The Legislative Analyst reports that reduced funding and increased costs -- to the tune of $3.1 billion -- would result if Congress passes the Deficit Reduction Act of 2005. The LAO says:
If enacted by Congress, the Deficit Reduction Act of 2005 would have a significant fiscal impact on California. We project, based on the provisions which we can estimate at this time, that the fiscal impact of this legislation on California would be $3.1 billion -- $1.7 billion in reduced federal funds and $1.4 billion in increased state costs -- during federal fiscal years 2006 through 2010. These amounts are preliminary estimates and do not reflect potentially significant secondary effects. In this report, we review the major provisions of this legislation, estimate the fiscal impact on federal funds and state funds based on current law, and identify key issues for legislative consideration.
The LAO concludes that Governor Schwarzenegger's proposed budget "does not recognize these potential impacts".
If enacted by Congress, the Deficit Reduction Act would result in substantial state costs, as well as pressures to backfill for losses in federal funds. The Governor's budget, prepared prior to Congressional action, does not recognize these potential impacts. As discussed in this report, there are steps which the Legislature could take to mitigate some of the impacts. To the extent they are not addressed, these costs and pressures would aggravate the state's projected structural budget problem.
Two versions of the LAO report are available: