The federal lawsuit seeks to seize the $8 billion from California's cash-strapped treasury over five years. It also asks the judge to find Governor Schwarzenegger and other state leaders in contempt of court for refusing to hand over the money.
"I'm running out of money," said Clark Kelso. "I cannot permit the state's budget and fiscal meltdown to interfere with my federal constitutional mandate to improve healthcare in California prisons."
Years of neglect and inadequate medical treatment in California prisons led a federal judge in 2006 to declare the prison healthcare system so poor, it violated inmates' constitutional rights.
Kelso is supposed to correct the problems. He wants to build seven new facilities and improve existing prisons to treat 10,000 sick or mentally ill inmates.
Kelso went to the courts because he felt they were the only way to make the improvements possible, since Republicans have twice balked at approving the money.
"I think people should be outraged ... outraged that if you commit a crime, you're going to get better healthcare in prison than you get on the outside," said State Senator Jeff Denham (R-Merced).
"$8 billion would give - in prison - a personal masseuse, a physical trainer, a dietician and probably a dog they can walk for all of them ... and still have money in the bank for retirement," said Assemblyman Mike Villines (R-Minority Leader).
With the state budget now $15 billion in the hole, and seven weeks late, the Governor says he has bigger worries than the new lawsuit.
"I don't worry about that. Just, let's get the budget done. And then everything will fall into place," said Governor Arnold Schwarzenegger (R-California).
If Kelso wins and is allowed to take the $8 billion, it would worsen the state's finances. Handing over the money would add another $3 billion to the deficit this year alone.
"I understand that when you play with the law and you evade the law, you're going to get caught. And today, California's been caught," said State Senator Gloria Romero (D-East Los Angeles).
Kelso has a hearing date scheduled for September 22.