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Debt Limit Fallout Will Hit Hard in California

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California is in for a huge financial shock.

For many Californians, the debate over deficit reduction in Washington, D.C. has seemed distant and disconnected from our problems here.

Complete coverage of the debt limit crisis here.

That's changing quickly. We will feel the pain of the change here in ways unimaginable until now.

The numbers tell the story.

This past year, California received nearly $80 billion in federal funds.

That's almost as much as the entire state budget of $86 billion. 

The money went for all kinds of programs--support for higher education research, school lunches, food stamps, highway construction, coastal protection, alternative energy development, you name it--not to mention the Big Three, Social Security payments, Medicare, and Medicaid.

The levels of support for all these programs and more are about to decline precipitously.

How so? 

We begin with a little math, California style. Let's say that Congress reduces spending by $2 trillion dollars over the next ten years.

In rough terms that means a reduction about $200 billion dollars annually. Sure, it may be a little less in the early going and a little more toward the end of the decade, but let's just go with an annual average.

California has about one-eighth of the nation's population, and one-eighth of $200 billion is $25 billion annually.

Why is that important?  Because the state can expect a decline of payments for various programs and services in proportion to the national reduction.

One way or another, that's about 30 percent less than California received this year from the federal government when considering the $80 billion.

That's a huge financial shock to the system.

To be sure, the cuts won't be across the board. The funding for some programs will be reduced more, others less, but overall we'll lose about $25 billion annually.

Considering the shaky condition of the state's economy and the reluctance of California to pony up more taxes for our already paltry state budget, the federal cutbacks will be devastating to the state.

Suddenly, the national deficit debate has meaning for California in profound ways that few will fully comprehend until the checks stop arriving. Ouch.
 

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