Federal Dollars: The Second-Largest Slice of California’s State Budget Pie

Here’s a budget fact that may come as a surprise to many Californians: Federal dollars make up the second-largest piece of the state budget. California is expected to spend $87.6 billion in federal funds through the state budget in 2013-14, the current fiscal year. These federal dollars comprise more than one-third (37.6 percent) of the state’s total $232.9 billion budget for 2013-14, which also includes state spending from the General Fund (the biggest piece of the budget pie), special funds, and bond funds. (We highlighted these state dollars in a blog post last week.)

State budget documents show that:

  • More than half (52.1 percent) of the federal dollars projected to be spent through the state budget in 2013-14 will flow through the Department of Health Care Services (DHCS). These funds — $45.6 billion — will primarily support the Medi-Cal Program, which provides health care coverage for well over 8 million low-income Californians and which the state will expand in January 2014 as authorized by federal health care reform.

  • More than $11 billion in federal funds (12.8 percent) will support other health programs outside of DHCS as well as human services, including the CalWORKs welfare-to-work program and an array of services and interventions to protect children from neglect, abuse, or exploitation.
  • More than $10 billion in federal funds (11.9 percent) will flow through the Employment Development Department, with most of these dollars supporting Unemployment Insurance (UI) benefits for jobless Californians.
  • Other federal dollars spent through the state budget in 2013-14 will largely support K-12 schools, higher education, and transportation.

It’s important to remember that most federal dollars that come to California bypass the state budget and go directly to individuals, businesses, and others, as we explained in this report. These “off-budget” federal dollars include funding for Social Security benefits, the Earned Income Tax Credit, CalFresh food assistance, Supplemental Security Income cash assistance for low-income seniors and people with disabilities, payments to defense contractors, and the salaries and wages of federal employees.

Of course, not all is well on the federal funding front. Automatic cuts to both defense and nondefense programs took effect on March 1 of this year. Nationally, this so-called “sequestration” requires nearly $1 trillion in spending cuts through federal fiscal year 2021, including an $85 billion reduction in the current fiscal year, which ends on September 30. California’s precise share of these cuts is unknown, but it’s reasonable to assume the state and its residents could lose hundreds of millions of federal dollars — and possibly well over $1 billion — in the current fiscal year alone. Moreover, the impact of the cuts ranges far and wide. For example, more than 8,000 California children were expected to lose access to Head Start early education this year, and over 15,000 California families were estimated to lose federal rental assistance. Moreover, federal UI benefits for more than 400,000 jobless Californians were cut by nearly 18 percent in April as a result of sequestration.

Any way you look at it, these federal spending cuts make no sense and — as our colleagues at the Center on Budget and Policy Priorities have argued — should be replaced “with a balanced package of tax and spending measures that do not increase poverty or inequality or exert such a sharp, immediate drag on the recovery.” While the impacts of sequestration are not yet fully understood, it’s clear that federal dollars — whether they’re spent through the state budget or not — play a critical role in enhancing the state’s quality of life and improving the lives of low- and middle-income Californians.

— Scott Graves