Unfunded Mandates. All state and local governments must deal with the consequences of unfunded and underfunded federal mandates. However, these impacts are not evenly felt around the country. This is because some program obligations have greater consequences in some states and because the federal government does not provide the same level of funding to each state for all mandates.
Congress has periodically debated the practice of not fully funding the cost of new programs but has steadfastly refused to support efforts to require that any federal mandates be fully funded.
Impact on California. Changing demographics in California has resulted in a steady increase in the proportion of the population receiving social services. The federal highway program pays a smaller portion of highway costs than in the past. Federal dollars have increased to education but tied to new programmatic obligations that cost more than the federal dollars provided.
All of these factors have contributed to the widening gap between what Californians pay in federal taxes versus the dollars that come back to California in the form of federal expenditures. This has also significantly increased costs for state and local government.
Unrelated Tax and Spending Policies. This gap is made even greater as a consequence of federal tax policy that does not compensate for California’s generally higher cost of living. In particular, the Alternative Minimum Tax has a disproportionate effect on California. However, a proper analysis of federal mandate impacts does not include this gap.
In the most recent federal budget, spending has been artificially high as a consequence of the “stimulus” program. As with AMT, it is important that such stimulus spending be segregated from any proper analysis of federal mandate impacts. Stimulus spending is part of cyclical fiscal policy decisions design to recharge a stagnant economy. To include these expenditures would not only mask the actual financial impact of unfunded and underfunded mandates, ironically it would also obscure the economic drag unfunded federal mandates have on highly impacted states like California.
Maintenance of Effort. Ironically, most stimulus program funding has also included language requiring that states maintain programs at historical levels of service. This has had the effect of preventing high benefit states like California from reducing benefits, making already narrow budget choices even narrower. The result is that neighboring states continue to pay lower benefits, still get stimulus money while California’s already stressed state budget is put under increasing pressure.
Indirect Mandates. States and localities also incur costs as a result of federal policies or federal inaction on federal jurisdictional issues. The most obvious of these are the costs incurred by state and local government in the incarceration of immigrants who commit crimes.
States have no control over federal immigration policy or over the federal government’s decisions to enforce or not to enforce laws related to immigrants.
For example, there are approximately 30,000 prisoners in California prisons who are immigrants. Congress committed to reimbursing states for the costs associated with these prisoners over a decade ago. However, California receives only about $135 million in annual reimbursements from the federal government. The cost: $1.5 billion. This does not include the costs absorbed by counties as a result of immigrant violators housed in local jails.
Simple Math. The federal mandate discussion is a binary one. How much do these mandates cost in each state? How much does the federal government pay in each state? The difference becomes an obligation of state and local governments.
It is this burden that falls disproportionately on California taxpayers because the federal government does not pay for the entire cost of federal mandates. In addition, California’s population is increasingly service dependent. In many programs, California’s reimbursement rates are below those of other states. Federal rules, including conditions attached to federal stimulus funds prevent California from adjusting benefit levels that are higher in California than in other states.