Union Tribune

October 11, 2003

State faces uphill fight for federal funds
Many obstacles in Schwarzenegger's quest for more aid


WASHINGTON When it comes to getting California out of its fiscal mess, Gov.-elect Arnold Schwarzenegger has made it clear that he would like a big helping hand from the federal government.

"They say that for every dollar we pay in tax, we get only 77 cents back. So there's a lot of money we can get from the federal government, and also a lot of other help," Schwarzenegger told reporters the day after voters picked him to replace Gov. Gray Davis.

But that might be easier said than done.

The amount of federal funding that flows to the states largely depends on factors that are difficult, if not impossible, to change in the short term. They include demographics, income levels and funding formulas established by Congress, all of which have worked against California in recent years.

"Getting additional federal dollars out of Washington is a grand challenge for any state, large or small," said Tim Ransdell, executive director of the California Institute for Federal Policy Research. "Much of the federal budget is spoken for. It's mandatory dollars going out for Social Security, Medicare, Medicaid. And many of the other dollars are contracted well in advance."

Moreover, with a sagging national economy, a costly war in Iraq and record deficits to contend with, the federal government isn't exactly flush. It has already given $20 billion in aid to struggling states this year half of it for Medicaid as part of tax cut legislation. California received more than $2 billion.

That's not to say the well is dry. California defense contractors, biotech companies and computer firms are expected to be among the top beneficiaries of recently increased federal spending on defense and homeland security.

And politically, President Bush and the Republicans who control Congress have a huge stake in whether fellow Republican Schwarzenegger has a successful start as governor of a state that has been dominated by Democrats.

"It can't be a bad thing to be from the same party as the president and the leadership of both the House and Senate," Ransdell said.

Schwarzenegger is likely to broach the subject of funding during an expected meeting with Bush on Wednesday, when the president visits Riverside and Fresno on his way to Asia.

So far, the Bush administration has been careful not to promise anything.

"We know one of the solutions is strengthening our economy, and that will help all states," White House spokesman Scott McClellan said. "But keep in mind, the president says he looks forward to working with Gov.-elect Schwarzenegger. I think they share a lot of the same goals and that they will work closely together on shared priorities."

Schwarzenegger's analysis of the balance sheet is correct: In fiscal year 2002, Californians sent to Washington $58 billion more in tax dollars than they got back in federal services and contracts, according to a recent analysis by the nonpartisan California Institute.

This means that every resident in California paid $1,660 more in federal taxes last year than they received in funds and services.

Experts attribute much of the imbalance to two factors that go hand in hand with California's image: above-average incomes that channel significant tax dollars to Washington, and a relatively young population that holds down the state's share of Social Security and Medicare dollars the fastest-growing areas of federal spending.

The state also has been at a disadvantage lately in federal spending doled out according to formula. Despite its looping expanses of freeway and interstate, for instance, California received a relatively small share of federal highway funding in 2002 $2.7 billion out of a national kitty of $29.5 billion, the California Institute analysis showed.

Some of that disparity is a result of formulas that are based on outdated population figures, which penalizes fast-growing states like California.

Also, highway funding comes in part from gas tax. California uses a cleaner-burning gas that is taxed at a lower rate than regular gas, which means that less revenue is returned to the state.

One of the biggest obstacles in getting more federal funding for California is that the money has to come from somewhere else.

"Some of the most hard fights that we have are the formula changes," said Rep. Randy "Duke" Cunningham, R-Escondido, a member of the powerful House Appropriations Committee. "The reason is it takes money out of another person's district."

California also was hit hard by cuts in defense spending and military base closures in the 1990s, when federal buying in the state fell by 50 percent. During the defense buildup of the 1980s, federal spending in the state outpaced taxes sent to Washington by $26.9 billion.

Budget experts say one major area of opportunity for California in the coming years will be the defense and domestic security buildups unleashed after the Sept. 11, 2001, terrorist attacks. The state is still home to a large number of defense firms and high-tech industries poised to grab more federal contracts.

"That may be an area in which California is going to see a bump up in terms of federal funds flowing to the states," said Matt Kane, an analyst with the Northeast-Midwest Institute, which closely tracks federal spending. California's share of federal defense spending grew to 15.5 percent in 2002, reversing a decade-long decline, according to the California Institute.

In California's quest for more federal funds, it helps to have members of Congress on key committees. Five Californians serve on the House Appropriations Committee, and Sen. Dianne Feinstein, D-Calif., is a member of the Senate Appropriations Committee.

Also, the tradition of "earmarking," which allows lawmakers to direct spending toward their districts and states, can be helpful.

"Earmarks are typically related to the influence of representatives and senators who are on the appropriations committees," Ransdell said.

States also can try to take advantage of competitive grants awarded by the federal government for education, health care and a host of other programs.

"There's a lot of little things that states can do. A lot of states have created commissions or boards to really look at a state and make sure it's doing everything possible to bring in federal money," said Trinity Tomsic, program director at Federal Funds Information for the States, which tracks federal spending for governors and state legislators.

Schwarzenegger is hardly the first newly minted governor to vow to wring more money out of Washington. Former Illinois Gov. George Ryan launched a similar effort several years ago and, according to Kane, had some success, especially after Rep. Dennis Hastert, R-Ill., became House speaker.

But major shifts in the balance sheet are hard to pull off.

"It's easy to say, 'Get more money.' But it's difficult to do that," Tomsic said. "You'll probably be able to get more here and there, but it's not going to solve your budget problems."

Copyright 2003 Union-Tribune Publishing Co.