Funding for mental health services has never achieved top legislative priority, and reforms requiring parity succeeded only after years of hard-fought battles. After the 2007 brush with economic collapse, the recession, staggering unemployment, budget deficits, and sparse tax revenues, however, the situation has grown significantly worse. Dire consequences are predicted for mentally ill individuals who need services and for the communities in which they live.

The degree to which things have deteriorated was outlined during a special Congressional briefing in March sponsored by the National Association of State Mental Health Program Directors (NASMHPD) and the National Association of State Alcohol and Drug Abuse Directors. While patient demands on the state public health systems rose 10% from 2009 to 2012, the budgets for 41 states were cut a total of $4.35 billion (the 9 other states have yet to provide data). More crowded emergency departments (EDs), increases in crime and in prison populations, and exponentially greater societal costs to prop up individuals who don’t receive adequate treatment will place even greater stresses on overtaxed systems.

“We have a perfect storm on our hands,” says Joel Miller, NASMHPD’s Senior Director of Policy and Healthcare Reform. “Instead of providing timely, evidence-based mental health services to consumers, we’re going to be spending money in all the wrong places.” The organization’s members—executives from all 50 states, 4 territories, and the District of Columbia—deliver $37 billion of public mental health services to nearly 7 million people each year. Funding, Miller says, will dry up even more over the next several years.

How both the federal and state governments decide to manage the funding shortage during the political battles in a presidential election year is a key question. Mental Health America (MHA), the Washington, DC–based advocacy group, chided congressmen in March and urged House members to reject Rep Paul Ryan’s (R-Wis) budget resolution that proposed slashing Medicaid expenditures.

“I don’t envy the legislators and governors who are making these decisions,” says Sarah Steverman, MHA’s Director of State Policy, “but the budget cuts are short-sighted.” She notes that the across-the-board impact on employers, schools, criminal justice, and homelessness will be magnified as reimbursements to psychiatrists and other mental health practitioners are reduced to meet declining funding.

In Miami-Dade County, Florida, the criminal justice system is feeling effects that are even unusual for a state that has historically ranked near the bottom of public funding for mental health services. In the past 4 years, there has been a noticeable increase in the number of people with serious mental illnesses who end up in the criminal justice system, says Judge Steven Leifman, who has played a key role in developing new ways to reduce unnecessary expenditures incurred when mentally ill people become involved with the justice system. Five years ago, Leifman chaired the mental health sub-committee as the Florida Supreme Court’s special advisor on criminal justice and mental health when it released a comprehensive report—Transforming Florida’s Mental Health System (DOWNLOAD PDF)—that outlined a host of changes.

But with declining resources, the situation has grown worse and won’t likely improve without a major transfusion of money spent appropriately. “The community mental health systems instead of growing are shrinking,” Leifman says. “Access to care was already limited before budget cuts and the systems were horribly fragmented. The budget cuts have only exacerbated the problem.”

Beds that were once available to provide psychiatric care for members of the community have now been diverted to forensic cases—individuals who must be restored to competency before they can stand trial on criminal charges. “We now spend one-third of all of our public mental health dollars on 1600 forensic beds,” Leifman says. “Not only has it grown exponentially, but it’s also sucking up all the money from the community side.”

Meanwhile, 80% to 90% of the people who pass through the forensic system are soon released back to the community—either because they receive credit for time served, are placed on probation, or have the charges dropped. These people walk out the door, Leifman says, without having ever received the mental health care they actually need. “Spending a third of your money to move them through the system to get them to take a plea and then not give them any services is absurd,” says Leifman. “It’s the definition of insanity, where we keep doing the same thing and expect a different outcome.”

Fixing the problem is difficult when resources are sparse or are used the wrong way, Leifman says. The mentally ill are now the fastest-growing population in Florida’s prisons. Current estimates predict that the state will need to build 10 more prisons in the next 10 years to house increasing numbers.

As mentally ill individuals cycle through the prisons, it’s getting faster and more expensive. “The only silver lining behind the economic downturn is that it’s forcing policymakers to take a look at these absurd policies that are allowing people to circle the drain.”

Nationwide, the numbers reflect Florida’s experience, according to NASMHPD’s report. Over the past 4 years, some 4500 state hospital beds have disappeared without any concomitant improvement in community-based care. As a result, EDs are having to take up the slack: 70% report that they’ve had to “board psychiatric patients” for hours, days, or even weeks at a time.

There are no easy answers to all of these issues, says Laurence Miller, MD, Medical Director for the Arkansas Division of Behavioral Health Services, so the coming round of budget cuts will continue to create a tumultuous environment for public mental health. Dr Miller also serves on the APA’s Council of Healthcare Systems and Financing and chairs the Assembly Committee on Public and Community Psychiatry.

Many states are now in more dire straits than before, and in the face of budget cuts, are making decisions that won’t, in the long run, make sense, he says. For instance, cutting the number of medications available can cause patients who don’t receive what they need to decompensate, which generates even more costs. So, policymakers are “beginning to see the light,” says Miller. “But we still need to compete for the dollars.”