Six Things Every California FQHC Finance Leader Should Be Reviewing Right Now

ARTICLE | March 31, 2026

If you lead or manage a California Federally Qualified Health Center, there are several financial and operational questions you should be able to answer right now. Do you know your current program services expenditure ratio? Can you defend your cost allocation methodology? Are your Family PACT provider records audit-ready? These are not hypothetical concerns. Two significant regulatory developments, one already passed by the California Legislature and one potentially on the November 2026 ballot, are putting exactly these questions front and center for FQHC finance leaders, compliance officers, and boards across California.

This article focuses on what your organization should be doing now, and briefly explains the regulatory context driving each priority.

The Compliance Checklist: What FQHCs Should Be Doing Now

1. Calculate Your Program Services Expenditure Ratio

Using your most recent audited financial statements, determine what percentage of your total annual revenue is currently directed toward program services versus management and overhead. This single calculation is the most important baseline your organization can establish right now.

Why it matters: A proposed statewide ballot initiative, if approved by voters in November 2026, could require nonprofit FQHCs to accurately and comprehensively demonstrate that at least 90% of total annual revenue is devoted to patient care and other mission-advancing program services. The initiative would also mandate enhanced public reporting and establish an enforcement framework, including potential audits and financial penalties for noncompliance. For organizations already operating on thin margins, understanding where your ratio stands today, before any deadline, is essential. The initiative has not yet qualified for the ballot, and the Attorney General's forthcoming guidance defining qualifying expenditures has not been issued. That uncertainty makes early preparation, not delayed reaction, the only defensible approach.

2. Review and Update Your Cost Allocation Methodology

Assess whether your current cost allocation plan accurately and defensibly distributes shared costs between program services and management and general categories. If your plan is outdated, undocumented, or inconsistently applied across clinic sites, that is a compliance risk under existing requirements and a significant exposure under any future state spending threshold.

Why it matters: Any reclassification of expenses intended to meet a California spending threshold must remain consistent with federal Uniform Guidance (2 CFR 200), which governs allowable costs and cost allocation requirements for federal award recipients, including HRSA-funded FQHCs. Organizations receiving HRSA and other federal awards face real tension between state and federal cost principles if their allocation methodology is not rigorous and well-documented. A defensible, current cost allocation plan is your foundation for compliance under both.

3. Audit Your Family PACT Provider Documentation

Confirm that provider licensing status, enrollment dates, orientation completion records, and site certifier credentials are current and documented for every Family PACT-enrolled location. Do not assume this information is up to date. Verify it.

Why it matters: California Senate Bill 1131 (SB 1131), passed by the California Legislature, amends the Welfare and Institutions Code and establishes compliance obligations for enrolled Medi-Cal and Family PACT providers. Key requirements include giving providers a minimum of six months from enrollment to complete required orientation, ensuring site certifiers are qualified clinicians who directly oversee Family PACT services, and meeting new virtual training standards for site certifiers that must be offered at least once per month and updated at least annually. FQHCs that cannot document compliance with these requirements face disenrollment risk.

4. Review Expense Classification Consistency Across All Locations

Examine your internal accounting policies for classifying expenses and confirm they are applied consistently across every clinic location your organization operates. Inconsistent classification is one of the most common sources of audit findings and one of the most preventable.

Why it matters: Both the proposed initiative's enforcement framework and existing federal compliance requirements depend on defensible, consistently applied expense categorization. If definitions of qualifying expenditures under the proposed initiative do not align with your current accounting practices under ASC 958, the FASB accounting standard governing how nonprofit organizations classify and present functional expenses, gaps in your classification system will become compliance risks.

5. Assess Your Financial Reporting Infrastructure

Evaluate whether your current accounting systems, data controls, and reporting processes could support the level of public financial transparency the proposed initiative would require. If the answer is uncertain, that is itself a finding worth acting on.

Why it matters: The proposed initiative would mandate that FQHCs publicly report financials and spending priorities in a manner that allows patients, workers, funders, and regulators to verify how money is being spent. Many FQHCs may not currently have the systems or internal controls to produce this level of reporting consistently and accurately on demand.

6. Brief Your Board and Establish Ongoing Monitoring

Finance and audit committees should be receiving regular reporting on your program services ratio, compliance status, and provider credentialing. If your board is not currently informed on these metrics, that is a governance gap worth closing now. Consider establishing a quarterly dashboard that tracks the key indicators relevant to both current SB 1131 obligations and preparation for the proposed initiative.

