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Federal Funds Comprise Over One-Third of California’s State Budget

Millions of Californians Benefit from Broad Range of Public Services Supported By Federal Funds

December 2016 | By Scott Graves

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Endnotes are available in the PDF version of this Fact Sheet.

Federal dollars support a wide array of public services and systems that touch the lives of all Californians — from Social Security and health care to highway construction and public schools. A large share, but less than a majority, of this federal funding flows through California’s state budget. The current state budget includes nearly $96 billion in federal funds for 2016-17, the fiscal year that began last July 1. This is more than one-third (36 percent) of the total state budget, which also includes more than $170 billion in state funds for the current fiscal year.

fig-1-state-federal-funds_-2016-17-enacted-federal-focus-01

More than 7 in 10 federal dollars that flow through California’s state budget — $69.3 billion in 2016-17 — support health and human services (HHS) for children, seniors, and many other Californians (see chart). Most of these federal dollars, roughly $58 billion, go to Medi-Cal (California’s Medicaid program), which provides health care services to more than 13 million Californians with low incomes. The second-largest share of federal funding for HHS programs — $7.7 billion — goes to the state Department of Social Services. These funds support child welfare services, foster care, the CalWORKs welfare-to-work program, and other services that assist low-income and vulnerable Californians.

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The remaining federal funds that flow through the state budget — an estimated $26.6 billion in 2016-17 — support a broad range of public services and systems. This includes $7.6 billion for K-12 education; $6.6 billion for labor and workforce development programs, primarily for unemployment insurance benefits for jobless Californians; $5.0 billion for higher education (the California State University and the University of California); $4.9 billion for transportation, primarily to improve state and local transportation infrastructure; and $2.5 billion for additional public services and systems, including environmental protection, the state court system, and state corrections.

The outcome of the November 2016 national election portends major cuts to federal funding for key public services. For example, Republicans have vowed to repeal the Affordable Care Act (ACA), which would include rolling back the recent expansion of Medicaid coverage to low-income parents and childless adults. This change alone would reduce annual federal funding for Medi-Cal by more than $15 billion. Other services are also at risk, including some that are funded with federal dollars that flow directly to Californians outside of the state budget — such as federal food assistance provided through the state’s CalFresh program and federal Supplemental Security Income (SSI) payments for low-income seniors and people with disabilities. Republicans are likely to succeed in scaling back federal support in a number of policy areas. If so, state policymakers will face difficult choices about how to fill the resulting funding gaps in order to prevent the erosion of public services and systems that promote economic security and opportunity for millions of Californians.

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Endnotes are available in the PDF version of this Fact Sheet.

Parents with low- and moderate-incomes often struggle to stay afloat, balancing the soaring cost of child care against the high price of housing and other expenses. California’s subsidized child care and development programs, which are funded by both the state and federal governments, help many families make ends meet and allow them to avoid difficult choices about where to leave their children while at work.  Yet, seven years after the end of the Great Recession, these programs as a whole continue to operate at below pre-recession levels, with inflation-adjusted funding well down from 2007-08 levels due to state budget cuts. This means that far fewer families with low and moderate incomes receive subsidized child care today than before the Great Recession began in 2007.

There is tremendous unmet need in California for subsidized child care. In 2015, an estimated 1.5 million children from birth through age 12 were eligible for care, according to a Budget Center analysis of federal survey data. However, only 218,000 children were enrolled in programs that could accommodate families for more than a couple of hours per day and throughout the entire year (see chart). Child care subsidies provide job stability and have been shown to increase parents’ earnings. Subsidies also allow families to afford higher-quality child care where their children can learn and grow. Boosting support for families struggling to afford child care is critical, especially given that the cost of child care and nursery school nationally has outpaced overall inflation since the end of the Great Recession. In California, more than two out of three families with children who are living in poverty include someone who is working. Yet, in 2015 the cost of child care for an infant and school-age child in a licensed center was equal to 99 percent of the annual income for a single mother and two children living at the federal poverty line ($19,096).

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Recent years have seen bipartisan support for subsidized child care at the federal level. In 2014, Republicans and Democrats worked together to reauthorize the Child Care and Development Block Grant (CCDBG) – the primary source of federal funding for subsidized child care. This reauthorization included reforms to ensure the health and safety of children, enhance the quality of programs, and simplify families’ access to and retention of services. However, this reauthorization did not provide sufficient federal funding to fully implement these new provisions. In addition, President-elect Trump’s child care proposal falls short in helping low- and moderate-income families afford the high cost of care and, furthermore, would primarily benefit higher-income families. The President-elect’s plan does nothing to address the vast unmet need for subsidized child care.

State and federal policymakers must increase public investment in subsidized child care and development programs. Affordable child care is critical to supporting low- and moderate-income families while parents are at work and is vital to helping families achieve economic security.

