As the Legislature’s lame-duck session sputters to a close this week without much action expected, California budget watchers remain in limbo, hoping federal assistance will help alleviate the state’s financial burden.

The state is preparing a new round of mid-year budget cuts to close an $11 billion shortfall. But even as budget stakeholders play defense, some are quietly talking about new proposals that could re-channel pots of existing money into new programs, such as an expansion of health care coverage for uninsured children.

Part of the lethargy of the lame-duck session, according to Capitol leadership sources, is the remaining uncertainty Washington, where Congress is in the midst of a lame-duck session of its own. Assembly speaker Karen Bass says she hopes the session will bring some relief to California, but new bailout proposals for states have been snared in Congressional politics.

Some Democrats are hoping to get their hands on some of the $700 billion that has already been approved by Congress as part of the Troubled Assets Relief Program last month. But a new debate is raging in Washington over how best to spent the $700 billion in bailout funds.

“We can’t let one of the world’s largest economies go over the cliff,” Bass said to reporters last week. But most budget negotiators say they are not terribly optimistic California will get its hands on any of that money.

There is now talk of a second federal stimulus package, which may include millions in aid for California. The House has already approved a bill that would send assistance to the state through a boost in matching funds for Medicaid, the extension of unemployment benefits and money for “ready-to-go” infrastructure projects.

Gov. Schwarzenegger is among those hoping for some federal assistance. But, he said, California needs to make some changes to its own budgeting system before putting its hand out.

“After we show that we are fiscally responsible and that we have our act together, then we can always go to the federal government and say, look, we still need some help with medical are, with Medi-Cal and those kinds of things,” he said. “But this is not the first thing we should do.

The governor added, “We’re not talking about a lot of money, but maybe $5 billion a year for the next three years, until we get out of this economic crunch that we’re in.”

And there are signs that help may be on the way. The House has already approved H.R. 7110, a $61 billion economic stimulus package that could provide billions for state coffers. And President-elect Barack Obama has voiced his support for some assistance to state governments.

Among the elements of the bill is a proposal to boost the federal match for Medicaid. That could provide close to $2 billion to the state over the next 14 months.

Congress is also expected to pass an extension of unemployment benefits, which could ease the burden on the state as the unemployment rate is expected to climb above 9 percent next year, according to a Department of Finance analysis.
The bill also contains $37 billion for infrastructure improvements, and a number of transit, highway, housing and water projects are expected to be eligible for that real money if it becomes available.

The U.S. Senate has its own ideas on a stimulus package, but with many of the same provisions. A $100 billion proposal from Senate Democrats, Senate Bill 3689, which sets aside even more money for the Medicaid match, also extends unemployment benefits, and provides money for infrastructure projects.
But just as not much action is expected in the Legislative lame-duck session, Sacramento budgeters are not banking on swift federal action.
But even as interest groups work to fend off new state cuts in the face of all the bad economic news, a group of advocates has reignited its quest to extend health care coverage to more than 750,000 California children without health insurance.

Advocates say they are encouraged by the fact that Darrell Steinberg will be taking the helm of the Senate next month. Last session, Steinberg was the author, along with Assemblyman John Laird, D-Santa Cruz, of a measure that would have extended health insurance to any child in California who lives in a family with incomes up to 300 percent of the federal policy.

“Given the situation we’re in, let’s get the kids’ piece done right at the state level,” said Ted Lempert, president of Children Now, a group that advocates for health coverage for kids. Lempert said it would cost about $400 million to cover the 760,000 California children without health care coverage.

Expanding health care coverage for kids in California would be contingent upon federal matching dollars. Currently, under the federal Children’s Health Insurance Program, known in California as Healthy Families, the federal government pays two-thirds of the cost of covering kids who are within 250 percent of the federal poverty level. Currently about 900,000 California children receive health care coverage under the program.

Advocates are hoping to craft a proposal that would extend coverage to the kids without access to health insurance. But it would be dependent on that 2-1 match. There is also talk of reappropriating pots of existing money, such as tobacco tax money set aside under Proposition 10, to help fund the state’s portion of the match.  

Any fight over health care expansion will also lead to a fight over extending that coverage to undocumented children. Such children would have to be paid for entirely by the state, since they are not eligible for the federal S-CHIP funds.

Last year, Schwarzenegger rejected the proposal in concept, saying he did not want to single out kids, worried it might derail momentum for his comprehensive health-care expansion program. But given the new fiscal realities, and the failure of his health care proposal earlier this year, there are indications he may be open to a more incremental approach.

“The governor still believes that California needs comprehensive health care reform,” said Schwarzenegger spokesman Aaron McLear. “Part of that includes covering California’s children. That is a huge priority for the governor.”