To piggyback, I'm somewhat familiar with the Lanterman Act in California, which predated Reagan's presidency and was proposed while he was Governor but passed in 1977 after his term, and am curious whether the Lanterman Act (and OP's question) was related to his politics or whether it was generally part of trend favoring community-based care and pushing deinstitutionalization.

Th closure of psychiatric facilities is called “deinstutionalization” but this process started before Reagan was elected. It stated in the late sixties and early seventies when the pharmaceutical community found psychiatric medications that worked better than before. For example, before the creation of the antipsychotic fluphenazine in the late fifties, psychotic patients were typically given Thorazine or a sedative medication. A person can function fairly well in the community on flupjenazine and more modern antipsychotics like Olanzapine. This also goes for medications treating other issues like mood disorders. Many thought, “Why keep people in hospitals when their psychosis can be more easily managed by medication?”

The mental health hygiene movement also contributed as it uncovered a lot of the horrible and inhuman and activities going on institutions. The public wanted them closed. To fill in the gap in mental health care the government created community mental health centers. However, they were created hastily, and failed to properly fill in those gaps. These gaps include trauma people experience in the mental health care system, substance use, that some people don’t respond to any medication, that some don’t like medication, and I could go on. They also didn’t account for those discharged from these institutions with no work history, no proper education, and no life skills.

With too many gaps you create homelessness. Currently there is a supportive housing movement to get these individuals off the streets but unfortunately most states haven’t picked up the concept yet.

In sum, I would say deinstutionalization contributed in making people with mental illness homeless. But homelessness and poverty are such complex multi dimensional social issues that are related to other factors besides mental health.

This could be seen as tied to Reagan and the rise of neoliberalism because these institutions were expensive to run, yet some will exist today.

Source: I have my masters in social work with a focus on social policy.