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Stimulus deal could mean $26 billion for California

Some of the money is expected to go straight into the state treasury -- but it won't be enough to prevent new taxes and spending cuts. School, heathcare and transportation improvements are anticipated.

February 13, 2009|Richard Simon and Evan Halper

WASHINGTON AND SACRAMENTO — The $789-billion economic stimulus bill headed toward congressional approval is expected to pour $26 billion into California -- building roads, upgrading schools and launching other projects intended to create or save jobs.

The expectation is that the federal government will funnel at least $9.2 billion directly to the state treasury, mostly for education and healthcare, in the next 18 months. Millions of Californians will get a tax cut aimed at promoting consumer spending.

But the money will only go so far in easing the state's financial pains.

In Sacramento, lawmakers are gearing up to vote in the coming days on a state budget package that will hit Californians with nearly half a dozen new taxes and deep spending cuts in almost everything state government does. The federal windfall won't stop that from happening.

The state's deficit through mid-2010 is $41 billion, and not all of the federal money can be used to help erase it. Some won't arrive on time. Some is specifically directed to other purposes.

Still, lawmakers say the legislation's effect will be profound. "California cannot do without this bill," said Rep. Lois Capps (D-Santa Barbara).

The austere budget package in the works in Sacramento already assumes that the federal assistance will wipe out nearly a quarter of California's deficit. If it falls short of that, Californians are in for even more financial carnage; about $1 billion in extra program cuts and tax hikes would be triggered under the budget plan.

The extra cuts would apply to welfare grants, aid to the elderly and disabled, and Medi-Cal. State colleges and universities would also lose money, as would the court system.

The stimulus bill would also affect how much income tax Californians pay. A new surcharge proposed on annual state income tax bills would jump from 2.5% to 5% if California does not get all of the federal funds that budget experts anticipate.

The estimate that California would receive $26 billion comes from a preliminary analysis by the Washington-based Federal Funds Information for States, which studies how federal decisions affect states.

Included in that estimate is about $6 billion that California is projected to receive from the "state stabilization fund," designed to help states avoid layoffs and cuts in services while also creating jobs by funding projects to modernize schools and colleges.

State and local officials are eagerly awaiting the money, which is supposed to begin flowing once Congress approves the federal package of spending and tax cuts that President Obama has called crucial to turning around the economy.

The House is expected to vote on the bill today, with the Senate following shortly thereafter. Obama could sign it within a few days.

The measure has its critics. Rep. Jerry Lewis (R-Redlands), who is expected to be joined by most if not all of his fellow California Republicans in Congress in opposing the measure, said it would "spur permanent growth in government programs and spending that will hamstring future budgets and plunge our nation further into debt every year."

But some state officials say they are prepared to move swiftly once the federal funding arrives.

"Because California has a significant amount of work that's ready to go, we anticipate we'll be able to get projects out very quickly," Caltrans Director Will Kempton said Thursday.

With the state expected to receive more than $4 billion for transportation projects, Kempton was already looking at what shovel-ready projects might be funded by the bill. Among those under consideration: a project to upgrade a portion of the Long Beach Freeway. A carpool lane on Interstate 405 on Los Angeles' Westside. A railroad improvement project in Orange County.

Funds also may be made available to advance high-speed rail projects running from San Diego to San Francisco and from Southern California to Las Vegas -- the latter a priority for Senate Majority Leader Harry Reid (D-Nev.), who played a key role in writing the final bill.

Los Angeles County could get as much as $700 million for transit and highway projects, but transit officials need to examine the bill before knowing for certain, said Marc Littman of the Los Angeles County Metropolitan Transportation Authority.

The White House said the measure would create or save 396,000 jobs in California.

"Our plan will provide urgent aid to states to save and create jobs," said Rep. George Miller (D-Martinez), chairman of the House Education and Labor Committee. "It allows states to invest in renovating, repairing and modernizing schools and colleges."

In a key area where California benefited from its increased clout in the House, the state will receive an estimated $11 billion in Medicaid funds -- about $650 million more than it would have received under the Senate version of the bill.

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