FIGHT WELFARE FINE, DEMOS ASKS DUKE

--WASHINGTON - The full California Democratic congressional delegation petitioned Gov. Deukmejian Wednesday to fight a Reagan administration decision imposing a $35 million penalty on the state for high error rates in its largest welfare program. The state's representatives told Deukmejian the assessment will come directly out of assistance payments to nearly 547,000 California households on Aid to Families with Dependent Children.

Karen Spencer, the state's chief Washington lobbyist, said the governor has not yet decided whether to appeal the decision.

Without criticizing Reagan directly, the Democrats contended $69.2 million in penalties assessed on 21 states and Puerto Rico bears little relation to the states' actual performance in administering the AFDC program.

In 1979, states were ordered to reduce their error rates to 4 percent by 1983, improving the rate by one-third annually until they reached that goal. States that exceeded their allowable error rate for 1981 were told to refund the federal share of all overpayments in excess of the amount allowed by the timetable unless they could prove their mistakes resulted from extraordinary circumstances.

California Rep. Robert Matsui, D-Sacramento, who organized the Democrats' petition, agreed that without question, states must adhere to some form of quality control standards.

Yet to be effective, he wrote, such a system must be timely, applied fairly and be cost effective. The government's current system does not accomplish these goals, he said.

California is being penalized for errors in 1981 despite a tremendous effort in administrative improvements that have cut the overall mistake rate from 12.3 percent in 1973 to only 6.8 percent in 1982, he said.

The federal government ignored those factors in determining the states' error liability, Matsui said.

Matsui has introduced legislation that would force the Department of Health and Human Services to consider those factors in setting penalties.