This is a rush transcript from "On the Record," October 5, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: Are you worried health care reform could cost you more, raise your federal taxes? Well, here's another thought. What about your state taxes? Could health care reform end up bankrupting some U.S. states, make governors cut funding to important programs? Well, Nebraska governor Dave Heineman wrote a letter to both his U.S. senators with a warning.

Governor Heineman joins us live. Governor, good evening. And it looks like you put a little heat on your two U.S. senators in that letter. Why did you write them that letter, and what does it say?

GOV. DAVE HEINEMAN, R - NEB.: Good evening, Greta. Well, what I tried to say in the letter is I'm very concerned that the Baucus proposal has a new unfunded Medicaid expansion, a new Medicaid mandate that the states can't afford. If the federal government wants to do health care reform, they need to make sure they pay for it. And so I'm very, very concerned about this new unfunded Medicaid expansion.

VAN SUSTEREN: All right, as I understand it, an unfunded mandate means that the federal government, Congress -- they pass some new law or some new requirement, and they say, We're passing it. We're demanding that you governors do this. But guess what? Find your own money?

HEINEMAN: That's exactly right, Greta. What they're going to do is pass the bill and then pass the costs on to the states. I wrote our two United States senators, both of whom are former governors, and said, You know what that means. We'll either be forced to raise taxes on our citizens or cut funding for important programs, like the education of our children. That's not fair. That's not appropriate.

And what's really disgusting, we've already heard that Senate majority leader Harry Reid has an amendment that takes care of Nevada, but not Nebraska, for example. That is really appalling.

VAN SUSTEREN: Well, in theory, could this happen, is that the federal government could pass this reform, not raise taxes on anybody who makes less than $250,000, send these unfunded mandates to the states, and now you've got to raise your state taxes and other taxes, sales taxes, for instance, on the people that live there?

HEINEMAN: That's exactly right, Greta. Now, I don't want to do that. I promised the citizens of my state that whenever we have a challenge, we're going to reduce our expenditures, not increase taxes. But if this is a large unfunded mandate, we don't have many options. And so again, I'm trying to urge our two United States senators, particularly Senator Nelson, who's a key vote -- he said he won't vote for a bill that's bad for Nebraska. Well, this bill, as currently written, is bad for Nebraska and bad for America because of this unfunded mandate.

VAN SUSTEREN: All right, explain to me again what -- how does Senator Reid and his state -- what does he have for his state that's different from your state?

HEINEMAN: What we've been told, Greta, is he's already got an amendment passed in the Senate Finance Committee that says his state essentially will be held harmless, that they'll get full funding for this Medicaid mandate. Well, why should Nevada get that and the rest of the country doesn't? He needs to explain that. And again, it's very, very unfair.

VAN SUSTEREN: All right. two quick questions. Do you have any other -- are there any Democratic governors who have joined on with you on this and who are equally disturbed? That's the first one. The second one is, Have you heard back from your two U.S. senators?

HEINEMAN: Well, on the first question, there are Democratic governors all across America who are concerned about this unfunded mandate. I've been on teleconferences with them. Governor Bredesen of Tennessee in particular has been very strong on this issue.

Secondly, I've actually talked to my United States senators. Both have indicated they're very, very concerned. I hope they'll address this issue -- I'd like to get it addressed in the Senate Finance Committee, but if not, on the Senate floor.

VAN SUSTEREN: Well, I'm going to tell you, I'm going to take a look at this special amendment because if -- if we have to have a burden, it seems to me that every state should probably have the same burden. I'm going to look into this thing about Senator Reid's -- but Governor, as always, thank you, sir. And good luck.

HEINEMAN: You're welcome. Thank you.

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