In an era of scarce resources, public mental health systems have been struggling to develop comprehensive community-based treatment and rehabilitation systems for persons with mental illnesses. In New York State the Community Mental Health Reinvestment Act, signed into law in December 1993, establishing the state government's commitment over a five-year period to provide substantial new resources to fund the development of community services. The basic principle behind the legislation, the most significant reform in the state's mental health care financing in decades, is that funds saved from downsizing the state hospital system through closures and census reductions must be "reinvested" to create more community-based services. The authors describe the political processes leading to the act's passage, the obstacles overcome by legislative negotiators, the act's provisions, and some implementation issues. Although the act has received some criticism, it appears to be favorably regarded by mental health advocates, recipients, providers, and administrators.