Rules for Stimulus Funds Weigh on Governor in Budget Revisions

California could lose as much as $20 billion in federal stimulus funds if legislators approve budget cuts to health care, education and social services that would violate provisions of the federal economic stimulus package, the San Francisco Chronicle reports.

Gov. Arnold Schwarzenegger (R) is scheduled to release two budget proposals today -- one to address a $15.4 billion budget deficit if voters approve propositions 1C, 1D and 1E in next week's special election and one to address a $21.3 billion deficit if the measures fail (Yi, San Francisco Chronicle, 5/14).

Both estimates include $2 billion to be held in reserve (York, Capitol Weekly, 5/14).

Proposition 1C would let the state borrow $5 billion against future state lottery revenue.

Proposition 1D would shift funds from First 5, which was created in 1998 when voters approved Proposition 10 to increase the state tobacco tax to fund early childhood health care and education programs.

In fiscal year 2009-2010, the measure would shift as much as $608 million in Proposition 10 revenue to the state general fund for other state health and human services programs for children who are not older than age five.  The measure would shift as much as $268 million to the state general fund in each of the next four fiscal years.

The measure also would eliminate funds for statewide media campaigns and permit First 5 to allocate funding only for direct health and human services.

Proposition 1E would shift $226.7 million from mental health care programs that Proposition 63 funds to the existing Early Periodic Screening, Diagnosis and Treatment Program for low-income children for two years. 

In 2004, voters approved Proposition 63, which increased the state income tax on high-income Californians to fund mental health services.

Schwarzenegger and the Legislature placed the measures -- and three others -- on the ballot as part of a February budget agreement (California Healthline, 5/12).

Potential Cuts

Because much of California's budgeting process is dictated by automatic funding guarantees, Democrats say only about $40 billion of program spending -- about 43% of the state budget -- can be cut.  Democrats say this will result in deeper cuts to a small set of programs, and Capitol Weekly reports that the cuts will "most likely" hit health and human services and public safety (York, Capitol Weekly, 5/14).

Provisions of the federal stimulus package bar states from changing eligibility rules for Medicaid programs. Medi-Cal is California's Medicaid program.

As a result, the state could seek to eliminate some benefits the federal government does not require Medicaid programs to provide or cut payments to health care providers to reduce Medi-Cal spending without losing federal stimulus money, according to Anthony Wright, executive director of Health Access California.

Assembly Speaker Karen Bass (D-Los Angeles) said that the state will risk losing federal stimulus funds if legislators try to balance the state budget deficit without increasing revenue in some way.

Finance department spokesperson H.D. Palmer said, "Trying to balance our budget in this fiscal environment is challenging enough.  Doing it under Washington's multiple requirements in order for us to receive federal funds multiplies that challenge" (San Francisco Chronicle, 5/14).

Auditor's Report

In related news, California Auditor Elaine Howle has identified more than 200 problems in state agencies' internal fiscal controls as she evaluated California's ability to meet requirements for handling and distributing money from the federal economic stimulus package, Capitol Weekly reports.

Howle found 10 significant internal control problems in the Department of Public Health and seven in the Department of Health Care Services, which administers Medi-Cal. 

California officials expect Medi-Cal to receive more than $10 billion in federal stimulus money, making it the largest recipient of such funds in California.

Howle's complete report is slated to be released by the end of May (Howard, Capitol Weekly, 5/14).


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