Why it matters: Boards that are not engaged on expenditure ratios and compliance status are poorly positioned to fulfill their fiduciary responsibilities as regulatory expectations evolve. Both the enacted legislation and the proposed initiative carry real consequences, and board-level awareness is the first line of organizational accountability.

A Brief Overview of the Two Regulatory Drivers

California SB 1131 was passed by the California Legislature and amends the Welfare and Institutions Code. Among its provisions, SB 1131 expands Medi-Cal coverage to include services provided by licensed physician assistants operating under a lawful practice agreement, with physician assistants now authorized to bill Medi-Cal independently and receive payment directly from the department. This change has direct revenue cycle implications for FQHCs. The bill also establishes compliance obligations for enrolled Family PACT providers, including new site certifier qualification standards, extended provider orientation timelines, and a discretionary exception to automatic disenrollment for certain out-of-state license actions where the basis for that action is solely conduct that would not constitute unprofessional conduct under California law, subject to federal approval.

The Proposed 90% Expenditure Initiative was submitted for ballot qualification in August 2025 by clinic workers affiliated with SEIU-United Healthcare Workers West and SEIU Local 721. On October 7, 2025, the California Secretary of State cleared the measure to begin collecting signatures. It must still qualify for and pass the November 2026 ballot before it becomes enforceable. If enacted, it would require nonprofit FQHCs to spend at least 90% of total annual revenue on program services, mandate public financial reporting, and establish financial penalties and potential criminal charges for noncompliance. The Legislative Analyst and Director of Finance estimate state enforcement costs of up to the low tens of millions of dollars annually, largely offset by penalties assessed on noncompliant organizations. The Attorney General would be authorized to publish guidance defining qualifying expenditures, though that guidance has not yet been issued, and its scope remains uncertain pending any voter approval.

How Vasquez + Company Can Help

Vasquez + Company LLP has served FQHCs and community health organizations for more than 55 years. We bring together a coordinated, multidisciplinary team with experience across audit, tax, IT, and cost allocation planning. 

For FQHCs working through the checklist above, here is how we help:

• Readiness Assessment. We calculate your current program services ratio, identify your key risk areas, and deliver a prioritized action plan. You know exactly where you stand before any deadline arrives.
• Expense Mapping and Classification Review. We review how your costs are currently categorized, identify gaps and inconsistencies, and build a defensible classification framework aligned to a program services versus overhead construct.
• Cost Allocation Plan Review and Documentation. We assess and strengthen your methodology to ensure it is accurate, well-documented, and holds up under both federal Uniform Guidance and potential state review. We deliver an implementation-ready model your team can sustain.
• Scenario Modeling. We model what the 90% threshold would mean for your organization under different operating and funding conditions and identify practical levers to improve your ratio without reducing patient access.
• Reporting Readiness and IT Assessment. We evaluate the data, controls, and systems behind your financial reporting and help you build the infrastructure needed to meet enhanced public reporting requirements.
• Strategic Roadmap and Ongoing Support. We work with your leadership to translate findings into a prioritized plan, including monitoring tools your board can track. For organizations that want ongoing support, we offer quarterly ratio monitoring, annual cost allocation plan updates, and mock audit preparedness reviews.

All advisory services are structured to preserve our independence under Generally Accepted Auditing Standards. We provide analysis, options, and recommendations. Your management retains responsibility for all decisions and implementation.

Conclusion

The most important question is not whether these regulatory developments will affect your organization. It is whether you will be ready when they do. SB 1131 carries compliance obligations that FQHCs should be preparing for now. The proposed 90% initiative, if it passes, would fundamentally reshape how FQHCs demonstrate their commitment to mission. The organizations that start the work now, calculating their ratio, reviewing their cost allocation, and documenting their compliance, will be the ones best positioned when deadlines arrive.

Vasquez + Company LLP is ready to help you take that first step. Contact our FQHC practice team below.

References

California Legislature. (2024). SB 1131: Medi-Cal providers: family planning. Welfare and Institutions Code, Sections 14132.41.1, 24005, 24006. Retrieved from California Legislative Information.

California Secretary of State. (2025, October 7). Proposed initiative enters circulation: Requires community health clinics spend 90% of revenue on program services. Initiative statute (25-0008A1). Office of the California Secretary of State.

California Legislative Analyst's Office. (2025). LAO ballot detail for initiative 25-0008A1: Requires community health clinics spend 90% of revenue on program services. Legislative Analyst's Office.

SEIU-United Healthcare Workers West. (2025, August 1). Clinic workers file ballot initiative to improve quality of care at community health clinics. SEIU-UHW Press Release.