Federal Brinksmanship Threatens Economic Recovery

September 30, 2013

One year ago this week, I left Washington, DC, for California to join the CBP as its new executive director. As I shared the news of my impending departure with my friends in the state/local policy community in DC, many of them would say something like “Are you crazy? Things in California are so broken.”

Fast-forward a year. California’s economy is growing. California’s voters approved a set of temporary tax increases last November that are providing new revenues to a state budget that had been confronted by several years of severe shortfalls. State policymakers have approved a 2013-14 budget that reinvests in education, expands access to health insurance as part of federal health care reform, and begins to pay down state debt incurred amid the economic struggles of the past decade. More recently, state policymakers passed an increase in California’s minimum wage, providing a financial boost for low-wage workers, who have seen their earnings decline in recent years.

Meanwhile, back in Washington, federal policymakers have been playing political football with the nation’s economic recovery and the full faith and credit of the US government. They have yet to negotiate an agreement that funds the federal government, threatening a government shutdown if an agreement isn’t reached by the start of the new federal fiscal year tomorrow. Federal brinksmanship is also in play over whether to raise the federal debt ceiling or default on US debt – a prospect that would threaten economic performance and job creation in the midst of a fragile economic recovery. These debates follow closely on the heels of a vote in the House of Representatives a couple weeks ago that would slash funding for federal food assistance – the Supplemental Nutrition Assistance Program (SNAP) — eliminating benefits for 3.8 million people in 2014. This is about the same number of people that the program lifted above the federal poverty line in 2012, according to US Census figures. Federal policymakers will have another opportunity to make the wrong decision come December when, lacking federal action, emergency unemployment insurance benefits will expire.

Poor policy choices at the federal level hurt California workers and their families. And despite the strides made in California in the past year, our state’s continued economic recovery will depend, in part, on actions taken — or not taken — in Washington. Our latest analysis shows that despite a general upswing, California’s recovery has yet to reach large segments of workers and their families, and the job market remains deeply challenging. Federal policy will also have a profound effect on the state’s fiscal outlook, with federal dollars comprising the second-largest piece of the state budget. (A prior CBP report details how federal dollars are spent in California.) A federal government shutdown, a decision to make an increase in the debt ceiling contingent on another round of federal spending cuts, or a default on US debt will threaten the nation’s and California’s already-fragile economic recovery. Failure to extend federal emergency unemployment insurance in December would place additional strain on those in California and elsewhere who are seeking work amid a weak job market.

The economy in California and nationally is beginning to come back, but our prospects are threatened by federal politics that appear “crazy” and “broken,” where some members of the US Congress are willing to jeopardize the recovery and imperil families and communities for the sake of political gain. Smarter choices by policymakers at all levels — like those made by California’s voters and policymakers in the past year — present an alternative way forward.

— Chris Hoene

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

July 31, 2013

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

Expanding Medi-Cal: We’re Not Starting From Scratch

December 21, 2012

California isn’t starting from square one as the state moves toward expanding Medi-Cal coverage to most low-income adults under age 65, pending approval in 2013 by state lawmakers and Governor Brown. Under a 2010 agreement with the federal government, California established a temporary, county-based Low Income Health Program (LIHP) that is building a bridge to an expanded Medi-Cal Program in 2014. LIHP provides health coverage to uninsured adults ages 19 to 64 who meet citizenship or immigration requirements and are excluded from Medi-Cal under current eligibility rules. The income of participating adults cannot exceed 200 percent of the federal poverty line (a limit equal to $22,340 for an individual in 2012), although counties generally may — and in many cases have — set lower eligibility thresholds. County participation in LIHP is voluntary; counties that opt into the program have half of their LIHP costs paid by the federal government. As of September 2012, more than 500,000 low-income Californians across 50 counties were enrolled in LIHP.

LIHP provides vital health care services to low-income adults who otherwise would be uninsured. It’s also bringing substantial federal dollars — projected to reach nearly $3 billion — into California’s health care sector and the broader state economy. But even more, LIHP is helping to prepare California for the expansion of Medi-Cal as envisioned in the federal health care reform law. This is because nearly all of the adults enrolled in LIHP — along with many other low-income Californians — would be newly eligible for Medi-Cal under the expansion. In fact, state officials are already planning for the transition of eligible LIHP enrollees to Medi-Cal effective January 1, 2014. At that point, the federal government will pay 100 percent of the cost of coverage for this new group of Medi-Cal beneficiaries through 2016, with the state picking up a small share of the cost in subsequent years. So, for anyone wondering when the Medi-Cal expansion will begin in California, LIHP provides an answer: It’s already under way. It’s now up to state policymakers to maintain the current momentum and propel the expansion — a key component of federal health care reform — across the finish line.

