Joseph J. Zambon, DDS, PhD
A recent controversy over whether California should receive federal disaster assistance, tied to yet unspecified conditions, has reignited a debate about the balance of payments between individual states and the federal government.
While the issue of withholding emergency aid to California, which is recovering from the worst wildfires in its history, seems to be a political red herring—fabricated by Republicans to gain leverage in upcoming debt limit negotiations, according to Speaker Johnson—it highlights a broader and often overlooked economic reality.
What Is Balance of Payments?
The term “balance of payments” in this context refers to the difference between the amount of money a state sends to the federal government and the amount it receives back in federal spending. This imbalance can vary widely between states:
- Donor States: States that contribute significantly more in federal taxes than they receive in federal funding.
- Recipient States: States that receive more federal aid than they pay in taxes.
The Rockefeller Institute of Government is a key resource for analyzing and understanding these state-level balance of payment disparities.
California’s Role as a Donor State
California consistently ranks as one of the biggest losers in the balance of payments equation. Each year, the state sends billions more to Washington than it receives back in federal funding. This makes California one of the most significant net contributors to the federal budget, effectively subsidizing federal programs that benefit other states. In 2022, for example, California sent $83 billion more to Washington than it got back.
Donor States
The table below shows the states that contribute more to the federal government than they receive back. The data is per capita for 2022 from the Rockefeller Institute. Each man, woman, and child in those states and the District of Columbia contributes more than they receive.
For example, in 2022, each person in Massachusetts paid the federal government $3,873 more than what came back.
New York sent $7 billion more to the federal government than came back, or $361 for each New York resident. New York’s budget is $237 billion, so $7 billion represents about 3% of the state’s budget. I’ve previously posted criticism about Western New York Republican representatives and their failure to bring federal resources to their districts.
States That Pay More to the Federal Government Than They Receive and Per Capita Amounts
Balance of payments refers to the amount of federal spending distributed in a state (expenditures) minus the amount paid to the federal government by a state’s residents and businesses (receipts). States that pay more than they receive are listed above.
The Irony of Federal Aid Criticism
Given California’s role as a huge donor state, it is disingenuous for politicians from recipient states—those that rely on California’s federal tax contributions to balance their own budgets—to criticize California or threaten to withhold emergency assistance. Federal aid flowing into many recipient states is made possible, in part, by the significant contributions from California and other donor states.
Critics of emergency aid to California, such as Speaker Johnson, representing recipient states, have a conflict of interest. Johnson said, “I think there should probably be conditions on that aid. That’s my personal view.” By denying emergency aid to California for spurious reasons, his state receives more money.
Other Republicans criticized California’s management of the natural disaster. Senate Majority Whip John Barrasso of Wyoming blamed “policies of the liberal administration” for the large scale of the fires. “I expect there will be strings attached to money that is ultimately approved.” According to the Rockefeller Institute, each of Barrasso’s Wyoming constituents gets $493 more than went to Washington.
Johnson’s home state of Louisiana is one of the biggest beneficiaries of the transfer of wealth from the donor states to the recipient states. Each resident of Louisiana received $7,522 more than they paid to the federal government in 2022. According to data from USAFacts, in 2021, the percentage of Louisiana’s state budget derived from federal aid was 29%. That is twice the percentage of California’s state budget derived from federal assistance.
The Broader Implications
This balance of payments controversy and the possible “conditions” for California’s emergency assistance underscore longstanding inequities of the federal system:
- Should blue states like California be subjected to additional hurdles when seeking disaster assistance?
- Is it fair for recipient states to demand conditions on emergency aid while benefiting disproportionately from donor states’ contributions?
- Should emergency aid to California be held ransom to the debt limit negotiation?
Conclusion
The debate over federal disaster assistance for California highlights a longstanding imbalance in how federal funds are distributed among states. As one of the largest contributors to the federal budget, California subsidizes other states’ budgets. Politicians such as Johnson and Barrasso must be held accountable for their political posturing, which undermines disaster response to California and equity among states. When a disaster befalls their states, they can expect federal aid only with conditions.
