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Press Release · May 11, 2006

Are Federal Poverty Estimates Valid For California?

Cost of Living Pushes Up State Poverty Levels; Working Poor a Growing Phenomenon

SAN FRANCISCO, California, May 11, 2006 — California’s poverty rate soars from 15th to 3rd in the nation when regional cost of living—omitted from federal calculations—is factored in and the most current poverty data are used, according to a study released today by the Public Policy Institute of California (PPIC). This discrepancy could be hurting the state in federal funding for programs such as food stamps and Head Start.

According to the federal rate, California has slightly higher poverty than the rest of the nation (13.3% to 12.7%); when the rate is adjusted for regional cost of living, that difference widens substantially (16.1% to 12%). With the adjustment, only Washington, D.C. and New York have higher poverty rates. “Conditions particular to California, such as very high housing costs, rising income inequality, and the largest immigrant population in the country, have made poverty a larger social phenomenon here,” says author and PPIC program director Deborah Reed. “The federal calculation doesn’t fully capture the state’s circumstances; a more comprehensive measure would give a better sense of the number of poor and degree of need.”

The federal poverty threshold determines eligibility for several federal programs, including the Food Stamp Program, the State Children’s Health Insurance Program, and Head Start. When these programs do not adjust for regional cost of living, they inadvertently provide very different levels of service to families facing different costs.

Consider housing costs: Rent for a year in California is often more than half the total federal poverty threshold—set at $19,157 for a family of four in 2004. In places like San Francisco, where the HUD-estimated fair market annual rent for a two-bedroom apartment is $21,300, housing costs alone are well above the total federal threshold. Indeed, after adjusting for rental costs, three California counties—Los Angeles, San Francisco, and Monterey—fall in the range of the ten highest poverty counties in the nation, with rates of about 20 percent.

Examining poverty and income trends from 1969 to 2004, the report finds that, in contrast to the rest of the nation, California has a higher poverty rate today than in the late 1960s and 1970s. Why? Poverty has grown in California because low-income families have not shared in economic growth. Between 1969 and 2004, income declined four percent for low-income families, rose 16 percent for families at the median, and rose 41 percent for high-income families. In the rest of the country, income grew for low-income families. “It is a dubious distinction for California that income at the bottom of the distribution has declined. In the rest of the U.S., there has been at least some income growth across the board,” says Reed.

California also differs from the rest of the country in its growing number of working poor. In 1969, only 12 percent of poor families in California had a full-time worker, compared to about 20 percent in the rest of the country. By 2004, over 30 percent of poor California families had a full-time worker, while the rest of the nation held steady at 20 percent.

More key findings from the report, Poverty in California: Moving Beyond the Federal Measure:

  • Racial and ethnic disparities: Poverty rates among Latinos and African-Americans are roughly double those for U.S.-born whites (about 20% to 9%). At 27 percent, poverty rates for foreign-born Latinos are among the highest in the state.
  • Single mothers: Children living with single mothers have much higher poverty rates than children in other families (41% to 13% in 2004). However, 42 percent of the state’s poor live in married couple families.
  • California lags the nation: In 1969, the median income in the rest of the nation was about 15 percent lower than in California—by 2004 it was 6 percent higher.
  • Child poverty: Children have the highest poverty rate of any age group. Consider that in California, full-time childcare for one preschooler can cost minimum wage workers more than half their income.
  • Women’s earnings: The rise in women’s earnings has helped to slow poverty growth.

The Public Policy Institute of California is a private, nonprofit organization dedicated to improving public policy in California through independent, objective, nonpartisan research on major economic, social, and political issues. The institute was established in 1994 with an endowment from William R. Hewlett.