SACRAMENTO /California Newswire/ — Governor Arnold Schwarzenegger yesterday sent a letter to members of the California Congressional Delegation urging California’s fair share from the federal government in reimbursement formulas that shortchange California taxpayers. The full text of the letter is below:

January 13, 2010
Dear Members of the California Congressional Delegation,

On January 8, I released my proposed budget for the coming fiscal year. After making very difficult decisions to close a historic $60 billion budget gap last year, California must again confront a $19.9 billion deficit. Like many other states, California is slowly beginning to emerge from the worst national recession in generations. However, while there are encouraging signs on the horizon for our economy, high unemployment, home foreclosures and dramatically reduced tax revenues continue to ravage our state budget. I will be coming to Washington, DC, next week with legislative leaders, and I am requesting a meeting with you and our congressional delegation to discuss our situation.

In my proposed budget for fiscal year 2010-11, I am requesting $6.9 billion in federal funds. As difficult as it will be to achieve this goal, California lawmakers have done nearly everything that can be done to address this historic fiscal crisis, and we are now forced to confront federal statutes, regulations and funding inequities that tie our hands and exacerbate our budget deficit.

While the economic stimulus package passed by Congress last year was enormously helpful to our state, failure to reform the federal-state partnership will only make our operating deficit worse and the coming fiscal cliff more dangerous. Our revenues are not projected to return to previous levels for years to come, and our Department of Finance projects that the state will continue to face significant budget shortfalls in each of the next five years. After cutting programs, temporarily raising taxes and instituting reforms in nearly every program in state government to reduce current spending and contain future costs, we must seek permanent relief from unfunded federal mandates and reimbursement formulas that shortchange California taxpayers.

California’s delegation has some great leaders fighting for our state. But recent comments in the press that California’s budget deficit is not Washington’s problem turn on its head the very arguments that many in our delegation have made that our taxpayers are being shortchanged by Washington year after year.

California delegation members have issued scathing indictments of the federal government for its failure to reimburse states for the cost of incarcerating criminal aliens in state prisons. California is forced to spend $880 million this year alone to pay for the cost of incarceration. In 2005, Senator Feinstein called this a “gross miscarriage of justice” and argued forcefully that “protecting our borders is a federal responsibility, yet the federal government has failed to live up to its responsibility year in and year out.”

And as Representative David Dreier said, “…States that have already paid for this tremendous cost should be reimbursed.” Now is not the time to abandon those efforts. In my proposed budget for next year, California is seeking reimbursement for those costs, and we need your help in continuing to press the federal government to live up to its responsibility.

In 2006, our U.S. Senators joined forces to press the Bush administration to reimburse California for overpayments to the federal government for Medicare drug costs resulting from an error in the reimbursement calculation. California is spending approximately $70 million more each year than we should because the federal government has simply refused to fix the flawed calculation – despite the fact that other states have received reimbursements. In a letter to then-Secretary Leavitt, Senator Feinstein rightly pointed out that without immediate relief to California, “the Medicare drug benefit amounts to a massive unfunded mandate on states.” In my proposed budget, we are renewing our efforts to fix this flawed calculation and be reimbursed for those costs. Applying the enhanced Medicaid reimbursement rate to the correct calculation would bring an additional $200 million dollars to California to help close our budget gap.

Another even more egregious example of federal monies owed to California relates to $700 million in unpaid reimbursement for Medicare disability determination payments. Due to an error by the Social Security Administration (SSA) that spanned more than 30 years, our Medi-Cal program paid for services to individuals who should have been covered by Medicare. The SSA acknowledged the error in 2001 and retroactively certified these individuals for Medicare. California is owed $700 million. A 2006 report by the federal Office of Inspector General confirmed the error, and Senator John D. Rockefeller (D-West Virginia) has authored legislation to reimburse states for outstanding claims. The California delegation has a critical opportunity in the upcoming Senate jobs bill to support this amendment.

The single biggest inequity in federal funding is the way the federal government calculates the reimbursement rate for the Medicaid program. As you know, Congress pays California a lower rate for its share of the federal Medicaid program than it pays most other states under the flawed Federal Medical Assistance Percentage (FMAP) formula. The federal government covers half the cost in California, while it pays 75 percent in Mississippi, 65 percent in Arizona and 71 percent in New Mexico, Utah and Arkansas. In fact, 38 states receive a higher reimbursement rate for Medicaid than California does – which means California taxpayers are subsidizing the Medicaid program in 38 states. If Congress simply treated states equally, more than $1.8 billion in California tax dollars could be spent here at home to balance our budget instead of being sent to Florida, New Mexico and Texas to balance theirs.

Some members of our delegation have been fighting to change this flawed formula for years. In fact, an analysis by the General Accounting Office that Senator Feinstein ordered in 2003 showed California, one of the states with the largest populations in poverty, is particularly hard hit by this formula. In a statement at the time the report was released, Senator Feinstein said that, as a result of this flawed formula, “California … is short-changed by hundreds of millions of dollars.”

Fixing these flawed formulas and errors in existing reimbursement rates is particularly important in the context of the pending federal health care reform legislation. As many members of our delegation have pointed out, promises were made in the past that new federal programs such as the Medicare prescription drug program would save states money, not saddle us with more unfunded mandates. And members of our delegation rightly castigated the federal government when President Bush when was in office because those promises have not been kept. You were right to fight for California then, and we need you to continue fighting for California now. How can Congress ask states to trust that this new health care reform legislation will not add enormous costs onto already-depleted state budgets when it has not made good on past promises?

Finally, over the years, Congress and federal courts have placed a maze of restrictions on states with regard to managing the Medicaid program. In flush budget years, California has expanded its safety net and widened services in order to reach as many uninsured, low-income families as possible. As our tax revenues dropped, California legislators made very difficult decisions to reduce spending in our health and social service programs. Over the last two years, we have reduced provider rates, eliminated optional Medicaid benefits, reduced services and tightened up enrollment procedures. In virtually every instance, federal judges have blocked those measures using the language of the federal Medicaid law and other federal laws to demand studies or prevent those reductions from being implemented. These lawsuits have blocked implementation of critical spending cuts, contributing $1.4 billion to our budget deficit.

There is no rational way to absolve Washington of any responsibility for state budget deficits until Congress acts to remove the barriers that prevent states from reducing spending as needed to live within our means. There is no rational way to say that California’s budget deficit is not at least in part Washington’s problem until Congress fixes flawed reimbursement formulas that cost California taxpayers billions of dollars each year. Now more than ever, we need those dollars here at home.

As California legislators attempt to close another $20 billion budget deficit without shredding what’s left of the safety net, we need our congressional delegation to fight for every dollar owed to California taxpayers, especially before expensive new burdens are imposed. I have been a strong and vocal supporter of federal health care reform efforts. I would like to support the final legislation. But without the federal government stepping up to pay its fair share of the cost, California cannot afford any more federal promises. Californians are counting on you. I look forward to working with you and meeting with you next week in Washington.


Arnold Schwarzenegger.