Working Hard_ Falling Short Investing in Californias Working

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					WORKING HARD, FALLING SHORT:
 INVESTING IN CALIFORNIA’S
     WORKING FAMLIES

          A Publication of the California Budget Project
                                        December 2004
                                    ACKNOWLEDGEMENTS

Barbara Baran was the principal author of this report. Jean Ross provided oversight and wrote
several sections of the report; Scott Graves also wrote several sections. Edgar Cabral analyzed
the Current Population Survey and Employment Development Department data. Editorial and
production assistance were provided by Joanna Poole, Erin Riches, Agnes Lee, and John Lewis.

This report was undertaken as part of the national Working Poor Families Project, supported
by the Annie E. Casey, Ford, and Rockefeller Foundations. The California Budget Project is
grateful to the foundations and to Brandon Roberts and Andrew Reamer, from the Working
Poor Families Project, for their support. The CBP also wishes to thank the Rosenberg
Foundation for their ongoing support of the CBP’s work on issues affecting low-wage workers.

                                CALIFORNIA BUDGET PROJECT

The California Budget Project (CBP) was founded in 1994 to provide Californians with a source
of timely, objective, and accessible expertise on state fiscal and economic policy issues. The
CBP engages in independent fiscal and policy analysis and public education with the goal of
improving public policies affecting the economic and social well-being of low- and middle-
income Californians. Support for the CBP comes from foundation grants, publications, and
individual contributions.




                                   California Budget Project
                                   921 11th Street, Suite 502
                                    Sacramento, CA 95814
                                         (916)444-0500
                                      (916)444-0172 (fax)
                                         cbp@cbp.org
                                         www.cbp.org

                                        December 2004



                                               2
                    Executive Summary


                                            California will compete successfully in an
                                            increasingly global economy principally on
                                            the strength of its people. The competitive
                                            advantages California can and must offer
California will successfully compete        employers are a skilled workforce, modern
                                            infrastructure, effective public services, and
in an increasingly global economy           a dynamic mix of peoples and cultures. This
principally on the strength of its          is the road to economic strength and to a
people.                                     broadly shared prosperity.

                                            Education and training must therefore be
Education and training must be a            a central focus of California’s economic
central focus of the state’s economic       development strategy. Education and
                                            training will ensure that the state’s future
development strategy.                       workers have the skills they need to enter
                                            the jobs the baby boomers are leaving and
                                            to fill the new high-skill jobs being created.
Low-income Californians must have
                                            In addition, education and training offer a
the same opportunity as affluent             path out of poverty for many of California’s
Californians to develop the skills          working poor. Low-income Californians
                                            must have the same opportunity as affluent
necessary for higher-paid jobs.             Californians to develop the skills necessary
                                            for higher-paid jobs. In fact, California’s
At the same time, forecasts suggest         future prosperity may depend on it.
that low-wage jobs will continue to         Over the next two decades, demographic
dominate the California economy.            changes will provide greater opportunities
                                            for workers new to the labor market and for
                                            low-wage workers to move into better-paid
Policymakers need to ensure that the        employment. The impending retirement
workers in those low-wage jobs are          of the baby boom generation means that
                                            many skilled employees will be vacating
able to provide their families with a
                                            high-wage jobs. Moreover, the labor force is
decent standard of living.                  expected to increase more slowly than in the
                                            past two decades, reducing the competition
                                            for jobs.




                                        1
                                           At the same time, not all jobs will pay high
                                           wages. Currently, more than half the jobs
                                           in the California economy provide full-time,
Most of California’s low-income            year-round wages that are below twice the
                                           federal poverty level, a level of income that
families are working families.             falls short of providing an adequate standard
                                           of living. Most of these low-wage occupations
A greater share of California’s            are in the service sector. Forecasts suggest that
                                           for the coming decade and beyond, low-skill,
working families are low-income            low-wage jobs will continue to dominate the
than in the rest of the US.                California economy. California policy makers
                                           must ensure that the workers in those jobs are
                                           able to provide their families with a decent
Children are more likely to live in        standard of living.
low-income families.
                                           Working Hard, Falling Short: The Need to Invest
                                           in California’s Working Families examines the
In California, almost half of low-         prospects of California’s low-income working
income and very low-income                 families in the context of a changing economic
working families are married               and demographic environment. This report
                                           recommends changes in state policy that help
couples with children, compared to         low-income working families achieve higher
slightly more than one-third in the        standards of living and strengthen California’s
                                           economy. The primary focus of the report is
remainder of the US.
                                           education and training, since skills acquisition
                                           is essential to economic competitiveness and
The majority of California’s               has an important effect on lifetime earnings.
                                           The report also looks at two other important
working low-income and very low-
                                           policy areas: policies that support the economic
income families are Latino.                well-being of low-wage workers, and economic
                                           development policies. The key findings and
                                           recommendations of the report are detailed
California’s low-income and very
                                           below.
low-income working families are
much more likely to be headed by an
adult without a high school degree
or GED than low-income working
families in the remainder of the US.




                                       2
     Many of California’s Working Families Fail to Make Ends Meet
Almost half a million of California’s working families are “officially” poor; that is, they had
incomes below the federal poverty level (FPL) in 2002.1 Many more – nearly 1.4 million – had
incomes between the FPL and twice the FPL, a level of income that falls short of providing an
adequate standard of living. The adults in these families work hard and pay taxes, but struggle
to make ends meet and build a secure future.

In this report, families with incomes below the FPL are defined as very low-income. Families
with incomes between the FPL and twice the FPL are defined as low-income.

                                         Key Findings

  Most of California’s low-income families are working families in which the adult
  members had significant employment over the past year.2 In 2002, more than nine out of
  10 (90.6 percent) low-income families with children were working families. Almost six out
  of 10 (59.0 percent) very low-income families with children were working families.

  A larger share of California’s working families are low-income than in the rest of the
  US. In 2002, 21.1 percent of California’s working families with children were low-income
  and 8.6 percent were very low-income. In the rest of the US, 18.6 percent of working
  families with children were low-income and 6.6 percent were very low-income.

  Children are more likely than adults to live in low-income families. In 2002, almost
  one out of four children (23.4 percent) lived in low-income families, compared to less than
  one out of five adults (18.4 percent). California’s children also were almost twice as likely
  as adults to live in very low-income families – 19.5 percent of children compared to 11.1
  percent of adults.

  In California, nearly half (45.8 percent) of low-income and very low-income working
  families are married couples with children, compared to slightly more than one-third
  (34.4 percent) in the remainder of the US. In contrast, a smaller share of low-income and
  very low-income working families in California are headed by a single parent.

  The majority of California’s low-income working families are Latino. In 2002, nearly
  two-thirds (62.7 percent) of California’s low-income working families with children were
  headed by a Latino, compared to less than a quarter (22.5 percent) in the rest of the US.
  An even larger share (70.4 percent) of California’s very low-income working families with
  children were Latino, compared to 28.8 percent in the remainder of the US.

  California’s low-income working families are much more likely to be headed by an
  adult without a high school degree or GED than low-income working families in the
  rest of the US. In 2002, the head of 39.7 percent of low-income working families with
  children lacked a high school degree or GED, compared to 23.2 percent in the remainder of
  the US. The head of more than half (57.5 percent) of California’s very low-income working
  families with children lacked a high school degree or GED, compared to one-third (33.5
  percent) in the remainder of the US.

                                                3
                             Investing in the Future:
             Will California Have the Skilled Workforce It Needs?
Education and training are paths out of poverty for many of California’s low-income and very
low income working families. The competitiveness of the California economy will also depend
on improving the skills of low-income workers and their children.

Workers with a low level of education are at a disadvantage, as higher levels of education bring
significant economic rewards. In 2003, a worker with less than a high school degree earned
roughly half (56.3 percent) of the median hourly wage of all California workers and slightly
more than one-third (36.0 percent) of the median hourly wage of workers with a bachelor’s
degree or higher.

Educational attainment levels in California vary widely by race and ethnicity. Compared to
the US as a whole, California has both a higher percentage of adults who lack a high school
diploma or GED and a higher percentage of adults with at least some postsecondary education.
Latinos and blacks are less likely to graduate from high school and college, and are less likely to
take the courses in high school that would prepare them for college.

Over the next two decades, the demographic shifts already under way in California will change
the state’s population, particularly the prime working-age population. Forecasts project that by
2020, California’s prime-age workforce, individuals age 25 to 54, will be slightly more than 70
percent non-white. The challenge confronting California is to ensure that the new workers have
the skills they will need to succeed in the labor market and that the state’s employers will need
to compete in the global economy.


                           Key Findings and Recommendations
                    Findings                                     Recommendations
  Many students are inadequately prepared            Improve opportunities for high school
  for postsecondary education.                       dropouts and other working adults to
                                                     obtain the basic skills they need to qualify
                                                     for admission to postsecondary education.
                                                     California should also expand programs
                                                     in postsecondary institutions that improve
                                                     retention and completion rates for low-
                                                     income and working students.




                                                 4
                 Findings                                      Recommendations

Low-income and working students face               Maintain and improve the affordability of
financial barriers to accessing post-               postsecondary education by keeping fees
secondary education.                               modest, particularly in community colleges;
                                                   by maintaining an adequately funded,
                                                   need-based financial aid system; and by
                                                   providing greater access to financial aid for
                                                   working adults.

Low-income and working students face               Provide California’s low-income youth
“informational” barriers that restrict their       and workers with the information they
access to postsecondary education.                 need to make informed decisions about
                                                   postsecondary education. The state’s
                                                   current outreach programs should
                                                   be evaluated and targeted to provide
                                                   information and services to students who
                                                   would otherwise be unlikely to attend
                                                   postsecondary institutions.

Low-income and other California students           Coordinate course requirements so that
face barriers to advancement in public             students can transfer more easily between
postsecondary education.                           community colleges and four-year colleges
                                                   and universities.

California needs a cost-effective strategy         Increase enrollment in public postsecondary
for expanding access to postsecondary              institutions by encouraging students to
education.                                         take lower division courses in community
                                                   colleges.

A college education is not the only                Increase the number of high quality
pathway to a well-paying job. Career               vocational and technical training programs.
technical education may be a better choice         One approach is to increase the rate at
for many students.                                 which community colleges are reimbursed
                                                   for non-credit courses.

The Workforce Investment Act (WIA)                 Increase funding for adult education,
and CalWORKs funding can be used to                occupational skills training, and other
provide low-income workers a pathway to            career advancement services for low-
career advancement.                                income workers by taking maximum
                                                   advantage of the WIA and CalWORKs
                                                   programs.




                                               5
                           Maximizing Returns:
         Improving the Accountability of California’s Investments
                       in Economic Development
Educational attainment and job training can only help low-wage workers move out of poverty
if there are sufficient well-paying jobs to employ them. Public investment can help build
a healthy economy by ensuring that businesses have access to a skilled workforce, quality
infrastructure, and a desirable quality of life for workers and their families. States, including
California, also spend large sums to promote certain types of economic activity, create markets
for state products, and promote private investment.

California has made significant investments in economic development; however, the state has
done little to evaluate whether this spending has achieved the desired policy goals. Moreover,
in many instances, the state has failed to collect the minimal amount of information that would
be needed to identify the outcomes associated with public spending.


                           Key Findings and Recommendations
                     Findings                                   Recommendations
   California lacks an overarching vision           Adopt a unified economic development
   and strategy to guide its economic               strategy and focus spending on programs
   development investments.                         that will provide maximum benefit to all
                                                    Californians.

   There is little accountability for most          Focus economic development investments
   economic development expenditures; most          on areas of strategic importance to
   economic development spending occurs             California and use performance standards
   through the tax code and goes to general         to hold recipients of economic development
   support for business.                            incentives accountable for the delivery of
                                                    promised jobs and investment.

   California makes a relatively small              Launch a comprehensive effort aimed at
   investment in workforce development              improving the skills of low-wage workers.
   and very little of the funding to train
   employed workers targets low-income
   workers.




                                                6
                          A Shared Prosperity:
Do California’s Public Policies Ensure That Low-Income Workers Share
                  in the Prosperity They Help Create?
Over the past decade, relatively low-skill jobs have dominated California’s labor market.
Economic forecasts project that low-wage jobs will continue to constitute the largest share of
the state’s employment over the next decade. Public policies therefore play a critical role in
ensuring that low-income workers share in the economic prosperity that their work helps create.

Many of these policies are of concern to employees, as well as workers. High housing, health
care, and child care costs can make it difficult for businesses to attract the workers they
need. While California has taken a number of steps to support low-income working families,
additional steps are needed to help many of the state’s hardest working families make ends
meet.


                          Key Findings and Recommendations
                    Findings                                   Recommendations
   Affordable housing is scarce in many            Take steps to increase the supply of
   California communities.                         affordable housing, focusing particularly
                                                   on the poorest households, whose housing
                                                   needs are the least likely to be addressed
                                                   by the private market.

   Increasing numbers of Californians lack         Improve outreach and enrollment efforts
   health care coverage.                           to boost enrollment in publicly supported
                                                   health coverage programs, such as Medi-
                                                   Cal and Healthy Families. California
                                                   should also implement policies to expand
                                                   job-based health coverage.

   California is restricting access to             Guarantee child care to low-income
   affordable child care.                          families and fully fund California’s
                                                   subsidized child care system.

   The Food Stamp Program could              Increase state funding to boost outreach to
   supplement low wages, but almost half of eligible individuals and provide counties
   eligible Californians do not receive aid. with incentives and resources to establish
                                             non-traditional office hours.

   A state Earned Income Tax Credit would          Create a state Earned Income Tax Credit.
   increase the earnings of low-income
   working families.




                                               7
               Findings                                    Recommendations
Minimum wage increases have boosted            Restore the purchasing power of the
the earnings of low-wage workers               minimum wage and index it to inflation.
without costing jobs.

Many low-income workers fail to qualify        Create a more equitable approach to UI
for Unemployment Insurance (UI) when           eligibility determination by adopting an
they lose their job through no fault of        alternate base period.
their own.

Living-wage policies can ensure that           Adopt a living-wage policy for firms
public dollars do not subsidize low-wage       that contract with the state for goods and
work.                                          services.




                                           8
                                   Introduction

California will compete successfully in an increasingly global
economy principally on the strength of its people. The                California will
competitive advantages California can and must offer employers
are a skilled workforce, modern infrastructure, effective public      successfully compete
services, and a dynamic mix of peoples and cultures. This is the      in an increasingly
road to economic strength and to a broadly shared prosperity.         globalized economy
Education and training must, therefore, be a central focus of         principally on the
California’s economic development strategy. Education and             strength of its people.
training will ensure that the state’s future workers have the
                                                                      This is the road to
skills they need to enter the jobs the baby boomers are leaving
and to fill the new high-skill jobs being created. In addition,        economic strength
education and training offer a path out of poverty for many of        and to a broadly
California’s working poor. Low-income Californians must have
                                                                      shared prosperity.
the same opportunity as affluent Californians to develop the
skills necessary for higher-paid jobs. In fact, California’s future
prosperity may depend on it.

