California's shortfall has now grown for four consecutive years, and 1998 represents the 12th year in a row in which California has sent more federal dollars to Washington than it has seen in federal expenditures. As defense procurement began to slip in the mid 1980s, however, California's advantage lessened. The state's balance shifted from the black into the red in 1987, and it has remained there ever since. By 1990, California's losses had more than made up for the gains it had made in the early 1980s. The state's increasing share of the nation's federal tax burden is due in part to a rebounding economy in California relative to other states.
Federal spending is comprised of expenditures in various categories.
The federal income tax system causes states, such as California, which have an above average income level to pay more in taxes than the average state, despite the fact that vastly higher housing prices and other costs of living mean that the average Californian may actually have considerably less disposable income than the average resident of a lower-taxed state. Over the last fifteen years, no single category of federal spending in California has experienced as precipitous a decline as procurement. After adjusting for inflation, California's procurement receipts are now less than half of their 1985 levels. Overall procurement expenditures by the Department of Defense, which spends nearly two of every three federal procurement dollars, accounts for much of the decline. The bulk of these funds are distributed to states by congressionally designed formulas.