Middle income groups have steadily lost ground as the California economy has shifted away from traditional middle class income employment, and increasingly to a two-tiered pattern of jobs creation primarily at the higher and lower wage levels. While growth into the higher income levels has positive attributes, the hollowing out of the middle has diminished space and opportunities on the upward mobility rungs for both middle and lower income aspirations. With fewer supporting job opportunities being created at the necessary wage and income levels, the middle income tranche has become increasingly a gap separating the extremes rather than the path for generational economic progress.
The growing costs of living—especially for housing—are swamping any progress many lower income Californians are now able to make in moving ahead economically. The primary government response in recent years to this situation has been to increase transfer payments and mandate wage levels in an attempt to ameliorate the effects of these cost impacts, rather than serious reforms tackling their underlying causes. Lower income Californians, however, have come to view their situation as overwhelming, with costs escalating beyond their ability to keep up.
The extent of these costs and the potentially severe—if not disastrous in the case of homelessness—consequences of making the wrong choice on education, training, or a job change has made many lower income Californians risk averse. While there is a high awareness of the different avenues for upward mobility, the consequences of making the wrong decision now make them hesitant to pursue these options.
The overwhelming response in both the focus groups and survey indicates lower income Californians continue to show a strong work ethic in spite of the challenges they face. They are looking for actions to deal with the ever-rising living costs that are sapping the purchasing power of what they earn, and options that enable them to improve their skills and employability but that also accommodate the other demands on their time due to commuting, multiple jobs, and family responsibilities. This commitment extends to hopes for their children as well. These families are committed to building generational wealth—both financial and educational—and retain a strong belief that their children will do better than they.
In this respect, both the focus groups and survey group showed widespread rejection of universal income as policy option that can address their situation. Reaction to minimum wage increases was more mixed. While many noted they benefited personally from higher minimum wage, there was also a strong perception that it has and will continue to increase the living costs they face.
In a trend that began in the 1990s but that has accelerated through the recent recovery period, California has evolved into a two-tier economy, producing higher wage and middle class wage jobs primarily in the Bay Area and a dominance of low wage jobs and jobs dependent on public spending in much of the rest of the state.
While jobs continue to expand in the state, there is a growing disconnect with the available labor supply as living costs have eroded labor mobility. Reliance on established family/friend networks to cope with rising costs, escalating housing costs, and increasing commute times produce higher costs for food, child care, and commute expenses as workers must travel further for jobs at their skill levels. This trend in turn has eroded the time available for workers to pursue upward mobility strategies such as training and additional education.
Discrimination in the workplace is still cited by a significant share of these income levels as a barrier to upward mobility. Many of the cost barriers identified through the project research likely contribute to this situation, in particular the lack of housing that now makes access to upwardly mobile job opportunities more costly or absent altogether. The functioning of the state’s overly complex housing approval process—including CEQA, entitlements, and development permit process—has thereby produced disparate impacts on low income Californians and disparate barriers to the demographic groups with a higher presence in these income levels. Opportunities to move beyond these levels are also limited by disparate impacts that result from the current focus of the K-12 schools on college-track preparation combined with their persistent failure to close the performance gap between demographic groups, along with the continuing cost burden of college in particular when high housing costs are taken into account.
As currently structured, the multiple public assistance programs are not effective as a means to promote upward economic mobility. Barriers from accessibility, eligibility, and caseload capacity means in practice they are too little, too intermittent, and not directed on the primary barriers lower income Californians face.
ISSUE AREA: COST OF LIVING
1. Increase Housing Supply
There is no possible progress that can be made on economic mobility without increasing the supply and thereby reducing the cost of housing in the state. The scale of the current shortfall is prohibitive to using traditional affordable housing tools. The extent of the cost barriers—running across multiple income groups—requires that supply be expanded at multiple price points, not only to deal with the current affordability crisis but to prevent housing costs from being the barrier they are now as households attempt to move from affordable to market rate moderate income housing.
