Carolyn Lochhead, Chronicle Washington Bureau
Saturday, July 30, 2011

Washignton– California gets $79 billion a year from the federal government – nearly 40 percent of what it spends. The money goes to everything from highways to universities. So when the federal government sneezes, California catches a cold.

Washington’s frantic debt-ceiling negotiations are about to let loose a $1 trillion-plus sneeze.

The cuts headed California’s way are unknown as yet, because no deal has been reached in Washington to increase the debt ceiling and prevent the Treasury from running out of cash to pay its bills Tuesday.

But it is obvious from the cuts revealed so far in Democratic and Republican plans that “there are going to be a lot of them,” said state Treasurer Bill Lockyer.

“If we reduce the deficit at the federal level, it’s going to increase deficits at the state level,” said Vin Weber, a former Republican member of Congress and GOP consultant. “That’s not the objective of people, but it’s going to happen, and they all know it.”

Spending slashed

California already has slashed spending to reduce its own deficits and will have to cut more if federal funds dry up. The state now spends $208.5 billion a year, $79 billion of it from the federal government. It receives roughly 10 percent of what the federal government spends each year.

“No matter how cuts of that magnitude are targeted, we’ll feel them in California,” said Paul Rosenstiel, a principle at the San Francisco investment bank De La Rosa & Co. who works with the Public Policy Institute of California. “The state relies heavily on federal funding, for everything from building roads to paying unemployment insurance benefits.”

The basic outlines of the various plans would cut federal spending by roughly $1 trillion over 10 years. All the plans have ruled out additional tax revenue and cuts to the big entitlement programs such as Social Security, Medicare and Medicaid. They save these for a bipartisan super committee of Congress to find an additional $1.8 trillion in savings, through tax and entitlement reforms.

Until then, all the cuts would come from some combination of defense and domestic programs, known as discretionary spending because Congress votes on it each year.

“We can’t identify the cuts yet because we don’t know,” said Rep. George Miller, a top ranking House Democrat from Martinez. “We’ve agreed to numbers that are very significant, in excess of $1 trillion.”

About a third of all spending on domestic discretionary programs comes as grants to states, said Nicholas Johnson, vice president of state fiscal policy at the liberal Center on Budget and Policy Priorities.

Spending limits

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