California, Poverty Capital
California—not Mississippi, New Mexico, or West Virginia—has the highest poverty rate in the United States. According to the Census Bureau’s Supplemental Poverty Measure—which accounts for the cost of housing, food, utilities, and clothing, and which includes noncash government assistance as a form of income—nearly one out of four Californians is poor. Given robust job growth in the state and the prosperity generated by several industries, especially the supercharged tech sector, the question arises as to why California has so many poor people, especially when the state’s per-capita GDP increased roughly twice as much as the U.S. average over the five years ending in 2016 (12.5 percent, compared with 6.27 percent).
It’s not as if California policymakers have neglected to wage war on poverty. Sacramento and local governments have spent massive amounts in the cause, for decades now. Myriad state and municipal benefit programs overlap with one another; in some cases, individuals with incomes 200 percent above the poverty line receive benefits, according to the California Policy Center. California state and local governments spent nearly $958 billion from 1992 through 2015 on public welfare programs, including cash-assistance payments, vendor payments, and “other public welfare,” according to the U.S. Census Bureau. Unfortunately, California, with 12 percent of the American population, is home today to roughly one in three of the nation’s welfare recipients. The generous spending, then, has not only failed to decrease poverty; it actually seems to have made it worse.
In the late 1980s and early 1990s, some states—principally Wisconsin, Michigan, and Virginia—initiated welfare reform, as did the federal government under President Bill Clinton and the Republican Congress. The common thread of the reformed welfare programs was strong work requirements placed on aid recipients. These overhauls were widely recognized as a big success, as welfare rolls plummeted and millions of former aid recipients entered the workforce. The state and local bureaucracies that implement California’s antipoverty programs, however, have resisted pro-work reforms. In fact, California recipients of state aid receive a disproportionately large share of it in no-strings-attached cash disbursements. It’s as if welfare reform passed California by, leaving a dependency trap in place. Immigrants are falling into it: 55 percent of immigrant families in the state get some kind of means-tested benefits, compared with just 30 percent of natives, according to City Journal contributing editor Kay S. Hymowitz.
Self-interest in the social-services community may be at work here. If California’s poverty rate should ever be substantially reduced by getting the typical welfare client back into the workforce, many bureaucrats could lose their jobs. As economist William A. Niskanen explained back in 1971, public agencies seek to maximize their budgets, through which they acquire increased power, status, comfort, and job security. In order to keep growing its budget, and hence its power, a welfare bureaucracy has an incentive to expand its “customer” base—to ensure that the welfare rolls remain full and, ideally, growing. With 883,000 full-time-equivalent state and local employees in 2014, according to Governing, California has an enormous bureaucracy—a unionized, public-sector workforce that exercises tremendous power through voting and lobbying. Many work in social services.
Further contributing to the poverty problem is California’s housing crisis. Californians spent more than one-third of their incomes on housing in 2014, the third-highest rate in the country. A shortage of housing has driven prices ever higher, far above income increases. And that shortage is a direct outgrowth of misguided policies. “Counties and local governments have imposed restrictive land-use regulations that drove up the price of land and dwellings,” explains analyst Wendell Cox. “Middle income households have been forced to accept lower standards of living while the less fortunate have been driven into poverty by the high cost of housing.” The California Environmental Quality Act (CEQA), passed in 1971, is one example; it can add $1 million to the cost of completing a housing development, says Todd Williams, an Oakland attorney who chairs the Wendel Rosen Black & Dean land-use group. CEQA costs have been known to shut down entire home-building projects. CEQA reform would help increase housing supply, but there’s no real movement to change the law.
Extensive environmental regulations aimed at reducing carbon-dioxide emissions make energy more expensive, also hurting the poor. On some estimates, California energy costs are as much as 50 percent higher than the national average. Jonathan A. Lesser of Continental Economics, author of a 2015 Manhattan Institute study, “Less Carbon, Higher Prices,” found that “in 2012, nearly 1 million California households faced ‘energy poverty’—defined as energy expenditures exceeding 10 percent of household income. In certain California counties, the rate of energy poverty was as high as 15 percent of all households.” A Pacific Research Institute study by Wayne Winegarden found that the rate could exceed 17 percent of median income in some areas. “The impacts on the poorest households are not only the largest,” states Winegarden. “They are clearly unaffordable.”
Looking to help poor and low-income residents, California lawmakers recently passed a measure raising the minimum wage from $10 an hour to $15 an hour by 2022—but a higher minimum wage will do nothing for the 60 percent of Californians who live in poverty and don’t have jobs, and studies suggest that it will likely cause many who do have jobs to lose them. A Harvard study found evidence that “higher minimum wages increase overall exit rates for restaurants” in the Bay Area, where more than a dozen cities and counties, including San Francisco, have changed their minimum-wage ordinances in the last five years. “Estimates suggest that a one-dollar increase in the minimum wage leads to a 14 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating),” the report says. These restaurants are a significant source of employment for low-skilled and entry-level workers.
Apparently content with futile poverty policies, Sacramento lawmakers can turn their attention to what historian Victor Davis Hanson aptly describes as a fixation on “remaking the world.” The political class wants to build a costly and needless high-speed rail system; talks of secession from a United States presided over by Donald Trump; hired former attorney general Eric Holder to “resist” Trump’s agenda; enacted the first state-level cap-and-trade regime; established California as a “sanctuary state” for illegal immigrants; banned plastic bags, threatening the jobs of thousands of workers involved in their manufacture; and is consumed by its dedication to “California values.” All this only reinforces the rest of America’s perception of an out-of-touch Left Coast, to the disservice of millions of Californians whose values are more traditional, including many of the state’s poor residents.
California’s de facto status as a one-party state lies at the heart of its poverty problem. With a permanent majority in the state senate and the assembly, a prolonged dominance in the executive branch, and a weak opposition, California Democrats have long been free to indulge blue-state ideology while paying little or no political price. The state’s poverty problem is unlikely to improve while policymakers remain unwilling to unleash the engines of economic prosperity that drove California to its golden years.