There was already ongoing deinstitutionalization that had emptied out much of the asylums in the preceding decades (though a much smaller portion continue to be institutionalized to this day). That push for deinstitutionalization had happened because of the combo of new drugs emerging that made it possible to treat mental illnesses in ways not possible before (which made releasing people seem viable) and through many many scandals that revealed deplorable, filthy dehumanizing conditions at the asylums (which made people feel motivated to move them out of those hellholes and into community care that was begun to be established by a 1963 act passed by JFK). In theory, paired with treatment this would allow them to live more independent lives and be supported by a community who would care more about them more than the old institutions. That was true for some… However, spread out community care is far more expensive than centralized centers. As the deinstitutionalized population was rising it got well beyond what localities could handle from what was provided in the 1963 Community Mental Health Act. The Mental Health Systems Act of 1980 was supposed to fix this… unfortunately, by that point the Carter administration was on its way out and the Reagan administration was elected on a platform of slashing government spending and making big tax cuts. So a recently installed government program that was expensive and primarily benefited the mentally ill was perfect prey to be cut since they’d face a minimum of voter backlash. So the community health centers that were supposed to absorb and help the deinstitutionalized population continued to not be built or to be shuttered due to lack of funding, leaving those not well enough to land on their feet to cling to whatever support nets they had or barring that to live on the streets.