California Insider

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Sacramento Bee Columnist Daniel Weintraub

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May 20, 2003

We gave at the office

Finance Director Steve Peace has been touting a theory of late that seeks to blame the federal government for much of California’s budget problems. A southern tilt in national politics, Peace says, has led to an “imbalance of payments” that makes California a big net donor to the other 49 states, via Washington. While I reserve the right to question the specifics of his numbers later, I’ll stipulate to them for the moment. But even if the numbers are accurate, the whole theory seems a rather odd one for any mainstream Democrat, even a centrist one like Peace, to be arguing. And it’s even sillier for some of the leftists in the Legislature who have also taken up the cause. Here’s why. If it’s wrong for California to be a “donor state” – that is, to send more tax dollars to Washington than come back in services and contracts – then presumably it’s also wrong for those states on the receiving end to get more than they give. And if that’s true, then the whole system of federal taxation comes into question. Why bother sending any tax dollars to Washington at all if all we are going to do is get the same amount back? Maybe for national defense, right? Or a handful of other things that the states could not do individually. But pretty soon you are describing basically a system where each state fends for itself. That’s a vision worth exploring, and one that would certainly delight the serious fiscal conservatives among us. But it hardly seems consistent with the core values of the Democratic Party. It also ignores the fact that California as we know it was essentially the creation of the federal government, and by extension, the other states in the union. Consider what the federal water project and the post-WW II defense boom did for California. I don't remember anyone tallying up tax flows in and out during those years.

On the other hand, Peace’s rant reminded me of a strange fact I discovered at a recent policy briefing that still puzzles me. It turns out that 90 percent of the federal gas tax we pay to support highway and transit construction must, by law, be returned to the state. The rule was adopted to ensure that every state was getting its fair share, that no one became an obvious example of a donor state. So first we send the money to Washington, then they decide how we ought to spend it, and they send it back, minus postage and handling. The other 10 percent, I guess, is spent on interstate highways and projects in other states. Does that seem odd to anyone besides me? If the feds are required by law to return 90 cents on every dollar, what's the point of sending it to them at all?