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The income assistance, jobs training, child care, and related programs under California’s safety net increasingly are being applied to ameliorate the effects of the state’s two-tier economy, seeking to make poverty more tolerable but moving away from the fundamental focus of developing the personal resources and creating the opportunities for upward mobility.  Using the term from recent state budget documents, these programs now fall more under the goal of “Counteracting the Effects of Poverty” rather than solving it.

 

A good example in this regard is last year’s limited housing reforms adopted by the Legislature.  Focused on marginal changes to affordable housing supply, these reforms will at best ameliorate the high housing costs faced by a few thousand at the lowest end of the income scale, rather than addressing the debilitating and growing barriers faced by millions of low and middle income households.  Rather than a Marshall Plan to tackle a clear crisis, what emerged instead was a typical solution that tinkered at the edges.

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Combating poverty and promoting income mobility means tackling the barriers that stand in the way.  When asked what they need most in this regard, lower income Californians to some extent responded with “all of the above,” but gave clear priorities to bridge assistance to help them cope with rising costs and to training and education that opens up higher paying jobs and jobs providing benefits.

 

They were also clear in stating that the current structure of the public assistance and related programs does not provide what they need.  As stated earlier, barriers from accessibility, eligibility, and caseload capacity mean in practice they are too little, too intermittent, and not directed on the primary barriers lower income Californians face.

 

1.Restructure Current Public Assistance Programs into an Expanded State EITC

 

In developing an alternative to the current program structure, the following recommendation is based on several concerns raised during the course of this project’s research work by the research participants, 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. 

 

This last factor will become increasingly critical as the state’s minimum wage continues rising, and as many lower income Californians will see their assistance eligibility lapse but at levels that are likely to overwhelmed by the state’s rising costs.  For example, a single parent with two children ends up with roughly the same or fewer total resources overall working full time at $15 an hour compared to $10 an hour, when all factors are taken into account including payroll taxes, tax credits, and eligibility for the various assistance programs.  The current system provides a perverse disincentive to continue working full time as wages rise, and even more perversely leaves the household worse off as the prices they face rise along with the minimum wage increase.

 

While minimum wage jobs should be a start and not the goal, the results of this project suggest a large portion of the target population may in fact become stuck at this level simply from the growing risk aversion that makes upward mobility actions hard to make.  The existing structure of the assistance programs limits their effectiveness in overcoming this challenge now.  This aspect will become all the more pressing as the state continues down the path it has currently set.

 

• Restructure Existing Assistance Programs into an Expanded State EITC.  Rather than continuing the multiple and ever expanding number of programs under the state’s safety net, the resources should be consolidated to the extent practical and used 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.However, even in these instances, more work needs to be done to consolidate funding for these remaining purposes into single-point delivery systems, rather than the alphabet soup of programs that now exist, and repurpose them to move beneficiaries from dependence to independence, and shifting them into the EITC program.Respondents in the research also strongly stated that Medi-Cal is a program that has worked for them, and is essential in cases where employer health benefits are not available.

 

• 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.  The current state EITC is heavily weighted on poverty incomes, and while the 2017 amendments extend the eligibility closer to the federal structure that provides incentives to pursue higher earned income, the additional state amounts are nominal at best.  The federal EITC is also structured to provide incentives for married households.  The state EITC remains neutral on this point even though having the potential for two income earners remains the single most effective anti-poverty and upward mobility factor, if not an essential condition to cope with the state’s high costs.  The current assistance programs instead are permeated with disincentives on this basic solution.

 

• 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 process now used for the Covered California health insurance subsidies.  For example, the state and federal tax agencies expect individuals to accurately calculate their tax liabilities on a quarterly basis.  This expectation should be reciprocated with the state tax agencies being able to calculate tax refunds on the same schedule.

 

• The research revealed a degree of unfamiliarity and some confusion over the existing available EITCs.  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.

 

• While there have been previous concepts along these lines extending back to the 1970s, they generally have been made as stand-alone proposals or oriented more to producing efficiencies beyond what is even remotely possible within the current program structure that has evolved since then.  However, 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 present them with fewer opportunities to do so.

 

• While some of the elements may be accomplished through waivers, the full efficiencies and required flexibility will require both state and federal legislation.