Local providers of services to people with intellectual disabilities are scrambling to stay afloat in a state short of money.

Lancaster County officials are warning the consequences could be dire.

"Ultimately, providers are going to go under, and more people will need to be institutionalized because there won't be any money to serve them in their homes," said James Laughman, executive director of the county's Office of Mental Health/Mental Retardation/Early Intervention.

According to Anne Bale, spokeswoman for the state Department of Welfare, the state Office of Developmental Programs ended fiscal year 2010-11 with a $35 million deficit.

"We did not properly account for increases in changing needs of people receiving services," she said.

For example, she said, a person might regularly receive physical therapy and then suddenly need surgery.

"Obviously, that's going to increase the cost of serving that person," she said.

To cover last year's shortfall, the Office of Developmental Programs on Nov. 11 cut funds to service providers by 6 percent for the current fiscal year.

Laughman said about 35 companies across Lancaster County provide about 1,800 residents with intellectual disabilities an array of services, including job training, social rehabilitation and supervised living.

Those services are paid for by the state using federal funds.

Until 2009, individual counties controlled those federal dollars. Lancaster County managed $45 million in 2008. Laughman said counties were more frugal with those dollars than the state has been.

"We never ran a deficit when counties controlled the money," he said.

In 2009, the state took control of all the federal money statewide, but counties continue to coordinate the provision of services.

That system doesn't work, according to Scott Martin, chairman of the county commissioners.

"When the state decided to make the change to the administrative entity agreement — it has been an absolute disaster since day one," he said.

"It's a shame they could not have the locals control that and invest in good providers that do a good job, and now they're scrambling to find ways to make up that loss."

Based in Mountville, Community Services Group is one of Lancaster County's largest providers of intellectual disability services.

Patrick Flaherty, the company's senior program director, said the ODP cut means his firm will lose a little more than $1 million this year for residential services.

And this year's cuts come on the heels of a 2.5-percent reduction in funding last year, he said.

"This is creating a tremendous hardship on a system for all of our providers here, given that we were lucky to see a cost-of-living increase from year to year to begin with," he said.

Flaherty recently told the Lancaster County commissioners his outlook is not positive.

"We will be meeting with some of our families … to help them understand what we as providers face, up to and including some termination of services possible, which is obviously our nightmare and any family's nightmare if we can't keep our business viable," he said. "And we are a business."

The county itself is feeling the effects of the cuts imposed by ODP.

Laughman said the rate the state pays his office for coordinating intellectual disability services was reduced this year by $2 per hour.

That amounts to a loss of about $250,000.

"You can only cut so much," he said. "We are looking at all of our agreements with the state to see if we've been doing anything above and beyond what the agreements call for.

"Even if the extra work we've been doing is the right thing to do for our clients, we might have to stop doing it because we can't afford it."

The county recently appealed the rate change to the state Bureau of Hearings and Appeals, claiming, "The rate was developed with factually erroneous assumptions and the methodology is inaccurate and defective, thus providing Lancaster County with a false rate."

Bale said the Department of Public Welfare is aware of the county's appeal but that no action has been taken on it yet.

Meanwhile, Flaherty said, he and other local service providers are planning to lobby state legislators to stop the bleeding.

"The magnitude of this funding crisis is monumental," he said.

preilly@lnpnews.com