Reduce the cost of constructing new homes by enacting Governor Brown’s original By-Right housing proposal but with modifications in line with the Legislative Analysts’ proposals.
For all housing proposals consistent with a local general plan, enact a moratorium on requirements for CEQA until the state has built housing sufficient to reduce the supply shortage and continues to keep up with population growth.
Reform CEQA to ensure adequate housing supply in the future.
Reduce construction costs by reducing other regulatory requirements, costs, and fees.
Expand the available construction labor pool by: (1) targeting current state jobs training funds to a statewide Construction Skills Initiative and (2) increasing the use of construction apprentices.
Rebuild local housing finance sources by: (1) authorize a new form of redevelopment agency limited to housing and mixed use applications and associated infrastructure and (2) the next Governor should convene a task force to identify efficiencies through streamlining the state’s 3,000+ special district services, where appropriate, through existing city and country structures in order to redirect some portion of existing property tax revenues to affordable housing.
2. Rebuild Lower Income Home Ownership
The focus of the limited housing reforms adopted to date by the state is on affordable rental units, viewing lower income Californians as only renters and depriving them of the opportunities for asset acquisition—an essential component to reducing income inequality and building long-term wealth—and through the sharing economy, opportunities for income supplements.
Require a percentage of affordable housing using public financing to be for sale and enact deed restriction options that retain these units in the affordable pool while providing financial relief to facilitate the transition from affordable to market rate housing.
Create a Housing IRA that will enable lower income Californians to save for a down-payment in tax preferred accounts.
Reduce monthly costs of home ownership through 50-year mortgages for affordable units and through measures to reduce development and construction costs, consistent with the elements in Recommendation 1, to reduce the cost of affordable housing units due to state and local design and cost mandates.
3. Expand Cost of Living Considerations in Future State Actions
State laws and regulations have had a profound impact on the costs of living that now serve as the primary barriers to upward mobility. State actions continue to be drivers of many of the high costs faced by lower income Californians. The current process should be adjusted to at least consider how future such actions can incorporate these concerns.
Institute a Cost of Living Committee in the Senate and the Assembly to consider potential impacts on household budgets of proposed legislation, comparable to the Appropriations Committees that consider potential impacts on the state’s budget.
Authorize these committees to hold oversight hearings on proposed regulations with potentially significant impacts—based on information contained in the Regulatory Impact Assessments prepared under SB 617.
ISSUE AREA: JOBS AND EMPLOYMENT
1. Reduce and Standardize Occupational Licensing
Occupational licensing has become an increasing barrier to entry—especially for occupations paying at levels sufficient to carry households beyond poverty—both from the cost of licenses and increasing requirements to qualify. The current system—administered by a bewildering array of commissions and agencies—imposes large costs in time, money, and bureaucratic process on those least able to afford the challenge, but who also stand to benefit the most from higher income, greater control over their time and working conditions, and the growth opportunities that can come from state’s long tradition of entrepreneurship.
Building on the work already done by the Little Hoover Commission and the sunset reviews conducted to date by the Assembly Committee on Business & Professions and Senate Committee on Business, Professions & Economic Development, convene an outside commission or joint committee process to eliminate those provisions not essential to protection of public health and safety and set licensing costs at levels appropriate to promote entrepreneurship attainable by lower income Californians. Any legislation should include pre-emption of separate local licensing requirements in order to ensure maximum labor mobility within the state.
Replace current licensing boards and agencies with a community college certificate for any remaining licensing for occupations below the BA level.
Enter into an Inter-state Agreement for Portability of Licenses.
2. Create Transportable Employment Benefits Package
Obtaining benefits through their employment was one of the highest ranked tools desired by lower income workers as a means to cope with the rising costs they face. As an employment option, providing these benefits through a transportable package is a means to ensure this coverage between jobs, reduce potential disruption between vesting periods, and tailor the benefits to the circumstances of each household.
