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Q&A

How Did Public Supports Lower Poverty in 2021?

What the Latest Census Data Reveals About Ending Poverty in California

September 2022 | By Sara Kimberlin and Mauricio Torres Jr.

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All Californians deserve to be able to put food on the table, pay the rent, and meet their basic needs. In short, no Californian should ever live in poverty.

Our state should aspire to be a place where no child or adult struggles to afford their basic needs, and there’s proof that it can be a reality. Recent data released by the US Census Bureau show that poverty — especially for children — significantly dropped nationally and in California in 2021, and would have been much higher if not for public supports.

That’s good news that may be unexpected as the effects of the pandemic and inflation are still very real for California children, adults, and families struggling to make ends meet. So many may be wondering: How did poverty rates drop across the US and California? And amid the pandemic no less.

The answer is simple: Poverty is a policy choice. When we choose to provide the basic support families and individuals need to thrive — as policymakers did via tax credits and other support — it really works.

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What is the Supplemental Poverty Measure? And why is it important?

Public policies work best when they are crafted with reliable data and provide positive and measurable results at both the macro level and personal level for our communities.

To measure poverty in California and the success of poverty reduction strategies, we rely on data from the US Census Bureau which routinely surveys households across the country. Each September the Census releases new data that show what share of the population experienced poverty in the prior year — under the official poverty measure and the Supplemental Poverty Measure — for California and states across the country, as well as the United States as a whole.

The Supplemental Poverty Measure (SPM) is vital because it provides a more accurate picture of poverty by accounting for local differences in the cost of housing and accounting for expenses that families must pay like health care and child care. The SPM also accounts for a wide variety of safety net supports, including those that are not direct cash payments — including tax credits, food assistance, and housing subsidies. The official poverty measure does not adjust for differences in the costs of living and ignores non-cash benefits. This makes the official poverty measure less useful to evaluate poverty in California as well as the effectiveness of poverty reduction measures.

Bottom line: The SPM captures how much it costs to pay for basic needs and the resources people have available to pay for them.

Want to learn more about poverty measures?

Check out the Budget Center’s guide to understanding poverty measures in California.

Poverty dropped from 2020 to 2021 nationally and in California — what’s behind the drop in poverty, especially for kids?

Multiple factors likely contributed to the drop in poverty year over year, including the improving job market. Data show too that strong public policies played an especially key role in the low poverty rates seen in 2021. To combat the uncertainties of the pandemic and our economy, state and federal governments provided additional support directly to people, and this made the difference for many families in having the resources to pay for food, housing, diapers, and other basic necessities.

Refundable tax credits were especially effective in boosting family resources in 2021, particularly because of temporary expansions of federal credits last year. Without these credits, overall poverty would have been significantly higher in 2021.

Unfortunately, the temporary expansion to the federal Child Tax Credit that lifted nearly 3 million children out of poverty nationally last year has now expired due to Congress’ failure to permanently expand the credit. The temporary expansion of the federal Earned Income Tax Credit (EITC) for workers without dependent children has also expired. But the evidence is clear — federal policymakers can significantly lower poverty by permanently expanding the Child Tax Credit and the EITC and state policymakers can build on the success of California’s refundable tax credits, the CalEITC and Young Child Tax Credit.

How did housing costs affect California’s poverty rate?

There is no question safe, stable housing is the foundation to families’ basic needs being met, yet the cost of housing is a challenge in many parts of the state — and high housing costs directly affect California’s SPM poverty rate.

California’s poverty rate in 2021 was higher under the Supplemental Poverty Measure than under the official poverty measure — and this has been true in every year that SPM poverty data have been available, going back more than 10 years. This is mainly because, as previously noted, the SPM accounts for local differences in housing costs, so that families need more resources to be categorized as above the SPM poverty threshold (and not experiencing poverty) in places where housing is expensive, which include many parts of California. These data point to another way policymakers can effectively reduce poverty — by addressing California’s housing affordability challenges, through boosting the supply of affordable housing, protecting tenants, and providing direct support to help people afford housing costs.

Why does it matter for everyday Californians that the poverty rate dropped?

The lower 2021 poverty rate shows that our economy and safety net can work better for everyday Californians when good policy and investment come together to help people meet their basic needs. It reveals how many people can meet basic expenses like housing, food, child care, and other necessities — and it also reveals where our public policies are sorely failing.

A lower poverty rate under the Supplemental Poverty Measure means fewer families worrying about where their next meal comes from or wondering if they can keep the lights on. And while the encouraging Census data does not diminish the fact that the high cost of housing and recent high inflation have made it even more difficult for families to flourish in California communities, it does help us understand how we can build on public policies that work to help families now and in the future.

