Poverty in California
Amid plenty, want
How a prosperous state ended up with America’s highest poverty rate
The los angeles regional food bank distributes 300,000 meals a month, but that, says its director, Michael Flood, is only a fraction of what the hungry 1.4m people in the county need. The bank resembles the vast warehouse operation of a supermarket chain, with apartment-sized refrigerators and fork-lift trucks processing millions of pounds of groceries. Every hour, a dozen or so of the 650 soup kitchens in the city arrive to collect sandwiches for the homeless (who cannot cook anything on the streets) or groceries for families.
At one of these, the Interfaith Food Centre in Santa Fe Springs, dozens of people are queuing. A few are homeless, living on the dry river bed behind the centre. Most are on minimum or fixed incomes. Dianka Espinosa is a graduate student at Rio Hondo, a local community college—hardly a typical food-aid recipient. But like many Californians, she was one event away from poverty. That event was her husband’s deportation. He not only left her behind, but their three children; her hopes of a better job hang by the thread of a weekly food parcel. And this is happening in one of America’s richest cities.
If you were to ask most Americans which is the poorest state in the nation, they might say Alabama or Mississippi, with their low average incomes and concentrations of African-American poverty. In fact, the state with the largest share of people in poverty is California. As the most populous state, it also has by far the largest number of poor people, 7.4m.
Many measures of poverty exist. The official poverty line is used as a guide as to who should get federal assistance. The state where the largest share of people fall below that line is Mississippi; California is roughly in the middle. But the official poverty line is the same in every state and takes no account of different living costs or of public assistance. So in 2011 the Census Bureau came up with a Supplemental Poverty Measure (spm), which most social scientists think a better way of comparing levels of poverty across the country. By this yardstick, 19% of Californians were poor in the three years 2015, 2016 and 2017, the highest rate in the country excluding the special case of Washington, dc. The national average was 14.1%.
With its many undocumented immigrants, California poses special measurement problems. So two institutions in the state, the Public Policy Institute of California and the Centre on Poverty and Inequality of Stanford University, created their own California Poverty Measure (cpm). This confirms that 19.4% of Californians did not have enough resources to meet basic needs in 2016, down from 21.8% in 2011. And it provides more details.
California’s poverty map has changed, argues Sarah Bohn, of the ppic. Indigence used to be concentrated inland, in agricultural regions with lots of cheap, seasonal labour. Now the poorest counties are on the southern coast, including Los Angeles and Orange Counties. Most of the poor have jobs: 80% of those living below the cpm’s poverty line are in households with at least one person in work. Latinos are somewhat more likely to be poor than average. But a better predictor of poverty is lack of a university education: 35% of those with only a high-school diploma are poor. Shockingly, 45% of children live in households that are poor or near-poor (living below 150% of the poverty line). By the time they are 18, estimates Mr Flood, half the children of the Golden State will have made use of food stamps or food banks.
California is not only America’s poorest state. It is also among the richest. According to the Census Bureau, its median household income in 2016 was $11,500 above the national average. So why, asks Frank Mecca, head of the County Welfare Directors’ Association, the people responsible for overseeing the state’s assistance to the poor, has a state that creates so much wealth been unable to address the problem of poverty?
The problem can be misunderstood. Poverty is not a result of economic decline or lack of jobs. California’s gdp rose 78% in real terms in the two decades to 2017, overtaking Britain to become the world’s fifth-largest economy. The number of people with jobs has grown almost without interruption since 2011. In September unemployment stood at just 4.1%.
But the gains from growth have been distributed unequally. According to the Urban Institute, a think-tank, the incomes of the poorest Californians fell in real terms between 1963 and 2017 (see chart). In 1963 a family nine-tenths up the income scale earned 6.5 times as much as a family one-tenths of the way up. By 2017 it was earning 14 times more. The rich have done better than the poor in America as a whole, but not by this much.
Two forces seem to have widened California’s inequality. One is that millions of undocumented immigrants arrived between the 1980s and the 2010s. Their impact has been much debated. But recent research suggests that, in the country as a whole, immigrants have been good for the economy, good for jobs and bad for some groups of low-earners. California’s high-growth, full employment, working-poor economy is consistent with that picture.