Over the next two decades, demographic changes will provide greater opportunities for
workers new to the labor market and for low-wage workers to move into better-paid
employment. The impending retirement of the baby boom generation means that many skilled
employees will be vacating high-wage jobs. Moreover, the labor force is expected to increase
more slowly than in the past two decades, reducing the competition for jobs.

At the same time, not all jobs will pay high wages. Currently, more than half the jobs in the
California economy provide full-time, year-round wages that are below twice the federal
poverty level, a level of income that falls short of providing Californians an adequate standard
of living. Most of the low-wage occupations are in the service sector. Forecasts suggest that
for the coming decade and beyond, low-skill, low-wage jobs will continue to dominate the
California economy. California policymakers must ensure that the workers in those jobs are
able to provide their families a decent standard of living.

Working Hard, Falling Short: The Need to Invest in California’s Working Families examines the
prospects of California’s low-income working families in the context of a changing economic
and demographic environment. This report recommends changes in state policy that help
low-income working families achieve higher standards of living and strengthen California’s
economy. The primary focus of the report is education and training, since skills acquisition is



                                                 9
essential to economic competitiveness and has an important effect on lifetime earnings. The
report also looks at two other important policy areas: policies that support the economic well-
being of low-wage workers, and economic development policies.




                                               10
                                          Chapter 1

   Many of California’s Working Families
         Fail to Make Ends Meet

Almost half a million of California’s working families are “officially” poor; that is, they had
incomes below the federal poverty level (FPL) in 2002. Many more – almost 1.4 million – had
incomes between the FPL and twice the FPL, a level of income that falls short of providing an
adequate standard of living.3 The adults in these families work and pay taxes, but struggle to
make ends meet and build a secure future.

This chapter profiles California’s low-income and very low-income working families.4 Low-
income families are defined as those with incomes between the FPL and twice the FPL and very
low-income families are those with incomes below the FPL. The chapter focuses particularly on
families with children, since more than two-thirds (67.8 percent) of California’s low-income and
very low-income working families include children.

Most Low-Income and Very Low-Income Families Are Working Families

Most of California’s low-income families with children are working families (Figure 1). In 2002,
more than nine out of 10 (90.6 percent) low-income families with children were families in




                                               11
which the adult members had significant employment over the past year. Almost six out of 10
(59.0 percent) very low-income families with children were working families.

          How Much Do California Families Need to Earn to Make Ends Meet?

  Researchers and policymakers traditionally use the                               Federal Poverty Level
  federal poverty level (FPL) as the benchmark to judge                               One-          Two-      Four-
  economic well-being. For most purposes, however,                                   Person        Person    Person
  the poverty threshold is an obsolete measure that fails                  Year      Family        Family    Family
  to take into account the current realities of families’                 2003       $9,393        $12,015   $18,810
  lives. For example, the FPL does not include the cost
                                                                           2002       $9,183       $11,756   $18,392
  of child care in determining what constitutes a family’s
  basic needs. Moreover, as a national standard, the                       2001      $9,039        $11,569   $18,104
  FPL does not reflect California’s high cost of living.                    2000      $8,794        $11,239   $17,603
                                                                        Source: US Census Bureau




             California Budget Project                              Twice the FPL is used by some experts as a
             Basic Family Budget: 2003                              more accurate measure of economic well-being.
                                                                    In 2003, the California Budget Project estimated
                                Two
                                                                    the income that California families of different
                              Parents            Two
                 Single        (One            Working              compositions would need to afford a modest
                Parent,      Working),         Parents,             standard of living. This estimate was based on
    Single        Two           Two              Two                calculations of the actual cost of living, including
    Adult       Children     Children          Children             housing, child care, food, transportation, and
   $22,943      $48,962        $40,848         $58,269              taxes. In most cases, the necessary basic
  Source: CBP analysis in Making Ends Meet: How Much Does It
                                                                    family budget exceeded twice the FPL.
  Cost to Raise a Family in California?




The Share of California’s Families Who Are Low-Income Exceeds That of the Rest
of the US

A larger share of California’s working families are low-income families than in the rest of
the nation (Figure 2).5 In 2002, 21.1 percent of California’s working families with children
were low-income and 8.6 percent were very low-income. In the rest of the US, 18.6 percent of
working families with children were low-income, and 6.6 percent were very low-income.

California’s poverty rate also exceeds that of the nation (Figure 3). In 2003, California’s poverty
rate was 13.1 percent, compared to 12.5 percent in the US as a whole.6 California ranked 37th
among the 50 states and the District of Columbia with respect to the share of the population
with incomes below the FPL.7

Children Are More Likely Than Adults to Live in Low-Income Families

Children are more likely than adults to live in low-income families (Figure 4). In 2002, almost
one out of four children (23.4 percent) lived in low-income families, compared to less than one
out of five adults (18.4 percent). California’s children also were almost twice as likely as adults
to live in very low-income families—19.5 percent of children compared to 11.1 percent of adults.

                                                               12
California’s Low-Income Working Families Are More Likely to Be Married Couples
with Children

California’s low-income and very low-income working families are more likely to be married
couples with children than in the remainder of the US. Nearly half (45.8 percent) of California’s




                                               13
families with incomes less than twice the FPL are married couples with children, as compared to
slightly more than one-third (34.4 percent) in the rest of the US (Figure 5). California’s married
couples with children also are almost twice as likely to be very low-income as are working
married couples with children in the remainder of the US (7.5 percent in California as compared
to 4.3 percent in the rest of the US).




                                                14
Fewer Low-Income Working Families in California Are Headed by a Single Parent

In contrast, a smaller share of California’s low-income and very low-income working families
are headed by a single parent (Figure 5). In California, 22.0 percent of working families with
incomes below twice the FPL are single-parent families, compared to 25.5 percent in the
remainder of the US. There is also a significantly smaller share of female-headed households
among low-income and very low-income working families in California. In 2002, 26.5 percent of
low-income and very low-income working families were female-headed in California, compared
to 36.5 in the rest of the US.

California’s Low-Income Working Families Are More Likely to Be Latino

California’s low-income and very low-income working families are more likely to be Latino
than in the rest of the nation (Figure 6). In 2002, nearly two-thirds (62.7 percent) of California’s
low-income working families with children were headed by a Latino, compared to less than
a quarter (22.5 percent) in the remainder of the US. An even larger share (70.4 percent) of
California’s very low-income working families with children were Latino, compared to 28.8
percent in the remainder of the US. In contrast, only 38.0 percent of all California working
families with children were headed by a Latino.

California’s Low-Income Working Families Are Much More Likely to Be Headed
by an Adult Without a High School Degree or GED

Educational attainment levels in California’s low-income and very low-income working families
are lower than that of their counterparts in the rest of the US. In 2002, the head of 39.7 percent
of low-income working families with children lacked a high school degree or GED, compared
to 23.2 percent in the remainder of the US (Figure 7). Educational attainment levels were even




                                                 15
lower in very low-income families. The head of more than half (57.5 percent) of California’s
very low-income working families with children lacked a high school degree or GED in 2002,
compared to one-third (33.5 percent) in the remainder of the US (Figure 7). In very low-income
Latino families with children, 74.2 percent of the heads of household lacked a high school
degree or GED.




                                              16
                                               Chapter 2
                        Investing in the Future:
  Will California Have the Skilled Workforce It Needs?

                                         BACKGROUND
Education and training are paths out of poverty for many of California’s low-income and very
low-income working families. The competitiveness of the California economy will also depend
on improving the skills of low-income workers and their children. This chapter identifies some
barriers low-income students and working adults face in gaining access to and succeeding in
postsecondary education and skills training. The chapter concludes with recommendations for
changes that could improve their rates of both access and success.

Increased Education Brings Significant Wage Gains

Postsecondary education clearly brings                  Table 1: Median Wages of California
significant economic rewards (Table 1). In               Workers by Level of Education, 2003
2003, a worker with less than a high school                                                          Wage
degree earned roughly half (56.3 percent) the         All Workers                                   $16.00
median hourly wage of all California workers
                                                      Less than High School Diploma                  $9.00
and slightly more than one-third (36.0 percent)
the median hourly wage of workers with a              High School Diploma or GED                    $13.46
bachelor’s degree or higher. The median hourly        Some College                                  $15.56
wage of workers without a high school diploma         Bachelor’s Degree or Higher                   $25.00
is sufficiently low that full-time, year-round        Source: CBP analysis of Current Population Survey data
work translated into an income of $18,720 in
2003. This was less than the federal poverty level (FPL) for a family of four ($18,810).

Levels of Educational Attainment Vary Widely

Like levels of poverty, educational attainment levels in California vary widely by race and
ethnicity (Figure 8). Compared to the US as a whole, California has both a higher percentage of
adults who lack a high school diploma or GED and a higher percentage of adults with at least
some postsecondary education. In 2003, nearly one-fifth (18.4 percent) of Californians between
the ages of 18 and 64 lacked a high school diploma or GED, compared to 13.4 percent for the US
overall (Figure 9). The percentage of adults in California with some postsecondary education or
higher (58.5 percent) also exceeded that in the rest of the US (54.7 percent).

California’s Latino and black students are less likely to graduate from high school, and are less
likely to take the courses in high school that would prepare them for college. In 2002-03, the
four-year high school dropout rate ranged from a low of 5.5 percent for Asians to 22.0 percent
for blacks (Figure 10). Of those students graduating from high school, 56.0 percent of Asians
and 39.0 percent of whites had completed all courses required for entrance to the University of

                                                     17
California (UC) or the California State University (CSU), compared to 24.3 percent of blacks and
21.5 percent of Latinos. Latino and black students also are less likely to graduate from college
than are Asians and whites. CSU tracked the race and ethnicity of first-time, full-time freshmen
from 1996 to 2002 (Figure 11). Within six years, 50.7 percent of whites, 45.1 percent of Asians,
37.7 percent of Latinos, and 26.3 percent of blacks who entered in the 1997 class had graduated
from the CSU.8




                                               18
The Composition of California’s Workforce Will Change as the Baby Boomers
Retire

Over the next two decades, the demographic shifts already under way in California will change
the state’s population, particularly the prime working-age population. Forecasts project that
the white share of the population will decline from 47.1 percent to 33.7 percent between 2000




                                             19
and 2020 (Figures 12 and 13).9 In contrast, Latinos’ share will increase from 32.6 percent to 43.0
percent of the population, while Asians, Pacific Islanders, and others’ share will increase from
13.8 percent to 16.6 percent.10




The change in the prime working-age population will be even greater (Figures 14 and 15).
By 2020, Latinos and other non-whites will account for more than two-thirds (70.1 percent)
of Californians age 25-54. The white share of the prime working-age population will shrink
from 48.7 percent to 29.9 percent, while Latinos’ share will increase from 30.5 percent to 45.6
percent.11




California Faces a Major Challenge

The changing face of the workforce confronts California with a serious challenge. Over the next
decade, the state must ensure that the new workers have the skills employers will need and
demand. Many of these workers will likely come from California’s lowest income families since
a large percentage of Latino families are low-income. To meet this challenge, California must
therefore significantly improve educational attainment levels among low-income workers and
youth.12 One first step is to identify the current weaknesses in the state’s education and training
systems, particularly the barriers to access and success for low-income and working students.

Researchers at the National Center for Public Policy and Higher Education have developed
a useful way to analyze where states lose students along what they call the “educational

                                                20
pipeline.”13 The concept of an educational pipeline focuses on four critical transition points:
high school graduation; college entrance; college retention after one year; and college
graduation within 150 percent time (an associate degree within three years or a bachelor’s
degree within six years).14

California exceeds the nation in the share of ninth graders who graduate from high school after
four years and the share of those immediately entering college who go on to obtain a degree
within 150 percent time (Figure 16). California lags the nation, however, in the share who enter
college immediately after graduating high school and, of those who do enter college, the share
who remain in college after one year.




Another way to look at the pipeline is in terms of the “loss rate,” that is, the percentage of
students who fail to make the transition at each key transition point. California underperforms
the US at two points: dropping out of high school and failing to make the transition from high
school to college. The students who are lost at these two transitions account for 62.0 percent of
those who fail to graduate from college within the 150 percent time period.




                                                21
                                        FINDINGS
Not all of the California students who drop out at one or another
transition point are low-income; however, many of the barriers       The percentage of
to access and success in postsecondary education particularly        Latino and black
disadvantage low-income students and working adults.
For example, low-income students face barriers to all three          high school graduates
components of access identified by the California Legislative         completing the
Analyst’s Office (LAO):
                                                                     necessary coursework
•   Access to opportunity – the opportunity to prepare for           for the UC and CSU
    college admission;                                               has declined. High
•   Financial access - or affordability; and
•   Informational access – information about admission
                                                                     attrition rates among
    requirements and the value of a postsecondary education.15       California’s college
                                                                     freshmen also appear
FINDING: Many Students Are Inadequately Prepared
                                                                     to be related to
for Postsecondary Education
                                                                     inadequate academic
 The percentage of California high school graduates completing       preparation.
the necessary coursework for the UC and CSU declined slightly
between 1995 and 2002 (Table 2). However, the statewide trend
masks differences among racial and ethnic groups. While the percentage of blacks and Latinos
                                                      completing all the necessary coursework
                                                      fell, the percentage of Asians and whites
       Table 2: Public High School Graduates
                                                      increased.16
    Completing Course Requirements for Entry
    to the UC or the CSU as a Percentage of All
                                                      Large numbers of entering college
    California High School Graduates by Race/
                                                      students need remediation (Table 3).17
                              Ethnicity
                                                      In 2003, 48.2 percent of CSU regularly
              Black Asian Latino White        All     admitted freshmen needed remediation
   1995       28.9% 55.3% 22.5% 38.7%       34.8%     in English and 36.7 percent needed
   2002       25.3% 57.5% 21.8% 40.3%       34.6%     remediation in math. Blacks were more
 Source: California State University
                                                      than twice as likely as whites to need
                                                      remediation, and more than half of all
Latino entering freshmen required some remediation. High attrition rates among California’s
college freshmen appear to be related to inadequate academic preparation.18

High School Dropouts and Returning Adults Need Special Avenues of Access

Students are more likely to enter and complete postsecondary education if they enroll in college
immediately following high school. However, increasing numbers of students do not follow the
traditional path. These include high school dropouts and adults – age 25 and over – returning
to the classroom after working, many of whom need remedial programs to adequately prepare
for academic coursework.