— Scott Graves

New CBP Report: Congress Should Maintain States’ Flexibility To Expand SNAP Food Assistance

August 13, 2012

A new CBP analysis examines deep cuts that Congress is considering making to the federal Supplemental Nutrition Assistance Program (SNAP, formerly food stamps). Known as CalFresh in California, this program provides food assistance to nearly 4 million low-income individuals across the state, over three-fifths of them children. The need for food assistance has increased due to the Great Recession and its aftermath. Since mid-2007, when the economic downturn started in California, CalFresh enrollment has risen steadily and nearly doubled.

As part of the reauthorization of the federal Farm Bill, the US House of Representatives is considering slashing SNAP funding by more than $16 billion over the next 10 years, largely by eliminating the flexibility that states have to broaden SNAP eligibility to more low-income working families. This change would end SNAP food assistance for roughly 2 million to 3 million low-income individuals in 40 states, including California.

The cuts under consideration in the House would jeopardize improvements that California has made – or is considering making – to CalFresh. For instance: as we’ve blogged before, a bill now in the Legislature – AB 1560 – would bring more low-income individuals into CalFresh by both simplifying eligibility rules and creating a direct link between CalFresh and the Medi-Cal Program. The proposed House cuts to SNAP would prohibit this effort to expand access to CalFresh and would reduce nutrition assistance at the worst possible time: with many families still struggling in the wake of the worst economic downturn since the Great Depression.

— Steven Bliss

A Federal Balanced Budget Amendment Would Threaten the Economy and Force Deep Program Cuts

November 18, 2011

To Californians accustomed to hearing about big budget challenges in Sacramento, debates in Washington, DC, over how to balance the federal budget may seem unconnected to our daily lives. In fact, federal budget decisions have a significant impact on the Golden State. Federal dollars support an array of programs and services that touch the lives of all Californians, as we show in our new Policy Basics. For example, of the more than $330 billion in federal funds spent in California in federal fiscal year 2010 – which ended September 30, 2010 – more than one-third (36 percent) paid for Social Security and Medicare benefits, and another 12 percent supported an array of programs that provide assistance to millions of Californians, such as unemployment insurance (UI), CalFresh food assistance, and veterans benefits.

The importance of federal spending in California helps put into perspective the debate in the House of Representatives this week over whether to amend the US Constitution to require a balanced federal budget each year. While the balanced budget amendment (BBA) was defeated in the House today, the Senate is required to vote on the BBA by the end of the year as part of the “debt-ceiling” deal reached in August. A BBA “would threaten significant economic harm,” according to a recent report by the Center on Budget and Policy Priorities (CBPP). Why? Because it “would force policymakers to cut spending, raise taxes, or both just when the economy is weak or in recession – the exact opposite of what good economic policy would advise.”

Furthermore, if the votes to raise revenues cannot be found – a likely prospect – then the federal budget would have to be balanced through cuts alone. As a result, the CBPP estimates that a BBA could force deep reductions across a range of programs. Social Security, for example, could be cut by almost $1.2 trillion between 2018 and 2021, which we estimate would mean a reduction of roughly $110 billion to income support for millions of California retirees and people with disabilities. An estimated $750 billion reduction to Medicare between 2018 and 2021 would translate into an $83 billion cut in California, affecting millions of California seniors.

A persuasive case against the BBA was recently made by Rep. David Dreier, a 16-term, conservative Republican from southern California. Dreier, who supported a BBA in 1995, reminded his House colleagues this week that Congress managed to balance the federal budget in the late 1990s without amending the US Constitution. “I was wrong,” Dreier said of his support for a BBA in 1995. “Two short years later, we balanced the federal budget … without touching that inspired document, the US Constitution.” Recent experience in California also argues against a BBA. California’s restrictive budget rules – which hamstring fiscal policymaking – show that changing the budget process will not bring a budget into balance. Our nation, like our state, needs significant new revenues to responsibly balance its budget.

— Scott Graves