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State and National Leaders Must Do More to Promote Economic Security and Opportunity

California continues to have one of the highest poverty rates among the 50 states, statistically tied for first with Florida and Louisiana, according to new Census data released this morning based on the Supplemental Poverty Measure (SPM). This poverty measure provides a more accurate indicator of economic need in California than the official federal poverty measure because it accounts for the high cost of living in many parts of the state, among other factors (see note below).

The new data show that about 7.5 million Californians — nearly 1 in 5 state residents (19.0%) — do not have enough resources to cover the costs of basic necessities. High housing costs are a key reason for California’s high SPM poverty rate, underscoring the need to increase access to affordable housing within the state. The new data also show the critical role played by public supports like tax credits, food assistance, and disability benefits in reducing poverty at the national level. Protecting and strengthening these supports is vital to bringing down California’s high poverty rate. State lawmakers have taken recent steps to bolster supports like the CalEITC, California’s refundable tax credit for working families, and CalWORKs, the state’s welfare-to-work program. National policymakers, on the other hand, over the past year have proposed changes to public supports that would reduce their effectiveness in addressing poverty, including changes currently being considered to the most important public source of food assistance.

High and Growing Housing Costs Drive Up California’s Poverty Rate

With 7.5 million state residents struggling to get by, California has by far the largest number of individuals in poverty of any state, based on the SPM.[1] In fact, nearly 1 in 6 Americans in poverty live in California. The state’s high SPM poverty rate largely reflects the high housing costs in many parts of California. The SPM accounts for differences in housing costs across the country, unlike the official federal poverty measure, and when these costs are factored in, a much larger share of the state’s population is shown to be living in poverty: 19.0% under the SPM, compared to 13.4% under the official measure.[2] As a result, California’s poverty ranking among the 50 states jumps from 16th under the official poverty measure up to first under the SPM (statistically tied with Florida and Louisiana), a dubious distinction.[3]

Housing affordability is a problem throughout California, even in areas where housing costs are lower, because incomes are also lower in these areas. Statewide, more than half of renter households pay more than 30% of their incomes toward housing, making them housing cost-burdened, and nearly a third are severely cost-burdened, paying more than half of their incomes toward housing. California’s unaffordable housing costs are particularly a problem because they have been growing faster than incomes for most workers. While median household rents increased by 13.2% from 2006 to 2016, median annual earnings for full-time workers (those working at least 35 hours per week) grew by only 4.1% during that period.

Given California’s serious housing affordability challenges, it is important to pursue policies that can help increase the availability of affordable housing and meet the needs of individuals and families facing housing crises. This year state policymakers took several important steps to support local and statewide efforts to increase the availability of shelter and support services for Californians at risk of or struggling with homelessness. Building on these steps, voters will have the opportunity to consider several state ballot measures this fall that aim to address the state’s housing challenges (as will be discussed in upcoming Budget Center publications and blog posts).

Federal Policy Proposals Threaten to Plunge More Californians Into Poverty

With nearly 1 in 5 residents still struggling with poverty, even as the unemployment rate has dropped substantially since the Great Recession, Californians need strong support from state and national leaders to enable more people to share in the economy’s recent gains. Yet proposals by federal policymakers would change key public supports in ways that would reduce support for families and individuals struggling with poverty. Congress is currently considering a proposal to cut funding and impose new work requirements on people who receive food assistance through the Supplemental Nutrition Assistance Program (SNAP, known as CalFresh in California) as part of the Farm Bill that is expected to be passed this month. The Trump Administration is also soon expected to propose a new “public charge” rule for immigrants applying for green cards that would jeopardize their chances of long-term legal status if they or any of their family members (including US-born citizen children) use supports like public health insurance or receive benefits like refundable tax credits for low-income working families.

These proposed policy changes would result in fewer families and individuals accessing the public supports they need to meet critical basic needs, likely increasing California’s already unacceptably high poverty rate. Moreover, research shows that public investment in safety net supports for children, in particular, produces important long-term public and private benefits as a result of improvements in health and economic productivity in adulthood — an argument for strengthening, rather than shrinking, these types of investments.[4]

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Note About the Census Bureau Data Released Today

The state-level figures released today reflect average annual poverty rates during a three-year period, from 2015 to 2017. The SPM addresses a number of shortcomings of the official poverty measure. One is the fact that under the official measure, the income threshold for determining who lives in poverty is the same in all parts of the US. For example, a single parent with two children was considered to be living in poverty in 2017 if their annual income was below about $19,700, regardless of whether they lived in a low-cost place like rural Mississippi or a high-cost place like San Francisco. The SPM better accounts for differences in the cost of living by adjusting the poverty threshold to reflect differences in the cost of housing throughout the US. For example, the SPM poverty line for a single parent with two children living in a renter household in San Francisco was about $30,800 in 2017 — considerably higher than the poverty line based on the official measure.

Another shortcoming of the official poverty measure is that it fails to factor in the broad array of resources that families use to pay for basic expenses. The official measure only counts cash income sources, such as earnings from work, Social Security payments, and cash assistance from welfare-to-work programs. It does not take into account noncash resources, such as food or housing assistance, and it fails to consider how tax benefits, such as the federal Earned Income Tax Credit (EITC), increase people’s economic well-being. The SPM improves on the official measure by including these resources. It also better accounts for the resources people actually have available to spend by subtracting from their incomes what is needed to pay for necessary expenses, including work-related expenses, such as child care; medical expenses, such as health insurance premiums and out-of-pocket costs; and state and federal income and payroll taxes.

After incorporating these improvements over the official poverty measure, the SPM produces a more realistic picture of poverty in California: the state’s SPM poverty rate was 1.4 times the official poverty rate between 2015 and 2017 (19.0% versus 13.4%, respectively).

Although the SPM provides a more accurate picture of economic hardship in California, it does not indicate how much people need to earn to achieve a basic standard of living. Measures of what it actually takes to make ends meet in California show that families need incomes several times higher than the official poverty line to afford basic necessities.

[1] Texas had the second-highest number of residents in SPM poverty at 4.1 million.

[2] The SPM poverty rate is also higher than the official poverty rate for most major demographic groups in California. See Alissa Anderson, A Better Measure of Poverty Shows How Widespread Economic Hardship Is in California (California Budget & Policy Center: October 2016).

[3] Florida had an annual average of 18.1% of state residents living in poverty based on the SPM from 2015 to 2017, while in Louisiana the poverty rate was 17.7%. The annual average SPM poverty rates for California, Florida, and Louisiana were not statistically different for this three year period, so all three states were statistically tied for the highest state SPM poverty rate.

[4] See Hilary Hoynes and Diane Schanzenbach, Safety Net Investments in Children (National Bureau of Economic Research: May 2018).

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