In California, there are two principal sources of adult education: adult schools – administered
by school districts or county offices of K-12 education – and non-credit programs at community
                                               22
colleges. These programs offer high school               Table 3: CSU Regularly Admitted First-
diploma/GED, English as a Second Language               Time Freshmen Requiring Remediation,
(ESL), and adult basic education courses.                              Fall 2003
                                                                               Needing       Needing
California’s investment in adult basic
                                                                             Remediation   Remediation
education per adult without a high school
                                                                               in Math      in English
diploma or GED ($90.84 in 2003) exceeded that
of many other states.19 However, the need              Female                     44.1%      50.1%
for adult education is also high in California.        Male                       26.1%      45.5%
According to the 2000 Census, nearly five               Black                      63.7%      68.9%
million California adults age 25 or older              Mexican
lacked a high school diploma or GED, and                                          52.0%      65.6%
                                                       American
almost 4.6 million adults, ages 18 to 64, spoke
                                                       Other Latino               50.3%      58.9%
English “less than very well.”20 Almost one
million (980,602) Californians ages 18 to 24           Asian                      30.0%      63.5%
lacked a high school diploma (29 percent of            White Non-Latino           26.3%      30.1%
the age group).                                        All Freshmen               36.7%      48.2%
                                                   Source: California State University
Adult education programs address only
a small fraction of the need for remedial
education.21 In many cases, the lack of effective coordination between adult education
programs, on the one hand, and academic and occupational programs, on the other, makes it
difficult for students who require remediation to transition into postsecondary education.

FINDING: Low-Income and Working Students Face Financial Barriers to
Accessing Postsecondary Education

                           California maintains comparatively low fees at public colleges and
  Financial barriers       universities and has recently expanded the availability of financial
                           aid. Nonetheless, financial barriers can prevent even well-prepared
  can prevent even         low-income students from pursuing higher education. Financial
  well-prepared            pressures also play an important role in causing low-income students
  low-income               to drop out of school before they attain a credential or degree.

  students from            College Costs Are a Burden for Low-Income Families, Despite Low
  accessing higher         Fees
  education.
                            Community college fees in California have been – and remain –
                            significantly lower than tuition or fees in any other state. In 2003-04,
California community college fees for full-time students were $540, compared to an average of
$2,155 in community colleges in the rest of the nation. Fees in the UC and CSU systems are also
low relative to national standards. In 2003-04, resident undergraduate student fees at the CSU
were approximately half of those in comparable institutions in other states; fees for resident
undergraduates at the UC were approximately 81 percent of those in comparable institutions.24

However, fees at California’s public colleges have been rising under the pressure of the state’s
budget squeeze. The UC and CSU increased undergraduate fees by 14 percent for the 2004-05
academic year, despite the fact that fees increased by 30 percent the previous year. Community

                                                  23
college fees increased to $26 a unit in 2004-05, an increase of $8 per unit from the previous
academic year.

For low-income families, even comparatively low fees constitute a substantial economic burden
(Table 4). The new UC fees equal more than one-quarter (25.9 percent) of the 2002 income of
families in the bottom fifth of the income distribution, and more than one-third (34.0 percent) of
the income of the bottom fifth of Latino families. The CSU is more affordable, but the fees still
exceed 10 percent of the income of families in the lowest income quintile.

California’s high cost of living adds to the financial strain of a college education. For 2003-04,
the CSU estimated the total cost of attendance for nine months to be $9,803 for students living
with parents, $13,803 for students living in campus housing, and $14,831 for students living off
campus.

            Table 4: New UC and CSU Fees as Percentage of 2002 Median Income

    Income              All               White                 Black              Latino                Asian
    Quintile      UC          CSU      UC       CSU        UC       CSU         UC       CSU           UC     CSU
        20th     25.9%     10.6%      19.6%     8.0%     30.9%     12.7%      34.0%     13.9%     26.3%       10.8%
        40th     14.6%        6.0%    11.7%     4.8%     17.0%       7.0%     21.0%      8.6%     12.8%       5.2%
    Median       11.6%        4.8%     9.3%     3.8%     14.2%       5.8%     17.2%      7.1%     10.2%       4.2%
        60th      9.2%        3.8%     7.6%     3.1%     10.8%       4.4%     14.2%      5.8%          8.3%   3.4%
        80th      5.9%        2.4%     5.2%     2.1%      7.0%       2.9%      8.9%      3.6%          5.6%   2.3%
   Source: CBP calculations based on Current Population Survey data and data from the UC and the CSU


Many California Students Receive Financial Aid, but Others Who Need Aid Are Excluded

Recent revisions to the Cal Grant program – California’s largest state student aid program
– expanded eligibility for student aid. The changes, authorized by SB 1644 (Ortiz, Chapter 403
of 2000), guaranteed that all eligible students will receive an award.

Cal Grants provide support to students attending vocational and occupational, as well as
academic, schools and programs. However, the Cal Grant program includes some restrictions
that may hurt working and returning students. Most importantly, financial aid is guaranteed
only to students who apply to a postsecondary institution within one year of completing high
school or a GED, and to community college transfer students under the age of 24. Competitive
Cal Grants are available to older and returning students, but funding for competitive grants is
limited and therefore available to fewer students. The state offers other financial aid programs
– including institutional aid through the UC and the CSU – that are available to returning
and older students, but it is significant that the guaranteed Cal Grant funding excludes them.
Students over 25 years of age constitute 44 percent of all college students in California and
nearly 25 percent of all full-time students.25 The Cal Grant program also excludes students who
are enrolled less than half time, even though nationally nearly half (41 percent) of independent
students working full time (35 hours per week or more) attend college on a less-than-half-time
basis.26


                                                           24
Finally, the maximum income level for eligibility for the Cal Grant B program, which was
designed for low-income students and provides funding for living expenses, is extremely low.
In 2004-05, a family of four could have an annual income of no more than $35,500 to qualify for
an award, an income that is below 200 percent of the FPL ($37,620 in 2003 for a family of four).27

FINDING: Low-Income and Working Students Face “Informational” Barriers That
Restrict Their Access to Postsecondary Education

Low-income students may also face “informational” barriers that              High school
restrict their access to postsecondary education. Lack of information        students may
about college entrance requirements can result in high school students
failing to take the required coursework. High school students may not        not understand
understand financial aid options, the college application process, and        financial
the alternative paths to a college degree.                                   aid options,
To minimize these barriers, California has implemented a host of             the college
outreach programs aimed at helping disadvantaged students – those            application
from population groups underrepresented in postsecondary education
                                                                             process, and
– to prepare for and enroll in college. The majority of these programs
are administered by the UC and many were implemented after a                 the alternative
decision by the UC Board of Regents in 1995 to prohibit campuses             paths to a
from using race, ethnicity, religion, sex, color, or national origin as
admissions criteria.28 Funding for outreach increased sharply between
                                                                             college degree.
1997-98 and 1999-00, but has declined since 2002-03.29

The recent proliferation of programs has led some observers to question the effectiveness of
the state’s outreach strategy. The LAO recently analyzed the outreach programs and found
that they fall into four categories: recruitment and the provision of information, academic
preparation, increasing the rate at which admitted students from underrepresented population
groups enroll at the UC and CSU, and research and evaluation of educational issues. The
LAO’s analysis concluded that California should evaluate all programs, reduce duplication, and
focus on those programs that provide direct services to students who have the greatest need.30

FINDING: Low-Income and Other Students Face Barriers to Advancement Within
                  Public Postsecondary Education
   Currently, the         Low-income and working students also face barriers to advancement
   standards for          within the higher education system, including barriers to
   transfer from          transferring from community colleges to four-year institutions. The
                          difficulty of the transfer process may affect low-income students
   community              disproportionately, since there is evidence that the community
   colleges to four-      colleges are a more important route for lower-income students to
   year institutions      gain access to a four-year college education than for more affluent
                          students.31
   vary by campus,
   major, and             Currently, the standards for transfer from community colleges to
                          four-year institutions vary by campus, major, and course. Transfer
   course.
                          rates also vary greatly from college to college.32 To minimize
                                                25
this problem, the Joint Committee to Develop a Master Plan for Education - the legislative
committee responsible for rewriting California’s Master Plan - recommends that the UC, the
CSU, and the community colleges coordinate their entrance requirements to enable students
to transfer credits freely among California’s public institutions.33 The Joint Committee also
suggests that policymakers evaluate the feasibility of developing a “transfer” associate’s degree,
which would guarantee admission to a UC or CSU campus.34

FINDING: Given California’s Budget Constraints, Any Strategy to Expand
Postsecondary Education Must Be Cost-Effective
                                                                             One option
California is most likely to succeed at expanding access to
postsecondary education if it finds a cost-effective strategy. One option     is to expand
is to expand the role of the community colleges in lower division            the role of the
undergraduate education, since the cost per full-time equivalent (FTE)
student in the community colleges is considerably lower than at the UC       community
and CSU.35 In 2003-04, state funding for each FTE student was $9,030 at      colleges in
the UC, $6,594 at the CSU, and $4,132 at the community colleges.             lower division
                                                                             undergraduate
FINDING: A College Education Is Not the Only Pathway to a
Well-Paying Job                                                              education.

While policymakers should ensure that low-income students have access to a college education,
college is not the only pathway to a higher-paying job for low-income youth and adults. Career
technical training may be a better option for many. The course of study leading to occupational
certificates or degrees is often shorter, and the training may be better geared to the specific
demands of the labor market and available job opportunities.

                               California has long recognized the importance of occupational
   The course of               training and has historically made a considerable public
   study leading               investment in career technical education:
   to occupational
                              •   The largest program is the vocational and technical
   certificates or                 education division of the community colleges, which served
   degrees is often               approximately 1.5 million students in 2002-03.36
   shorter than that          •   Three state-funded institutions also offer apprenticeship
                                  programs that serve large numbers of students – the
   leading to a college           community colleges, the Department of Education (CDE), and
   degree, and the                the Department of Industrial Relations (DIR).37
   training may be            •   The Cal Grant C program provides funding for tuition/fees
                                  and training-related expenses for vocational and occupational
   better geared to the
                                  training programs at community colleges and other
   specific demands                institutions.
   of the labor market        •   Finally, both the Workforce Investment Act (WIA) and the
   and available job              California Work Opportunity and Responsibility to Kids
                                  (CalWORKs) Programs provide support for vocational and
   opportunities.                 occupational training.38



                                               26
Despite this investment, California may not be taking full advantage of its career technical post-
secondary education programs. For example, not all community colleges offer a broad array
of career technical courses, particularly shorter, non-credit vocational course offerings. These
courses tend to be “more welcoming of low-wage students, more supportive of their short-term
goals.”39 One reason not all community colleges have extensive non-credit programs may be
that the reimbursement rate per FTE for non-credit courses is less than half that provided for
credit courses.40

The funding formula for adult schools may also negatively affect the ability of local school
districts to expand career technical programming in response to demand. The formula uses
the 1977-78 fiscal year as its base. Since then, there has been significant population growth in
some communities and very little in others. The enrollment growth caps in the funding formula
mean that some low growth districts are consistently over-funded relative to demand, while
other districts with high population growth are under-funded.41

FINDING: CalWORKs and the Workforce Investment Act Funds Can Be Used to
Provide Low-Income Workers a Pathway to Career Advancement

Most Californians find their way to postsecondary education and
training on their own. However, for some low-income Californians,            California has
the WIA and CalWORKs programs provide pathways to skills
                                                                             reduced funding
upgrading.
                                                                             for CalWORKs
California Has Reduced Funding for CalWORKs Education and                    education and
Training
                                                                             training in
CalWORKs provides time-limited cash assistance for eligible                  order to limit
low-income families, while helping adult recipients find jobs,                total state
enhance their skills, and overcome barriers to employment.42 Most
CalWORKs recipients are required to work or participate in work-             CalWORKs
related activities in order to receive cash assistance, employment           spending.
services, and subsidized child care.

California allows various education and training activities to count toward the work
participation requirement, including vocational training, adult basic education, and job-skills
training related to employment.43 In addition, counties may allow study time associated
with certain educational activities to count toward the work participation hours. CalWORKs
recipients who participate in education and training activities for less than the required
hours must work or participate in additional activities to meet the 32- or 35-hour per week
requirement for one- and two-parent families respectively.

However, California has reduced funding for CalWORKs education and training in order
to limit total state CalWORKs spending. In 2001-02, California provided $126.9 million for
remedial education and vocational training for CalWORKs recipients.44 The 2004-05 Budget Act
provides only $52.5 million for these services, a 58.6 percent reduction.

The 2004-05 budget agreement makes both positive and negative changes affecting CalWORKs
recipients who participate in education and training. On the one hand, the agreement allows

                                                27
CalWORKs recipients to participate in education, training, and other work activities for the
full 60 months that they may receive cash aid. Recipients are no longer required to have an
unsubsidized job and/or participate in community service in order to continue receiving cash
assistance after their initial 18- to 24-month period on aid.45 On the other hand, the budget
agreement requires CalWORKs recipients to participate for at least 20 hours per week in certain
“core” work activities, but limits the extent to which education and training count as core
activities.46

CalWORKs’ failure to place greater emphasis on education and training may be shortsighted.
Recent research finds that CalWORKs recipients who have left the California community
colleges experienced significant earnings increases between the year prior to entering
college and the second year after leaving college, regardless of the amount of education they
completed.47 However, the more education that CalWORKs students attained, the greater their
earnings, even for those who entered college without a high school diploma or equivalent.48

The WIA Funds Can Provide Career Advancement Opportunities for Low-Income Adults
and Youth and for Dislocated Workers

The WIA, passed by Congress in 1998 but not implemented in California until 2000-01, is the
primary federal workforce development program. The WIA funds can be used for adult basic
education and vocational training for low-income adults and youth, and dislocated workers.49

The WIA requires 19 federal programs to provide services through a network of One Stop
Career Centers that offer an array of employment and job training services to both job seekers
and employers.50 The WIA also established Workforce Investment Boards (WIBs) in each local
area, which are private sector-led boards charged with providing oversight and guidance to
these federally funded programs and to workforce development efforts more broadly.

The WIA, as envisioned by Congress, was a move away from traditional “second chance”
programs, such as the Job Training Partnership Act (JTPA) that preceded it, which focused on
low-income and other “disadvantaged” populations. Every Californian is eligible to receive
labor market information and job search assistance from a One Stop. More intensive services
are reserved for workers who are unable to obtain employment through job search assistance
alone.51

However, funding for the WIA has been insufficient to provide universal access. Funding
is relatively modest ($456.5 million for California in 2004-05) and has been declining. Since
2000, California has lost over one-quarter (27.5 percent) of its WIA funds due to federal budget
reductions. As a result, local areas are forced to choose between providing many job seekers
less intensive services or offering more intensive – and expensive – services to a smaller number
of job seekers.

Like CalWORKs, the WIA was based on a “work first” philosophy, which emphasized getting
workers into the labor market as quickly as possible. Critics argue that this has led to placing
participants in jobs, even very low-paying jobs, rather than providing opportunities that
upgrade skills and lead to higher earnings. Other aspects of the program undermine its ability
to provide high quality education and training. For example, the WIA reporting requirements
for institutions that provide training – including community colleges – are sufficiently complex

                                               28
and onerous that many postsecondary institutions have been discouraged from participating in
the program.

