VIEW FROM WASHINGTON / ROBERT A. ROSENBLATT : When It Comes to Uncle Sam’s Coffers, California Is Cash Loser

The federal bucks pour into California, a rich state getting even richer thanks to Washington’s generosity with everything from defense contracts to medical research money to earthquake relief funds.

True? Most emphatically not. The conventional wisdom about the flow of federal dollars is flat wrong.

California, in fact, is a cash loser in its relationship with the federal government, getting back just 96 cents for every dollar it sends to the Internal Revenue Service in the form of income taxes.

This revelation comes from an intriguing study by the Northeast-Midwest Institute, which normally wouldn’t be expected to show much sympathy for California. After all, those regions of the country have been losing people, jobs and electoral votes to California for years.

But numbers are numbers. The institute looked at purchases of services and equipment, grants to state and local governments, salaries and wages and direct payments to individuals, including such items as Social Security, veterans’ benefits and government pensions.

Of the nearly $1.3 trillion the federal government spent in the 50 states during fiscal 1994, California’s share was $155.4 billion--an amount equal to $4,944 for each man, woman and child in the state. But California sent $4,974 in federal taxes per resident back to Washington. That left each Californian $30 in the hole.

The state ranks far down the list--35th--in the ratio of money flowing to Washington compared to dollars coming back.

Sen. Barbara Boxer (D-Calif.) called the report “very good ammunition” for her and her California colleague, fellow Democrat Sen. Dianne Feinstein.

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“The best-kept secret is that California is a donor state,” Boxer said.

“There are so many things California deserves to have--flood control, highway funding and earthquake proofing for buildings,” the senator said in an interview. Expanded funds for education and Head Start are vital, she argued, with new studies showing that one in three California children lives in poverty. And the state needs funds for base closings, environmental cleanups, border safeguards and enforcement of immigration laws.

California’s emergence as a net donor to federal coffers is the result of the state “being squeezed from two different forces,” said John O. Wilson, chief economist for BankAmerica Corp. The big defense boom is over, he said, while a surge in illegal immigration has increased the need for social spending.

“In the 1980s, we got more than our proportionate share of the defense buildup because we had the big contractors that could win those contracts,” Wilson said.

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With the end of the Cold War and resulting defense cutbacks, that source of money has shrunk dramatically. California received $36.1 billion in defense dollars in fiscal 1994, a dramatic erosion from the peak of $40.3 billion in 1986, according to the Northeast-Midwest Institute study.

Things look even worse if you measure the impact in constant dollars, undiluted by inflation. Using 1987 as a base, the peak came in 1985, when defense contracts going to the state were worth $43.5 billion. In 1987 dollars, spending last year fell to $27.7 billion.

Meanwhile, “we aren’t getting our proportionate share of social spending,” Wilson said, “because the federal government refuses to acknowledge responsibility for the illegal immigrants.” If Washington responded to a chorus of demands from California officials, it would give the state far more money to cover the costs of welfare, education and medical care for undocumented immigrants.

Most of the states doing worse than California in their fiscal relationship with Washington are, indeed, in the Northeast or Midwest: Connecticut, New Jersey, New York, Illinois and Michigan, among others. The states on the winning side of the relationship tend to be poor and Southern; Mississippi, for example, gets $1.72 for every dollar it sends to Washington.

The elaborate statistical tables can yield some guidelines for political analysis and action, suggested Richard Munson, executive director of the Northeast-Midwest Institute.

For example, the cut in the capital gains tax proposed by House Republicans would be a winner for California--a state with big groups of entrepreneurs and affluent people who would benefit from lower taxes on investment gains, Munson noted.

Also, instead of fighting over economics, the Snowbelt states of the Northeast and the Rust Belt states of the Midwest could form common cause with Sunbelt California, Munson proposed.

“The . . . regions have high income levels and high tax levels,” he said. “There is a potential for coalition that hasn’t existed before. Instead of fighting, we should realize our common interest on tax and spending issues.”