This analysis is the first part of a multiphase effort to analyze subsidized child care and development programs in California. Future phases of this work will examine the unmet need for subsidized child care across different age groups and by race and ethnicity, and will also include an analysis of the number of children and families that would be eligible if the income eligibility limit were updated to reflect the most recent data.

For more information about the methodology used to calculate the estimates provided in this Fact Sheet, see the Technical Appendix.

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Medi-Cal, our state’s Medicaid program, is the cornerstone of California’s health care system. Funded with both state and federal dollars, Medi-Cal provides health care services to more than 13 million low-income Californians, including children, working parents, seniors, and others. Enrollment in Medi-Cal increased by several million after state policymakers fully implemented the federal Affordable Care Act (ACA) in 2014, in part by expanding coverage to low-income parents and other adults who previously were ineligible. Medi-Cal enrollees live in all 58 California counties and comprise more than one-quarter of the population in 49 counties. Of the 10 counties with the highest shares of residents enrolled in Medi-Cal, six are in the San Joaquin Valley: Tulare (55.0%), Merced (51.5%), Fresno (49.9%), Madera (45.3%), Kern (45.1%), and Stanislaus (44.5%). However, millions of Californians are at risk of losing Medi-Cal coverage if President-elect Trump and the Republican-led Congress enact, as expected, proposals to repeal the ACA and cut annual federal funding for Medicaid.

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The federal Affordable Care Act (ACA), signed into law by President Obama in 2010, has helped to substantially reduce uninsured rates in California. The latest US Census Bureau data show that:

  • 3 out of every 100 children (3.3%) lacked health care coverage in 2015. This is down by nearly two-thirds since 2010 and by more than half since 2013, the year before California fully implemented the ACA.
  • The uninsured rate for adults under age 65 also has fallen, but remained at a relatively high 12.1% in 2015.
fig-1-health-coverage-acs-data-ca-kids-nonelderly-adults-uninsured-01
  • Uninsured rates for Asian, black, and white Californians declined by more than half from 2013 to 2015 (see chart below).
  • The share of Latinos without coverage also has dropped, though Latinos’ uninsured rate remained in double digits in 2015 (14.1%).
fig-2-health-coverage-acs-data-ca-uninsured-by-race-01

Further reducing uninsured rates would require the state and federal governments to not only continue implementing the ACA, but also to improve it, such as by expanding coverage options for undocumented immigrants. However, President-elect Trump’s vow to repeal the ACA raises the prospect that millions of low- and middle-income Californians will lose access to affordable coverage.

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The federal Supplemental Poverty Measure (SPM), which improves on the official poverty measure (see note), shows that:

  • 1 in 5 Californians (20.6%) struggle to afford basic necessities, up from 14.9% under the official poverty measure.
  • Nearly one-quarter of children (23.8%) live in families struggling to get by — a larger share than for adults regardless of which poverty measure is used.
  • Seniors are nearly twice as likely to lack adequate resources under this more accurate measure.
chart-1-spm-v-opm-by-age-2-01
  • 1 in 4 black Californians (25.1%) and 3 in 10 Latinos (30.4%) are struggling financially based on the SPM (see chart below).
  • Black Californians and Latinos are more likely to face economic hardship than whites, regardless of how poverty is measured.
  • The share of Latinos struggling to get by is 9 percentage points higher based on this better measure of hardship.
chart-2-spm-v-opm-by-race_eth-expanded-2-01
  • One-third of Latino children (33.2%) live in poverty based on the SPM, compared to 29.7% under the official measure (see chart below).
  • Over one-quarter of black children (25.7%) live in poverty based on the SPM. Although this is unacceptably high, it is nearly 8 percentage points lower than the official poverty rate (33.5%) due to the impact of public supports like CalFresh food assistance and housing assistance.
  • Latino and black children are more than twice as likely as white children to live in families that are struggling to get by.
chart-3-spm-v-opm-by-race_eth-kids-expanded-2-01
  • The share of seniors struggling to make ends meet is substantially higher under the SPM (see chart below).
  • Nearly one-third of Latino seniors (32.4%) and nearly one-quarter of other seniors of color (23.7%) struggle financially.
  • Seniors of color are more likely than white seniors to live in poverty regardless of which measure of hardship is used.
chart-4-spm-v-opm-by-race_eth-seniors-expanded-2-01
Note: 
The SPM is a better measure of economic hardship than the official poverty measure because it:
1) Better accounts for differences in the cost of living by establishing different poverty lines within each metropolitan area and for all non-metropolitan areas within a state combined for people who rent their home, own their home with a mortgage, or own their home without a mortgage;
2) Factors in a broader array of resources that people use to make ends meet by adding to people’s incomes the value of non-cash benefits, such as food and housing assistance, as well as personal income tax credits, including the Earned Income Tax Credit; and
3) More accurately estimates people’s disposable income by subtracting from income the cost of basic expenses, including work-related expenses, such as child care, and out-of-pocket medical expenses.
Three years of data were pooled together to increase the reliability of the estimates for demographic groups based on small samples, such as seniors of color.
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Endnotes are available in the PDF version of this Fact Sheet.