Despite these problems and limitations, One Stops can play an important role in career
advancement for low-income workers. One Stops introduce workers to a variety of programs
and can either directly provide funding for education and training or link interested workers to
other funding sources. One Stops can go a step further, as well. If mandated by the state or by
their local WIB, One Stops can provide low-income workers with continuous access to services
until each worker achieves the goal of career advancement and an agreed-upon “living-wage.”52
To achieve this goal, One Stops provide low-income workers services such as ongoing career
counseling and access to education and training after they enter the labor market.

                               RECOMMENDATIONS
Together, the findings of this report suggest that California has some policies in place that
help low-income and working students gain access to postsecondary education and training.
However, important barriers to access and success remain. The following recommendations
identify policy changes that reduce these barriers and improve low-income Californians’
chances for success in the labor market.


    Findings                                   Recommendations

  Many            Improve opportunities for high school dropouts and other working
  students are    adults to obtain the basic skills they need to qualify for admission to
  inadequately    postsecondary education.
  prepared for
  post-           •   Expand funding for adult education, focusing funds on districts with the
  secondary           greatest need. Although almost one million young Californians, ages 18
  education.          to 24, do not have a high school diploma or GED, the state awards only
                      about 17,000 GEDs each year to this age group. Increased funding for
                      adult education is essential; however, the need for such programs varies
                      considerably across the state. More than half of the one million young
                      people without high school degrees are concentrated within districts
                      located in just four counties – Los Angeles, Orange, San Diego, and San
                      Bernardino; more than one-third are in Los Angeles County alone.53

                  •   Improve connections between remedial, academic, and occupational
                      programs. The lack of coordination in many communities between
                      remedial adult education programs, on the one hand, and academic
                      and vocational programs, on the other, can slow the progress of adult
                      learners.

                  Expand programs in postsecondary institutions that improve retention
                  and completion rates for low-income and working students.

                  •   Expand student support centers to provide wider access to counseling

                                               29
.
                         and mentoring services; make child care services available nights
                         and weekends, as well as during the week; and include child care
                         stipends for low-income students as part of financial aid packages.
                         Colleges could also integrate remedial education into occupational
                         and academic programs, create shorter certificate programs, work with
                         employers to link courses more directly to job opportunities, and make
                         the scheduling of courses more flexible to accommodate the needs of
                         working adults.


    Low-income       Maintain and improve the affordability of postsecondary education.
    and working
    students         •   Keep fees modest, particularly in community colleges. Modest fee
    face                 increases at regular intervals may be necessary, but policymakers
    financial             should refrain from implementing major fee increases for
    barriers to          undergraduates, particularly for community college students. Low
    accessing            community college fees encourage low-income students and working
    post-                adults to enroll in college.54
    secondary
    education.       •   Maintain an adequately funded need-based financial aid system and
                         provide greater access to financial aid for working adults. Even if
                         fees remain low, a need-based financial aid system is essential to
                         making postsecondary education accessible for low-income students.
                         The Cal Grant program is a good start. Policymakers should ensure
                         that it is adequately funded to meet demand. Equally important,
                         the bias against working adults in the Cal Grant program should be
                         eliminated by guaranteeing aid to older students and those who are
                         returning to college after working or starting a family. Alternatively,
                         funding for competitive Cal Grants could be increased. The age cap
                         for community college transfer students to qualify for Cal Grants also
                         should be lifted. The income threshold for Cal Grant B should be
                         raised to at least 200 percent of the FPL, so that low-income families
                         currently excluded from the program are eligible for aid.


    Low-income       Provide California’s low-income youth and workers with the
    and work-        information they need to make informed decisions about
    ing students     postsecondary education.
    face “infor-
                     •   Evaluate California’s current outreach programs. California’s
    mational”
                         current outreach programs should be evaluated and funding should
    barriers that
                         be targeted to provide information and services to students who
    restrict their
                         would otherwise be unlikely to attend postsecondary institutions.
    access to
                         Community college outreach programs should be given higher priority
    postsecond-
    ary educa-           and strengthened.55
    tion.


                                                 30
.
                    •   Improve collaboration between California’s public postsecondary
                        institutions – particularly community colleges – and the Workforce
                        Investment Boards (WIBs) to ensure that One Stop Career Centers are
                        effective in informing low-income and dislocated workers about the
                        range of education and training programs available to them.


    Low-income      Coordinate course requirements so that students can transfer more
    and other       easily between community colleges and four-year colleges and
    students        universities.
    face barriers
    to advance-     •   Implement the recommendations of both the Joint Committee to
    ment in             Develop a Master Plan for Education and the California Performance
    public post-        Review to direct the UC, the CSU, and the community colleges to devise
    secondary           system-wide policies to enable students to transfer credits freely among
    education.          California’s public institutions.56



    Given           Increase enrollment in public postsecondary institutions by
    California’s    encouraging students to take lower division courses in community
    budget          colleges.
    constraints,
    any strategy    •   Increase the share of California students who take lower division courses
    to expand           in community colleges, since the cost per FTE is considerably less than in
    post-               the UC and the CSU.
    secondary
    education
    must be
    cost-
    effective.


    A college       Increase the availability of high quality vocational and technical
    education       training programs.
    is not the
    only path-      •   Increase the rate at which community colleges are reimbursed for non-
    way to a            credit courses. Moving the reimbursement rate for non-credit courses
    well-paying         closer to parity with credit courses would encourage community
    job. Career         colleges to expand their non-credit vocational offerings.
    technical
    education       •   Increase the number of postsecondary career technical programs. Often
    may be              credential programs are shorter than degree programs and can offer
    a better            adult students an expedited path to higher earnings.
    choice for
    many
    students.

                                                 31
.

    The WIA and   Increase funding for adult education, occupational skills training, and
    CalWORKs      other career advancement services for low-income workers by taking
    funding can   maximum advantage of the WIA and CalWORKs programs.
    be used
    to provide    •   Allow vocational education to count as a core CalWORKs work activity
    low-income        for up to two years and encourage CalWORKs recipients to participate
    workers a         in education and training. California previously allowed vocational
    pathway to        education to be counted for up to 24 months. The state should return
    career ad-        to this standard so that CalWORKs recipients can improve their skills
    vancement.        and obtain higher-paying jobs. Studies show that more education and
                      training leads to higher wages.

                  •   Make the goal of career advancement for low-income adults, youth, and
                      other workers with serious barriers to labor market success an important
                      priority for the federal WIA funds in California. Make a “living-wage”
                      the goal for low-income WIA participants and encourage One Stops to
                      continue to provide services to low-income participants until they reach
                      this goal.




                                              32
                                           Chapter 3
                         Maximizing Returns:
   Improving the Accountability of California’s Investments
                 in Economic Development

                                     BACKGROUND
Educational attainment and job training can only help low-wage workers move out of poverty
if there are sufficient well-paying jobs to employ them. Public investment can help build
a healthy economy by ensuring that businesses have access to a skilled workforce, quality
infrastructure, and a desirable quality of life for workers and their families. States, including
California, also spend large sums to promote certain types of economic activity, create markets
for state products, and promote private investment.

California has made significant investments in economic development; however, the state has
done little to evaluate whether this spending has achieved the desired policy goals. Moreover,
in many instances, the state has failed to collect the minimal amount of information that would
be needed to identify the outcomes associated with public spending. This chapter recommends
changes to improve the accountability of California’s economic development investments.

                                         FINDINGS
FINDING: California Lacks an Overarching Vision and Strategy to Guide Its
Investments in Economic Development

                       California’s economic development spending is scattered across more
                       than two dozen agencies, departments, boards, commissions, and
   There is no         authorities, as well as more than six dozen tax expenditures. Because the
   longer even         state’s primary economic development agency, the Technology, Trade,
   nominal state       and Commerce Agency, was eliminated in January 2004, there is no
                       longer even nominal state leadership for economic development.
   leadership
   for economic          Fragmentation results from the way economic development policy
   development.          is developed and from the lack of an overarching strategy to guide
                         state spending and policymaking. Many state economic development
                         programs were created to implement a “good idea” brought to a
legislator with little analysis of how well the program may fit California’s overall needs. Other
programs were created to take advantage of available federal funding. Since federal funding
is nearly always tied to specific activities, program administrators can get locked into activities
that may not work in California for fear of losing federal dollars. Once created, programs
are rarely eliminated; political priorities, the desire to take advantage of federal funds, and
the reluctance of institutions and organizations to change all work to make these programs
permanent.

                                                33
A lack of coordination also exists between the state and California’s large community of local
economic development programs, in both the public and private sectors. The vast majority
of state spending for economic development, including virtually all spending through the tax
code, bypasses the local economic development delivery system. The disconnect between state
and local programs weakens the efforts of both. State programs and policymakers fail to receive
the full benefit of the information networks and close-to-the-ground knowledge that local
program officials have of their own communities. Local programs, on the other hand, may fail
to reflect or be at odds with broader state and regional goals and priorities.

FINDING: Most Economic Development Spending Occurs Through the Tax Code,
Making It Difficult to Link Expenditures to Investment or Employment

More than two-thirds of California’s economic development
spending takes the form of tax expenditures. Economists use            California’s
the term “tax expenditure” to refer to efforts to achieve policy
goals through the tax code. The use of the term “expenditure”          extensive use of
highlights the fact that, from an economic standpoint, there is no     tax expenditures
difference between provisions that provide special tax treatment       for economic
for a specific industry or activity, and a grant or other traditional
spending program that supports the same industry or activity.          development
                                                                       raises the question
Tax expenditures or incentives include a range of credits,
                                                                       of whether this
deductions, and other forms of special treatment for a specific
industry or activity. Since tax expenditures reduce the amount         approach undermines
of revenues raised by the state’s basic tax structure, they force      the state’s ability to
the state either to increase the taxes paid by other businesses
                                                                       target and achieve
or individuals or to reduce public services. Tax expenditures
also tend to be less visible and less tightly controlled than direct   specific outcomes.
program expenditures (or “on-budget” expenditures), which are
reviewed as part of the state’s annual budget process. On-budget
economic development programs, for example, receive a fixed dollar appropriation through the
annual budget act, which determines the amount of services that can be provided. There is no
such limit on most tax expenditure programs, leaving the state with an open-ended financial
obligation.

California’s extensive use of tax expenditures for economic development also raises the question
of whether this approach undermines the state’s ability to target and achieve specific outcomes.
One important question, for example, is whether businesses are receiving tax credits for
investments or activities that would have occurred in the absence of the incentive. Moreover,
it is extremely difficult to link tax expenditures to changes in investment or employment, since
reporting requirements for businesses claiming tax expenditures are minimal or nonexistent.
Policymakers would have difficulty determining, for example, whether a particular tax credit
created the promised number of high-paying jobs, or whether it brought promised new jobs
into an economically distressed community.




                                                 34
FINDING: There Is Little Accountability for Most Economic Development
Expenditures

Although California’s economic development expenditures represent a
major investment of the state’s resources, there is very little evaluation
of whether this investment achieves the desired outcomes. On much            Most economic
of its economic development spending, the state does not collect even        development
the minimal information needed to determine whether the benefits of           funds go to
the programs are commensurate with their cost.
                                                                             general support
Economic development programs cost California $7.8 billion in FY             for business.
2000-01, equivalent to 9.7 percent of General Fund expenditures.
However, that same year only 17 percent of economic development
spending went to programs with evaluation or outcome-based review. Over two-thirds went to
programs that had no provision for evaluation or review.57

Meaningful evaluation of state economic development activities cannot occur without basic
data collection. Currently only a few programs collect the information needed to assess
outcomes and efficiency. Even fewer programs regularly make this information available to
policymakers and the public.

The fact that most economic development spending is financed through the tax code increases
the lack of accountability. The majority of this spending has no reporting requirements or
mechanisms for assessing outcomes. The lack of reporting makes it difficult for policymakers to
evaluate program effectiveness or determine when policy goals need to be revised.

FINDING: Most Economic Development Funds Go to General Support for Business

California’s economic development investments strive to achieve differing goals. State
economic development spending can be classified into eight functional categories:

•   Developing products and improving manufacturing processes;
•   Promoting research and technology;
•   Developing local economies;
•   Planning and management support for business;
•   Facilitating regulatory compliance;
•   Developing a skilled workforce;
•   Business capital and funding; and
•   Marketing and international markets.

Most of the state’s spending (51.6 percent) in 2000-01 went to general planning and
management support for business. Promoting research and technology received the second
largest share of spending (15.4 percent); and developing a skilled workforce received the third
largest share (14.3 percent).58




                                                 35
Overall, California devotes a relatively small percentage of its economic development dollars to
workforce development. Further, the workforce development programs with the most direct
economic development goals target very little of their funding to low-income workers.

FINDING: Very Little of the Funding to Train Employed Workers Targets Low-
Income Workers

Workforce development programs generally have dual goals:
creating the skilled workforce the state’s employers need and              California’s two
improving the employment prospects of California’s workers.
                                                                           major programs
Workforce development programs include many of the vocationally-
oriented programs discussed earlier in this report, including adult        for training
education, career technical education, and the Workforce Investment        incumbent
Act.59
                                                                           workers place
Some workforce development programs have very specific economic             little direct
development goals; these include programs to train employed, or            emphasis on
“incumbent,” workers. Incumbent worker training programs are
designed to improve both companies’ productivity and workers’              low-wage
wages by upgrading the skills of existing employees and new hires.         workers.

California was a pioneer in incumbent worker training. California’s
Employment Training Panel (ETP) was among the first – and remains one of the largest –
incumbent worker training programs in the nation. The Economic and Workforce Development
Program of the California Community Colleges also trains incumbent workers.

However, California’s two major programs for training incumbent workers place little direct
emphasis on low-income workers. Most ETP funding is restricted to companies that face out-
of-state competition and only 10 percent of the training funds are used for “special employment
training” projects, including serving low-income workers. Similarly, a small fraction of funds
in the Economic and Workforce Development Program of the California Community Colleges is
directed at CalWORKs recipients.

There is evidence to suggest that these programs may benefit some low-wage workers, despite
the fact that most of the spending does not directly target them; for example, ETP training
focuses on production and other front-line workers. Evaluations of the ETP suggest that it
improved the wages of workers who participated in training, particularly low-wage workers.
Average wages of the new hires who received training were initially quite low ($18,570); those
who completed training experienced an increase of $4,647 over those who did not complete the
program. Trainees with the lowest pre-training earnings experienced the largest earnings gains.
Training also appeared to improve employment stability. 60




                                               36
                                   RECOMMENDATIONS

  Findings                                         Recommendations

California        .   Adopt a unified economic development strategy and focus
lacks an              spending on programs that will provide the maximum benefit to all
overarching           Californians.
vision and
strategy to           •   Adopt a comprehensive economic development strategy to guide state
guide its                 economic development programs and spending. Policymakers must
economic                  establish clear strategic priorities for economic development spending
develop-                  and target the state’s investments to programs that provide maximum
ment in-                  benefit to all Californians, including low-income workers.
vestments.


