U.S. Budget Deal Will Have Wide Impact in California

WASHINGTON — The budget agreement formalized by the White House and Republican negotiators is a political smorgasbord crafted to appease the rich, remember the poor and give the middle class a break. And for California, the nation’s most populous and diverse state, that probably means a little something for almost everyone. Nothing substantial enough to make anybody rich, and nothing onerous enough to make anybody mad.

“California is the state that looks most like the country,” said Mark Petracca, a UC Irvine political scientist. “Since we have lots of people who fit into all the categories this budget was designed to stimulate, the overall effect in the state ought to be significant.”

California has more young people per capita than any other state, more needy people than many and the most immigrants by far. Its homes are worth more on average, its median household income is higher, its industry is among the most technologically advanced, and relatively few of its residents smoke--all factors that figure into how the landmark agreement will affect people.

The deal’s centerpiece is a $400-per-child tax credit in 1998 for children 16 and under (rising to $500 in subsequent years). Although this benefit is tied to income levels, the tax break could be particularly popular in a state with the largest percentage of children.

As many as 1.6 million of the state’s children are estimated to have insufficient health insurance or none at all, and the budget includes $24 billion to expand health coverage to as many as half of the estimated 10 million children nationwide who lack it. But how many of California’s young people are ultimately covered by this provision will depend on how the state decides to spend its share of the money, officials said. The pact is unclear on what services states must provide.

“It appears relief is on the way for 1.6 million California children who lack health care coverage,” said Rep. Anna Eshoo (D-Atherton), who lobbied for the insurance proposal. “Gov. [Pete] Wilson should make a commitment to spend all of our state’s allocation on children’s health insurance and avoid the temptation of siphoning off any of this money for other projects.”

With a slightly higher percentage of its population in college than the nationwide figure, California also will benefit from about $40 billion in education tax credits and deductions in the deal. That includes penalty-free withdrawals from individual retirement accounts for education purposes and interest deductions from student loans.

For some people, the whole thing may feel like a wash. Because this budget sets out to balance the federal books in five years and still offer $91 billion in tax cuts, many of its proposals seem to cancel each other out.

A family living in a comfortable home on the Westside might earn too much to take advantage of the child tax credit limited to households earning less than $110,000 annually. But the same family might benefit from a proposed capital gains tax that shields up to $500,000 in profits on the sale of a primary residence.

But California is also home to a large number of poor people, some of them victims of a crippling recession from which the state is still recovering.

As of January, California had more than one-fifth of the nation’s adult welfare recipients and a higher share than that of children on welfare. Thus, it could benefit more than any other state from a budget provision requiring that welfare workers be paid the minimum wage.

California also houses 40% of the country’s immigrant population, some of whom stand to benefit from restoration of Supplemental Security Income checks to elderly and disabled legal immigrants that last year’s welfare reform bill had taken away. An estimated 200,000 Californians will remain on the rolls as a result.

The accord contains a grab bag of tax credits aimed at industry, including an expansion of empowerment zones that makes Los Angeles eligible for $1.5 billion in tax incentives to lure business to depressed areas.

Tax credits have been extended for research and experimentation that are targeted to help the biotechnology industry, one-third of it based in California. More money for environmental cleanup will be available to revitalize abandoned contaminated sites in economically depressed areas.

It is not clear who the losers might be, with the possible exception of smokers, who will pay an extra 15 cents a pack in taxes by 2002. (Still, the effect in California proportionally will be small, because just 15% of the state’s adults smoke; only Utah has a lower rate.)

About $115 billion in Medicare savings will come out of the pockets of hospitals, doctors and other health care providers, including many in California. California hospitals that serve a large number of uninsured patients will lose at least $500 million in federal assistance.

But it could be a decade before anyone knows whether this budget will change the lives of Californians.

History is replete with well-intentioned federal programs that had unintended consequences, said Tim Ransdell, executive director of the California Institute in Washington, pointing to the best-laid plans for a billion-dollar atom smasher that went kaput in the 1980s.

“The superconducting super collider was fought over tooth and nail,” he said. “The big winners were the Texans, who now have nothing to show for it but an enormous hole in the ground.”