Poverty data from 2021 show that when increased state and federal support was provided, more people were able to count on having enough resources to make ends meet.

What were the primary forms of assistance people received to help meet their basic needs?

Safety net programs that help people pay for food, health care, housing, child care, and other basic needs are essential to the well-being of our people and state.

Current safety net programs — including those used to successfully lower poverty rates in 2021 — are a combination of state and federal supports aimed at helping individuals and families pay for basic needs. These programs can be divided into three categories including cash supports, tax credits, and non-cash benefits.

  • Cash support through tax credits: Federal Child Tax Credit and EITC, state CalEITC and Young Child Tax Credit, as well as child and dependent care tax credits and pandemic stimulus payments.
  • Other cash supports: Social Security, TANF (known as CalWORKs in California), Supplemental Security Income/State Supplementary Payment (SSI/SSP), Unemployment Insurance.
  • Non-cash benefits: SNAP food assistance (known as CalFresh in California), Supplemental Nutrition Program for Women, Infants, and Children (WIC), school meals, energy assistance, and housing subsidies like federal Housing Choice Vouchers.

Together, these programs significantly reduced poverty, particularly child poverty, in California in 2021.

Additional programs that help reduce the out-of-pocket costs people must pay for necessary expenses — particularly Medi-Cal health coverage and subsidized child care — also reduced the number of Californians experiencing poverty last year.

It’s important to remember that each program has unique and sometimes burdensome processes to receive assistance. Moving forward, policymakers should streamline and strengthen existing programs in order to further reduce poverty every year.

What can policymakers learn from the latest poverty data?

First and foremost, the latest Census data show us that poverty is a policy choice — we can choose to provide support needed so that families and individuals can thrive.

Federal and state governments have effective tools — like refundable tax credits — for getting cash to people and rapidly reducing poverty. When we prioritize the health and well-being of everyday people regardless of their race, age, or immigration status the result will be a country where far fewer people experience poverty and its devastating consequences.

State and federal policymakers should boost investment in the policies and tools we know are effective in helping families and individuals meet their basic needs to end poverty in California and across the country.

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A California where all individuals – regardless of zip code, race, gender, immigration status, or education status – have the resources to provide for their needs through unrestricted cash payments as well as unconditional, easily accessible support through the safety net. That is the vision of Guaranteed Income, also sometimes called basic income or guaranteed basic income. And government has a critical role in building an income floor below which no one can fall. As the COVID-19 pandemic and economic crisis amplified long-standing racial, gender, and income inequities in California and the US, as well as highlighted the critical need for bold investments to strengthen the safety net so that all people can meet basic needs, there is a growing and renewed movement around making Guaranteed Income a reality. 

But policy and implementation questions abound around how it can be done in California. This is the second of a two-part Q&A on Guaranteed Income with this report focused on practical questions about how a basic income could be implemented through state policy and how that could complement and strengthen existing public supports so that more people can meet their basic needs and thrive. For questions on what Guaranteed Income is, what values it supports, and where it has been tried in California and the US, take a look at the Budget’s Center’s part one Q&A: Understanding Guaranteed Income & Safety Net Support for Californians.

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What are key issues for policymakers and community leaders to consider when implementing Guaranteed Income through ongoing public policy?

Implementing Guaranteed Income in California and across the US through policy means both providing new or expanded unrestricted cash support to individuals and improving existing safety net programs in ways that align with Guaranteed Income values. These values include recognizing that basic income should be guaranteed regardless of work status or any other status, providing unrestricted cash, and minimizing red tape and burdensome requirements for participants.

Making improvements within existing safety net programs is an important approach to implementing Guaranteed Income values in ongoing policy, with opportunities particularly to streamline access and remove burdensome or inequitable participation requirements, as discussed in our part one Understanding Guaranteed Income Q&A.

Significantly increasing cash support to individuals as an ongoing policy, at the state or local or federal level, requires thinking about options and tradeoffs in several areas, including:

  • Problem-solving how payments interact with or wrap around other public supports to maximize economic security for participants and efficient use of state or local funds
  • Choice of administrative systems to use for identifying eligible participants and delivering cash payments
  • Source of ongoing revenue to pay for the cash support
  • Scale of the program, including which individuals or groups to prioritize for eligibility

These issues are discussed in more detail throughout this Q&A.

How can Guaranteed Income cash payments work together with other kinds of public supports and safety net services to help children, families, and individuals meet their basic needs and not live in poverty?

