The Governor's budget for 2008‑09 proposes to hold General Fund spending on health programs virtually flat compared to the current-year spending level. However, based on our review of the available draft legislation, it appears that the federal stimulus package will provide substantial fiscal relief to California in the form of enhanced contributions to the state’s Medi-Cal Program. At the time this analysis was prepared, Congress also appeared to be close to agreement on federal legislation that would reauthorize the State Children’s Health Insurance Program (SCHIP). We recommend that the state forego at this time an option available under the new federal legislation to expand children’s coverage up to 300 percent of the federal poverty level because of the state’s current fiscal condition. We also propose seeking voter approval for modifications to Proposition 99, a 1988 initiative approved by voters, to “unlock” spending now earmarked for certain Proposition 99 programs, a step that could allow the Legislature to achieve substantial General Fund savings in the budget year.