California has a huge financial stake in federal spending cuts 

When Gov. Jerry Brown and state legislators were working on a state budget deal this year, they were talking about the general fund budget, which was finally pegged at $85.9 billion.

That, however, is much less than half of total state spending, which includes special funds with restricted purposes, such as the gasoline taxes that are spent on highways, proceeds from bond issues and — most importantly — federal funds.

The budget assumes that the feds will funnel $79 billion through the state, nearly half of which will pay Uncle Sam’s share of the big health and welfare programs. The Employment Development Department will spend nearly $20 billion in federal funds, most of it for unemployment insurance benefits, and other big chunks are ticketed for the University of California, the Department of Transportation and K-12 schools.

But wait — there’s more. The State Auditor’s Office calculated that during the 2009-10 fiscal year, the feds gave the state $120.7 billion for various purposes, including $23 billion in one-time “stimulus” funds.

And even those weighty numbers don’t include military and civilian procurement contracts, federal payrolls, other direct federal spending or Social Security payments.

Including them, the total hovers around a quarter-trillion dollars a year — around 12 percent of the state’s economy. Or to put it another way, however the latest deal on federal spending works out, California will take roughly 11 percent of any spending reductions and pay at least 13 percent of any new taxes.

California, to say the least, has a big stake in the outcome.

California’s budget mavens are more than little nervous about what happens 3,000 miles to the east. They already anticipate that long-term state spending on health care for the poor will increase as a result of the new universal health insurance mandate, if it survives legal challenges. Significant federal cuts, especially in health and welfare spending, could put even more pressure on a state budget facing chronic deficits.

Another casualty of Washington’s newly minted austerity could be the state’s hopes of securing a multibillion-dollar federal commitment to the proposed high-speed rail system joining the state’s northern and southern regions. The Republicans who control the House already have targeted bullet trains.

Beyond the dollars involved, there is the philosophical context.

Is it right that California bases its own fiscal plans, including the bullet train and billions in borrowing to cover unemployment insurance payments, on the continued willingness of Washington to run up deficits that are even greater, in relative terms, than California’s chronic shortfalls?

Dan Walters’ Sacramento Bee columns on state politics are syndicated by the Scripps Howard News Service.

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Dan Walters

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