Proposition 44 (California, 2026): What it would require of community health clinics and what it means for readiness in 2026

What Proposition 44 would require

The central requirement is straightforward in principle: covered clinics must devote at least 90% of their annual revenue to program services—activities that advance their charitable purpose and directly deliver patient care and related services. Eligible program services can include medical visits, mental health care, dental care, medications, medical equipment, transportation, language interpretation, care coordination, outreach, and other services that support the clinic’s mission. Spending on overhead, excessive CEO compensation, lavish events, and other non-mission-focused activities would not count toward the 90% threshold.

The measure also establishes new reporting and transparency rules designed to show how dollars are spent. The state would oversee compliance, and penalties for shortfalls would be assessed in an amount equal to the shortfall needed to reach 90%. If a clinic falls short, it could repay the deficiency and, if it comes into compliance within five years, recover the penalties. Any unrecovered penalties would be redirected to workforce initiatives that support safety-net clinics, such as recruitment, training, and retention of healthcare workers. Importantly, proponents argue the rule would protect patient care, while opponents contend it could hamper clinics’ ability to fund essential non-clinical functions. The state’s enforcement costs would be paid for through fees charged to clinics, described below.

How compliance is calculated

Compliance hinges on the 90% program-services spending rule. The measure leaves the California Attorney General to define which expenditures count toward program services. In practice, clinics would need to categorize every dollar as either program service or non-program service, then verify that at least 90% of total revenue is allocated to qualifying program activities. Examples of qualifying services include patient care, equipment, transportation, interpretation, outreach, and care coordination, among others. Expenditures commonly questioned by opponents include certain staffing and capacity-building activities, as well as IT investments and facility upgrades, unless they clearly support direct patient care.

To guide clinics, the proposal specifies that penalties are tied to the shortfall amount—if a clinic does not meet the 90% threshold, it owes an amount equal to what is needed to reach 90%. The clinic can recover penalties by achieving compliance within five years. If compliance remains elusive, the state would keep the shortfall money and apply it to workforce programs supporting safety-net clinics. This framework makes the calculation highly dependent on how the AG defines program services and how clinics document their expenditures.

Timeline and practical timing details

Assuming Prop. 44 is approved on November 3, 2026, the requirements would apply to the first full fiscal year commencing at least six months after the measure becomes effective. For a calendar-year clinic, that could place the start of full compliance in fiscal year 2028, with months between the election and implementation serving as a transition period for accounting, policy updates, and staff training. A concrete timeline example helps clinics budget and prepare: map current expenditures to program services, update financial reporting practices, and align governance processes with the anticipated AG guidance on qualifying costs.

In practice, clinics should anticipate that the AG will publish more specific guidance on which expenses count toward the 90% threshold. Until then, the emphasis should be on internal classification discipline, documentation of how each transaction supports patient care, and readiness to adapt once the AG’s definitions are published. The existence of a waiver mechanism means clinics should also document extraordinary circumstances—such as natural disasters or sudden funding shortfalls—that could qualify for temporary relief.

Financial and operational implications for clinics

Two core financial questions drive clinic planning: enforcement costs and the potential impact on clinic operations. Official analyses indicate that enforcement would cost the state in the low tens of millions of dollars per year, funded through clinic fees. For clinics, that means ongoing administrative costs to support reporting and compliance efforts, which could modestly affect annual budgets but are intended to be offset by the requirement that most revenue go toward patient care.

Opponents of Prop. 44 argue the 90% rule could trigger negative outcomes, including reduced services or closures if funds cannot be reallocated quickly enough to comply. Supporters counter that the measure does not cut funding and that penalties are intended to drive accountability rather than reduce patient access. Readers should understand that the net effect depends on how clinics respond to the rule, how quickly they can reorganize expenditures, and how the AG’s guidance translates into concrete definitions of program services.

Who supports and who opposes Prop. 44

The measure is framed as a patient-centered accountability proposal backed by the SEIU-UHW union and hospital-community providers who emphasize more dollars reaching direct patient care. Supporters argue that large portions of clinic funding frequently do not end up in patient care, and the 90% standard would redirect dollars toward frontline services and clinical staff, with any unrecovered penalties redirected to workforce programs.

