Prior to the budget cuts proposed in the governor's May 2002 budget revision, California had improved the way it cares for the mental health of youth in the juvenile justice system and youth at high risk for delinquency. Under several State and Federal programs and initiatives, these youth have received sorely needed mental health services. These programs result in safer communities, intact families, and ultimate cost-savings for the counties and State. The scope and quality of mental health services for these youth will deteriorate, however, if the proposed budget cuts become law. All of the improvements in mental health services that have been achieved will be erased; programs that require increased funding will instead lose funding. It is likely that, with targeted cuts in community-based mental health services, troubled youth with mental health needs will be placed in detention and group homes, which are more costly than the mental health services that will be cut. As of July 15, 2002, however, the California Senate passed a budget that rejected many of the proposed cuts that would do most harm to youth with mental health needs, and the Assembly appeared ready to follow suit. Still, nothing is settled in the legislature, and it is likely that some mental health services and programs will be cut or reduced before the final budget is approved. It is important that the legislators understand that the investment in mental health services for youth with problem behaviors will go a long way toward reducing the more costly use of institutionalization as a means of controlling untreated delinquent behaviors. This report identifies potential impacts of possible budget cuts on particular programs, namely, Children's System of Care, Medi-Cal and EPSDT (Early and Periodic Screening, Diagnosis, and Treatment), Juvenile Justice Crime Prevention Act, Challenge Grant II, and other youth-focused and adult-focused programs. 15 references