Why Can't Rich States Just Keep Their Money? and Other Questions for Political Strategist Jeff Le
I'm envisioning California taking all its chips and staying home. But apparently we can't do that.
TL;DR: There are processes in place that dictate how money transfers between states and the federal government. California can’t just sit on its chips and stay home. On the other hand, much of the impoundment from the Trump administration is in legal limbo so who knows where it will all end up—it’s likely going to be the courts that decide. But can they enforce? Who knows? Jeff Le does. He has deep expertise in policy and coalition wrangling and is managing principal of 100 Mile Strategies, a public sector navigation and tech consultancy.
Le also says beware of the “useful idiot” scenario. “I spent some time with {Trump] on Air Force One when I was working for [Jerry Brown], and he knows what he's doing, that's for sure,” Le said.
This interview has been edited for length and clarity.
Vanessa McGrady: California has the fifth largest economy in the world, and so many other states who don't even feel kindly toward us depend on our contribution. What is stopping us from just keeping our money and funding ourselves?
Jeff Le: I'm not a constitutional lawyer. On the piece of the revenue and tax side, technically speaking, there are requirements that the Franchise Tax Board has to send certain amounts of California taxpayer money back to the Treasury. California is what you'd call a donor state—it gives more back to the federal government than it receives.
The poorer states tend to rely more on the federal government, but the wealthy states also do, especially if one in three of every dollar goes to state local services. State government plays an important role of being a pass-through for a lot of local and county entities. There's nothing I've seen that has said we're not paying our share. I haven't seen anything like that, even in Republican circles, where maybe that message might be very interesting.
VMc: In in almost any transaction, you get something for your money. If we are getting fewer grants for schools or National Park Services, are we still giving them the same amount of money to get less back and instead it goes into billionaires’ pockets?
JL: No, here's the thing: if there are widespread economic disruptions, California will send less money back. For example, all these folks that are now claiming unemployment, that has an impact on the receipt. Every month, the California Department of Finance has a measure of the receipts that come in based on the projections of funds, and that helps inform the budget process. But if you have folks who are disrupted, whether that's firings in tech to jobs at the VA, that probably also has an impact. One thing to note, and I think specific to what you're trying to get at, is that California relies disproportionately on the top 1 to 2 percent in its tax structure, and a big factor into what brings more money into the state includes capital gains. When the stock market takes a dump, that has an impact on California.
The reason why California is such a boom-and-bust state is a lot of reliability on the health of the stock market, which includes the IPO market. There hasn’t been much there. There are multiple reasons for this, but I think California will send less, but not because it doesn't want to or wants to withhold. It's just because fiscally, they're going to be in a weaker position.
You were talking about higher education grants, how that impacts research and innovation closures of key federal agencies and departments within the state. California is, I believe, the second-largest home to federal employees in the country. But how is it not an impact? If you disrupt the Federal workforce, those disinvestments represent a change in your tax assumptions. Based on that, I think that makes it a little more complicated question.
VMc: So there’s no way states can keep more of their money to help their people?
JL: States are required to balance their budgets. If they have a shortfall, they have to even it out, which means cuts. This is a real example I'll give you: The federal government says, ‘Hey, county X, you know that road we agreed we were going to build with you, where we agreed to pay 75% instead of 25%? Actually, it's 50/50, you're just going to have to come up the other 25% or take money away.’
These things are happening in real time, and because of California's interesting requirements for ballot initiatives, it’s tougher to get money, I think it's just politically not palatable. The state governments are facing really tough decisions here. This is not a member of Congress issue. The [Trump] administration is the one saying that they're going to withhold certain monies. These are monies that have already been obligated, but they are impounding the money. The problem with the impounding of the money is that they do need congressional authorization to do so, and they've decided that not as an authorization. That's why the courts are striking these things down. That's why you're seeing people get their jobs back temporarily, but they'll eventually get some of this.
VMc: What if the states just went rogue and didn't send it and kept it for themselves?
JL: I don't have the expertise on this, but let's just say in theory, they did. The Treasury Department would come after them, or the executive branch would use some military might to try to get them. I couldn't rule that out. … But the California State government has made it very clear that they have to pay monies to the federal government as part of their admission into the Union. That's in the original Constitutional Commission.
VMC: What does this mean for people's paychecks? Are we going to have to be paying more to make up for this shortfall (for those of us who are working), or you just have no services and have to figure out, say, your VA healthcare on your own?
JL: Technically, the budget is done. If they go through the process of the continued reductions in force, it will likely mean a slowdown in your services. It won't mean you're paying more, but it means you're getting less. That might include Social Security checks potentially taking longer. Maybe it takes longer for you to get a response from Veterans Administration crisis hotline. Maybe you'll take longer to coordinate a large-scale transportation project. Maybe they'll be less people to review whether a livestock or poultry have the flu. Maybe there are fewer people helping to monitor and the oversight of airplane traffic control, which has been in the news as well. Those things are very real.
In theory, they could put more people into certain areas of need and then reduce other areas, even if the law requires them to do certain works. For example, monitoring the cleanliness of water. But how do you define “monitor”?
Bill Clinton was involved in a reduction in force in the federal government, and had made a pitch to Congress to reduce spend that had already been allocated.
[The Trump administration’s is] historic in terms of the pace, and also in terms of not using the processes that they're afforded. Basically they just say anything that's not the legislative or judicial branch goes the executive branch.
VMc: It appears that this administration has no regard for the Constitution. What about states that want to do the right thing? How can they conceivably fight back or leverage their own power? What is the good news in all of this?
JL: The governors’ offices in the legislative chambers in Sacramento and other state capitals get to be very ruthless about what they should prioritize. From a taxpayer perspective, if you want to support everything, that means you're not really helping many people, because you have to dilute your funds so much. The second piece is state attorneys general will be very much empowered. You're seeing the various states suing the administration, that includes the state of California.