There is little       Develop accountability standards for economic development
accountabil-          programs.
ity for most
economic              •   Focus economic development investments on areas of strategic
development               importance to California and use performance standards to hold
expendi-                  recipients of economic development incentives accountable for the
tures; most               delivery of promised jobs and investment. A thorough review of
economic                  current tax expenditures should be undertaken as part of an assessment
development               of current spending. All economic development programs should
spending                  be required to collect basic data on their performance. Policymakers
occurs                    should use outcome measures to evaluate the effectiveness of economic
through the               development spending. An outcome-based evaluation process should
tax code and              identify desired outcomes; select measures or indicators; set standards
goes to gen-              for performance and outcomes; report results; and use outcome and
eral support              performance information for planning, managing, and budgeting.
for business.



California            Make low-income workers an important focus of the state’s
makes a rel-          incumbent worker training programs.
atively small
investment            •   Launch a comprehensive effort aimed at improving the skills of low-
in workforce              wage workers. Over the past decade there have been scattered efforts
development               – some state and some local – to develop incumbent worker training
and very                  programs for low-income workers. The state’s two major incumbent
little of the             worker training programs – the ETP and the Economic and Workforce
funding to                Development Program of the California Community Colleges – have
train                     funded projects focused on low-income workers. California has not,
employed                  however, launched a comprehensive initiative aimed at improving the
workers                   skills and wages of its lowest-income workers.

                                                  37
targets low-   Evidence from California and other states suggest that programs
income         aimed at helping workers move from lower-skill to higher-skill jobs
workers.       – either within the same company and industry or across companies
               and industries – can boost earnings and help companies address skill
               shortages. These kinds of programs are based on close and long-
               term public-private partnerships. One approach to building these
               partnerships is through a focus on industry sectors, that is, on groups
               of firms within an industry that have common needs. Both the ETP and
               the Economic and Workforce Development Program of the California
               Community Colleges fund sectoral projects. In both cases, however,
               decisions about which industries to focus on and what priorities to set
               are made in the absence of overarching state priorities established as
               part of an economic development plan. Priorities for other funding that
               can be used for incumbent worker training – such as the Governor’s
               discretionary funds from the WIA – are similarly set in isolation.
               An effort focused on low-income workers should be driven by an
               overarching strategy and coordinated to take maximum advantage of
               the different funding streams.




                                       38
                                                   Chapter 4
                             A Shared Prosperity:
      Do California’s Public Policies Ensure That Low-Income
        Workers Share in the Prosperity They Help Create?


                                            BACKGROUND
Education and training alone will not provide a path out of poverty for all of California’s low-
income workers. Over the past decade, relatively low-skill jobs have dominated the labor
market and economic forecasts project that low-wage jobs will continue to comprise the largest
share of the state’s employment over the next decade. Public policies can play a critical role in
ensuring that low-wage workers share in the economic prosperity that their work helps create.
Many of these policies are of concern to employers, as well. High housing, health care, and
child care costs can make it difficult for businesses to attract the workforce they need.

This chapter examines the state’s current labor market and the changes projected to occur over
the next decade. It finds that because low-wage jobs will continue to employ large numbers of
Californians, public policies that support and supplement the work of low-wage workers will
remain important to the well-being of many of the state’s residents. The chapter concludes with
recommendations for strengthening policies that support California’s low-wage workers and
their families.

Low-Wage Jobs Will Continue to Dominate the California Economy

High-skill jobs are a key to the competitive future of the California economy, and education
and training improve the wages of individual workers. Nonetheless, for policymakers, the
other side of the economic picture is equally important. Low-skill, low-wage jobs employ many
more of California’s workers than high-skill, high-wage jobs – both now and for the foreseeable
future.
                                                    Table 6: How Do Wages Compare?
In 2003, more than one-quarter (27.5                                                          Hourly       Annual
percent) of California jobs were in                                                            Wage       Income**
occupations that paid a median wage         2003 State Median Wage*                           $15.65       $32,552
of $10 or less per hour, equivalent to
an annual salary of $20,800 or less for     2003 State Minimum Wage                            $6.75       $14,040
full-time, year-round work (Figure
17). Over half (52.4 percent) of the        2003 Federal Poverty Level for a
                                                                                               $9.04       $18,810
state’s jobs were in occupations that       Family of Four
paid a median wage of under $15 per       *All wage and salaried employees (excluding the self-employed).
                                          **Assumes 40-hour workweek, 52 weeks per year.
hour, equivalent to an annual salary of Source: CBP analysis of Current Population Survey and US Census Bureau data
$31,200 or less for full-time, year-round
work. For comparison, the 2003 federal poverty level (FPL) for a family of four translates into
$9.04 per hour for full-time, year-round work (Table 6).

                                                        39
Between July 2003 and July 2004, the California economy added 158,600 new jobs, many of
which were in industries that paid below-average weekly wages (Table 7). Almost one-third
(31.5 percent) of the state’s new jobs were in temporary employment services, 15.3 percent were
in retail trade, and 9.8 percent were in the leisure and hospitality industry.

Over the Next Decade, Most
Jobs Will Continue to Be          Table 7: Many of California’s New Jobs Pay Below-Average
Low-skill                                                   Wages
                                                                           Change in
                                                                                            Share of
Over the next decade, low-                                    Average       Employment,
                                                                               July 2003      Employment
skill jobs will continue to                                    Weekly                           Growth
dominate the labor market.                                   Pay (2003)       - July 2004
Growth rates of many high-       Construction                   $818             31,900          20.1%
skill occupations will exceed Health Care and
that of low-skill occupations, Social Assistance                $762             25,200          15.9%
but the numerical gain in        Retail trade                   $543             24,300          15.3%
low-skill jobs will be much
                                 Employment Services            $473             49,900          31.5%
greater. The high percentage
growth rates in some high-       Leisure and
                                                                $387             15,600           9.8%
                                 Hospitality
skill occupations reflect the
fact that they employed          All Other                       N/A             11,700           7.4%
relatively few workers           Total - All Industries         $805            158,600         100.0%
in 2000, so even a small       Source: CBP analysis of Employment Development Department data
numerical increase translated
into a large percentage increase. On the other hand, relatively small percentage increases in
low-skill occupations that employ thousands of workers translate into large numerical gains.

                                                   40
In 2010, high-skill jobs will
                                     Table 8: Required Level of Education or Training for
be a slightly greater share
                                                 California Jobs, 2000-2010
of all jobs than in 2000,
                                                             Percentage    Percentage    Percentage
but almost seven out of 10
                                                               of 2000       of 2010       of New
jobs (68.8 percent) in 2010                                     Jobs          Jobs         Jobs61
will require only work
experience and/or on-the-        Bachelor’s Degree or
                                                                21.4%         23.0%         30.1%
                                 Higher
job training (Table 8).
                                 Associate Degree               3.8%           4.2%          6.1%
Occupations with the            Vocational Education                 4.0%            4.0%      4.1%
highest projected growth        Work Experience /On-
rates are professional                                              70.8%           68.8%     59.7%
                                The-Job Training
and related occupations        Source: CBP analysis of Employment Development Department data
(35.1 percent); health
practitioners and technical occupations (28.8 percent); and service occupations (27.0 percent)
(Figure 18). These broad occupational categories include both high-skill and low-skill
jobs. Relatively low-skill occupations with high growth rates include personal care and
service occupations; protective service occupations; and building and grounds cleaning and
maintenance occupations.

Jobs that are forecast to post lower growth rates include occupational categories that have
traditionally offered moderate or higher wages to workers without postsecondary education
(Table 9). For example, production occupations and installation, maintenance, and repair
occupations are forecast to decline as a share of all jobs.




                                                    41
Many Jobs Will Offer         Table 9: Occupations as a Percentage of All Jobs and New Jobs,
Low Wages                                               2000-2010
                                                          Percentage
 Many of the state’s
                                                                of 2000        Percentage  Percentage
jobs will continue to     Occupational Categories                 Jobs        of 2010 Jobs of New Jobs
pay low wages. In
                          Management, Business, &
2010, only 16.4 percent                                          10.0%            10.2%       11.0%
                          Financial
of all jobs are forecast
                          Professional & Related
to pay a median                                                  19.5%            21.6%       30.8%
                          Occupations
hourly wage above $30
(Table 10). In contrast, Service Occupations                     17.0%            17.7%       20.7%
more than one-quarter     Sales & Related
                                                                 10.5%            10.3%        9.8%
(26.5 percent) of all     Occupations
jobs are forecast to      Office & Administrative
                                                                 18.8%            17.4%       11.2%
pay a median hourly       Support Occupations
wage of $10 or below,     Farming, Fishing, & Forestry            0.2%             0.2%        0.2%
which translates into     Construction & Extraction               4.6%             4.7%        5.0%
an annual income          Installation, Maintenance, &
of $20,800 or less for                                            3.5%             3.4%        2.6%
                          Repair
full-time, year-round     Production Occupations                  8.7%             7.5%        2.4%
work. Slightly more
                          Transportation & Material
than half of jobs are                                             7.1%             7.0%        6.4%
                          Moving
forecast to pay $31,200
                         Source: CBP analysis of Employment Development Department data
or less for full-time,
year-round work. Two-thirds of jobs are forecast to pay $41,600 or less for full-time, year-round
work.


                                           FINDINGS

  Table 10: 2010 Projected Jobs by          For the foreseeable future, thousands of California
        Median Hourly Wage                  workers will have jobs that pay too little to support a
    Median         Number
                                            family. Low-income California families also face the
  Hourly Wage      of Jobs                  additional burden of living in a high-cost state. For
                                            example, housing costs in many parts of California
 $10.00 or
 Below
                  4,366,200      26.5%      are unaffordable by national standards.
 $10.01-$15.00    3,931,400      23.9%
                                                Public policies can make a major difference in the
 $15.01-$20.00    2,498,800      15.2%          lives of families who live on the economic edge. A
  $20.01-$30.00 2,959,600             18.0%     variety of state programs and policies support low-
  $30.01 and                                    income workers. Some provide access to necessities,
                       2,700,000      16.4%
  Above                                         such as health care and child care. Others, such as
 Source: CBP analysis of Employment Development the state’s minimum wage – which exceeds that of the
 Department data                                nation – can boost low-income families’ earnings from
                                                work. While California has taken a number of steps
to support the state’s families who are working, but remain poor, additional steps are needed to
help many of the state’s hardest working families make ends meet.


                                                  42
FINDING: Affordable Housing Is Scarce in Many California Communities

Housing constitutes the single largest expenditure of most California
families, and the state suffers from an acute shortage of housing that is
affordable for even middle-income families. For low-income families,         California
the situation is more serious. In July 2004, just 18 percent of California   suffers from an
households could afford to purchase the median priced house, down
                                                                             acute shortage
from 27 percent in July 2003.61 In 2003, seven of the 10 most expensive
counties for rental housing were in California.63 In 2002, 58.0 percent      of housing that
of California households owned their own homes, compared to 67.9             is affordable for
percent in the nation as a whole. Renters have an equally difficult time
                                                                             even middle-
finding affordable housing. In 2004, a minimum-wage worker would
have to work 54 hours per week to afford a one-bedroom apartment in          income families.
Bakersfield, one of the state’s most affordable housing markets. In San
Jose, a minimum-wage worker would have to work 168 hours per week
to afford the same unit.64

California’s housing crisis has its roots in a fundamental mismatch between supply and
demand, particularly the supply of housing that is affordable to low-income families. In urban
areas of the state, low-income renter households exceeded affordable units by a ratio of 2.3-to-1
in 2001.65 Between 1994 and 2002, the state added three jobs for each new unit of housing, twice
the 1.5-to-1 ratio recommended by housing policy experts. In Los Angeles County, job growth
exceeded housing production by a ratio of 5.2-to-1.66 Multifamily housing construction, in
particular, has not kept pace with projected need. In 2002, multifamily housing was about one-
quarter (26.2 percent) of total new construction, down from nearly two-thirds in 1970.67 Limited
supply has pushed prices higher and has made it difficult for young families – those headed
by individuals in their twenties and thirties – to purchase their own home. Between 1979 and
2002, the homeownership rate for families headed by individuals in their thirties dropped
dramatically, from 61.0 percent to 47.8 percent.68

In some instances, state and local public policies have exacerbated, rather than alleviated, the
housing shortage. Most importantly, in the wake of Proposition 13, California’s fiscal structure
has made the development of housing – particularly affordable housing – relatively unattractive
to local policymakers. Proposition 13’s restrictions limiting tax assessments on residential
property have had the unintended consequence of making it difficult for communities to
recover the cost of providing the infrastructure and public services associated with the
development of new housing. Instead, local areas favor retail developments that generate sales
tax revenues. Financial pressures on local governments also encourage the development of
“high end” rather than affordable housing. More expensive housing produces higher property
tax revenues, while requiring comparable levels of public infrastructure and services.

California has also suffered from a lack of federal investment, which has failed to keep
pace with the need for housing assistance. Most federal assistance comes in the form of
tax preferences for homeownership and provides little help to low- and middle-income
Californians, who face the most serious housing problems. Many of the projects built with
federal assistance for lower-income households have reached the end of their contract requiring


                                                43
affordability, putting a significant fraction of California’s affordable housing stock at risk of
conversion to market rate housing as landlords choose to “opt-out” of their federal contracts.
In the past eight years, California has lost more than 26,000 affordable housing units through
opt-outs and contract pre-payments, with the largest losses in Alameda, Los Angeles, Orange,
Sacramento, San Diego, and Santa Clara counties. An additional 46,000 units are at risk, which
would further reduce the stock of housing available to California’s low-income families.69

The state made a major investment in housing programs in the boom year of 2000; however,
this commitment to affordable housing has eroded significantly in subsequent years in response
to the state’s lingering budget crisis. In November 2002, voters approved a bond measure
providing $2.1 billion to supplement state housing programs. However, at the same time,
policymakers eliminated most General Fund monies for housing programs, leaving a significant
unmet need.

