Tag: poverty

Testimony: Measuring Poverty

The Assembly Human Services Committee held a hearing on Tuesday, July 14, to consider a joint resolution regarding official poverty measurement tools. PPIC research fellow Sarah Bohn provided background on official poverty statistics and explained how different measurement tools affect our understanding of poverty in California. Here are her prepared remarks.

 

My name is Sarah Bohn, I am a research fellow at the Public Policy Institute of California. PPIC is a nonpartisan, independent research institute and as such does not take positions on bills before the legislature. I am here today to inform the committee on facts related to Assembly Joint Resolution 22 (AJR 22). As some of you know, PPIC, in collaboration with the Stanford Center on Poverty and Inequality, has been deeply involved in research on alternative poverty measurement for the past three years. I will provide background on the shortcomings of official poverty statistics and offer an updated view of poverty measurement—and poverty in California.

According to official statistics, poverty is significantly higher (50% higher) than it was 50 years ago, when the War on Poverty began. As we shall see, this finding should be taken with a big grain of salt. Poverty status, as you know, is based on how family income compares to the “federal poverty line.” This was developed in the early 1960s as the first working definition of poverty in the U.S. It is based on family budgets of that time, when a typical family spent one-third of its income on food. So the threshold was (to simplify a bit) three times the cost of food a family would need to meet basic needs. While this was a novel use of the facts and information available then and was hugely important in creating a standard metric to inform policy, it’s hard to apply the same metric to modern families and derive a clear understanding of how families—and policy—are doing. There are two main reasons for this: (1) the cost of living and family budgets have shifted considerably, with families spending more on housing, work expenses (like commuting and child care), and medical care and less on food overall (2) several government programs have changed and expanded, but are not counted in family income data in the official poverty measure. For these reasons, official poverty statistics are hard to interpret; they essentially compare a part of family resources to an outdated benchmark.

Two current measures—the Census Bureau’s “Supplemental Poverty Measure” and the PPIC-Stanford “California Poverty Measure” (which uses a similar methodology)—update and realign the basic poverty concept that is now more than 50 years old. There is quite a lot of momentum and agreement around the benefits of these “supplemental” measures. In summary, the methodology aims to improve on official poverty measurement in the following ways. First, both measures use detailed data on what families actually spend to meet basic needs, rather than relying on a 1960s-era approximation. Second, these metrics allow for the cost of living to vary (conservatively), depending on where one lives. Third, they make use of a comprehensive estimate of resources families have on hand, which includes cash income, program benefits, taxes paid or credited, net of medical and work expenses.

The Supplemental and California Poverty Measures provide new insights to poverty. I’ll highlight a couple that are especially related to the impact of policy. First, I’ll return to the effects of the War on Poverty. Using supplemental measures, researchers find a clear downward trend in poverty—specifically, that government programs reduced poverty by 15 percentage points since the mid-1960s. These are facts that cannot be uncovered by official poverty data, which, you may recall, suggests that poverty rates rose 50 percent despite policy efforts. Second, poverty in California today would be much higher were it not for the safety net. Without major programs like CalWORKs, CalFresh, the federal Earned Income Tax Credit, and housing subsidies (among others) nearly 40 percent of children in California would be poor—or 30 percent of state residents overall.

It’s possible that the safety net in California could have an even longer reach than it already does. For one, increasing program participation among eligible families could reduce poverty. Also, because many poverty programs are not scaled to cost of living, their ability to materially affect families in poverty varies substantially across the state. In high-cost areas, safety net benefits reduce poverty by about 30 percent, but they reduce it by 50 percent in the Central Valley and far north. Poor families in coastal (and the most populous) parts of the state face costs $7,000 to $12,000 higher than the federal poverty line accounts for. Although we find that poor families in high cost areas are more likely to be working—and earning more—than their counterparts elsewhere, their earnings are not enough to boost them above the more realistic cost-adjusted supplemental poverty threshold. But their slightly higher earnings (which are still low by California standards) make them less likely to qualify for some safety net programs.

These examples scratch the surface of what is possible using the tools of improved measures like the Supplemental and California Poverty Measure. We also hope to use our research to assess how proposed changes to programs could move families out of poverty. But beyond these efforts, I would argue that simply tracking poverty in and across California and the U.S.—using truly comprehensive and accurate metrics—should be a regular contribution to the policymaking process. For those of us at PPIC and for other researchers involved in poverty research across the country, including those at the Census Bureau, alternative measures of poverty are still in their early phases, and, as such, rely on policymaker awareness and on funding to continue to produce. Thank you for your interest in the topic and your time today.

 

High Poverty Rate Persists

Although the state’s economy has rebounded, the latest poverty statistics suggest there’s been little improvement in the share of Californians struggling to make ends meet.

More than 1 in 5 Californians—or 8.1 million people—were living in poverty in 2012, the most recent year for which we have data. This is according to the California Poverty Measure, a comprehensive metric developed by PPIC and the Stanford Center on Poverty and Inequality. This share is about the same as it was in 2011. Rates were highest among children, with about 1 in 4, or 2.3 million, living in poverty—virtually unchanged from 2011.

Why? Although California’s overall economy is growing, not all have shared equally in the recovery. The reasons for this are both specific to this economic recovery and true more generally of economic upturns. The unemployment rate remains higher than it has been since 2004 and a high share of workers—by historical standards—have given up looking for work or are underemployed (working part time when they would prefer full time, for example). As is typical of past patterns of recession and recovery, high-income families tend to rebound most quickly, followed by middle-income and finally low- income families. This means that improvements in poverty metrics tend to lag behind other indicators of how the economy is faring.

The good news is that the social safety net—programs like CalFresh and the federal Earned Income Tax Credit—helped many families through the recession and still plays an important role in keeping families out of poverty. Without it, more families—including 1.3 million children—would be poor. We estimated that without these and other safety net programs, poverty would be roughly a third higher in the state as a whole. This cushioning effect of the safety net decreases swings in poverty, meaning that a slowly changing poverty rate is partly an indication that the safety net is working.

A California Earned Income Tax Credit

Governor Brown has proposed a state Earned Income Tax Credit (EITC) for low-income families, similar to the federal tax credit. This adds to the mix of strategies policymakers are considering to address the state’s poverty rate, which is the highest in the nation when cost of living is accounted for. The governor’s proposal is aimed at workers who have earnings well below poverty. For example, a parent of two children would be eligible if she filed a tax return and earned no more than $13,870—equivalent to the annual pay for about 30 hours a week at a minimum-wage job. Because it depends on earnings and the number of dependents, the credit would vary widely. The maximum credit of $3,121 would go to families with three or more children and earnings below $7,000 per year, but the governor’s proposal estimates the average credit to be $460. About a quarter of the 3.1 million California filers who can claim the federal EITC would also be eligible for the proposed state EITC.

While a state EITC would increase the cash resources of millions of Californians, the resources families need to make ends meet are substantial. A family of four needs about $29,000 a year to stay above poverty, according to our California Poverty Measure (CPM), a comprehensive yardstick of poverty that accounts for regional variation in the cost of living and the impact of social programs.

How would the proposed EITC affect Californians? Using CPM research, we estimate that the proposed credit would:

  • Move 70,000 Californians, including 31,000 children, above the CPM poverty line.
  • Help about 1.28 million Californians experience less severe poverty.
  • Benefit 1.83 million Californians who already live above the CPM poverty line. (Many of those with low earnings are nonetheless above the poverty line because they receive benefits such as food stamps and/or live and share resources with other family members.)

The governor’s state EITC proposal focuses on augmenting low wages—an acknowledgment of the importance of earnings even for families in poverty. Research has shown that the federal EITC encourages work, and a state credit promises to do the same.

California’s New Leaders Focus on Poverty

Assembly Speaker Toni Atkins and Senator Kevin de León, who will take over as senate president pro tem later this month, each told a Sacramento audience about growing up in poverty and the role it has played in their shared view of the state’s responsibility to those in need.

“We share similar values and similar stories that have made us care about the values and the issues that we’re talking about today,” said Atkins, who was raised in a poor, rural Virginia family and now represents the San Diego area. De León, who was born in San Diego and represents Los Angeles, said he is the youngest child of a single immigrant mother and the only family member to graduate from high school. Atkins and de León, both Democrats, were elected by their respective legislative chambers earlier this year to serve as leaders.

Both lawmakers cited a recent PPIC report — Child Poverty and the Social Safety Net in California by Caroline Danielson and Sarah Bohn — that said about 50% of California children live in poverty or near-poverty. The remarks, part of the PPIC 2014 Speaker Series, were made to a capacity audience of about 400 in the ballroom of the Sheraton Grand Hotel. The discussion was moderated by PPIC President Mark Baldassare and streamed live to hundreds more.

The wide-ranging conversation touched on a number of major issues—including health care, the drought, immigration, and taxes. Both leaders said that they believe the state should talk about changes to the state tax structure and consider whether to extend the temporary taxes that voters passed in Proposition 30. Atkins cautioned that it will be difficult to gain support from voters for an extension of the taxes.

De León expressed strong support for affirmative action, which he credited for his ability to attend college and become a legislator. He also said California should continue to lead on immigration issues because the federal government has been unable to pass a reform plan. And he noted that polls suggest Californians support health coverage for undocumented residents.

Atkins, meanwhile, encouraged more cities to follow San Francisco and San Jose, which recently increased the minimum wage. Both leaders also said they have worked together in the past and believe they will have a good working relationship going forward.

Measuring Child Poverty

At a well-attended briefing in Sacramento this week, PPIC research fellow Sarah Bohn described the findings in a newly released report, Child Poverty and the Social Safety Net in California, that she co-authored with PPIC research fellow Caroline Danielson, who also attended.

The authors found that about a quarter of California children live in poverty and an additional 26% live in “near poverty,” a threshold defined by incomes between 100 and 150% of the official poverty threshold (up to $46,000 annually for a family of four on average). The poverty analysis was based on the California Poverty Measure, developed by researchers at PPIC and the Stanford Center on Poverty and Inequality. Unlike the traditional federal measure, the new analysis considers regional cost-of-living differences, as well as assistance from government social programs, in measuring poverty.

Bohn also talked about the report and related issues today at an event titled Attacking Poverty by Connecting College Education & Workforce Development, hosted in Los Angeles by state senator Holly Mitchell.

Is California the Poorest State?

In September and October of each year the Census releases estimates of poverty in the U.S. and in each state. Earlier this month “official” poverty estimates for 2013 showed 14.9% of all Californians in poverty and 20.3% of California children in poverty.

In October we expect to see the Census calculations for the “research supplemental poverty measure.” These estimates will represent three-year averages for states (2011-2013) and will likely show that more than 20% of all Californians are in poverty. In past years, this supplemental measure ranked California as the poorest state in the U.S. But according to the latest official estimates, 16 states had higher poverty rates than California. How do we make sense of this?

Some basic information on measuring poverty should help clarify the statistics:

    • The “official” poverty measure. This is based in a 1960s-era formula that is meant to provide a consistent measure across a long timeframe. Rates developed using this measure tell us what share of families lack enough cash to meet a simplistic budget. The rates compare pre-tax cash income (from work, investments, child support, social security, unemployment, and the like) to an estimate of resources needed built from a 1950s food budget and updated for inflation. This budget does not vary according to where a family lives.

 

    • Supplemental Poverty Measure. This is based on a more comprehensive set of resources and an up-to-date estimate of what it takes to make ends meet. Rates developed using this measure tell us what share of families lack enough total resources to meet basic needs. It adds together a family’s cash income (after taxes) and any in-kind benefits received (like food stamps and housing assistance), then subtracts key out-of-pocket expenses (like child care and medical costs). The resulting total is compared to an estimate of resources needed to meet basic living expenses for food, housing, clothing, and utilities. That estimate varies according to housing costs, so it is different within and across states.

 

In our view, the official measure is useful for tracking long-term trends in poverty. But the other measures better capture the full set of resources families have on hand and more accurately gauge current costs of living. Based on these measures, California is indeed one of the poorest states in the country.

This finding is largely driven by California’s high cost of living, rather than by sharply limited resources among its families. Using the California Poverty Measure we find that California’s housing costs loom large. Were these costs closer to the U.S. median, California’s poverty rate by either supplemental measure would be much closer to the official rate, and child poverty would be lower than the official rate.

Nonetheless, we also find that safety net resources substantially moderate poverty for many California families: according to the California Poverty Measure, the state’s poverty rate would be as much as 8 points higher were it not for these programs.

Poverty rates also vary widely across the state. PPIC just released a publication that examines this variation—as measured by the California Poverty Measure for 2011—with a focus on children and the role of the social safety net in mitigating poverty.

Testimony: Poverty and the Safety Net

The Assembly Budget Subcommittee for Health and Human Services is considering the level of financial support to CalWORKs, California’s cash assistance program for families with children. The panel held a hearing on Wednesday that began with testimony from PPIC research fellow Sarah Bohn about recent poverty trends and the impact of anti-poverty programs. Here are her prepared remarks.

 

My name is Sarah Bohn. I am an economist and research fellow at the Public Policy Institute of California. I hope most of you are familiar with PPIC, but for those who are not, we are a nonpartisan, independent research institute focused on major policy issues in the state. I will present the most recent facts on poverty in California and discuss their implications.

In the midst of the slow recovery from the Great Recession, attention has turned to the causes, consequences, and possible solutions to growing poverty in California and the nation as a whole. These have been topics of importance to researchers for a long time. In fact, today’s economic realities are largely the result of long-term trends. But the recession and the 50th anniversary of the War on Poverty have brought these issues into focus for the wider community and offers an opportunity for reassessment. For example, last December, the PPIC Statewide Survey found that a record-high share of Californians—66 percent—believe the state is divided into “the haves and the have nots.” Well below a majority identify themselves as part of the “haves”—a much higher share did so a decade ago.

The latest official poverty estimates suggest that about 16 percent of Californians are poor, and that as many as 22.5 percent of children in the state are poor. These numbers are an improvement over the year before, and are the first sign of a turnaround since the beginning of the Great Recession. But poverty rates today are 50 percent higher than they were five decades ago, when the War on Poverty began. Do today’s high rates of poverty mean that public investments aimed at mitigating poverty have not had their intended effect?

Unfortunately, official poverty statistics don’t give us the information we need to answer this question. The official poverty measure is based on a very simple formula developed in the 1960s. This formula has a number of shortcomings. First, it does not account for many of safety net programs—so it entirely misses the poverty-reducing effect of SNAP (food stamps) and the EITC (Earned Income Tax Credit), for example. Second, the formula has not kept up with sweeping changes in the cost of living since the 1960s. It does not reflect the increase or variation in housing costs across different places. And it doesn’t account for the fact that many families face different sorts of expenses than they did in the 1960s—like higher medical out of pocket expenses and child care costs.

These shortcomings prompted a national effort to develop alternative measures of poverty, which began to coalesce in the 1990s. In 2011, this effort produced the Census Bureau’s Supplemental Poverty Measure, which provides detailed new estimates of poverty for the U.S. In 2013, a collaborative effort between PPIC and Stanford Center on Poverty and Inequality produced the California Poverty Measure, which provides similar detail for California. Both measures use the same underlying methodology to address the shortcomings I just described in the official poverty statistics. And I’d like to note that the creators of both measures are engaged in ongoing efforts to refine and improve the methodology, and for that reason—among others—their measures do not replace the official statistics but supplement them (hence the name of the Census measure).

Both the California Poverty Measure and Census’s Supplemental Measure account for the resources that families actually have to meet very basic needs and the actual costs of doing so. The California Poverty Measure finds that more Californians are poor than we thought, as of 2011. The California Poverty Measure estimate of 22 percent (or 8 million people) is higher than the official rate of 16.2 percent—this translates to an additional 2 million people in poverty. More people of all ages are poor under this new, better measure. Of particular interest is the child poverty rate, which is 25 percent, or 2 points higher in our measure. In other words, a quarter—or more than 2 million—of our children are poor.

These higher poverty rates stem from a combination of factors. Most important, the California Poverty Measure uses higher thresholds than the official poverty measure does—that is, a higher poverty line. This is because housing costs for the vast majority of Californians are significantly higher than what the federal poverty line accounts for. On average, a single parent with two kids needs $24,600 to be considered out of poverty and a four-person family needs $29,000 to be considered out of poverty under the California Poverty Measure. That’s about $6,000 above the federal poverty line, and about $4,000 more than a similar family would need to be above poverty level in other states under the Census Supplemental Measure. These higher costs of living explain in large part why California’s Supplemental Poverty Rate is higher than that of any other state in the country.

Cost of living differences also change the narrative about how poverty varies within California. As you can see from the map I’ve provided, in many ways our measure flips the official measure’s picture of poverty. The California Poverty Measure finds that coastal areas—where housing costs are generally higher—have among the highest poverty rates in the state, much higher than the official estimates. Our measure places inland areas like the Central Valley, where official poverty rates are typically the highest, in the middle to low range statewide. In some counties with relatively low costs of living, the California Poverty Measure estimates are lower than official poverty rates. In these areas, safety net benefits to low-income families more than offset the cost of living, driving down poverty rates. But the vast majority of Californians live in higher-cost counties, where safety net resources, despite playing an important role in family budgets, are not large enough to offset high costs of living.

The California Poverty Measure allows us to look closely at the role safety net programs play in mitigating poverty. And our research suggests that this role is powerful—especially for children. We find that without CalWORKs benefits the child poverty rate jumps 2.5 points—equivalent to about a quarter million more children in poverty. Similarly, without CalFresh benefits, the child poverty rate would jump 4 points—that is an additional 375,000 children. Of course, many families use both of these programs, as well as others that we’ve accounted for—including housing subsidies, SSI, school meals, and the EITC/CTC. When we look at the combined effect of all of these need-based safety net programs, we find that without them a stunningly high 39 percent—or 3.6 million—of California’s children would be poor. That is, the child poverty rate would jump nearly 14 points. This shows that low-income and poor families are making use of the social safety net and that it has a substantial effect on their poverty status.

These poverty-reducing effects could be even larger if changes were made to the safety net. For example, the USDA estimates that slightly more than half of eligible Californians participate in CalFresh—this is one of the lowest statewide participation rates in the nation. Participation also varies across California’s counties. This begs the question of how much lower poverty rates would be—would they still be the highest in the country?—if participation rates were higher. As this example shows, housing costs are not the only area in which California stands out. And, while policy clearly plays an important role in offsetting the higher cost of living in California (it more than offsets cost of living in families with children), it has the potential to move the needle on poverty even further.

As it stands, our estimates suggest that the safety net kept nearly 1.3 million children out of poverty in 2011. This matters a lot because research increasingly links poverty to adverse outcomes in many arenas—nutrition, health, education, even brain development—in addition to long-term economic opportunity and mobility. It’s my hope that our research can be used to inform the important decisions you make on policies that address family economic need and its consequences. Thank you for your time.

 

Chart source: The California Poverty Measure: A New Look at the Social Safety Net.

Testimony: Californians and Poverty

A bipartisan legislative caucus, Ending Poverty and Inequality in California, held its inaugural meeting this afternoon. The caucus includes 23 members from both the state assembly and senate, and aims to examine issues related poverty in California, develop policy ideas, and raise awareness. This first meeting provided an overview of poverty and inequality in the state and examined what these issues mean for California’s future. Mark Baldassare, PPIC president and CEO, was invited to speak and prepared these remarks to reflect the contributions of PPIC research fellows Sarah Bohn and Caroline Danielson and the PPIC Statewide Survey team.

Hello, my name is Mark Baldassare and I am the president and CEO of the Public Policy Institute of California. Thank you for the opportunity to speak as you launch this timely, historic, and “EPIC” effort to address poverty in California. For many years, PPIC has provided facts and reports with a range of significant findings on this important topic. For example, our work has shown that California’s poverty rate is higher than the U.S. average, and that one in four California children live in poverty. Recent PPIC studies have raised awareness about the growing income gap between the poor and the wealthy in the wake of the Great Recession. This work found that when we take into account the impact of government programs and the state’s high cost of living, 8.1 million Californians—accounting for 22 percent of our state’s residents—are living in poverty. I would encourage you to go to the PPIC website for our many publications in this area, and ask our staff experts to talk with you about their findings. I will also leave you with copies of the PPIC briefing kit on “California’s Future,” which includes some of our research and information on this topic and demonstrates how important it is to consider long-term challenges facing the state.

To date, PPIC’s research has documented the scale and scope of poverty and inequality in the state, and assessed the impact of programs intended to help those in need. In addition, the PPIC Statewide Survey provides a clear sense of what Californians themselves think about these issues. As the director of the survey, I’d like to focus my brief comments today on the public’s views—on the current economic landscape, the gap between the wealthy and the poor, and the role of government in addressing poverty. Since one goal of this caucus is to raise awareness about poverty and income inequality, results from our polling will help to show what the awareness level about these issues is right now. I’m going to concentrate on findings from our December and January surveys of all adults, and break out the results for those in our surveys with the lowest incomes—under $20,000 in annual household income—and other key groups.

First, let’s look at the broader context for this discussion: How are Californians viewing the state of the state? Our surveys show they are feeling more optimistic about the direction of the state, and more positive about the job performance of the governor and legislature than they were a few years ago. Still, only four in 10 say they personally are in excellent or good financial shape, only two in 10 say they are better off financially than a year ago, and just one in 10 expect their financial situation to improve a lot in the next year. Many also worry that the state could fall into bad economic times in the next 12 months. In other words, personal financial vulnerabilities and economic uncertainties are still widespread. As a result, Californians continue to name jobs and the economy as the most important issue facing people in California today, and many residents say they want the governor and legislature to work on this issue in 2014.

The widening gap between the wealthy and the poor has been a recent theme in federal and state policy discussions. And as the state’s economy is slowly recovering from the Great Recession, public opinion remains firmly in the camp that California is divided into two economic groups—the “haves” and “have nots.” A record-high 66 percent of Californians say that the state is divided into these two groups. A similar proportion, 63 percent, held this view two years ago, but when we first asked this question in January 1999, 56 percent did so. Today, of those with incomes under $20,000 a year, 67 percent view the state as divided into haves and have-nots. Majorities across income levels, political parties, education levels, racial/ethnic groups, age groups, and regions say that the state is divided into these two economic groups.

When asked to place themselves into one of these groups, 45 percent of Californians say they are among the have nots. Two years ago, a similar 48 percent said they were among the have nots, while 35 percent held this view when we first asked this question in January 1999. Today, among those with incomes under $20,000 a year, 69 percent say they are among the have nots. Sixty-seven percent of Latinos and 54 percent of blacks say that they are among the have nots, but just 31 percent of whites and 38 percent of Asians say this.

How do Californians view government’s role in these issues? Importantly, our state’s residents are steadfast in the belief that there is a role for government in providing a social safety net. Sixty-three percent of Californians agree that the government is responsible for taking care of people who can’t take care of themselves. Over the course of five surveys taken between September 1998 and December 2013, more than six in 10 Californians have consistently agreed on this point. Today, 70 percent of those earning less than $20,000 a year believe that it’s the government’s role to take care of those in need. Three in four Democrats view this as the government’s responsibility, and about half of independents agree. Fifty-five percent of Republicans disagree. At 81 percent, blacks are much more likely than other racial and ethnic groups to hold this view. Still, 67 percent of Latinos, 64 percent of Asians, and 59 percent of whites share this belief. And majorities across regions and most demographic groups see a role for government in taking care of people who need help.

