this year and more than $60 million total over the next three years.
The problem, said Johnson, is that the DAC already had those adjustments budgeted. "For our DAC, that's about $105,000 a year which we can't afford to lose," she said. "We're in the position now where we're already not covering all the costs for services, and being pushed to provide new services. That's why it's so important."
The 7 percent cut for unbanded individuals goes into effect July 1.
When banding ends in 2019, reimbursement rates will be cut by 7 percent for all remaining recipients of services.
Omnibus bill vetoed
Best Life Alliance is a statewide coalition of more than 130 organizations, people with disabilities, families and supporters advocating for community-based disability services. They rallied at the State Capitol in March to draw attention to the situation.
The State Legislature attempted to fix the problem. Sen. Paul Utke authored a bill (SF 2889) that would have delayed the 7 percent cut, then reduced it to 5 percent. He is vice chair of the Senate's human services reform finance and policy committee.
Utke has been "a huge supporter" of the DAC, Johnson said. He served on Hubbard County DAC's board for six years. "So he really understands the importance of the organization and what it does for the community and what it does for the clients."
In the House, Rep. Joe Schomacker authored HF 3191 to halt the 7 percent cut.
At the end of the session, the 990-page Omnibus Supplement Finance bill included funding to delay the 7 percent cut to home and community-based services.
Utke said CMS should recognize the belated cost-of-living adjustments were actually spread out over a great number of years. "It was kind of playing catch-up. Everything got recorded as one large raise, and so that's when the feds said, 'No, you can't do that,'" he said.
The omnibus bill called for the state to cover the shortfall until an agreement could be reached with CMS.
"We were going to fund it from the state's side for the six months until the feds reinstated it," Utke said.
But Governor Dayton vetoed the omnibus bill, citing its "misguided priorities that give tax cuts to corporations and the wealthy over the education of our children."
No special session is planned.
"We can't do anything now until we go back into session Jan. 8, 2019 - which is six months after they start to receive the cuts," Utke said. "Across the state, it amounts to 27 percent of clients will see that 7 percent reduction in reimbursements. Of course, it all ends up on the provider's plate. Providers run on a shoestring as it is, so this is not a good deal. We gave them a raise, then we take it away. That's not the way it should be done."
In the next six months, Johnson said, "We expect to see losses of about $7,000. Changes in employment services that take effect July 1 will also change the rate system. With so many changes coming at once it is difficult to accurately forecast."