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One of the best examples of the complexity in California budgeting is how Gov. Jerry Brown has proposed saving $1 billion through deep welfare-to-work cuts.

The state cannot cut $1 billion of its own money on welfare, or else it would spend so little on the program that the federal government would take away federal funds. On paper, it looks like Brown would only cut $248 million in state welfare costs, even though $1 billion in welfare programs would be reduced.

To actually save the full $1 billion, the state needs to play the annual fund shift game. Brown's solution: Rather than use only state money to fund Cal Grants - college scholarship aid for the poor - California would use $736 million of federal funds that formerly went to welfare recipients.

California receives a $3.7 billion Temporary Assistance for Needy Families block grant from the federal government each year, which the state uses to help pay for welfare-to-work and other programs that help the poor. Legislative Analyst Mac Taylor suggested Wednesday that this block grant gives states more freedom than other federally funded programs like Medicaid.

In grappling with a deficit, the state is looking for all of the freedom it can get. So when budget writers find outside dollars that can be tapped for other purposes, they use it.

California would likely justify its federal low-income dollars for scholarships by saying that Cal Grants help poor students become employable and discourage them from starting families without financial means, thus keeping them out of the state's welfare-to-work program.

"It doesn't have to be spent on direct assistance," said Caroline Danielson, a policy fellow with the Public Policy Institute of California. "It can serve to help needy families reach self-sufficiency."



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