The emptying of institutions in California happened long before that, in the late 60s and through the 70s; it became very hard to commit anyone, which justified further cuts.
If you pass a bill that destroys mental health systems for the sake of civil libertarian concerns, "its issues weren't magically fixed through half a century later, which was totally unforeseeable" is not a good excuse.
The funding for the alternatives was also slated to come from the federal government: https://en.wikipedia.org/wiki/Mental_Health_Systems_Act_of_1...
But Reagan and a Republican controlled Senate killed it. Because funding was supposed to magically "trickle down" from thin air.
And, through it all, the mental health facilities were always chronically underfunded.