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Federal and State Budget Deficits Will Impact Our Communities

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Part 1: What Will The Upcoming Federal and State Budget Cuts Mean To Our Communities?

The California Budget Project has taken a look at the federal and state budget deficits and forecast what the impacts of the proposed budgets would mean to California's communities.

The Impact of Federal Cuts

The Bush Administration has released a $3.1 trillion proposed budget for 2009. The proposed budget calls for substantial reductions to domestic "discretionary" programs (those that are funded by annual federal appropriations other than those related to defense and international affairs). The reductions would affect millions of Californians who receive support from a variety of public services and education. A portion of these reductions would shift costs to the state level, which would worsen California's already serious fiscal challenges.

Grants to states and local governments also have fallen when measured as a share of the economy. As a result of these cuts, California's state and local governments would receive $2.6 billion less in federal grant funding (other than Medicaid) in 2009 than in 2008 after adjusting for inflation. Grant funding received by California in 2009, much of which is discretionary, would be $4.6 billion lower than in 2003, after adjusting for inflation.

Federal funding for a number of domestic discretionary programs that assist families and children in California would be cut substantially under the President's proposed budget. The President proposes to reduce funding for the following
housing-related domestic discretionary programs programs that assist California's families, children, and seniors.

- Funding for the Low-Income Home Energy Assistance Program, which provides home heating assistance to low-income families and elderly individuals in California, would be reduced by $17.8 million compared to the 2008 funding level, or by $80.0 million compared to the peak funding year of 2002, after adjusting for inflation. The reduced funding level could result in 40,500 California households losing assistance in 2009.

- Funding for the Public Housing Capital Fund, which supports improvements to and maintenance of public housing, would be reduced by $18.8 million compared to 2008 or by $67.0 million compared to 2001, after adjusting for inflation.

- Up to 14,079 fewer California families could receive rental assistance through the Section 8 Housing Choice Voucher Program due to inadequate funding levels in the President's budget.

The President would also cut funding for several federal block grants supporting human service and community development programs administered by state and local governments.

- Funding for the Community Services Block Grant (CSBG) would be cut, resulting in a loss to California of $59.1 million from 2008 or a $65.1 million cut below the 2001 funding level, after adjusting for inflation. The CSBG provides funds to community action agencies that support a range of services, including emergency housing, housing assistance, domestic violence services, and other services for underserved populations.

- Funding for the Community Development Block Grant (CDBG) would be cut, resulting in a loss of $90.1 million compared to 2008 or a $304.4 million cut compared to 2001, after adjusting for inflation. CDBG funds support a range of community development activities, primarily in local communities, including housing development, homelessness assistance, and economic development.

- Funding for the Social Services Block Grant (SSBG) would be reduced by $60.5 million in 2009, after adjusting for inflation. California uses SSBG funds to support Community Care Licensing, services for persons with developmental
disabilities, and services for the deaf as well as to assist victims of Hurricane Katrina who reside in the state.

In addition to substantial reductions in federal spending, the President proposes to permanently extend the tax cuts enacted since 2001. The cost of extending these tax cuts is much greater than the savings from the reductions in domestic programs proposed by the President. Repealing the estate tax alone would cost $522 billion over 10 years.

The massive tax cuts enacted during the President's first term not only affect resources available at the federal level but, in some instances, also have a direct impact on state revenues. For example, the phase-out of the federal estate tax will cost California more than $1.1 billion in state fiscal year 2008-09. The 2001 federal tax package phased out the federal estate tax by 2010 and eliminated states' share of the tax beginning in 2005. Finally, state measures conforming California's income tax laws to changes in federal law that were enacted between 2001 and 2007 will cost the state $94 million in state fiscal year 2007-08.

To continue reading about the California state budget crisis please go here...

To read the entire report by the California Budget Project on the proposed Federal Budget, please download it below.