California's political leaders, who are facing the daunting challenge of closing an estimated $20.7 billion budget deficit this year, are looking to Washington for help. Just don't call it a bailout.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, said he plans to head to the nation's capital "early and often" seeking federal assistance. Gov. Arnold Schwarzenegger already has put the federal government on notice that he wants billions he says the state is owed. And outgoing Assembly Speaker Karen Bass, D-Baldwin Vista (Los Angeles County), said she would head east as soon as this month.

It is not just cash that California wants. Schwarzenegger is calling for permanent changes to the formula that determines the amount of money the federal government contributes to Medi-Cal, California's Medicaid program, noting that the state is among the lowest in the country in reimbursement rates. He also wants money for the costs of providing special education in schools and incarcerating illegal immigrants, both unfunded federal mandates.

Steinberg said he wants a "dynamic partnership" between the federal government and the states, led by California, to spend money for infrastructure.

"No one is looking for a bailout. We're looking for an investment," he said, adding that the state needs to "fight" for more money.

Fuel for the engine

"It's in the national interest because California is an economic engine, and if we continue to be bogged down in deficits that are largely the result of the recession, then the country is going to have a hard time recovering," he said.

California already has received just over $8 billion in federal stimulus dollars that helped the state close the budget deficit last year. On Friday, Schwarzenegger will release his initial budget proposal for the next fiscal year, and the Legislative Analyst's Office already has called on state leaders to "aggressively seek new federal assistance" to help close the projected deficit.

The stimulus money, some of which was supposed to last through the next fiscal year, has been spent, and the state must continue to adhere to the requirements that came with accepting the funds, such as maintaining certain levels of funding for health and human services.

Some Republicans in the Legislature said those strings should have been more closely examined before California accepted the federal stimulus dollars in the first place.

"We do the same thing to local governments," said Assemblyman Roger Niello, R-Fair Oaks (Sacramento County), who said he is wary about what new requirements the state could face with additional dollars. "I don't think it's realistic to think that any policymaker at any level would grant unconditional assistance to those over whom they have control."

Lifting federal rules

Niello said the best thing the federal government could do would be to remove mandates for state spending in all areas until there is significant recovery in the economy.

State Sen. George Runner, R-Lancaster (Los Angeles County), said he is open to the idea of pursuing more federal dollars but added that he would rather see an easing of federal payroll tax rules to encourage job growth.

Runner also said California needs to be treated equally with other states, a common sentiment among state leaders, many of whom don't believe California is getting its fair share of federal dollars.

California ranks 43rd in the country among states in the amount of tax dollars paid to the federal government versus the amount of federal aid that comes back to the state, according to the Washington-based Tax Foundation. The state gets 78 cents for every dollar sent to the federal government.

Bass, who will be succeeded this year as speaker by John Perez, D-Los Angeles, said she will push members of Congress and the Obama administration to look at those formulas in a host of areas, like transportation, health care and human services.

Changing the formulas

"It is about piecing together bits of a puzzle, that puzzle being looking for funding in various areas where California has to cut," she said. Bass said she did not know exactly how much money that would be, but said it is "absolutely in the billions."

The Schwarzenegger administration is planning a similar strategy, and the governor is using the debate over federal health care legislation to raise the issue. The governor sent a letter to House Speaker Nancy Pelosi, D-San Francisco, and other members of the California congressional delegation calling for changes in the Medicare reimbursement rate for the state. Under current rates, the health care overhaul could cost the state $3 billion to $4 billion annually. That cost is due in large part to federal mandates on state spending.

At a recent press conference, the governor said federal mandates "make it impossible to live within your means. So we are trying to teach everyone to live within your means and we are trying to also work with the Legislature here in California to live within their means. But the federal government is telling you, as soon as you lower the spending on certain programs, then you lose all the federal funding."

Avoiding a 'meltdown'

Adding increased Medicare reimbursements to payments for unfunded mandates, along with other dollars the administration said is owed to the state, would bring about $7.5 billion in new federal money to California.

Assembly Budget Committee Chairwoman Noreen Evans, D-Santa Rosa, said the state should seek a federal guarantee for its bond debt. That would mean the federal government would ensure people who buy the state's bonds that it would repay them in the event California could not. That idea was dismissed last year by leaders in Washington. Spending that money, which already has been approved by voters, could create "thousands and thousands of jobs, and it would do it now," she said.

Jean Ross, executive director of the California Budget Project, agreed that job creation is key and said it is "essential" for California to seek help from the federal government as money could help the state avoid layoffs.

"This really is all about trying to make sure we're moving toward an economic recovery and that the states don't drag us back into an economic meltdown," she said.