Most California individuals and families with low incomes who would especially benefit from Guaranteed Income payments are also eligible for other types of public supports including: 

  • Food assistance, such as CalFresh or WIC
  • Health insurance, such as Medi-Cal 
  • Other cash supports, such as CalWORKs or SSI/SSP
  • Housing subsidies, such as Housing Choice Vouchers or LIHTC housing 
  • Student financial aid, such as Pell Grants and Cal Grants
  • Refundable tax credits, such as federal EITC and Child Tax Credit, and state CalEITC and Young Child Tax Credit

These supports are vital in helping people meet their basic needs – California’s poverty rate would be more than one and a half times as high without them, according to data from the California Poverty Measure. But these supports are not available to all Californians and on their own are often not sufficient to cover the costs of living in California. In fact, about 1 in 6 Californians were still living in poverty in 2019, after accounting for safety net programs – demonstrating the need for additional support such as Guaranteed Income payments.

To make sure Guaranteed Income truly can improve an individual’s or family’s economic security, it is important for cash payments to add to a family or individual’s total resources, on top of other available supports, and not reduce the total support they receive from all sources.

Doing this in practice can be challenging. Eligibility for other safety net programs often depends on how much income someone has, and even a slight increase in income from Guaranteed Income payments can sometimes make a recipient lose eligibility or get reduced benefits from other public supports. Specific rules for how Guaranteed Income payments affect eligibility are different for different supports. Some of these rules can be changed by local or state policymakers, while others are set by the federal government, since federal dollars provide part or all of the funding for most existing public supports available to Californians with low incomes. Different strategies for structuring and administering Guaranteed Income can help minimize reductions in other supports, often with tradeoffs in terms of which supports are most affected and how well administrative structures serve other Guaranteed Income priorities, like reaching the target population or allowing for recurring payments.

Thinking through the interactions of Guaranteed Income payments with other public supports is important for two reasons: first, to make sure individual recipients fully benefit from Guaranteed Income through increased economic resources; and second, to make sure Guaranteed Income funding is spent efficiently, with as much funding as possible going toward increasing recipients’ total family resources rather than replacing other supports that could have been paid for with federal dollars or other state or local funds.

More in this series

See the Budget Center’s part one Q&A: Understanding Guaranteed Income & Safety Net Support for Californians.

What options does California have at the state level for delivering Guaranteed Income payments?

California can most feasibly and efficiently provide Guaranteed Income cash payments through existing systems that reach millions of children, families, and individuals with low incomes.

One option is to use the state’s tax system, which provides tax refunds to millions of Californians with low incomes each year. A key advantage of using the tax system is that it would help ensure that the Guaranteed Income payments would not reduce the assistance people get from other public supports, such as CalFresh, as long as the payments were provided annually, since lump-sum tax refunds do not affect eligibility for most safety net supports. However, a key drawback of using the tax system is that some Californians with low incomes would likely miss out on the payments because they aren’t required to file taxes or because they don’t have a Social Security number or Individual Taxpayer Identification Number, which is required to file. Another disadvantage of using the tax system is that many people pay for-profit tax preparers to file their taxes, so some portion of the Guaranteed Income payments would go to tax preparers rather than the intended recipients.

Another potential option for providing Guaranteed Income payments is to piggyback on the systems the state uses to distribute payments for existing safety net programs such as CalWORKs, CalFresh, and SSI/SSP, by providing additional cash payments to individuals through these same systems. This approach would help address some of the challenges with providing cash through the tax system because it would reach Californians who don’t file taxes and be available without tax preparation fees. However, a key disadvantage is that Californians in need who are not already eligible for and accessing existing programs would be left out — unless a new program were developed to reach them. Addressing the changes that would be needed to state IT systems, as well as implications of payments for recipients’ eligibility for existing programs (as described in question 2), would also require problem-solving.

In the spring of 2021, California made use of both of these approaches simultaneously to provide cash payments on a one-time basis through the Golden State Stimulus I to around 6 million households with low incomes. Specifically, these payments went to tax filers claiming the CalEITC as well as recipients of CalWORKs, SSI/SSP, and the Cash Assistance Program for Immigrants (CAPI).

How could Guaranteed Income cash payments be funded at the state level?

California would need to raise significant new revenues to fund meaningful Guaranteed Income payments if they were provided to all Californians with low incomes because the amount needed would far exceed the resources available in the state’s budget, even given strong recent revenues projected in the proposed 2022-23 budget. For example, providing $1,000 per month to the 6.3 million Californians who couldn’t meet basic needs in 2019 would cost $63 billion annually – more than California spent on K-12 schools and community colleges that year. This cost could go up by tens of billions of dollars in years when many Californians lose jobs, face health and economic crises, and fall into poverty.

