- The Washington Times - Monday, October 1, 2001

RICHMOND (AP) Virginia Gov. James S. Gilmore III slipped through a rapidly closing federal loophole to help pay for the final phaseout of the local car tax one that enables states to use federal Medicare payments any way they choose, if they shuffle around enough forms.
The strategy has been called a scheme and a sham by some who testified before the U.S. Senate Finance Committee, but many states have used the loophole to boost their budgets, even though it calls for complicated state-local transactions.
Virginia could put more than one-quarter of a billion dollars in federal Medicare money into the state's general fund to offset the revenue lost to localities by the elimination of the local car tax.
The loophole is still on the books, but the federal government began moving last year to eliminate it to protect the long-term health of the Medicaid program for the poor. The Gilmore administration beat the deadline for closing the loophole.
More than 30 states and hundreds of localities have done what Virginia's Republican governor plans to do. All it requires is enough local governments to go along with the idea, along with state legal specialists who have a gift for raveling and unraveling hard-to-follow transfers of money.
Chesterfield County, for example, is participating in the strategy at the request of the state Department of Medical Assistance Services, which administers Virginia's Medicaid program.
Under the plan, the county will borrow money in the name of the Lucy Corr nursing home, which the county subsidizes. The money, estimated at $79 million, will be put into a state account. The state then will return the money to the county as a Medicaid-related payment.
Chesterfield will use the state's money to repay the loan, and receive a $1 million "incentive fee" for the one-time transaction.
The payoff for Virginia comes when it can tell the federal government it has paid Chesterfield County $79 million and then demand the federal matching funds to which it is entitled.
"Money does go back and forth, and on the surface it does seem very strange," said Chesterfield Budget Director Becky Dickson. "But after talking with attorneys and rating agencies, we felt like it was an appropriate deal to be a part of."
Chesterfield supervisor Edward B. Barber, however, accused state officials of misusing federal funds.
"Obviously this is not the federal government's intent," said Mr. Barber, a Democrat who is running for the Virginia House of Delegates in the 68th District. "When this first came to my attention, I had serious misgivings. I looked at it and said, 'This is a scam.'"
In all, the state will ask seven localities to participate. If they all do, the state will take in $259 million that it otherwise would not have received.
Health officials declined to name the seven localities involved in the strategy.
Virginia Secretary of Health and Human Resources Louis F. Rossiter said the federal government "permits states to use local funds to serve as state matching funds."
He said the strategy is legal and ethical.
"Virginians pay significant sums of money to the federal government in taxes, and they deserve the benefit of these additional funds," Mr. Rossiter said.
Officials in the Clinton administration warned last year that the practice could damage the long-term viability of the Medicaid program of health care for the poor and disabled.

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