FINDING: Increasing Numbers of Californians Lack Health Care Coverage

The cost of health coverage presents a formidable barrier to the
rising number of Californians, particularly low-income Californians,      Low-income
who lack job-based health coverage. In 2003, 6.5 million
Californians, including 1.2 million children, lacked health coverage      workers, who can
and the number of uninsured Californians rose by 200,000 between          least afford to
2000 and 2003. California ranked fourth in the nation with respect
                                                                          purchase coverage
to the percentage of people without health coverage in the three-
year period from 2001 to 2003, behind Texas, Louisiana, and New           out-of-pocket,
Mexico.70 The share of Californians covered by employer-sponsored         are least likely
health coverage also lags the nation, and the number has declined.
The share of Californians with job-based health coverage fell from        to have job-
56.9 percent to 55.5 percent between 2002 and 2003, a decline of          based coverage.
367,000 individuals.71

Most of the state’s uninsured adults are workers, with nearly one out of seven (14.5 percent) of
California’s workers lacking health coverage in 2001.72 Nearly two-thirds (61.6 percent) of the
state’s uninsured workers were employed in firms that did not offer health coverage to their
workers and nearly one-quarter (24.3 percent) were not eligible for the coverage offered by
their employer. The remaining 14.1 percent did not take up their employer’s coverage, most
frequently because of cost. Low-income workers, who can least afford to purchase coverage
out-of-pocket, are least likely to have job-based coverage. Only one-fifth (20.5 percent) of adults
between the ages of 18 and 64 with incomes below the FPL had job-based coverage; and 44.4
percent with incomes between the FPL and 200 percent of the FPL had job-based coverage. In
contrast, 83.7 percent of adults in families with incomes above 300 percent of the FPL had job-
based coverage.73

Public programs help to fill the gap by providing coverage to low-income families, children,
and seniors. The Medi-Cal Program, California’s Medicaid program, provides health coverage
to 6.7 million low-income Californians who lack health coverage.74 California provides coverage
to low-income children and to working parents in families with incomes up to the FPL. The
state’s Healthy Families Program, supported by state funds and federal dollars through the


                                                44
State Child Health Insurance Program (SCHIP), provided coverage to nearly 670,000 children in
families with incomes up to 250 percent of the FPL in June 2004.75

While California has simplified program rules in order to boost publicly supported health
coverage in recent years, a significant number of California’s uninsured are eligible for, but not
enrolled in, Medi-Cal or the Healthy Families Programs. In 2001, researchers identified 820,000
children and adults who were eligible for Medi-Cal, but not enrolled, and 301,000 children who
were eligible for, but not enrolled in, the Healthy Families Program.76

However, even if all of those currently eligible for coverage were enrolled, large numbers
of working poor families, particularly adults, would remain uninsured. California received
permission to use its federal SCHIP funding to expand the Healthy Families Program to
parents in families with incomes of up to 200 percent of the FPL. This expansion was never
implemented due to the state’s budget crisis, which limited funds available to pay the state’s
share of the proposed expansion.

FINDING: State Support for Child Care Has Failed to Keep Pace with Need

For many working families with children, the cost of child care can
be prohibitive. The cost of child care may rival, and even exceed,
that of housing for working families with young children.77 In 2003,
                                                                               The cost of child
for example, full-time child care for a preschool-aged child and               care may rival,
after-school care for a school-aged child averaged a total of $922 per         and even exceed,
month. While the state provides assistance for qualifying families,
the demand for state-supported child care far exceeds the available            that of housing
supply. Lengthy waiting lists for subsidized child care “slots” are the        for working
norm throughout California. A 2001 estimate suggests that over one-            families with
quarter of a million children were in need of and eligible for child care
assistance but not able to obtain it due to limited funding.78 Recent          young children.
policy changes, made in response to the state’s lingering budget crisis,
have restricted, rather than expanded, access to the state’s subsidized
child care programs.

Families who receive subsidized child care fall primarily into two categories: those who obtain
child care through CalWORKs and those who do not. Current and former CalWORKs families
are served through three “stages” of child care administered by county welfare departments
and the California Department of Education (CDE).79 Other low-income families may enroll
their children directly with a state-contracted child care center, receive a voucher to enroll in a
local child care center or family child care home program, or arrange informal license-exempt
care.

Since funding has not met the demand for child care, eligible children remain on waiting
lists until funded slots become available. Recent budget reductions have restricted access
by reducing the maximum age at which a child qualifies for care from 13 to 12 years of age,
reducing the maximum reimbursement rate for child care providers, and eliminating eligibility
for certain families whose incomes were greater than 75 percent of the state median income.80



                                                 45
FINDING: Food Stamp Program Could Supplement Low Wages, but Almost Half
of Eligible Californians Do Not Receive Aid

Food stamps can help supplement the wages of the lowest-paid                   California
workers at little cost to state and local budgets. However, almost half        failed to receive
(46 percent) of the Californians who are eligible for food stamps did
not receive them in 2001. 81 As a result, California failed to receive         millions of
millions of dollars from the federal government that could have                dollars from
improved the living standards of its poorest residents.
                                                                               the federal
The Food Stamp Program provides assistance that helps low-income               government
households purchase the food they need to maintain adequate                    that could have
nutritional levels.82 The federal government pays the full cost of food
stamp benefits for all eligible households, while the federal, state, and
                                                                               improved the
county governments share the cost of administering the program.83              living standards
                                                                               of its poorest
In 2003, California expanded eligibility for food stamps in two
important ways. First, the state created a Transitional Food Stamps            residents.
Program, which provides five months of continuous food stamp
eligibility for families who leave CalWORKs cash aid. Second, the
state excluded the value of an applicant’s vehicle in determining food stamp eligibility and
eliminated face-to-face interviews as an application requirement. These changes allow families
to qualify for food stamps while maintaining a functioning automobile and make it easier for
families to complete the application process.

FINDING: A State Earned Income Tax Credit Would Help Boost the Earnings of
Working Families

One of the most powerful tools available to boost the incomes of the working poor is the federal
Earned Income Tax Credit (EITC). In 2001, 2.3 million California households, nearly one out
of every six tax returns filed, claimed $3.9 billion in federal EITC benefits.84 The EITC works
                           by using the tax system to target cash assistance to low-income
                           households with earnings from work. The amount of assistance
                           provided by the credit is based on a family’s size and income. Twelve
    A state EITC           states – Colorado, Illinois, Indiana, Kansas, Maryland, Massachusetts,
    would work in          Minnesota, New Jersey, New York, Oklahoma, Vermont, and
                           Wisconsin – and the District of Columbia have refundable state EITCs
    tandem with the
                           that complement the federal credit and boost the incomes of the
    federal credit         working poor.85 Five additional states have nonrefundable credits.
   to boost the
                          Most state EITCs are patterned after the federal credit. By linking
   earnings that          state eligibility rules to those of the federal credit, California can take
   low- income            advantage of federal compliance efforts and can coordinate efforts
   families receive       to publicize the availability of the credit so that families receive the
                          benefits for which they are eligible. In 2003, the federal EITC assisted
   from work.             families with income from work of up to $29,666 (one child) and of
                          up to $33,692 (more than one child). A small credit is also available to
                                                46
childless workers with incomes of up to $11,230.
Refundability is a key feature of the EITC. Refundable tax credits are paid to families regardless
of whether they owe income tax. The EITC is first used to reduce a family’s tax liability, with
any remainder returned to the family in the form of a refund. For California, refundability is
particularly critical since the state’s personal income tax threshold – the income level at which
families begin to owe taxes – is so high. A married couple with two children had no 2003
state income tax liability unless their income exceeded $43,190, while a single mother with
one child would not pay state income taxes unless she earned in excess of $34,790.86 Thus, a
nonrefundable credit would provide minimal or no benefit to most California families who
qualify for the federal EITC. While lower-income California families have no income tax
liability, they do pay payroll, sales, and excise taxes. In fact, the lowest-income 20 percent of
California families pay a greater share of their income toward California state and local taxes
than does any other income group.87

           Table 11: What Would a State EITC Mean for Low-Income Working Families?

                                                           State EITC              Percentage
                                   Percentage               Equal to                   of
                                     of 2003     2003      15 Percent                 2003
                         Gross      Poverty     Federal    of Federal               Poverty
                        Earnings   Threshold     EITC        Credit      Total     Threshold

    Family of four
    supported by:

    Full-time
    minimum wage        $14,040       75%       $4,204       $631       $18,875      100%
    work

    Earnings
    equivalent to the
                        $18,810      100%       $3,373       $506       $22,689      121%
    federal poverty
    line

    Two full-time
    minimum wage        $28,080      149%       $1,394       $209       $29,683      158%
    workers

    Family of three
    supported by:

    Full-time
    minimum wage        $14,040       96%       $4,142       $621       $18,803      128%
    work

    Hourly equivalent
    of the federal      $14,680      100%       $3,973       $596       $19,249      131%
    poverty line

    Full-time work
    at 150% of the      $21,060      143%       $2,657       $399       $24,116      164%
    minimum wage




                                                47
A state EITC would work in tandem with the federal credit to boost the earnings that low-
income families receive from work. The income of a family of four supported by a full-time
minimum wage worker still falls below the FPL. The combination of the federal and a state
EITC would raise the same family to the poverty level (Table 11). In 2003, a state credit equal to
15 percent of the federal credit, for example, would have provided a maximum of $631 per year
to a family with more than one child and up to $382 per year for a family with one child.

Families who claim the EITC use it to make major purchases, including investments in
education and housing that can help improve their economic well-being. One study found that
over half of the families surveyed purchased furniture or appliances, with a sizeable fraction
using their credit to purchase a car or save for a down payment on a home.88 Other researchers
found that paying outstanding bills accounted for the most prevalent use of families’ EITC,
while approximately one out of six used the money they received for tuition or other education-
related expenses.89 Both groups of researchers found that many families save at least a portion
of their credit for major investments or emergencies.

FINDING: Increases in the Minimum Wage Have Boosted the Earnings of Low-
Wage Workers Without Costing Jobs

                         Many California families depend on the earnings of workers employed
                         at or near the minimum wage. Counter to popular stereotypes,
  Counter                California’s low-wage workers are predominantly adults working
  to popular             full-time.90 In 2003, more than six out of 10 California workers earning
  stereotypes,           within one dollar per hour of the state’s minimum wage ( $6.75 per
                         hour) were age 25 or older, while only about one out of six (16.9
  California’s           percent) were teens. More than half (54.1 percent) of these workers
  low-wage               were Latino and nearly two-thirds (60.7 percent) were full-time
                         workers.
  workers are
  predominantly            Beginning in 1996, a series of federal and state actions increased
  adults working           California’s hourly minimum wage from $4.25 in 1996 to $6.75 in
                           2002, boosting the earnings of the working poor.91 Between 1996 and
  full-time.               2003, the inflation-adjusted hourly wages of the lowest-wage workers
                           – those at the 10th percentile of the earnings distribution – rose by a
greater percentage than the wages of the median California worker – the worker at the middle
of the earnings distribution (19.9 percent versus 9.9 percent). In contrast, low-wage workers lost
ground between 1990 and 1996, when the minimum wage was not increased.92 While the recent
increases have partly reversed the erosion in the purchasing power of California’s minimum
wage, the inflation-adjusted value of the minimum wage remains 28 percent lower than it was
in 1968. Since 2002, the purchasing power has dropped $0.33, a 4.7 percent decline. Absent
further increases, its value will continue to deteriorate.93

California’s experience provides little evidence to support the claims of critics that raising the
minimum wage costs jobs, particularly in industries that depend heavily on low-wage workers,
such as restaurants and retail trade. Between 1997 and 2003, for example, the average annual
growth in both food service and retail trade employment outpaced the average annual increase
in total wage and salary employment in California.


                                                48
FINDING: Many Low-Income Workers Fail to Qualify for Unemployment Insurance

The Unemployment Insurance (UI) program provides income
support to workers who lose their jobs through no fault of their own.       Transitional
Transitional support is particularly important for low-income working
                                                                            support is
families, who are less likely to have savings to tide them over between
jobs.                                                                       particularly
                                                                            important for
California’s UI system, however, fails to meet the needs of many of
the state’s low-wage workers. This is primarily because the method
                                                                            low-income
used to determine eligibility for UI benefits can deny or delay benefits      working
payments to workers, particularly low-wage workers, with significant         families, who
recent earnings. The formula used to determine eligibility looks at
earnings in the first four of the five most recently completed quarters,      are less likely to
ignoring any earnings in the current or most recently completed             have savings to
quarter. This rule disadvantages recent entrants to the labor market,       tide them over
including families leaving welfare for work. In fact, only 46 percent of
California’s unemployed workers received UI benefits in 2003.94              between jobs.

Historically, California’s UI benefit levels have been low relative to
those of other states. Recent increases have improved California’s benefit levels, but benefits
remain moderate compared to other states. In 2001, prior to the increases, California’s average
weekly UI benefit payment ($169.32) was higher than only that of Alabama and Mississippi and
far below the US average ($234.73). In the fourth quarter of 2003, California’s average weekly
benefit ranked 28th among states ($250.69, compared to the US average of $261.44). Despite
higher benefits, UI payments in California replaced only 31.4 percent of the average weekly
wage of UI recipients in 2003. On this wage replacement measure, California ranked 45th among
states.95

FINDING: Living-Wage Policies Ensure That Public Dollars Do Not Subsidize Low-
Wage Work

                            A growing number of California cities and counties, including
                            the cities of Sacramento, Los Angeles, Oakland, Sonoma, and San
   A growing number         Jose, have adopted ordinances that require businesses that receive
   of California            public contracts to pay a “living-wage” to their employees. Living-
   cities and counties      wage policies typically require businesses that contract with public
                            agencies to pay their workers a wage that exceeds the minimum
   have adopted             wage. Many living-wage policies establish multiple wage floors,
   ordinances that          requiring firms that do not, for example, provide health coverage
   require businesses       to their workers to pay more than those that do. Many living-wage
                            policies are tied to the FPL, based on the assumption that full-time
   that receive public
                            workers should not have to live in poverty.
   contracts to pay a
   “living-wage” to         Nationally, some 123 jurisdictions have adopted living-wage
   their employees.         policies.96 Evaluations of living-wage policies have found that they
                            result in a minimal increase in the cost of public contracts and can
                            improve productivity by reducing absenteeism and turnover.97
                                                49
                            RECOMMENDATIONS
  Findings                                  Recommendations

Affordable      Make a commitment to increase the supply of affordable housing.
housing
is scarce       • The state should take steps to increase the supply of affordable housing,
in many           focusing particularly on the poorest households whose housing needs
California        are the least likely to be addressed by the private market. Potential
communities.      strategies include requiring local redevelopment agencies to devote a
                  larger share of their funds to affordable housing, improving enforcement
                  of state “fair share” housing requirements, and establishing a state
                  housing trust fund to provide an ongoing, dedicated source of funds
                  for affordable housing.98 State and local policymakers should also
                  reexamine fiscal policies that discourage new housing construction, and
                  enact policies that increase the supply of affordable housing.


Increasing     Improve outreach and enrollment efforts to boost enrollment in
numbers of     publicly supported health coverage programs.
Californians
lack health    • Expand express lane eligibility. “Express lane eligibility” streamlines
care coverage.    the application and enrollment process for programs such as Medi-Cal
                  and the Healthy Families Program by linking children who are applying
                  to or enrolled in other public programs to Medi-Cal and Healthy
                  Families. This approach seeks to expedite enrollment of children who
                  have, in many cases, “already provided contact, income, and other
                  eligibility information to another public program, particularly those
                  with income requirements that are similar.”99 AB 59 (Cedillo, Chapter
                  894 of 2001) authorized express lane eligibility for enrolling children
                  participating in the National School Lunch Program into Medi-Cal.
                  SB 493 (Sher, Chapter 897 of 2001) authorized express lane eligibility
                  for enrolling families participating in the Food Stamp Program into
                  Medi-Cal and Healthy Families. California should improve the current
                  express lane eligibility processes, as well as expand express lane
                  eligibility to other public programs, in order to reach more uninsured
                  children.