My observation is that the Democratic Party tends to be a top-down party, but the Republican Party tends to be a grassroots party. If you actually have these debates at the local level in these Republican districts, that’s an area of opportunity to wield influence.
VMC: So everybody should go to a Republican town hall?
JL: [The Trump administration] has a very narrow scope of who they listen to, but members of Congress certainly understand that their numbers are vulnerable, and so that having a potential upheaval and within the base is a problem because of being primaried.
VMc: Why would Republican lawmakers and even judges take their own power away from themselves by granting so much to the to the executive?
JL: It’s still TBD for the judges on these recent immigration cases. For example, the judiciary made it very clear that what the administration is doing is outside the scope of immigration law, and they still deported people anyway. You've seen the Supreme Court already strike down certain things that you would have thought a more Republican leaning majority wouldn't have. There are surprises there, in terms of a “majority,” that is changing. That's definitely one thing to watch— Chief Justice Roberts and Associate Justices Kavanaugh and Amy Coney Barrett land, those three are seen as “middle” of the court since present time. They have not always been in lockstep with the President so far.
But the president looms large in the party. The President's numbers are still not underwater. He's far more popular than anyone in the party. Congressional approval numbers are low, so if you're Republican [in a primary challenge], you need the strength of the President to uphold your opportunities to showcase that you have bona fides on the right. In the general election, you're getting money and support from the President's operation in midterms. These things are interconnected. That's just cold, hard politics here. If you're going to have differentiation, you better have a good reason for that, or being in a complete toss up district, or maybe a Biden district, that would be areas justification for that. They are pretty much in step with the President's priorities at this point.
VMC: What's has to change in order for the ship to be righted, because now, it seems like they'll just take as much power as they can.
JL: You need the President's numbers to drop. Maybe you'll get more members of Congress who highlight concerns because they're worried about their survival in that instance. Second, continued legal losses for the administration can continue to pile up. Third would be in terms of inflation and in terms of the stock market, which are two indicators he knows pretty well.
The tariff stuff is representing a lot of uncertainty in the market. And I think, like my family members in agriculture, if you're a California farmer right now, you disproportionately rely on the Mexico and China market. That's bad for your access because they're going to obviously retaliate, which they have. The China part is a little unclear, it’s too early to tell. The Canada one clearly has had an effect. If you want to buy a laptop that gets built in Mexico, it's going to cost you 30% more. Your battery for your cell phone. The “real people” stuff.
VMc: What haven’t I asked you that I should?
JL: One thing to watch for, very seriously, is the future of what they do in disaster funding. They have passed on getting rid of FEMA altogether, and I don't know if they will, but they have actively gotten rid of other agencies, like the Voice of America.
Getting rid of FEMA would mean that the states would have less capacity to deal with disasters that happen every year.
Their Project 2025 playbook does talk about eliminating other agencies, and you'll see more efforts in that space. And you saw that with the US Institute of Peace and the Richard Wilson Center and smaller organizations that might not affect you directly, but it does affect the way that we project in the world.
VMc: Let's say they got rid of FEMA, that would also be a death knell for Republican popularity?
JL: It would definitely disproportionately impact Republican states. Texas last year got almost one and a half billion dollars in disaster money. I think Louisiana gets about a billion every year. Who would operate that? The state of California is one of the only states in the union that has a full-tilt mutual aid system that's very robust, and even world-class operators still struggled to deal with those fires. So imagine, say, if you're in Louisiana that doesn't have the same capacity, and you're dealing with a guaranteed hurricane every year. Heaven forbid there's an oil spill or something. Tornadoes happen all the time in Oklahoma, Arkansas, Missouri. Even like cold spells that kill oranges in Florida, that impacts crop insurance. That has an impact on real people in Republican states.
VMC: What else?
JL: The Commonwealth of Virginia has their election for governor. That's usually the first litmus test for how the White House is doing. Usually, the Virginia governor's race goes to the party in opposition. But this year, it's very interesting. The governor cannot run for consecutive terms.
How they respond to the numbers, what potential unemployment impacts are—it’s worth keeping an eye on.
VMc: Are you saying that the rest of the country follows Virginia politically?
JL: It’s usually a harbinger. House members get nervous depending on the size of the loss if it's a not competitive race. If I were a pollster and I saw that [a democrat] had won by 10 points, I would say that that's probably an indictment of the President's agenda. If you look at the house majority too, it's very narrow.
I'm pretty confident that JD Vance will launch a presidential campaign thereafter. But I can't tell you what the democratic approval numbers are—last I saw was 29%. If this were the 1800s, that would probably call for like the Whig Party to show up.
[Here I asked if it were possible that the 2024 election was rigged in the swing states. Jeff said it most likely was not. I believe him.]
I think one of the challenges you're going to see with the Republicans right now is that a lot of the Republicans don't love how it's being done, but also, to some degree, they agree with the philosophy. They don't like the bedside manner, but they see the same prognosis.
If you look at the President's numbers with the State of the Union, it was largely very positive. It might not resonate with your [Burbank] neighbors, but in other parts of the country it definitely resonated.
He is doing certain things like he said he would, including immigration. When he says something, you should assume he's going to do it. I spent some time with him on Air Force One when I was working for [Jerry Brown], and [Trump] knows what he's doing, that's for sure.
Democrats have real leadership questions. Right now, the numbers are in the tank. People are very unhappy. The Republicans are in a very strong position, despite that, some of the atmospherics with the economy and other things, it’s too early to tell. Long-term unemployment has a significant impact, but it doesn't impact the entire ecosystem. In six months, my goodness, you can definitely see an impact.
So I guess we’ll wait and see, but here are some things to think about in the meantime.