Mental health services state-wide will be cut dramatically under a state Health Department budget plan that seeks to slash more than $25 million this fiscal year by capping reimbursable case management hours per client to just 3.5 hours a month — from three hours a day — and reducing programs that serve thousands.

"This is a very difficult conversation to be having with healthcare professionals," Dr. Chiyome Fukino, state Department of Health director, said yesterday in an address to representatives from more than 50 mental health agencies. "We have a double task and that is to balance the fiscal realities of our state with the services we must provide."

Some 16,000 people in the Islands receive mental health services through a slew of nonprofits, many of which were already strapped for cash before the Health Department announced its cost-cutting measures yesterday. Service providers now say they're looking at client reductions or layoffs just to make ends meet.

"It's a huge challenge," said Aliman Sears, operations officer for Community Empowerment Services, adding that the cuts will mean a "huge drop in services."

The plan to cut adult mental health services, which takes effect on Jan. 1, comes as the state is facing a mounting deficit and warning state departments to plan for budget cuts of between 10 and 20 percent. The latest Council on Revenues projections put Hawai'i on track for a $1.1 billion shortfall by fiscal year 2011, if no cuts are made.

Gov. Linda Lingle has already warned nonprofits receiving state contracts or grants to brace for the worst and members of her staff plan to meet with leaders of nonprofits next month to talk about what to expect.

"Nothing is off the table," said Corrie Heck, a spokeswoman for Lingle. "Everything is being reexamined."

In addition to less state funding, nonprofits that serve Hawai'i's neediest are also expecting fewer donations this holiday season because of the slumping economy and a decrease in funding them from local and national foundations, which have seen heavy losses in the stock market.

Meanwhile, many nonprofits — from mental health providers to food pantries — are seeing skyrocketing levels of need from struggling families.

"It's a very scary situation that we're about to face in our community," said Alex Santiago, executive director of PHOCUSED (Protecting Hawaii's Ohana, Children, Under Served, Elderly and Disabled), which represents nonprofits.

NONPROFITS STRUGGLING

Santiago said many nonprofits are already having to turn people away or put them on waiting lists. More cutbacks will mean many more will have to go without critical services, he said.

Susan Doyle, executive director of the Aloha United Way, said nonprofit leaders are hoping that the state is at least able to maintain funding for "the kinds of supports we have for emergency services."

Those services could include help for the homeless or quick cash for people behind in rent. Even those programs, though, are in danger of cutbacks.

Marya Grambs, executive director of Mental Health America of Hawaii, which works to raise awareness and educate people about mental illness in the Islands, said that even before the economy headed south, many people weren't getting the mental health services they needed.

"We were all on tight budgets already," she said. "There is a big need."

She said the cuts announced yesterday could mean some "agencies will go out of business."

Fukino, in her address to mental health service providers yesterday, emphasized that the planned cutbacks are in addition to the 10 percent to 20 percent budget cuts that the Health Department needs to make to its overall budget for next fiscal year.

That means adult mental health services could be seeing even deeper cuts in fiscal year 2009, she said.

The cutbacks discussed yesterday are designed to avert a 23 percent budget deficit in this fiscal year. Fukino said a number of factors contributed to that deficit, including faulty projections.

Fukino said the state's Adult Mental Health Services division has run a deficit for several years — including a $10 million deficit last year — that it resolved with emergency appropriation requests to the state Legislature.

The governor has asked that state departments not seek any emergency appropriations this year, Fukino said, so cost-cutting was the only option.

The cutback plan presented yesterday includes taking about 500 clients who have private insurance plans off state-funded services; capping reimbursements for case management services, which work to get clients into a healthy lifestyle in which they take their medications, work and get therapy; and reducing or eliminating contracted services.

It's still unclear just which services will be cut. The department funds myriad adult mental health services through contracts, including group homes, crisis services, homeless outreach and bilingual case management.