Federal Funding Rules Limit California on Medi-Cal Cuts

Spending cuts to Medi-Cal and other programs that Gov. Arnold Schwarzenegger (R) outlined Thursday will require federal approval because of funding rules for "maintenance of effort" payments included in many programs jointly funded by state and federal governments, the Sacramento Bee reports.

For example, the governor proposed tightening eligibility rules and eliminating some benefits for Medi-Cal to help the state balance its budget in the coming fiscal year. 

In response to a question about making the cuts without violating federal rules, Schwarzenegger said the state would try to win a waiver.  He said, "As I have said many times that we have a good relationship with the administration, and we will go back and explain to them why this is very important for us to work together on that.  And we think that it is possible, yes."

In addition, the Bee reports that changes to Medi-Cal eligibility rules would require Congress to take action for California to get federal funding for Medicaid allocated in the federal economic stimulus package because the legislation specifically addressed Medicaid eligibility (Hotakainen, Sacramento Bee, 5/16).

Context

The Medi-Cal cuts were among a series of proposals Schwarzenegger outlined to help the state deal with a $15.4 billion budget deficit, the financial situation the state would find itself in if voters approve propositions 1C, 1D and 1E in tomorrow's special election.

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.

If propositions 1C, 1D and 1E fail, the budget deficit would jump to $21.3 billion.

Both estimates of the budget deficit -- $15.4 billion and $21.3 billion -- include $2 billion to be held in reserve (California Healthline, 5/15).

Under the governor's budget proposals, health and welfare programs would lose at least $2 billion in state funding if the measures pass and as much as $2.6 billion in state funding if the measures fail.

Moreover, the state Legislative Analyst's Office estimates that California could need to seek more than $20 billion in short-term loans this summer to pay its expenses and has raised questions about whether borrowing on that scale will be possible in the current economic situation.

State Finance Department Director Mike Genest said, "I think it's pretty safe to predict that we’re going to get so low on cash that we're going to be missing payments. ... The question is, how long and deep will that be?" (Sweeney, San Diego Union-Tribune, 5/17).

Local Governments Worried

Schwarzenegger proposed borrowing $2 billion from county and local governments if propositions 1C, 1D and 1E are rejected, triggering concerns about local government's abilities to provide social services without the funds.

Sacramento County spokesperson Zeke Holst said, "Healthy Families, welfare and public health programs would be directly impacted by the loss of this revenue."

Healthy Families is California's version of the Children's Health Insurance Program (Kalb, Sacramento Bee, 5/16).

Ad Analysis

On Monday, the Bee published an analysis of an advertisement in which filmmaker Rob Reiner urges Californians to vote "no" on propositions 1D and 1E.

Reiner led the campaign for Proposition 10 in 1998 (Sacramento Bee, 5/18).