Does California Get Its “Fair Share” of Federal Funds?

In his State of the State address, the Governor described the federal government as “part of our budget problem,” claiming that California only gets $0.78 cents back in federal spending for each dollar of taxes paid by California taxpayers. We’ve never been big fans of the debate over whether California and Californians get back in federal dollars as much as they pay in federal taxes. We’re one of the 50 United States and we’re part of a federal system. And the capitol of the federal government is in Washington, DC, not Sacramento. As a result, a disproportionate share of federal dollars are spent in the District of Columbia and nearby Maryland and Virginia. New Mexico, a state cited by the Governor in his speech, receives a large number of federal dollars because it is a small, poor state, but also because it is home to the Sandia and Los Alamos National Laboratories – which receive a large volume of federal funds.

It turns out that that not only is the Governor’s argument flawed from a policy perspective from our point of view, it is also based on seriously flawed data. California Senator Barbara Boxer released an analysis of how much California receives in federal funding that shows that, in fact, the state received more in federal funds in 2009 than state residents paid in taxes. The Boxer memo was posted on John Myers’ Capital Notes blog. Never one to accept someone else’s data without question, we reviewed the data and assumptions behind the data. Our own analysis suggests that California actually receives $1.50 back for each dollar in taxes paid, a figure slightly higher than the Senator’s.

How can the numbers be so different? The Governor’s figure is based on 2005 data and a deeply flawed study by the Tax Foundation. Using figures from 2005 ignores the significant infusion of federal funds from the American Recovery and Reinvestment Act (ARRA) of 2009. The second flaw with the Governor’s data comes from the assumption that all federal expenditures are paid for in the year incurred. This is tantamount to saying that there’s no federal deficit – an assumption that we know to be untrue. The federal government is spending more than it takes in largely due to moneys spent to respond to the “great recession,” as well as the cost of the wars in Iraq and Afghanistan.

We strongly believe that there’s a case to be made for federal aid to all states, not just California. With most states facing serious budget shortfalls, there’s reason to fear that another round of state and local government budget cuts could push the nation back into recession or, at a minimum, delay what is already anticipated to be a weak recovery. We hope the Governor will change his tune, join with his fellow governors, and call on Congress and the President to build on the success of the ARRA by providing states additional funds to blunt the impact of budget-balancing efforts.

Finally, if the Governor wants to take a positive step toward ensuring that California receives the funds and the representation in Washington that we deserve, we’d offer a modest suggestion: Support efforts to ensure a “full count” in the 2010 Census. Now that’s an idea we should all be able to agree on.

– Jean Ross

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