updated 10/8/2008 9:00:06 PM ET 2008-10-09T01:00:06

A federal judge on Wednesday ordered Gov. Arnold Schwarzenegger's administration to say whether California has the $250 million needed to start an $8 billion overhaul of the prison health care system.

U.S. District Judge Thelton Henderson said the administration must also say how and when the state will make the money available to a court-appointed receiver. He set an Oct. 27 hearing for the administration's response.

J. Clark Kelso, the receiver, wants the money immediately to design the first three of seven planned prison medical and mental health centers, which would house 10,000 inmates.

Kelso said he needed more than $3 billion this fiscal year, despite the state's mounting financial problems. State Controller John Chiang reported Tuesday that revenue for the first quarter of the state's fiscal year is down $1.1 billion from projections used in the budget Schwarzenegger recently signed.

The judge said Monday during a hearing in San Francisco that he expects the state to pay the entire cost, despite its fiscal difficulties. In a two-page order, Henderson said he sees the $250 million payment "as an intermediate step short of a contempt finding."

Kelso argued that Schwarzenegger and Chiang were in contempt of court for not turning over the $8 billion. Kelso had asked the judge to order the state to pay only the first $250 million.

"What we got here is a very clear acceptance of what we asked for," Kelso said of Henderson's order. "We are, frankly, taking that first step forward."

Henderson's order said the $250 million was appropriated 18 months ago as part of a $7.4 billion borrowing plan for other prison and jail construction projects.

But state Department of Finance spokesman H.D. Palmer said the administration included $50 million of the money in the current year's budget and had planned to make the remaining $200 million available in the next fiscal year, which begins July 1, 2009.

Spokesmen for the administration and attorney general's office, which is representing the state, said they are reviewing the order but likely won't respond until the hearing.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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