Develop a Menu of Transportable Benefit Accounts which at minimum should include healthcare, retirement, childcare, and education. These should build off existing programs (e.g., health savings accounts, flexible spending accounts, 401(k), IRAs, 529 plans), but with modifications to ensure their applicability to lower income Californians, including provisions to retain an appropriate level of eligibility for the assistance programs.
ISSUE AREA: PUBLIC ASSISTANCE PROGRAMS
1. Restructure Current Public Assistance Programs into an Expanded State EITC
Several concerns with the existing public assistance program structure were raised by the research participants during the course of this project’s research work, namely: (1) assistance should be more certain and should not divert their already limited time for having to maneuver through the bureaucracies; (2) assistance should be tied to work—lower income Californians participating in the research expressed a strong work ethic and want their children to embrace this as well; (3) assistance should provide the resources households need to address their individual circumstances, and not the programs the agencies decide is best for them; and (4) assistance should be a bridge that enables lower income Californians to work through the transition as they move up in income, particularly as they reach the point where assistance is dropped and they are left to cope with the state’s high costs on their own.
Restructure Existing Assistance Programs into an Expanded State EITC by reallocating resources to the extent practical and using them to expand the current federal EITC by another 2-4 times using current funding from federal, state, and local sources. The expanded state EITC would then be applied as a refundable credit applied to state income taxes (including fully refundable in cases where there is no state tax liability). This approach would eliminate the current bureaucratic oversight under the current programs, including those to ensure compliance with work requirements which are replaced by the current state and federal rules that tie EITC to earned income. A portion of the programs identified in the research will likely need to remain outside this consolidation, in particular ones targeted more for the disabled, seniors, foster youth, and others.
As is done in other states, the state EITC should be restructured as a percentage add-on to the federal EITC in order to simplify calculation and make it easier for the intended beneficiaries to make their budget plans accordingly.
Federal funds otherwise available for the targeted programs should be consolidated into a single block grant and combined with existing state and local funding to support the additional State EITC.
All or a significant portion of the administrative cost savings should be redirected to fund the education recommendations contained in the next section. To further reduce the need for federal oversight, any maintenance of effort requirements should be simplified and made more transparent, and made enforceable by third party lawsuits. All or at least a portion of the resulting savings in federal administrative costs from this and the overall block grant approach should be reallocated to the state purposes.
Provisions should be incorporated to provide the state EITC on a periodic basis over the year, based on some percentage of estimated taxes, comparable to the procedures now used for the Covered California health insurance subsidies.
Additional communication efforts would be required to make this approach more successful, along with creation of a simple electronic filing application accessible through the Franchise Tax Board web site.
To be effective in restoring economic mobility, this concept as proposed needs to be done in concert with the other recommendations in this report. Without serious reforms to reduce the costs of living, the potential benefits from this approach simply erode over time much as the existing benefits have been doing. Without the job and education components, this approach may ready households to move up economically, but with fewer opportunities to do so.
ISSUE AREA: EDUCATION AND TRAINING
1. Reshape Public Education from K-12 to K-14
Regardless of the net effect on the number of jobs, the current technology is likely to require an increasing level of skills for many occupations, especially for those paying higher than minimum wage. The public schools now fail to instill these skills across many demographics. The Community Colleges are an existing resource that can be used to ensure broader dispersion and produce broader educational opportunities for all students commensurate with the evolving 21st Century economy.
For students not otherwise going directly to a 4-year college or university, provide universal Community College for students enrolled in a certificate program or an AA/AS for Transfer program.
Given that most students currently attend community college tuition-free or through financial assistance, total expansion costs are difficult to estimate. However, additional potential funding sources for this and the related components below would include: (1) redirection of administrative costs related to the programs transformed into a broader state EITC and (2) through reform of local agency services, transfer a portion of the $22.5 billion in property taxes currently allocated to special districts to the community college districts.
The overall costs and effectiveness of this system is also dependent on improving completion rates, facilitating the transfer process, and reducing the current situation where Community College students take substantially more than two years to complete their transfer requirements, but then take 6.4 years to finish a BA degree at UC and 7 years at a CSU.
It is important to recognize, however, that reshaping public education to K-14 is a response to the increasing technical demands likely to be faced in many if not most future occupations. Simply adding two years, however, is not a substitute for continuing efforts at the K-12 levels to reintroduce career technical education early both as a component of teaching life skills now absent in the public schools and as an early introduction to a broader range of career paths leading to higher life-time earnings. Simply adding two years also is not a replacement for the continuing need to improve public school outcomes overall including equal access to the A-G offerings, especially for the demographics—including Latinos, Blacks, and low income students—not being fully served by the current system.
2. Allow Dual Enrollment for Students Beginning in Their Junior Year
While some funding has been added in recent years for career technical education (CTE)—in particular funds from the various training and assistance programs described in the project’s report—the funding still remains well below levels previously provided through the schools to provide alternative paths leading to higher paying jobs. More critically, they remain well below the levels required to provide viable alternatives—including paths that eventually lead to a 4-year degree—for the major demographic components not being prepared for the 4-year institutions and those who otherwise drop out because the schools do not provide them with these options. To complement these existing efforts, dual enrollment provides a pathway to increase the CTE options substantially within a short time frame that can immediately provide options to students currently within the K-12 schools. Dual enrollment would also contribute to degree completion rates by giving students options beyond those that now exist only through AP courses.
For students choosing this education option, require that they continue to complete the core requirements in their first two years of high school, but provide for dual enrollment in CTE classes at the local community college beginning their junior year. These courses should be in a certificate program, leading into further skills development following graduation or into an AA/AS Transferable degree program.
Propose a bond—including consideration of a multi-year bond package—to finance the required capital additions at the community colleges. Ongoing funding would be from the current LCFF apportionments attributable to the students choosing this option, distributed between the school district and community college based on classes taken.
3. Expand Online Learning
Governor Brown’s Proposed Budget for 2018-19 calls for creation of a California Online College, to provide an alternative skills development option for those who lack the time or, often due to related high housing costs, the ability to enroll in traditional classes. This proposal is fully consistent with the skills training needs and a means to overcome some of the skills training barriers identified in the project’s research. Expanded to incorporate considerations under Recommendations 7, 8, and 10, this proposal also can be an efficient means to help accomplish these recommendations at lower overall cost while also accelerating degree completion rates.
4. Expand Apprenticeships
California does have an active apprentice program for the building trades, along with others in areas such as automotive, barbers, information technology, health services, and hospitality. Many of these, however, are local efforts and do not provide the scale of opportunities needed to deal with the potential requirements as measured by such factors as the drop in youth employment, drop-outs, and high school graduates who do not go on to college. Expansion potential is also limited by the fact that current programs have been developed on an individual basis, rather than a structure that applies universally and can be applied to a broader range of occupations and population. In the most recent report, California in 2016 had 74,000 active apprentices, and 9,000 total completions. The potential applications, however, are much broader including gateway occupations into the state’s higher wage industries.
Convene working group of state business associations, including those in Silicon Valley, to identify occupations amenable to apprenticeships and develop recommendations for changes to state law required to produce a broader effort tied more closely to the state’s educational systems. This step should be expansive and look at a broader range of occupations beyond those traditionally covered by apprenticeships, as a means to broaden the in-state training options to match with areas of looming skill shortages and to expand the opportunities, especially for the student populations with currently unacceptable educational outcomes, to augment existing education and training programs with applied experience. In the second stage, broaden the group to include community colleges and other interests to develop specific programs.
Incorporate apprenticeship opportunities/requirements into the certificate programs under Recommendations 7 and 8 to build experience and reduce dropout rates.
As applicable, incorporate apprenticeship periods as alternative to satisfy any experience requirements for licensing as discussed under Recommendation 1 Under Jobs and Employment.