When asked about the role of government benefits in the lives of poor people, 51 percent of Californians agree with the view that poor people have hard lives because these benefits don’t go far enough. In the six surveys that included this question, more than half of Californians have held this view. Today, 61 percent of those earning less than $20,000 a year think poor people have hard lives because government benefits don’t go far enough. Sixty-five percent of Democrats agree, compared with 42 percent of independents and 24 percent of Republicans. Seventy-one percent of blacks say that poor people have hard lives, as do 61 percent of Latinos, 53 percent of Asians, and 42 percent of whites.

Given these views, do Californians think government can do more? Today, forty-nine percent say that government should do more to make sure that all Californians have an equal opportunity to get ahead. In December 2011, 54 percent said the government should do more, while 45 percent held this view in January 1999. But Californians are sharply divided over this issue by income level and party affiliation. The belief that government should do more is held by 65 percent of those with incomes under $20,000 a year and 58 percent of Democrats, while four in 10 of higher-income adults and Republicans share this view.

As these findings demonstrate, PPIC’s public opinion polling provides considerable motivation for the work of the “EPIC” Caucus. There are many Californians who are personally financially challenged today, and most residents believe that California is divided into two economic groups—the haves and have nots. Many Californians believe that there is a role for government in taking care of those who need help, that government benefits don’t go far enough in helping the poor, and that the government should do more to make sure that all Californians have an equal opportunity to get ahead. While Californians are divided along party lines when asked about government programs, we found overwhelming support when we asked about raising the federal minimum wage in our March 2013 survey. Since the state recently passed a minimum wage increase, another state policy option that would be worth discussing is the earned income tax credit, or EITC. Although our polling has yet to explore the public’s views on this idea, other PPIC research has noted that the EITC has potential for increasing jobs and stimulating the economy.

In closing, I want to remind you that the poverty rate in our state is high—again, according to PPIC’s calculations, it is 22 percent—and it is higher than the national average. What these numbers tell us, what our survey results tell us, is that many Californians are struggling. If we don’t do something about poverty and income inequality in California today, we won’t have the California we want tomorrow. I hope that you will turn to PPIC as a resource as you grapple with defining the poverty problem in our state and work toward finding solutions to this critical public policy issue for California’s future. Thank you for your time today.

Refundable Tax Credits Ease Poverty in California

Poverty and income inequality have become hot topics in policy circles at the state and national levels. PPIC has been looking at these issues, too—recently analyzing the role that needs-based programs play in helping families make ends meet. In conjunction with researchers at the Stanford Center on Poverty and Inequality we measured poverty in California more comprehensively than the Census official poverty measure does. We found that the federal Earned Income Tax Credit (EITC) and refundable portion of the Child Tax Credit have the biggest impact in moderating poverty rates, relative to other safety net programs.

Both programs are aimed low- and moderate-income families with dependent children. Families must file tax returns to participate in these programs, which are funded by the federal government. (In addition, 25 states and the District of Columbia have their own smaller EITCs, although California does not.) The EITC is fully refundable, meaning that a family with earnings but no net tax obligation (after deductions) receives the full amount of the credit (based on their earnings) in the form of a tax refund. The Child Tax Credit is partially refundable.

Together, the EITC and CTC trimmed the 2011 poverty rate for working age adults from 24.0 percent to 21.4 percent. The child poverty rate dropped even more, from 31.1 percent to 25.1 percent. Put another way, an additional 600,000 California adults and 560,000 children would be considered poor without these programs.

Chart Source: The California Poverty Measure: A New Look at the Social Safety Net.

Testimony: Measuring Poverty in California

On the 50th anniversary of President Johnson’s declaration of a “War on Poverty,” the Senate Budget and Fiscal Review Committee held a hearing about California’s food stamp program, known as CalFresh. Although the hearing was called to explore federal complaints about high levels of fraud in the California program, it covered CalFresh more broadly, particularly the state’s very low participation rate in the program. PPIC research fellow Sarah Bohn was asked to testify about the impact of CalFresh on the state’s poverty rate. Here are her prepared remarks.

My name is Sarah Bohn. I am an economist and research fellow at the Public Policy Institute of California. I’m sure most of you are familiar with PPIC, but for those who are not, we are a nonpartisan, independent research institute focused on major policy issues in the state. I have been asked to discuss new measures of poverty in California to help set the context for your decisions.

