Crony Capitalist Payoffs for California in Paul Ryan’s Budget

The $1.1 trillion federal budget deal boosts spending by 6 percent, extends about 50 expiring tax breaks, and funds an array of goodies meant to please both California Democrats and Republicans.

California’s congressional Representatives and Senators should receive lots of constituent cheer after passing a five-year, federal $325 billion highway bill in early December, and then two weeks later passing a $1.1 trillion budget deal. The combination will stimulate the national economy by about +.25 percent and California by slightly more.

The budget includes a $680 billion package of tax cuts that includes 50 tax extenders and several other provisions plus, an omnibus appropriations bill that will fund the government through September 30, 2016. Key to spending is “changes in mandatory programs’ (CHIMPs), which allow Congress to appropriate funds above the spending caps by cutting mandatory programs. But none of the apparent cuts are real, so there is a +$18.6 billion in spending.

California is a biggest beneficiary of the renewal of the 30 percent tax-credit for solar power. The Golden State dominates solar power with 1,049,000 homes installed, compared to number two — North Carolina — that has only 43,000 hooked up to solar. The extension will drive a big increase in California solar and wind power subsidies.

With 40 percent of electric vehicle sales, California-based Tesla will “coin it” with their new Model X $100,000-plus battery-electric vehicle that will now be eligible for $32,500 in federal tax benefits. In addition to a $7,500 standard federal deduction, the “X” at 6,000-pound “gross vehicular weight” is eligible for another $25,000 fed tax break under IRS Code Section 179 that was intended to encourage farmers to buy heavy equipment.

California will benefit directly from the $3 million increase to $8.2 million in federal spending for national preparedness for an early-warning system for earthquakes on the West Coast. Development of the alert system led by the U.S. Geological Survey, Caltech, UC Berkeley, the University of Washington and the University of Oregon began in 2006. Last year the system gave a 10-second warning last year just before a magnitude 6.0 quake that hit Napa. It will take several years more in development, but security and insurance experts believe a 30-second alert capability would prevent deaths and injuries.

The drought across the Western states received only $50 million in funding. Due to the severe El Niño the National Weather Service expecting substantial precipitation in 2016.  Republicans were unwilling to spend big money this year on more liberal Democrat entitlement-spending mitigation after Senator Dianne Feinstein and other Democrats were unwilling to support new above-ground water storage and funnel more delta water to Central Valley farmers.

California will be a prime beneficiary of the U.S. Forest Service’s +$600 million increase in fire-suppression budget after wildfire caused huge damage and cost fire fighters’ lives over the summer. The record $1.7-billion in agency spending will also prevent the Congress from continuing to rob the federal disaster relief budget each year.

The repeal of the 2013 meat-labeling law that spiked beef and pork production costs by requiring that each animal be individually documented for where they were born, raised and slaughtered is a welcome news for California’s 76,400 farms and ranches, which generated a national high of $54 billion last year.

Although the meat-documentation legislation impacted only $5 billion of California production, it was seen as a stealth effort by organic advocates toward universal labeling of all agricultural products. The World Trade Organization had ruled the law violated international agreements. That finding allows Mexico and Canada to impose $1 billion in retaliatory tariffs against U.S. produced wine, chocolate, beef, dairy and processed tomato products that are major California exports.

But by far the most important monetary impact for California in the budget deal was  a gusher of welfare money. That will allow the state, which has 11.5 percent of the America’s population, to continue to provide 30 percent of the nation’s welfare caseload now 12.2 million people.

A recent Cato Institute report argues that the federal government spends $668 billion dollars per year on 126 different welfare programs. California is the top state at generating welfare cases by kicking in enough state cash so that welfare benefits are 20 percent larger than that provided by New York; 89 percent larger than in Illinois, and almost 280 percent greater than the package offered by Texas.

Because budget negotiators did not make any changes in the controversial system, poverty and welfare will remain California’s top industry.