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How the Census Affects State Finances

Patrick Murphy May 29, 2018
Census taker at door to a home

The US Constitution requires a decennial census for the purposes of determining how many seats each state will have in the House of Representatives. Just as critical, a number of federal programs rely on census data to calculate the share of federal dollars distributed to each state. In the case of California, the census-connected funds are big money. Undercounting Californians in the upcoming census could have significant fiscal consequences for the state.

Federal dollars account for more than one-third all state spending (including the general fund, special funds, and bonds). This translates into more than $100 billion in state spending derived from the federal government.

Not all federal programs rely on the census to determine the distribution of dollars, but the vast majority are connected to it in some way. One study estimates that 132 federal programs rely on census data to distribute more than $675 billion. Another estimates the share of census-related funding for the largest programs for each state. For California, that amount was $77 billion, or more than 80 percent of the federal funds the state received in 2015 (the most recent estimate available).

Given the dollars at stake, getting an accurate count of California’s residents is critical—but could be a challenge since large segments of California’s population are historically difficult to count.

But population counts alone do not determine funding, so it is difficult to precisely forecast the impact of an undercount. Compounding the difficulty, the way federal programs use census data to allocate dollars varies, and in some cases, involves other factors such as the relative wealth of the state. For example, a significant share of census-related dollars are determined by a specific federal reimbursement rate. Because California already receives the minimum rate, an undercount would not reduce the amount of federal dollars that the state can count on.

Finally, the use of the census to distribute dollars is, in some cases, a zero-sum-game. For California to avoid “losing” relative to other states, it needs to count as well, or better, than the rest of the country. Other large states—notably Texas and Florida—face similar challenges.

California’s creation of a state committee to ensure an accurate count—along with funding to support such efforts—are crucial to a successful outcome. In fact, a relatively modest investment has the potential to provide enormous returns to the state.

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