California’s Expensive but Ineffective Income Support Spending
Wayne Winegarden
August 2024
Including federal, state, and local funds, California’s per capita spending on income support programs is 81 percent higher than the average expenditures for all other states – per capita spending of $3,869 compared to $2,141. These expenditures include “cash assistance paid directly to needy persons . . . vendor payments made directly to private purveyors for medical care, burials, and other commodities and services provided under welfare programs; and provision and operation by the government of welfare institutions.”
Not only does California spend significantly more for these programs on a per capita basis, the state also devotes a larger share of its total resources toward income support programs – 20.5 percent of expenditures compared to 18.9 percent.
California’s 2021 Per Capita Expenditures on Income Support Programs Are Significantly Higher Than All Other States
Source: Author calculations based on data from U.S. Census Bureau
EXECUTIVE SUMMARY
- California’s total government income support expenditures in 2021 were $3,869 per capita, which was 81 percent higher than the average for all other states ($2,141).
- California devotes a larger portion of its bigger budget toward income support programs (20.5%) than the average for all other states (18.9%).
- Despite California’s greater expenditures, the state continues to suffer a relatively larger poverty problem. This higher poverty rate results from policy choices that are causing an affordability crisis in the state.
The per capita comparisons do not account for two important factors that influence the size and burden of the income support expenditures. First, the relative number of people living in poverty – the population in need of support – will differ between the states. Second, each state’s average household income – a proxy for taxpayers’ ability to afford the payments – will also differ. Examining the total income support expenditures per person in poverty relative to each state’s median household income accounts for these factors.
In California, there were 4.7 million people living below the official poverty line in 2021. Relative to this population, total income support expenditures were $32,002, which equaled 39 percent of the state’s median household income. The average income support expenditures per person living below the poverty line in the other states equaled 24 percent of the median household income. Consequently, even after accounting for the relative number of people living in poverty and California’s above average median household income, the state still spends 62 percent more on income support programs than all other states.
The undeniable conclusion is that California spends a lot more money on income support programs than most other states. If the state was doing a better job of helping lower income residents, then perhaps these higher expenditure levels could be justified. Assuming the goal of income support programs is to sustainably improve people’s economic prospects rather than ameliorate the hardships of poverty, California is not achieving better results.
Importantly, California’s high cost of living is a policy choice. Restrictive zoning regulations significantly reduce housing affordability; green energy mandates increase the costs of energy; and burdensome labor regulations broadly inflate costs.
Based on the official poverty rate, California’s performance is average. Due to its excessively volatile economy, California’s poverty rate tends to be higher than average during economic downturns and lower than average during economic expansions leading to an average poverty rate across the entire business cycle. Spending significantly more money to achieve average results is a sign that the policy is ineffective, and improvements are possible.
More troubling, the official poverty rate overstates the effectiveness of California’s income support programs. The official poverty rate does not account for the differences in the cost of living between states. This matters because the cost of living in California is infamously unaffordable.
Unlike the official poverty rate, the Census Bureau also produces the supplemental poverty rate that accounts for the differences in the cost of living between states. As measured by the supplemental poverty rate, California has consistently had either the highest or the second highest state poverty rate in the nation (in 2022 Mississippi had the highest supplemental poverty rate).
Comparing the two poverty measures, the state’s high cost of living pushed an additional 3 million Californians into poverty in 2022. While this number varies over time, since 2009 the state’s lack of affordability has pushed at least 2.6 million people into poverty. These data illustrate that California has a structural poverty problem that is caused by its high cost of living.
Importantly, California’s high cost of living is a policy choice. Restrictive zoning regulations significantly reduce housing affordability; green energy mandates increase the costs of energy; and burdensome labor regulations broadly inflate costs. Due to these policies, an income that leaves a California family struggling is sufficient to secure a comfortable lifestyle in other states.
These trends illustrate that the key to alleviating poverty in the state is to repeal those policies causing the affordability problem in the first place. While not specifically income support policies, such changes would go a long way toward sustainably reducing poverty and reducing the total income support expenditures the state and local governments would need to make. These policy changes should be enhanced with reforms to how income support is provided in California.
Instead of the current approach that focuses on providing services, California should seek a waiver to implement a cash-based support system. Based on current federal, state, and local expenditure levels, California could save money and still maintain a $30,000 income support threshold. To ensure the system helps people transcend poverty, there needs to be job search and education requirements, and the benefits must phase out as recipients’ income from working grows. Altogether, such an approach would repeal bureaucratic programs, help the needy, and encourage work and economic advancement.
California spends too much money on income support programs that do too little to reduce poverty. Improving the effectiveness of the state’s income support programs does not require more money. It requires better policies that restore affordability and improve the effectiveness of the income support system.