The latest official poverty estimates suggest that about 16 percent of Californians are poor, and as many as 22 percent of the state’s children are poor. Official poverty statistics such as these are based on a very simple formula developed in the 1960s. The statistics have been useful for tracking trends and determining eligibility for many safety net programs. However, official statistics have not kept up with sweeping changes that have affected family budgets over the past five decades. Families now face higher costs of living and medical expenses, among others. And official statistics do not account for changes in public policy aimed at helping low-income people make ends meet—including programs stemming from the War on Poverty, which is having its 50th anniversary today.

With these shortcomings in mind, researchers have been developing alternative measures of poverty since the 1990s. These efforts culminated in the release of a new estimate of poverty by the Census Bureau in 2012 called the Research Supplemental Poverty Measure (SPM). It is called “supplemental” because is intended to supplement rather than replace official estimates. And it is called “research” because it is a work in progress, still being refined. It is that effort that researchers at PPIC and the Stanford Center on Poverty and Inequality have joined. We introduced our California Poverty Measure in October 2013. It uses basically the same methodology as the Supplemental Poverty Measure with a few refinements that make it a more accurate estimate for California that paints a much more detailed picture. (The Census Bureau’s measure for California is only a single number, averaging rates over three-year period).

Both the Census’ supplemental measure and our new California Poverty Measure provide a more comprehensive estimate of economic need today. For our California-specific measure we make adjustments to the poverty rate formula in three main areas. We use a more comprehensive estimate of family resources—including tax payments and credits (like the Earned Income Tax Credit) and in-kind benefits (like food stamps and housing subsidies). We also factor in nondiscretionary expenses like medical out-of-pocket, child care, and commuting expenses. Finally, our measure judges net family resources against a more up-to-date estimate of what it takes to maintain a basic standard of living (resources for clothing, food, shelter, utilities) and that accounts for geographic variations in housing costs, in particular. Whereas official poverty thresholds are the same for all states and counties, ours vary by county.

The Census supplemental measure and our California Poverty Measure produce similar results—but I will discuss our findings because they are more detailed. Under our measure, 22 percent of Californians were poor in 2011—about 8 million people. That is about 2 million more than the official estimate suggests. When we look at the findings we can see why the supplemental poverty measures are higher. Resources from safety net programs tend to push poverty rates down, while medical expenses and housing costs push poverty rates up. The net result is a higher statewide poverty rate. However, this is not the case in all places within California. Also, our findings vary across age groups. Child poverty under our measure is just a bit higher than the official measure—though still staggeringly high, at about 25 percent. As time allows I can discuss these findings further.

Among families with children, safety net resources play a prominent role in mitigating poverty. We calculate that without the CalFresh program, about 29 percent of California’s children would be considered poor—an additional 4 percent, or 375,000 children. I think it is worth noting that the impact of CalFresh on poverty is almost double the impact of CalWORKs.

If not for the full set of need-based safety net programs we include in our measure (CalFresh, CalWORKs, General Assistance, EITC and CTC, housing subsidies, SSI, and school meals), a stunning 39 percent of children—or 2.7 million—would be poor.

Under the Census supplemental measure and our California Poverty Measure, a higher fraction of California’s population is poor than in any other U.S. state. We know that housing costs are a major factor, because most Californians (70 percent) live in the most expensive counties, where the resources needed to maintain a basic standard of living are about $9,000 above the official poverty measure calculation. However, public programs also play a role. While CalFresh has a sizeable impact on family resources (as I mentioned), not all eligible families participate. In fact, according to the USDA, we have the second-lowest participation rate in CalFresh in 2012. This raises the question of how much more CalFresh could lower the poverty rate if participation increased. In our research, we find a correlation within California between access to CalFresh and the extent to which the program drives down poverty (the effect is about three times greater in counties with high access). More research is required to understand how the picture of poverty might change if the CalFresh program changed, but it is clear that the program plays a big role in mitigating poverty among Californians.