California and U.S. in a fiscal symbiosis
During the depths of California’s budget crisis, talk in Sacramento about how many tax dollars were sent to Washington compared with what the state received in services generally sparked anger. But these days, it’s triggered fear.
After all, President Trump has promised to rethink the kinds of federal policies whose fiscal importance to the state is writ large. Then there’s the worry that Trump won’t soon forget the thumping he took here on election day, the worst defeat for a GOP presidential candidate in California since 1936.
With those postelection jitters in mind, the state’s independent Legislative Analyst’s Office has pored over the data to calculate a number that is the monetary essence of California’s relationship with the United States.
And what a number it is: The federal government spends some $367.8 billion a year on California. That’s an average of about $9,500 for every person in the state.
In truth, the money isn’t spread out evenly. About 56 cents of every federal dollar spent in California, according to the analysis, goes to health or retirement benefits — Social Security, Medicare and money for low-income residents’ healthcare through the Medi-Cal program.
Defense contracts are the next biggest slice of the pie, followed by paychecks to military and civilian government employees. From there, federal spending gets sprinkled among a number of programs run by the state government. Gov. Jerry Brown’s recent budget plan pegged those funds at a total of $105 billion, equivalent to about 58% of state taxpayer dollars to be spent in the fiscal year that begins on July 1.
That includes subsidizing public universities, a focus of presidential scorn last week. Trump suggested that perhaps federal funds shouldn’t be doled out to UC Berkeley after Wednesday’s violent protests against a planned speech by Breitbart provocateur Milo Yiannopoulos. Total federal spending on California public universities, per the analyst’s report: $4.8 billion a year.
If elected officials feel the need to defend existing federal subsidies, it will mark a major departure from a decade of complaints that the state is owed even more money.
Lawmakers have long lamented that Californians pay more in taxes than they receive back in services, hanging their hats on a 2007 report by the conservative Tax Foundation that California is a “donor state” that receives only 78 cents in services for each dollar in taxes paid. But state analysts point out that report added extra tax dollars from Californians — beyond those actually paid — to cover the state’s share of the federal deficit.
Perhaps more accurate is a 2015 review by New York officials that puts California almost breaking even — about 99 cents in federal services for every real dollar in taxes.
The takeaway from the complex calculations is pretty simple: California has a tight fiscal relationship to the nation. There are undoubtedly dollars at risk as the president and congressional leaders rethink programs like the Affordable Care Act. If they revamp retirement or healthcare benefits for older Americans, that would also ripple westward to the Pacific. But the money is spread over dozens of programs. That kind of diversified federal spending would likely act as a circuit breaker to any potential jolt of political punishment from Trump.
Even then, Trump needs California to prosper. Almost 1 in 8 Americans lives here, and the state has created more than 2.4 million jobs since the current economic expansion began seven years ago. He may not like the state’s politics, but Trump the businessman would be wise to see California as a good investment.