In recent years, California has made a series of criminal justice reforms aimed at reducing the number of people involved with state and county correctional systems, promoting rehabilitation, preventing crime, and spending limited tax dollars more wisely. For example, through the 2011 public safety “realignment,” California policymakers transferred responsibility and funding for many adults convicted of “lower-level” felonies from the state prison and parole systems to the counties. Since 2007, these criminal justice reforms have helped to reduce the number of state prisoners by more than one-quarter and the number of state parolees by nearly two-thirds. In contrast, the statewide county jail population has fluctuated since 2007. However, as of late 2015, county jails held only slightly more people than they did in September 2011 — the month before the state-to-county realignment took effect.

Despite these significant reforms, spending on incarceration and crime-related activities at the county and state levels remains high. As of 2014-15, California’s state and county governments spent $20.7 billion on incarceration and responding to crime, according to a Budget Center analysis of state data. Specifically:

  • Nearly three-quarters (73%) of this spending — $15.1 billion — was for incarceration of adults and juveniles at the state and county levels. At the state level, spending on incarceration ($10.8 billion) reflects state operations and related capital outlay for the California Department of Corrections and Rehabilitation (CDCR). At the county level, spending on incarceration ($4.3 billion) includes adult and juvenile detention, jail facilities, and related capital outlay.
  • More than one-quarter (27%) of this spending — $5.6 billion — was for activities associated with responding to crime. At the state level, this spending ($1.4 billion) includes support for trial courts as reflected in the state budget along with related capital outlay. At the county level, this spending ($4.3 billion) reflects support for district attorney prosecution; probation; public defenders; certain trial court activities (expenditures not reflected in the state category); juvenile wards of the court; grand juries; and related capital outlay. County-level expenditures in this category exclude the cost of policing that is provided by county sheriff’s departments.
state-and-county-spending-incarceration-responding-crime-exceeded-20-billion-2014-15

Significantly reducing state and county spending on incarceration and responding to crime will require continued implementation of recent reforms and going beyond recent changes in criminal justice policy. For instance, Proposition 47 (2014), which reduced penalties for several nonviolent drug and property crimes, allows individuals who are serving felony sentences for Prop. 47-related crimes to petition the court for resentencing to a misdemeanor based on this new classification, possibly resulting in early release. State and local officials should ensure that everyone in prison or jail who qualifies for resentencing under Prop. 47 has a chance to petition the court, which would likely lead to further reductions in state and county incarceration levels.

Policy changes that go beyond recent reforms could include simplifying the state’s complex Penal Code in order to shorten prison sentences, providing state officials with new policy options for further reducing incarceration, and increasing the use of alternatives to incarceration at the county level, particularly for youth. Decreasing the costs of incarceration and responding to crime at both the state and county levels would free up revenues that could then be redirected to public services and systems that can help more Californians achieve economic opportunity and security and promote broadly shared prosperity.

This analysis is the first part of a multiphase effort to analyze state and county spending on incarceration and responding to crime. Future phases of this work will examine trends in spending over time and provide county-by-county information.

For more information about the methodology used to calculate the expenditures reported in this Fact Sheet, see the Technical Appendix.

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Spending on K-12 schools is one of the most critical public investments we make. California voters’ approval of Proposition 30 in November 2012 has provided more dollars for the state to support schools and helped the state gain on the rest of the US in K-12 spending per student.

  • In 2012-13, the gap between California’s spending per student and the rest of the US had grown to its widest point. The drop in state revenue due to the Great Recession led to dramatic cuts to state spending on K-12 schools. As a result, the gap between California spending per K-12 student and the rest of the US grew to more than $2,600, the widest in at least 45 years, even after adjusting for inflation.
  • California’s spending per K-12 student has increased relative to the rest of the US since voters passed Prop. 30. California spent an estimated $2,000 more per K-12 student in 2015-16 than in 2012-13, inflation-adjusted. Largely as a result, the gap in spending per student between California and the rest of the US narrowed from more than $2,600 in 2012-13 to roughly $1,000 in 2015-16 (see chart).
  • Voter approval of Prop. 55 in November would extend a key component of Prop. 30 and provide significant funding for schools. Prop. 30 boosted state revenues by raising the state sales tax rate by one-quarter cent through 2016 and personal income tax rates for very high-income Californians through 2018. Prop. 30 revenues will decline starting in the current fiscal year (2016-17) as the measure’s tax rate increases begin to expire. Voter approval of Prop. 55, which appears on the November 8, 2016 statewide ballot, would extend Prop. 30’s personal income tax rates on the wealthiest Californians, thereby maintaining a revenue source that has helped narrow the gap between California spending per K-12 student and the rest of the US.
k-12-spending-ca-v-us-k12-per-pupil-spending-since-2001
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