Federal Economic Stimulus Package: Fiscal Effect on California

Summary
The recently enacted federal economic stimulus package-titled the American Recovery and Reinvestment Act (ARRA)-commits a total of $787 billion nationwide. As reflected in the figure below, this funding provides: (1) $330 billion in aid to the states, (2) about $170 billion for various federal projects and assistance for other non-state programs, and (3) $287 billion for tax relief.

This report focuses on the state aid component of the stimulus package, as it consists of the federal dollars with which the Legislature will be most involved. As the figure shows, the state aid "pie" also consists of three pieces: (1) federal dollars that can be used to address budget shortfalls, (2) funds that supplement existing state spending, and (3) competitive grants. We estimate that California will receive over $31 billion from the first two components (see table on next page) and billions more in competitive grants.

The State "Trigger"

A significant portion of the $31 billion in aid to California will be available to address the state's budgetary problems. We estimate that, based on the enacted state 2009-10 budget, California can use $10.4 billion in new federal dollars for this purpose over the life of ARRA. Of that amount,$8 billion would be available in 2008-09 and 2009-10. The Director of Finance and State Treasurer will determine their own estimate of the latter amount by April 1 of this year. If the amount is less than $10 billion, then annual state program reductions of nearly $1 billion and revenue increases of about $1.8 billion adopted as part of the 2009-10 budget package will go into effect.

Given the state's continuing economic struggles, however, it is possible that state revenues (and the Proposition 98 minimum funding level) may continue to fall. In that case, it may be possible to use additional federal education dollars for budgetary relief.

For full report please click on the PDF file link below or.........click here.