                •   Reduce paperwork to the minimum required by federal law. Currently,
                    California requires families to submit a number of documents to verify
                    eligibility when applying for Medi-Cal or Healthy Families. Federal
                    law, in contrast, only requires documentation for immigration status for
                    non-citizens. Reducing documentation requirements would simplify
                    the enrollment process and remove significant barriers to enrollment for
                    many families. California could simplify the renewal process for Medi-
                    Cal by minimizing the information that has to be provided, particularly



                                            50
.
        if a family has no change in circumstances affecting eligibility. California
        could also improve the renewal process by allowing families more time
        to complete their renewal applications. Medi-Cal and Healthy Families
        terminate coverage if renewal information is not complete by the date
        that coverage is scheduled to expire.100

    Expand eligibility for Medi-Cal and the Healthy Families Program to
    reduce the number of uninsured workers and their family members.

    • Eliminate the assets test for Medi-Cal coverage. California limits the
      amount of liquid assets low-income adults can have and still qualify for
      Medi-Cal. These limits prevent families from accessing health coverage
      if they have even minimal savings. Most of the state’s low-income
      parents are limited to savings of no more than $3,150 for a family of three
      or $3,300 for a family of four.101 Eliminating the assets test would help
      reduce the number of uninsured, while at the same time encouraging
      families to accumulate assets to guard against emergencies, put towards
      a child’s college education, or save for a down payment on a home.
      Fifteen states and the District of Columbia do not apply an assets test to
      low-income adults and children applying for Medicaid.

    • Expand the Healthy Families Program to working parents. The federal
      government has approved California’s request to use federal SCHIP
      funds to extend health coverage to parents in families with incomes of
      up to 200 percent of the FPL. Federal funds pay 63 percent of the cost of
      Healthy Families, with state funds making up the remaining 37 percent.
      Lawmakers have delayed expanding coverage to parents, citing ongoing
      budget pressures. While funds remain scarce, the availability of federal
      funds make this a cost-effective strategy for increasing health insurance
      coverage among California’s working poor families.

    • Pursue federal support for expanding Medi-Cal coverage to additional
      low-income families. Five states, including New York, Oregon, and
      Arizona, have received permission from the federal government to
      use federal dollars to expand Medicaid coverage to low-income adults
      without children. California should pursue a similar option to help
      expand coverage to these individuals, who are among the poorest of
      the state’s working uninsured. The state could also explore options
      for obtaining federal matching funds to extend Medi-Cal to additional
      uninsured individuals, including children.102

    Expand access to job-based health coverage.

    •   Implement policies to expand job-based health coverage. State policies
        could expand the number of Californians with job-based health
        coverage. For example, SB 2 of 2003 (Burton, Chapter 673 of 2003),


                                 51
.
                        would have required large employers to provide health coverage to
                        their workers - and, for the state’s largest employers, their dependents
                        - or pay into a state-administered pool that would purchase private
                        health coverage. This approach, commonly referred to as “pay or play,”
                        would have extended health coverage to an estimated 860,000 California
                        workers and their families.103 However, on November 2, 2004, California
                        voters replealed SB2 by narrowly rejecting Proposition 72 in a statewide
                        election.

                    •   Explore options for using employer contributions to match federal
                        Medicaid and SCHIP funds. The state should explore options for using
                        employer contributions to help finance the expansion of Medi-Cal and
                        Healthy Families coverage to currently uninsured workers and their
                        dependents. While there are a number of administrative complexities
                        that would have to be resolved prior to implementation, employer
                        contributions would help stretch limited state funds and could be
                        structured to strengthen the current system of job-based health coverage.


    California is   Expand the availability of low-cost child care.
    restricting
    access to       •   Guarantee child care to low-income families. Since 1997, California has
    affordable          made a substantial commitment to provide child care to families moving
    child care.         from welfare to work. However, the improved funding situation
                        for these families has served to highlight the child care need of other
                        low-wage families, who often experience lengthy waiting periods for
                        subsidized child care. The Legislature should establish a pilot program
                        in one or more counties that guarantees child care to working families
                        with incomes below a specified level. The income level should reflect
                        geographic differences in the cost of living and could be increased
                        annually based on available funding.

                    •   Fully fund California’s subsidized child care system. California’s child
                        care programs currently serve only a fraction of those who qualify for
                        care based on family income and need. While California faces difficult
                        budgetary constraints, more than a quarter million children could
                        benefit from quality child care if the state provided adequate support for
                        subsidized programs.




                                                52
.

    The Food        Increase enrollment in the Food Stamp Program.
    Stamp
    Program         •   Increase state funding for counties to boost outreach to eligible families.
    could               Due to cutbacks in state funding, counties have reduced both outreach
    supplement          efforts and the number of places where individuals can apply for food
    low wages,          stamps. State funding for county operating costs should be restored so
    but almost          that counties can increase their food stamp outreach efforts.
    half of
    eligible        •   Provide counties with incentives and resources to establish non-
    Californians        traditional office hours. Applying for food stamps may require
    do not              applicants to spend several hours at the county welfare department
    receive aid.        during regular business hours. However, many low-income workers
                        cannot afford to miss work in order to apply for food stamps. While
                        recent law changes eliminated face-to-face interviews as an application
                        requirement, counties need more incentives and resources to open
                        their offices in the evenings and on the weekends to accommodate the
                        schedules of California’s working poor families.


    A state
                    Create a state Earned Income Tax Credit.
    Earned
    Income
                    •   Implement a state Earned Income Tax Credit. California’s ongoing
    Tax Credit
                        budget crisis has stymied efforts to create a state EITC. Lawmakers
    would in-
                        should make a state EITC a priority once the state returns to fiscal
    crease the
                        health. Alternatively, a state EITC could be paid for by closing tax
    earnings
                        loopholes to offset the cost to the budget.
    of working
    families.



    Minimum         Restore the purchasing power of the minimum wage and index it to
    wage            inflation.
    increases
    have            •   Raise the minimum wage to boost the earnings of workers at the bottom
    boosted the         of the earnings distribution. Recent increases have brought California’s
    earnings of         minimum wage to $6.75 per hour. While this represents a significant
    low-wage            increase since 1996, the purchasing power of the state’s minimum wage
    workers             remains less than it was in 1968. Further increases would restore the
    without             purchasing power of the minimum wage. Indexing the minimum wage
    costing jobs.       to inflation would protect the purchasing power of the state’s lowest-
                        paid workers in the future.




                                                 53
.

    Many low-      Create a more equitable approach to UI eligibility determination.
    income
    workers fail   • Create a more equitable approach to UI eligibility determination by
    to qualify       adopting an alternate base period. The UI program’s bias against low-
    for              wage workers would be reduced by using a method of UI eligibility
    Unemploy-        determination that takes into account wages earned in the most recently
    ment             completed quarter. Currently, 18 states and the District of Columbia
    Insurance.       use alternate base periods to calculate eligibility for workers who do
                     not meet regular base period monetary requirements. A 1995 study
                     sponsored by the US Department of Labor found that adoption of an
                     alternate base period disproportionately benefits low-wage, part-time,
                     and intermittent workers. In addition to making the UI system fairer,
                     California’s Employment Development Department has estimated that
                     two-thirds of new benefits associated with an alternate base period
                     would be paid to individuals who otherwise would have qualified for
                     cash assistance in the CalWORKs Program.104


Living-wage        Adopt a living-wage policy for firms that contract with the state for
policies           goods and services.
ensure
that public        •   Ensure that workers employed on state contracts are not forced to live
dollars                in poverty. Living-wage ordinances are a good way for government
do not                 to demonstrate its commitment to decent wages for all workers,
subsidize              although their impact is limited to public contractors. Most “living-
low-wage               wages” are below what would be needed to support a family. Still,
work.                  these ordinances provide a real increase for many workers who would
                       otherwise earn far less.




                                               54
                                   Conclusion
                  For Economic Competitiveness and a
                        Broadly Shared Prosperity

Almost two million California families are working hard, but falling short. Despite their best
efforts, these Californians are having trouble making ends meet and finding it difficult to build
a secure future for their families.

The policy choices California makes today will determine whether the state builds the
foundations necessary for both economic competitiveness and a broadly shared prosperity over
the next two decades. In the absence of proactive policy decisions, educational achievement
among low-income students could stagnate; California’s employers could face serious skill
shortages; and the number of state residents who are working, but poor, could continue to
increase.

Is California making the appropriate choices? The findings of this report suggest that the
state’s record to date is mixed. In some policy areas, California has done better than the rest of
the nation. For example, fees for public postsecondary education are among the lowest in the
US and California is one of 12 states with a minimum wage higher than the federal minimum.
However, in other areas, California lags behind other states and, most importantly, has failed
to make the investments necessary to ensure a vibrant economy. High school dropout rates are
high, there is an acute shortage of affordable housing, and a rising number of Californians lack
health coverage.

This report offers recommendations to build on California’s strengths and remedy those areas
in which public policy has not adequately addressed the state’s needs. These include providing
low-income families with greater access to postsecondary education and training, increasing the
accountability of California’s economic development investments, and improving policies that
support the economic well-being of low-wage workers.

While demographic shifts are changing the face of California, the state’s economic strength
will continue to depend on the skills and hard work of its people, including its lowest-income
families. Investing in California’s poorest residents now will make the state a stronger, more
prosperous, and attractive place to live and do business in the future.




                                                55
ENDNOTES
1
  Unless otherwise noted, the income data cited in this report for 2002 are from the March 2003 Current Population
Survey, based on family structure and other demographic information from 2003.
2
  In this report, low-income families are defined as those with incomes below twice the FPL. Very low-income
families are defined as those with incomes below the FPL
3
  The data in this chapter are from the 2003 Current Population Survey. The income data reported in this survey are
from 2002 but the demographic data are from 2003.
4
  A “family” can consist of adults living alone, together, with and without children; however, most of this report
focuses on families with children. The data presented below examine households in which at least one adult is
between the ages of 25 and 64. A “working family” is defined as one in which the combined work effort of the
household head and spouse was equivalent to that of a half-time, year-round worker. Combined work effort is
calculated by summing the total hours worked by the family head and spouse in the previous year. If this sum was
at least 1,040 hours – 20 hours per week times 52 weeks – the family was considered to have significant work effort.
Families were considered to be non-working if the adults in a single-parent family or both parents in a two-parent
family cite illness or disability as a reason for not working during the prior year.
5
  Because California constitutes such a large share of the nation’s population (12.2 percent in 2003), this chapter
compares the state to the balance of the US (the other 49 states and the District of Columbia) instead of comparing
California to the entire US, including California. The exception is Figure 3, which compares California’s poverty rate
to that of the nation.
6
  US Census Bureau, downloaded from http://ferret.bls.census.gov/macro/032004/pov/new46_100125_01.htm, on
August 26, 2004.
7
  US Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2003 (August 2004), p.68.
8
  California State University, Dropouts by Grade and Ethnicity, 2003-04, downloaded from http://www.asd.calstate.
edu/csrde/ftf/2002htm/sys.htm on August 7, 2004.
9
  Department of Finance, Population Projections by Race/Ethnicity for California and Its Counties 2000–2050, downloaded
from http://www.dof.ca.gov/HTML/DEMOGRAP/DRU_Publications/Projections/P1.html on July 7, 2004.
10
   Forecasting population trends is not an exact science. Projections published recently differ in important respects
in their forecasts of the likely size and composition of California’s workforce by 2020. Differences in assumptions
about domestic migration into and out of California explain almost all the variation among these models. Despite
the differences among forecasts, however, all agree on the fact that the white population will decline sharply as
a percentage of the population. Some projections expect an absolute decline of between 8 percent and 18 percent
between 2000 and 2020, as well. Conversely, all forecasts project a substantial increase in the numbers of Latinos
and non-whites. The Latino population is expected to grow by somewhere between 62.7 and 76.2 percent, between
2000 and 2020. Hans P. Johnson, How Many Californians: A Review of Population Projections for the State (Public Policy
Institute of California: October 1999).
11
   In contrast, by 2020 whites will comprise almost 55 percent of California’s older population (ages 65 and above),
while only about 22 percent of the Latino population will be in this age range. Nearly one-quarter (23 percent) of
whites will be over 65 in 2020, compared to approximately 7 percent of Latinos, 17 percent of Asians, and 12 percent
of blacks. The Department of Finance forecasts that in 2020 almost 54 percent of youth (ages 0-24) will be Latino.
Department of Finance, Population Projections by Race/Ethnicity, Gender and Age for California and Its Counties 2000-2050
(May 2004), downloaded from http://www.dof.ca.gov/HTML/DEMOGRAP/DRU_Publications/Projections/
P3P3.htm on July 7, 2004.
12
   There is some evidence that Latinos are closing the education gap. One indicator is the difference in educational
attainment between foreign-born and US-born Latinos. In 2003, just 20.7 percent of foreign-born Latinos had some
college and above, compared to 57.5 percent of US-born Latinos. California Budget Project, Moving Ahead or Falling
Behind?: California’s Fast-Growing Latino Workforce (September 2004).
13
   The National Center for Public Policy and Higher Education, Policy Alert Supplement (April 2004), downloaded from
http://www.highereducation.org/reports/pipeline/CA/CA-a.pdf on May 27, 2004.
14
   The reason for measuring completion within 150 percent time is that the data suggest that students who enter
college immediately after high school and complete their course work within a reasonable time period are more
likely to graduate. However, the measure does not capture the large and growing number of adults who return to
college and complete a degree later in life.
15
   Legislative Analyst’s Office, Maintaining the Master Plan’s Commitment to College Access (February 2004), pp. 4-5.
16
   California State University, Education Access and Outcomes, p. 216, downloaded from http://www.calstate.edu/as/
stat_abstract/stat0203/pdf/abstract/F_4b0203.pdf on May 27, 2004.
17
   The California Community Colleges and the CSU establish minimum levels of math and English language
proficiency. Students who test below this threshold are required to take remedial courses to attain the required level
of proficiency.
                                                           56
18
   In the fall of 2002, 59 percent of regularly admitted, first-time freshmen did not meet the CSU standard for “fully
proficient.” Of these, 13 percent left the CSU within one year. California State University, Fall 2003: Regularly
Admitted First-Time Freshmen Remediation Systemwide, downloaded from www.asd.calstate.edu/remediation03/rem/
REM_Sys_Final_Fall2003.htm on August 9, 2004.
19
   The range nationally is $3.76 to $174.78, with the top one-third of states investing $37.17 or more. Analysis by
Brandon Roberts + Associates of US Department of Education state level data and Census data on the number of
adults over age 18 without a high school diploma or GED.
20
   US Census Bureau, Census 2000 Summary File 3, p. 19: Age by Language Spoken at Home by Ability to Speak English
for Population 5 Years and Over, downloaded from http://factfinder.census.gove/servlet/DTTable?_bm=y&-
context=dt&-ds_name=DEC_2000 on June 11, 2004.
21
   Gerald C. Hayward et al., Ensuring Access with Quality to California’s Community Colleges (The National Center for
Public Policy and Higher Education: May 2004), p. 91.
22
   Liaison Committee of the State Board of Education and The Regents of the University of California, A Master Plan
for Higher Education in California: 1960-1975 (1960), pp. 172-175.
23
   With the exception of a few districts, adult schools have primary responsibility for adult “remedial” education,
while most postsecondary education and training is in community colleges and public four-year institutions.
24
   Legislative Analyst’s Office, Analysis of the 2004-05 Budget Bill (February 2004), p. E-200.
25
   Chris Furgivele, Justin Lovie, Debra Solomon, The Cal Grant Entitlement: Increasing Access to Financial Aid (Institute
for Higher Education and Leadership Policy, California State University: May 2000), p. 13.
26
   Victoria Choitz and Rebecca Widom, Money Matters: How Financial Aid Affects Nontraditional Students in Community
Colleges (MDRC: July 2003), p. 3.
27
   California Student Aid Commission, New Recipient Reference Manual (2004), p. 13.
28
   Legislative Analyst’s Office, Analysis of the 2004-05 Budget Bill (February 2004), p. E-162.
29
   Legislative Analyst’s Office, Analysis of the 2004-05 Budget Bill (February 2004), pp. E-162-165.
30
   Legislative Analyst’s Office, Analysis of the 2004-05 Budget Bill (February 2004), p. E-165.
31
   For example, in the 2001 fall term, UC freshmen entering directly from high school came from families with a
median annual income of $68,000, whereas transfer students had a median family income of $56,600. The median
family income of black ($40,000), Asian American ($38,000), Chicano ($38,000), and Latino ($42,700) transfer students
was even lower. Transfer students were also more likely to have a father who had only a high school degree or
less (29.3 percent of transfer students compared to 22.6 percent of those entering from high school). University of
California, Selected Statewide and UC Postsecondary Data, downloaded from http://www.ucop.edu/sas/infodigest03/
                    f
selected_data.pdf on August 7, 2004.
32
   For example, rates for the cohort of first-time students who began in the fall 1995 and were tracked for six years
ranged from a high of approximately 50 percent at De Anza Community College to a low of 7.9 percent at Palo Verde
Community College. Transfer rates also vary widely by race and ethnicity. A 1994 cohort tracked for six years had
transfer rates ranging from a high of 43.1 percent for Asian/Filipino/Pacific Islanders to a low of 23.5 percent for
blacks. Gerald C. Hayward et al., Ensuring Access with Quality to California’s Community Colleges (The National Center
for Public Policy and Higher Education: May 2004), pp. 94-95.
33
   Joint Committee to Develop a Master Plan for Education, 2002 Master Plan for Education, Appendix B: Summary
of Recommendations, Recommendation 23.3, p. B-11, downloaded from http:/www.sen/ca/gov/ftp/SEN/
COMMITTEE/JOINT/MASTER_PLAN/_home/020909_FINAL_MASTER_PLAN_DOCUMENTS/2002_MP_
SUMMARY_RECOMMENDATIONS.PDF on August 7, 2004.




