Life in the Golden State is anything but golden right now, according to a new study by United Ways of California. It shows that nearly one-third of the state is living in poverty — even though these individuals have incomes well above the level the federal government sets to determine who is “poor.”
Analysts say the situation is a natural result of the state’s always-soaring cost of housing as well as a high tax burden for families and businesses. And changing those trends will mean changing a culture that dates back generations.
With a methodology that uses a broader definition of poverty than used by the U.S. Census, the United Ways study found that 31 percent of California households “lack income adequate to meet their basic needs.” More than half of Hispanic families live in poverty, the study found, with rates reaching 80 percent in premier neighborhoods such as downtown Los Angeles.
More than half of Hispanic families live in poverty, the study found, with rates reaching 80 percent in premier neighborhoods such as downtown Los Angeles.
The report, a year in the making, has many predecessors. A 2006 study by the Public Policy Institute of California, a nonpartisan think tank, found the Golden State had the 15th highest poverty rate in the U.S., with a poverty rate of 16.1 percent, compared to a national average of 12 percent. In 2002, another PPIC study found that one-fifth of California children were living in poverty and 40 percent were in low-income families. Those, again, exceeded national averages.
Specifically, the United Way study focused on 350,000 Californians that are part of the American Community Survey, an ongoing statistical poll performed every year by the U.S. Census Bureau. Using the most recent year available, 2013, the study found that simply measuring the number of Californians below the Federal Poverty Level measure – as Census officials use – was grossly understating the amount of poverty in the state.
While the poverty level has traditionally been based on the cost of food, the United Ways study argues that the costs of housing, transportation, child care, health care and other basic needs have risen more quickly over the years. Accordingly, United Ways said it found one in three California households – more than 3.2 million families – are financially strapped. Yet many of them, the study said, have incomes far above the Federal Poverty Level.
“As our report makes clear, hard work alone is not enough for many to meet their basic needs.”
“These men and women come from every household composition, represent every racial and ethnic group, and work hard as part of the mainstream workforce,” the study said. “As our report makes clear, hard work alone is not enough for many to meet their basic needs.”
High Costs of Being Californian
The state may be sunny and mild, but it is also quite costly.
Take taxes. A 2014 study by the personal finance site WalletHub found the state’s taxes were the second-worst in the U.S., with state and local taxes 39 percent higher than the national average. The study showed the state has the highest state income tax, the highest gas taxes and the ninth-highest sales tax rate.
Don’t expect to find an inexpensive home, either. According to the real estate website Zillow, the median home value in the state is $442,000, up 4.6 percent in the past year and expected to rise another 2.9 percent over the next year.
Even a cheap dinner isn’t cheap. In Los Angeles, a gallon of regular milk costs $3.73, while a loaf of bread costs $2.60, according to the online database Numbeo. Need to pick up a dozen eggs? That’ll be $3.38.
Prefer to rent your home instead? The median rent in the state is $2,000 per month, Zillow says.
Prefer to rent your home instead? The median rent in the state is $2,000 per month, Zillow says, but that varies with location. In June 2014, the online research engine FindTheBest discovered the median rent for a one-room apartment in San Francisco was $3,120.
Caroline Danielson, a senior fellow at the Public Policy Institute of California and a member of an advisory panel for the United Ways study, is one of many who say high housing costs are probably the biggest reason so many families are struggling.
Housing trends in the state tend to follow boom-and-bust cycles, such as the technology boom of the mid-1990s that blossomed in the San Francisco area, Danielson said, and today such costs are on the rise again after recovering somewhat from the 2008 economic collapse.
“Housing is probably the elephant in the room. No matter where you are in the cycle, it’s a major cost factor here,” she said.
Ideas on the Table
California lawmakers in Sacramento are already considering possible solutions to the state’s situation, such as boosting families’ incomes through a variety of state tax breaks, creating an increased housing supply by offering developers tax credits, or making workers more marketable by increasing job-training programs.
Danielson noted that state leaders have already implemented an earned income tax credit aimed at lower-income families. She isn’t surprised that the study revealed “a high level of need,” but cautioned that different studies in California have measured poverty levels in different ways. Where the United Ways study differed most notably, she said, is that it defined more broadly what are considered essential living expenses, such as out-of-pocket medical costs.
“The question is: Is the best approach to boost income, or lower the cost of housing?” Danielson said. “Either could work, but it just depends on what’s feasible. It would be a huge issue to address.”
Some Californians are using the ballot box to make their voices heard. In San Francisco, residents voted last November to raise the city’s minimum wage over the next three years, from $11.05 to $15 an hour by 2018. In Los Angeles, voters in May authorized a minimum wage hike from $9 to $15 an hour by 2020.
