The attempt in Congress to reduce the federal government’s massive deficit could cost California $3.1 billion, through a combination of reduced federal funds and extra state costs.

That’s the early assessment out today from the nonpartisan Legislative Analyst’s Office. You can read the report here.

The LAO zeroes in on how S.1932, the Deficit Reduction Act of 2005, would impact health, human services, and education programs.

The bottom line: the LAO estimates about $1.7 billion in reduced federal funds over the next 4 years, with most of that being less money from loan programs for higher education.

Added on to that, the plan to cut federal spending could end up shifting more spending to the state… in other words, an extra $1.4 billion in state costs through 2010.

The largest portion of that $1.4 billion in extra state costs, the LAO says, would come from penalties incurred by the state for failing to meet certain guidelines for federal welfare assistance payments. Those “out of compliance” penalties would add up to more than $1 billion… a problem the LAO says the Legislature should address ASAP.