WATSONVILLE >> Just days before the Santa Cruz County Board of Supervisors is slated to approve its annual budget, the list of local behavioral health providers publicly warning of the devastating impacts they are poised to suffer from the cuts proposed therein is only growing.

Encompass Community Services, a major county behavioral health services contractor, shared in a media release this week that its Casa Pacific residential facility in South County is at risk of closing should the board green light a steep drop in county reimbursement rates that are included within the fiscal year 2025-2026 budget.

The facility, which has operated for more than 30 years, is meant to create a homelike atmosphere where Encompass workers provide individual and group counseling, crisis intervention, structure activities, community outings and assistance with independent living skills to those suffering from various mental health afflictions. According to the release, Encompass is the only provider of mental health residential services for people with Medi-Cal that are stepping down from acute psychiatric hospitalization in the county.

“This is a heartbreaking moment for our agency, for the 17 dedicated staff members who provide life-saving care, and especially for the 50 clients per year who rely on Casa Pacific for recovery and stability after a psychiatric hospitalization,” Shellee Stopera, CEO of Encompass Community Services, said in the release. “Without this program, there will be nowhere for these individuals to go—no step-down care, no safe environment for healing. This decision will lead to far more hospitalizations and less treatment options for sustained recovery.”

Should the board approve the changes at its final budget meeting June 10, the county’s reimbursement rate for residential room and board services will drop from $125 per person per day, to $75 — a 40% reduction, according to Encompass. Because Medi-Cal does not cover these room and board fees — which cost Encompass $162 per person per day — the county’s reimbursement reduction spells doom for Casa Pacific, the nonprofit underscored.If that happens, Encompass noted that there is no alternative for the kind of care it provides at Casa Pacific and in its absence, previously existing bottlenecks at local emergency rooms, psychiatric hospitals and other treatment facilities will worsen considerably. In turn, Encompass contends, levels of homelessness, incarceration and deaths will rise.

If Casa Pacific does fold, it’ll mark the second Encompass facility to do so this year. Its eight-bed Telos facility in Live Oak halted patient admissions on May 12 and is scheduled for closure on June 27.

At a Board of Supervisors budget meeting Tuesday, the potential closure of Casa Pacific was voiced during the public comment period, which prompted an inquiry from the supervisors.

County Behavioral Health Director Marni Sandoval, who began as behavioral health director in May, said that the county was made aware of Casa Pacific’s proposed closure on Monday and that it is trying to find a solution.

“This is very brand-new information for us,” Sandoval said Tuesday. “Right now, our hope is that we don’t have to close Casa Pacific, but we’re having to dig into that.”

In a statement to the Sentinel shared Friday, county spokesperson Jason Hoppin underscored that the county’s Health Services Agency is facing down a series of difficult choices in order to close a significant budget deficit to preserve core services, including the laying off of its staff and contracting for lab and radiology services.

“One area identified for reducing costs is the Residential Room and Board rate for all providers to be more in line with statewide averages and peer counties,” Hoppin wrote.

Encompass appears to have a different understanding of how long this issue has been on the county’s radar. According to the nonprofit’s release, county behavioral health officials were informed of potential mental health residential treatment facility closures at every budget negotiation meeting, starting March 27. In response, the Encompass statement continued, the county noted an average room and board rate across the state of $50. But Encompass countered by saying this rate does not factor in reduced economies of scale for smaller facilities, with fewer beds that are operated in high-cost counties like Santa Cruz.

“The annual budget is a direct reflection of the County’s priorities. By reducing the mental health residential treatment room and board rate by 40% and not allocating additional funds, the County is choosing not to prioritize our community’s behavioral health,” added Encompass Chief Operating Officer Linda Alves. “Our social safety net is quietly disappearing in the aftermath of these decisions, and those most vulnerable will not be able to get the services they need to live a healthy life.”

Encompass, which has more than $20 million in contracts with the county, said in its release earlier this week that it was awarded $471,000 in 2024 through Measure K revenues, but that they wouldn’t be renewed this coming year, adding to budget pressures that could force Casa Pacific’s closure. But the county said Encompass has it wrong. Hoppin said Encompass was awarded $400,000 in the current fiscal year and that it has been promised to receive that same total again this year.

The county communicated its reimbursement rate drop to Encompass and other residential treatment providers in February, Hoppin wrote, prompting the nonprofit’s leadership to request a higher room and board rate than other local organizations. Encompass then asked the board directly for additional funds at an April 29 meeting.

“The County subsequently committed $400,000 in Measure K-related funds to support both El Dorado Center and Telos,” Hoppin wrote. “The County has not wavered in that commitment. Unfortunately, Encompass leadership has since chosen to close Telos despite this commitment. We are continuing to discuss this issue with them.”

An Encompass spokesperson told the Sentinel that the nonprofit was informed Friday by the county that it was willing to allocate $400,000 of Measure K to support room and board rates.

“However, we would still need over $250K to make up for the 40% rate reduction in order to keep Casa Pacific open,” the spokesperson wrote.

For weeks, county government leaders have been warning of a bleak financial forecast that will force a tightening of the belt in the coming fiscal year’s budget, set to begin July 1. Nowhere is this more visible than within the Health Services Agency, which finds itself in a significant spending deficit. As a result, it has recommended that the equivalent of 74.4 full-time positions — about 12 of which are currently staffed — get cut from the payroll.

Agency leaders explained at a hearing this week that the main drivers of the agency’s financial woes are the disappearance of state funding, drastically reduced Medi-Cal reimbursements rates and increased program and operational expenditures.

And because behavioral health services are the agency’s biggest driver of revenue and expenses, programs that support those services will also suffer. As of this week, community-based behavioral health provider Mental Health Client Action Network of Santa Cruz and New Life Community Services’ Gemma program were recommended no funding this coming fiscal year after receiving $618,000 and $331,000, respectively, in the current year.

The recommendation sparked an ongoing backlash that has the supervisors looking for answers. County staff said the Gemma program is likely to be absorbed by Janus of Santa Cruz and, for the second meeting in a row, the board asked its staff to draw up options for how it can continue to somehow support the action network program, possibly by facilitating a collaboration with the city of Santa Cruz.

As the negotiations between the county and Encompass continue, the two parties will look to draw upon years of collaboration and a few familiar faces. Supervisor Monica Martinez served as CEO at Encompass for a decade before resigning from the role late last year in advance of her first term in public office.

If it appears that the final proposed budget will reduce the number of residential beds that exist today in the county, Martinez asked behavioral health staff Tuesday to communicate that to the board prior to the June 10 budget meeting.