California Is Number One In The Supplemental Poverty Measure

See Suppose you live in America’s most liberal state. Now suppose you live in the state known as the “poverty capital of America.” But I repeat myself by Mark Perry.

  

"The table above is based on Census Data released last month and displays US states ranked by two different measures of poverty: a) the traditional, official measure of poverty and b) the Census Bureau’s recently introduced (2011) Supplemental Poverty Measure (SPM), which accounts for each state’s cost-of-living including housing, energy costs and medical costs, and taxes. The SPM also considers non-cash government assistance as a form of income and is therefore considered a more accurate measure of poverty than the traditional, official rate. For the country as a whole, the percent of Americans in poverty using the SPM of 12.5% for the years 2017-2019 (averaged) is 1.0 percentage point higher than the percentage of Americans living in poverty (11.5%) using the official poverty measure.

On an individual state basis, the biggest changes in a state’s poverty rate between the two measures in each direction are: a) California’s official poverty rate of 11.4% ranked it No. 21 but the Golden State moved up to No. 1 at 17.2% (highest state poverty rate in the US) using the SPM (a difference of +5.8%) and b) Mississippi’s poverty rate ranked it No. 1 (tied with Louisiana) at 19.1% using the official measure but No. 5 at 15.2% using the SPM (a difference of -3.9%). Overall, 21 states including California (and the District of Columbia) showed a greater percentage of people in poverty using the SPM, 28 states, including Mississippi, showed a lower percentage of people in poverty and Georgia showed no change at 13.3% for both measures.

One of the biggest reasons for the increase in California’s (and 21 other states) poverty rate using the SPM is because of the state’s high cost-of-living including sky-high housing costs (median home price of $586,659) and because of high taxes and energy costs. And the decrease in Mississippi’s SPM poverty rate (and 27 other states) is because of that state’s low cost-of-living, including low housing costs (median home price of $131,774). Energy costs are another factor that impacts a state’s SPM. For example, California’s average electricity price of 18.59 cents per kilowatt-hour is 86% higher than the national average of 11.06 cents, while electricity in Mississippi at 9.44 cents per kilowatt-hour is 15% below the national average.

A 2018 article in the Manhattan Institute’s City Journal by Kerry Jackson (Pacific Research Institute fellow in California studies) — “California, Poverty Capital” — uses the SPM measure of poverty to address the question “Why are so many people poor in the Golden State?” Here are some excerpts:

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.

Jackson identifies several specific factors that collectively contribute to making California the “poverty capital of America.”

1. Welfare State Bureaucracy and Lack of Pro-Work Welfare Reform. The state and local bureaucracies that implement California’s antipoverty programs 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.

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, California has an enormous bureaucracy—a unionized, public-sector workforce that exercises tremendous power through voting and lobbying. Many work in social services.

2. High Housing Costs. 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. 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.

3. High Energy Costs. Extensive environmental regulations aimed at reducing carbon-dioxide emissions make energy more expensive, also hurting the poor. By some estimates, California energy costs are as much as 50 percent higher than the national average [electricity costs are now nearly double the national average, see above]. 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 and the rate could exceed 17 percent of median income in some areas.

4. $15 an Hour Minimum Wage. 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 [it’s now $13 an hour, the second-highest state minimum wage in the US] —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.

Finally, here is Jackson’s pessimistic conclusion:

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.

Related: California ranked last year as America’s No. 2 Outbound State (second only to Illinois) based on household moves (65% outbound vs. 35% inbound) according to North American Van Lines’ 2019 US Migration Report. It is also noteworthy that 2017 was the first year that California (at 60% outbound) ever ranked in this national study’s Top Five outbound US states. And the table below shows from a balanced 50% inbound – 50% outbound in 2011 and 2012, the outmigration from California has been increasing to the point that last year there were almost two outbound moves from California for every one inbound move. The acceleration of people moving out of California is likely a direct result of the Golden State’s new status as the “poverty capital of America.”