The other influence has been the success of the two industries for which the state is best known: Silicon Valley and Hollywood. Both benefit from large network effects (from having lots of people in the same business in the same place) which offset California’s high costs of doing business. But they require high skills and further education, which the poor are less likely to have.
The big problem in California, though, is not the stagnation of low incomes per se. It is stagnation relative to costs—in particular the cost of housing. As a rule of thumb, in rich countries household budgets come under strain once housing accounts for more than a third of income. California’s poor are far beyond that. According to the California Budget and Policy Centre, 56% of those living below twice the federal poverty line (that is, below $24,280 for one person) are spending more than half their income on housing. For recipients of food aid, the share is higher. Almost everyone at the Interfaith Food Centre tells the same sorry tale: after paying the rent, they have nothing left. Whereas the poor would once spend their last dime on food for the children, now they spend it on housing—and depend on charities for food.
High rents reflect the success of California’s businesses—but also decades of low investment and over-regulation. The California Environmental Quality Act, passed in 1970, aimed to ensure that environmental concerns got a proper hearing in planning and development. In practice the act has become a nimbys’ charter. Four-fifths of all suits filed under it have sought to stop infill development in cities (ie, on land already zoned for building) even though this usually has a smaller environmental impact than building on green fields. California’s development and impact fees are about three times higher than the national average. Zoning laws and parking requirements are onerous, too.
The Terner Centre for Housing Innovation at the University of California, Berkeley looked at the cost of all such fees, plus the cumbersome appeals process and the lack of co-ordination between different levels of city and county governments. It estimated that the cost of building a unit of affordable housing had risen from $256,000 in 2000 to $425,000 in 2016, the highest level in the country.
Given the high construction and land costs, says Paul Tepper of the Western Centre on Law and Poverty, a legal-aid provider, it is almost impossible to build affordable houses without subsidies. But California scrapped the largest source of state funding for new affordable housing in 2011. Estimates for the number of such houses California needs to build range from 500,000 to 1m units.
Although planning rules make homes of all kinds more expensive, they squeeze the poor hardest. Between 2013 and 2017 the median rent in California rose by 32%, more than twice the national average, and far above the growth in average state incomes. If you make only a minimum wage, you would theoretically have to work 177 hours per week to afford an average one-bedroom rental in San Francisco. On Skid Row, part of downtown Los Angeles, the price of a single room starts at more than twice the minimum government stipend for the disabled. No wonder California has twice as many homeless people as the national average.
Soaring rents and stagnant wages are the main contributors to poverty, but not the only ones. Though more generous than in some states, California’s safety-net is still ragged. Only two-thirds of those eligible for food stamps sign up, probably because undocumented immigrants are afraid to put their names on any official list. The real value of grants under Calworks, the local version of a federal welfare-to-work programme, has fallen by more than a third since 1999. The state legislature recently agreed to a three-stage increase in the programme, costing $1bn. Even that would merely ensure that no families in the state are living below half the poverty line, an indication of how feeble the net now is.
Lastly, poverty in California is made worse by mass incarceration. The problem is not that the state locks up an unusually large number of people. By American standards, its incarceration rate is below average and falling. But California has been more enthusiastic than most states in passing laws restricting what ex-convicts can do. A staggering 4,800 laws prevent former felons getting public housing, or licences to work as anything from a car mechanic to a nurse.
Poverty is handed down to later generations. A child born into it is twice as likely than a middle-class child to end up in the bottom fifth of income earners as an adult. With almost half of California’s children at or near the line, the Golden State risks condemning another generation to poverty.
California’s politicians are not ignoring the problem. They are gradually repairing the safety net and rolling back some of the felons’ laws. But these are largely second-order causes of poverty. Politicians are seeking to deal with the primary causes—low, stagnant incomes and housing—by regulation. They have voted to raise the minimum wage to $15 an hour and are asking voters to make it easier to impose rent controls at a referendum next month. These address the symptoms of poverty, not the causes—and rent controls, if imposed, would stymie housing investment.
At the Interfaith Food Bank, Ms Espinosa says that “in one year, I will have a master’s degree and will become a source of support for my family and community.” If so, she will be one of the lucky ones. Most of the area’s poor will continue to queue for food, just a short drive from some of the richest places on earth.
“Whatever the cost of our libraries, the price is cheap compared to that of an ignorant nation.”