CALIFORNIA VULNERABLE IN 'PAY-GO' DEM PROGRAM TARGETED HOSPITALS OTHER FEDERAL FUNDING COULD SUFFER.

Byline: LISA FRIEDMAN

Washington Bureau

WASHINGTON -- A daylong Capitol Hill scramble by hospital lobbyists to avoid losing millions of dollars in federal funds ended in victory, but dozens of other California programs still remain vulnerable to the budget ax, officials said Thursday.

The near-miss -- in which California hospitals stopped House Democrats from diverting money from a program that reimburses them for treating illegal immigrants -- underscores the newfound power of California's lobbying machine when it is thrown into high gear.

At the same time, however, it was the state's first warning shot that a Democratic plan to institute a new "pay-as-you-go" funding system for the nation could cause discomfort back home.

"This was our first foray into the Congress looking for trade-offs," said Reginald Todd, Los Angeles County's chief legislative representative in Washington, D.C. "It alerted us to the fact that so many of our programs are susceptible."

The House adopted the pay-as-you-go rules in January as a way to rein in deficit spending. Under the new regime, lawmakers who want to spend more on one program will have to cut another or raise taxes to pay for it. Similarly, any tax cut means trimming elsewhere.

"(It) makes people in Congress think about the consequences of the policies they're enacting," said Adam Hughes, director of federal fiscal policy for OMB Watch, a D.C.-based budget watchdog group.

"When you don't have 'pay-go,' you can cut taxes until the cows come home. It forces Congress to think about priorities and trade-offs."

On Wednesday, that priority was covering shortfalls faced by 14 states that ran out of money providing health insurance to children last year. California was not among them.

But a pot of money that helps California looked to be a perfect place to dip -- a $1 billion program that reimburses hospitals in border states for the costs of treating illegal immigrants.

The illegal immigrant reimbursement has been controversial since it was created as part of the Medicare Modernization Act of 2003. Republicans -- in particular Rep. Dana Rohrabacher, R-Huntington Beach -- argued that the government should spend money on Americans who lack health care, not illegal immigrants.

Jan Emerson, spokeswoman for the California Hospital Association, estimated care for illegal immigrants at $700 million a year. The state receives about $73 million in federal reimbursements.

Emerson described Democrats' efforts to tap the funds as "a money grab."

"This is taking money that is available right now to California hospitals," she said.

House aides insisted lawmakers were not planning to scrap the program, but only use a "backlog" of $223 million in unspent funds to pay for children's health insurance.

That backlog may be due to the federal government's delay in putting the program together, said Emerson and others. Only a few months ago, for example, did the claims processor launch a system to allow hospitals to apply for money electronically, she said.

As word spread that the federal funds were in jeopardy, hospital officials from Alameda to Los Angeles called Californians on the House Appropriations Committee. The lobbyist for the California Hospital Association was in regular contact with House Speaker Nancy Pelosi's office.

The county of Los Angeles faxed letters to Pelosi and dozens of other influential members. Sen. Jon Kyl, R-Ariz., who created the reimbursement program, sent a letter with other senators imploring the Senate not to follow the House's action.

Around 7 p.m., hospital officials got the word: The provision had been dropped.

"Certainly it was what we hoped would be the result," Emerson said.

Still left unanswered is what may be targeted next. Analysts say Democrats are unlikely to touch entitlements that help low-income residents but could go after offshore tax havens and Medicare.

And, Hughes warned, "If people are really serious about having the services that government provides, we're going to need to increase taxes.

"Pick one or the other," he said. "You can't have your cake and eat it, too."

lisa.friedman(at)langnews.com

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