Opponents contend that Prop. 44 is poorly drafted and could impose rigid spending restrictions that would force clinics to cut essential services or close, especially if costs of compliance rise or if the AG’s definitions are interpreted conservatively. They point to the potential for sizable noncompliance penalties and argue that clinics are already subject to extensive federal and state oversight, audits, and reporting requirements.

Across stakeholders, it is useful to note that the measure’s origin is tied to SEIU-UHW, and a broader political context includes strong organized labor support alongside opposition from medical professional associations, hospital groups, and some political bodies. This context helps readers assess credibility, potential implementation challenges, and the likelihood of effective enforcement.

Waivers, audits, and interaction with existing oversight

Prop. 44 would provide for temporary waivers in some circumstances, with the AG defining the criteria. Clinics should document extraordinary events or conditions that might justify a waiver and prepare for a formal request process when guidance is issued. Clinics are already subject to federal and state audits and funding rules; supporters and opponents alike acknowledge that Prop. 44 would add a new layer of reporting and enforcement by the Attorney General. Practically, clinics should anticipate alignment questions between Prop. 44 requirements and existing audit regimes, and plan for potential redundancies or overlaps in reporting.

In distinguishing program services from non-program activities, clinics should consider how common operational expenses—such as IT systems, equipment purchases, which are often necessary for patient care, and facility expansions—could be argued to support direct patient services under the 90% rule. The AG’s forthcoming guidance will provide the official definitions, but clinics can begin documenting how expenditures contribute to patient care now to reduce ambiguity later.

What clinics should do to prepare

Clinics should start with a proactive internal assessment of their current expenditure mix. Identify which costs clearly support program services and which costs might be questioned as non-program expenses. Develop a transparent classification policy aligned with anticipated AG guidance and train finance and program staff to apply it consistently. Create documentation templates for expense classifications and a centralized ledger showing how every dollar supports patient care. Prepare scenario analyses to illustrate how different spending patterns would fare under the 90% rule and what penalties might look like if adjustments are not achieved within the five-year window.

Consider developing a simple decision flow or template that clinics can use to determine whether a specific expense qualifies as program services under the 90% rule. An accompanying template for documenting expense classifications would support readiness for AG guidance and potential audits. In addition, clinics should review governance processes to ensure boards understand and approve the policy changes necessary to meet the standard, and to facilitate timely reporting when guidance is issued.

Frequently asked questions (FAQ)

What is the 90% program-services rule? It requires covered community health clinics to spend at least 90% of annual revenue on program services that advance the clinic’s charitable mission. Non-program expenses, including excessive CEO pay and overhead not directly tied to patient care, would count toward the remaining 10% or more, depending on the clinic’s actual spending.

Which clinics are covered by Prop. 44? The measure targets certain private nonprofit safety-net clinics, including Federally Qualified Health Centers (FQHCs) that provide primary care and related services to medically underserved populations.

What counts as program services? Eligible services include patient care and related activities such as medical visits, mental health services, dental care, medications, medical equipment, transportation, language interpretation, care coordination, outreach, and other services that support the charitable mission.

What doesn’t count toward the 90%? Administrative overhead, excessive CEO compensation, fundraising, events, and other spending not directly tied to patient care would typically be excluded from program services.

When would the rule take effect? If approved on November 3, 2026, the requirements would apply to the first full fiscal year beginning at least six months after the measure becomes effective. For a calendar-year clinic, this could be FY 2028, depending on the exact effective date.

What about waivers? The measure provides a process for temporary waivers in some circumstances. Clinics should prepare to document qualifying circumstances and await AG criteria on waiver eligibility.

What are the enforcement costs and who pays? Enforcement costs to the state are expected to be in the low tens of millions of dollars per year, funded by fees charged to clinics.

Context and origin (brief)

The measure was placed on the ballot by the labor union SEIU-UHW. A similar legislative effort had previously failed, and clinics faced a lawsuit aimed at keeping the measure off the ballot. Understanding this origin helps readers assess the intent behind Prop. 44 and the political dynamics surrounding its consideration.