At the Center on Poverty and Inequality at Stanford University, director David Grusky points to a recent study by the center that recommended everything from direct payments to cash-strapped families — as a stopgap solution — to longer-term ideas such as programs to improve childhood education and develop job training to teach new skills later in life.
The center’s Equal Opportunity Plan calls for “a training system, labor market, and economy that provide opportunities for everyone and that ensure decent rewards for hard work. Because the EOP treats the upstream causes of poverty, it will bring about a large and permanent reduction in the size of the poverty population, increase the tax base, meet California’s burgeoning need for high-skill labor, and reduce future demands on the safety net.”
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Grusky disputes the idea that California is stuck in a never-ending cycle of costs that spiral out of the reach of more and more families. He emphasized that the center’s approach is based on firm facts.
“I am convinced that California will lead again by deciding that poverty is just too costly to continue to ignore.”
“We can indeed do something about it,” Grusky said. “I am convinced that California will lead again by deciding that poverty is just too costly to continue to ignore. Because we now have powerful evidence on what works and what doesn’t, we can fight a smart war on poverty that’s grounded in science.”
The Pessimistic View
Kris Vosburgh isn’t shy with his opinion of how California got into its economic mess.
Vosburgh is the executive director of the Howard Jarvis Taxpayers Association, founded in 1978. It now represents about 250,000 members, mostly residential homeowners. He contrasts today’s California with the state of the state in the early 1960s, when Gov. Jerry Brown’s father, former Gov. Pat Brown, oversaw a massive infrastructure-building program.
Today, Vosburgh said, those universities and highways are crumbling and in dire need of repair — but the state’s interest in expanding its social programs is siphoning away too much money. And he isn’t optimistic that will change until the state becomes less generous.
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“It’s like they’re trying to create a socialist utopia in Sacramento,” Vosburgh said. “We’ve become a welfare magnet state because the programs are so generous and there’s not a lot of oversight. The amount of money spent on social services has just increased tremendously, and yet they keep expanding the social programs.”
David Kline, vice president of the California Taxpayers Association, is equally blunt. Kline oversees communication and research at the 91-year-old organization that represents business interests in the state.
“California government has an anti-business attitude that encourages companies to look elsewhere when opening or expanding, and this needs to change,” Kline said. “Along with high taxes and fees, we have very aggressive tax collectors, and regulations on top of regulations.”
Kline has some company. Last year, Chief Executive magazine ranked California the worst state in the U.S. for businesses, based on such factors as taxes, regulations, unemployment and gross domestic product growth.
Changing the atmosphere is possible, Kline said, but he noted the trend in recent years has been in the opposite direction, with proposals for higher property taxes on businesses and expansion of the state sales tax. That, he said, makes employers wary of doing business in the state.
“Instead of relying on nice weather and a large population to attract employers, the state should be taking steps to make it easier to start and grow a business here,” Kline said.
“Instead of relying on nice weather and a large population to attract employers, the state should be taking steps to make it easier to start and grow a business here,” he said. “With great weather and a great business climate, California would be unstoppable. But right now, we are missing half of that equation.”
One Mayor’s Efforts
Few understand the cause and effect of poverty than a 10-year former mayor of one of the most expensive cities in the United States — Dianne Feinstein, a U.S. senator since 1992 and San Francisco’s mayor from 1978 to 1988.
Feinstein remembers struggling often to ease the city’s high cost of living, primarily because of housing expenses. She tried encouraging companies to provide housing for their employees. She tried charging commercial office developers a fee to help fund the city’s affordable housing efforts.
Then, she recalls, she largely threw up her hands.
“It’s a very hard thing to do anything about, because the population goes up so fast,” Feinstein told LifeZette. “Every mayor tries to build affordable housing in their city, but then it fills up just like that. So there, in that little seven-by-seven square mile city, is the pressure.”
Feinstein has statistics on her side. San Francisco’s population indeed keeps exploding, making the high cost of housing an ever-present problem. Measured at 805,000 in the 2010 U.S. census, the city stands at close to 850,000 residents today. That was among the leading factors making “the city by the bay” the 15th most-expensive city in the U.S., according to Business Insider.
Feinstein doesn’t share Grusky’s optimism about the state’s challenges regarding its cost of living. She called for “new thoughts,” but laments the supply-and-demand problem seems permanent.
“People have to understand that it’s a free market, and prices rise with demand. And the demand is there,” she said. “Nothing you can do is enough, and it’s only getting worse.”