2004).


                                                           57
 This amount includes $15.0 million to provide child care services for children of CalWORKs recipients enrolled in

   Prior to the 2004-05 budget agreement, state law required CalWORKs recipients to participate in a variety of work-
related activities, including education and training, for 18 to 24 months after signing a welfare-to-work plan, at which
time they had to be in unsubsidized employment and/or community service.
46
   For example, vocational education counts as a core activity only for up to 12 months. CalWORKs recipients may
participate in vocational education for more than 12 months, but this participation will not count toward the 20-hour
core work requirement. As a result, CalWORKs recipients who enroll in vocational education for more than one year
must participate in additional work-related activities for at least 20 hours per week.
47
   Anita Mathur, et al., From Jobs to Careers: How California Community College Credentials Pay Off for Welfare Participants
(California Community Colleges Chancellor’s Office and Center for Law and Social Policy: May 2004). The study
tracked CalWORKs recipients who left a community college in 1999-2000, did not return to a California community
college within one year, and did not transfer to a California university within two years.
48
   For those receiving CalWORKs cash assistance who left college with a certificate, median annual earnings increased
by 239 percent, from $4,779 before enrolling in college to $16,213 two years after graduating. For those who left with
an associate degree, median annual earnings increased by 403 percent, from $3,916 to $19,690.
49
   “Dislocated workers” are workers who are laid off from their jobs through no fault of their own.
50
   Federal law requires the following programs to participate in the One Stops: programs authorized under the
Workforce Investment Act, postsecondary vocational education activities funded by the Carl D. Perkins Vocational
and Technical Education Act, Senior Community Service employment and training activities, Department of Housing
and Urban Development workforce programs, Community Services Block Grant employment and training activities,
and workforce programs authorized in state unemployment compensation laws. States can mandate additional
required One Stop partners.
51
   Intensive services include job counseling; vouchers for education and training; and supportive services, such as
child care and transportation assistance.
52
   This is not to argue that One Stops should only serve low-income workers.
53
   Gerald C. Hayward et al., Ensuring Access with Quality to California’s Community Colleges (The National Center for
Public Policy and Higher Education: May 2004), p. 13.
54
   Community college fee waivers, currently offered to low-income students, partially address this concern, but there
is as yet insufficient evidence on their impact in the face of significant fee hikes. The recent community college fee
increase will be an important test case.
55
   Gerald C. Hayward et al., Ensuring Access with Quality to California’s Community Colleges (The National Center for
Public Policy and Higher Education: May 2004), p. 32.
56
   Joint Committee to Develop a Master Plan for Education, 2002 Master Plan for Education, Appendix B: Summary of
Recommendations, Recommendation 23.3, p. B-11. California Performance Review, HTV15: Make It Easier for Students to
Transfer from a Community College to a University, downloaded from http://www.report.cpr.ca.gov/cprrpt/issrec/
efv/etv.15.htm.
57
   California Budget Project, Maximizing Returns: A Proposal for Improving the Accountability of California’s Investments in
Economic Development (January 2002), p. 15.
58
   California Budget Project, Maximizing Returns: A Proposal for Improving the Accountability of California’s Investments in
Economic Development (January 2002), p. 41.
59
   Higher education programs are not included in this category.
60
   Richard W. Moore et al., Lessons from the Past and New Priorities: A Multi-Method Evaluation of the ETP (August 2004),


                                                            58
61
   New jobs are those created between 2000 and 2010.
62
   California Association of Realtors, California’s Housing Affordability Index at 18 percent in July (September 9, 2004).
63
   The seven most expensive California counties, ranked from most expensive to least expensive, were San Mateo,
Santa Clara, Orange, Contra Costa, Santa Cruz, Alameda, and San Francisco counties. UC Census Bureau, Median
Monthly Housing Costs for Renter-Occupied Housing Units (In 2003 Inflation-Adjusted Dollars), downloaded from http://
www.census.gov/acs/www/products/ranking/2003/R16T050.htm on October 19, 2004.
64
   California Budget Project, Locked Out 2004: California’s Affordable Housing Crisis (January 2004), p. 7. Based on the
Fair Market Rent for a one-bedroom apartment and full-time, year-round work at the state’s minimum wage of $6.75
per hour.
65
   California Budget Project, Locked Out 2002: California’s Affordable Housing Crisis Continues (October 2002), p. 7.
66
   California Budget Project, Locked Out 2004: California’s Affordable Housing Crisis (January 2004), p. 21.
67
   California Budget Project, Locked Out 2004: California’s Affordable Housing Crisis (January 2004), p. 19.
68
   California Budget Project, Locked Out 2004: California’s Affordable Housing Crisis (January 2004), p. 11.
69
   California Budget Project, Locked Out 2004: California’s Affordable Housing Crisis (January 2004), pp. 23-24.
70
   California Budget Project, The State of Working California 2004: Little Progress for California’s Workers and Their Families
(September 2004), p. 6.
71
   California Budget Project, The State of Working California 2004: Little Progress for California’s Workers and Their Families
(September 2004), p. 6.
72
   E. Richard Brown et al., The State of Health Insurance in California: Findings from the 2001 California Health Interview
Survey (UCLA Center for Health Policy Research: June 2002), p. 3.
73
   E. Richard Brown et al., The State of Health Insurance in California: Findings from the 2001 California Health Interview
Survey (UCLA Center for Health Policy Research: June 2002), p. 32.
74
   Medi-Cal provides health coverage to children; parents; elderly and blind persons; and persons with disabilities
who receive public assistance or meet income and other eligibility criteria. Federal law requires states to provide
coverage to groups, including children and pregnant women, who meet federal income guidelines. Medi-Cal also
covers certain families and individuals with incomes that exceed federal guidelines. Low-income parents and
children constitute about three-quarters of the state’s 6.7 million Medi-Cal enrollees.
75
   The Healthy Families Program provides low-cost health care to children with family income too high to qualify for
Medi-Cal but below 250 percent of the FPL.
76
   E. Richard Brown, et al., The State of Health Insurance in California: Findings from the 2001 California Health Interview
Survey (UCLA Center for Health Policy Research: June 2002), p. 46.
77
   See California Budget Project, Making Ends Meet: How Much Does It Cost to Raise a Family in California? (October
2003).
78
   See California Budget Project, How Many Children Need Subsidized Child Care in California? (March 28, 2001).
79
   County welfare departments and the Department of Social Services administer Stage 1 child care for families
receiving cash assistance through the CalWORKs Program. The CDE administers Stages 2 and 3.
80
   The state “grandfathered” in families with incomes between 75 percent and 100 percent of the FPL who were
receiving child care subsidies when the state reduced the maximum income eligibility level in 1997. Children in
those families could continue to receive subsidized child care as long as their family income remained below 100
percent of the state median income. Legislative Analyst’s Office, Analysis of the 2004-05 Budget Bill (February 2004),
pp. E-130 to E-131.
81
   US Department of Agriculture, Reaching Those in Need: State Food Stamp Participation Rates in 2001 (Food and
Nutrition Service: February 2004).
82
   California families benefited from more than $1.8 billion in federally-funded food stamp benefits in 2003, with an
average monthly benefit per household of about $228. The average monthly number of households receiving food
stamps in California grew from 636,521 in 2000-01 to an estimated 696,719 in 2003-04, an increase of 9.5 percent.
83
   Since 1997, California has provided state-funded food stamp benefits to qualified legal immigrants who
are ineligible for federal food stamps due to their immigration status. However, the federal government has
subsequently reinstated food stamp eligibility for some legal non-citizens.
84
   Internal Revenue Service, Tax Year 2001, United States Selected Income and Tax Item: By State and Size of Adjusted
Gross Income, Filing/Process (April 2003), downloaded from http://www.irs.ustreas.gov/pub/irs-soi/01in05ca.xls on
October 6, 2004.
85
   Joseph Llobrera and Bob Zahradnik, A Hand Up: How State Earned Income Tax Credits Help Working Families Escape
Poverty in 2004 (Center on Budget and Policy Priorities: May 14, 2004).
86
   Assumes households claim the renters’ tax credit and do not itemize their deductions.
87
   California Budget Project, Who Pays Taxes in California? (April 2004).
88
   Jennifer Romich and Thomas Weisner, How Families View and Use the EITC: The Case for Lump Sum Delivery
(November 15, 2000).


                                                              59
89
   Timothy M. Smeeding et al., The Economic Impact of the Earned Income Tax Credit (1999).
90
   California Budget Project, Minimum Wage Increases Boost the Earnings of Low-Wage California Workers (June 2004), p. 1.
91
   Between 1996 and 1998, California’s minimum wage was raised as a result of a two-step increase required by federal
law and a separate two-step increase pursuant to a voter-approved initiative (Proposition 210 of 1996). The minimum
wage increased from $4.25 to $4.75 in October 1996 pursuant to federal law; to $5.00 in March 1997 pursuant to state
law; to $5.15 in September 1997 pursuant to federal law; and to $5.75 in March 1998 pursuant to state law. The state’s
Industrial Welfare Commission (IWC) raised the minimum wage from $5.75 to $6.25 in January 2001, and to its current
level of $6.75 per hour in January 2002.
92
   California Budget Project, Minimum Wage Increases Boost the Earnings of Low-Wage California Workers (June 2004), p. 3.
93
   California Budget Project, Minimum Wage Increases Boost the Earnings of Low-Wage California Workers (June 2004), p. 3.
94
   California Budget Project, Building a Sound Foundation for California’s Unemployment Insurance System (April 2004), p. 8.
95
   California Budget Project, Building a Sound Foundation for California’s Unemployment Insurance System (April 2004), p. 8.
96
   For additional information, see the Living Wage Resource Center at www.livingwagecampaign.org.
97
   Economic Policy Institute, Living Wage Facts at a Glance (November 2002), downloaded from www.epinet.org on
October 6, 2004.
98
   “Fair share” housing requirements are aimed at distributing housing equitably across the state, by ensuring that each
city and county builds its “fair share” of housing.
99
   California Health and Human Services Agency, Department of Health Services, and Managed Risk Medical Insurance
Board, Streamlining Application and Enrollment for the Healthy Families Program and Medi-Cal for Children (June 2001).
100
    In Medi-Cal, the family has 30 days to return the completed renewal information to reinstate coverage, but the
child will experience a break in coverage. After 30 days, if the renewal information is still incomplete, the family
must reapply to Medi-Cal using the standard application process. In Healthy Families, the family has 60 days from
termination to return the completed renewal information to reinstate coverage, but will experience a break in coverage.
After 60 days, if the renewal information is still incomplete, the family must reapply to Healthy Families using the
standard application process.
101
    The 1931(b) category provides coverage to parents who would have been eligible for welfare under the state’s pre-
welfare reform Aid to Families with Dependent Children (AFDC) program, but who choose not to apply for cash
assistance. For a detailed explanation of options for eliminating or modifying the assets test, see the Lewin Group’s
report to the Medi-Cal Policy Institute, Simplifying Medi-Cal Enrollment: Options for the Assets Test (June 2003).
102
    A forthcoming report by the California Budget Project will provide a detailed analysis of options for providing health
coverage to uninsured children.
103
    California HealthCare Foundation, Overview of SB 2, downloaded from http://www.chcf.org/topics/
healthinsurance/sb2/index.cfm?itemID=105798 on October 6, 2004. If expanded to firms with 20 to 49 employees,
which would require creation of a tax credit not currently authorized by state law, 1.1 million Californians could gain
coverage.
104
    California Budget Project, Building a Sound Foundation for California’s Unemployment Insurance System (April 2004), p.
17.




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61
California Budget Project
921 11th Street, Suite 502
Sacramento, CA 95814
      (916) 444-0500
   (916) 44-0172 (fax)
      cbp@cbp.org
      www.cbp.org
    December 2004

				
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