There are a number of important issues to consider in raising new revenues for a California Guaranteed Income payments policy. Most notably, California’s constitutional spending limit – the Gann Limit – restricts how much the state can spend each year and limits the state’s flexibility in spending additional revenues over that limit. Given that Gann limit spending restrictions are very likely to be triggered in the coming years, using new revenues to fund sizeable Guaranteed Income payments would likely not be feasible unless the Gann Limit were changed or eliminated, or the revenues raised for them were excluded from the Gann limit – all of which would require voter approval.

Another important issue to consider is how to ensure that sufficient funds are available for a sizable Guaranteed Income policy in times of recession. Though state revenues have remained strong during the economic disruption of COVID-19, revenues have declined dramatically during past recessions. Because California cannot spend more revenue than it has, it could be harder – if not impossible – to maintain state funding for large Guaranteed Income payments precisely when more Californians would likely need economic support.

One way California could implement a Guaranteed Income policy without needing to generate major new revenues would be to target payments to specific groups of Californians in need, which would lower the cost of the policy, making it feasible to fund with existing resources. One sensible strategy would be to provide Guaranteed Income payments to people who are not already benefiting – or not benefitting enough to meet basic needs – from other public supports. Locally-funded Guaranteed Income policies could use a similar approach. In this way, the Guaranteed Income policy would wrap around existing programs, helping to establish an income floor across programs by filling in gaps in eligibility and aid.

more in this series

Watch our Empower event: The Future of Cash Supports to learn about the future of cash supports in California.

Who could state or local policymakers consider targeting with Guaranteed Income payments?

Californians who could particularly benefit from Guaranteed Income payments because they often fall through the cracks of existing safety net services and supports include adults who are not supporting children in their homes, Californians who are undocumented or live in mixed-status families, people who were formerly incarcerated, transition-age youth in foster care or exiting the foster care system, domestic violence survivors, and people experiencing homelessness. Guaranteed Income payments that reach large numbers of Black Californians, indigenous people, and other Californians of color can help the state and local governments advance racial equity by providing support to individuals who have been blocked from income and wealth building opportunities through centuries of racist policies and practices.

What are some examples of current policy proposals that would implement aspects of Guaranteed Income through state policy?

Many proposals moving through the state budget and policymaking process for 2022-23 incorporate Guaranteed Income components or values and could help children, families, and individuals with low incomes have additional cash and resources to pay for food, housing, and other day-to-day life needs.

Some examples of current proposals to increase unrestricted cash payments include:

  • Providing a larger minimum refundable tax credit to low-income workers eligible for the CalEITC
  • Backfilling the expired expanded federal Child Tax Credit by providing a large per-child tax credit payment to low-income parents eligible for the CalEITC
  • Providing a flat refundable tax credit for young adults who are former foster youth
  • Providing a monthly cash payment for three years to Californians who age out of the Extended Foster Care Program
  • Accelerating the start of the proposed boost to the state-funded SSP payments for SSI recipients 
  • Increasing CalWORKs grants above the deep poverty threshold for families that include a family member ineligible for assistance
  • Providing unrestricted state-funded “baby bonds” savings accounts, accessible at age 18, for children in foster care or whose parent has died from COVID-19

Some examples of current proposals to improve existing safety net programs by adopting Guaranteed Income values, such as unconditional support and streamlined access to health care, food, and economic support, include:

  • Including undocumented Californians age 26 to 49 (the final excluded age group) in eligibility for Medi-Cal
  • Including all undocumented Californians in eligibility for nutrition assistance through the California Food Access Program, which provides benefits identical to CalFresh
  • Allowing children ages 0 to 5 who enroll in Medi-Cal to maintain continuous eligibility without having to resubmit paperwork 
  • Reforming the CalWORKs Work Participation Rate policy to remove the financial incentive for counties to push CalWORKs parents into paid employment instead of addressing longer-term barriers to work and well-being
  • Removing the requirement that parents document at least $1 in earnings to be eligible to claim the Young Child Tax Credit

These proposals represent potential next steps in implementing Guaranteed Income through state policy. Taking these kinds of steps now – while working toward longer-term improvements and investments at the federal, state, and local levels – can move California toward a time when all Californians are respectfully supported with the resources they need to meet their basic needs and thrive.

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Introduction

The COVID-19 pandemic and economic crisis amplified long-standing racial, gender, and income inequities in California and the US and highlighted the critical need for bold investments to strengthen the safety net so that all people can meet basic needs, crisis or not. 

In particular, the pandemic accelerated a growing movement around Guaranteed Income – the idea that government should provide people with unconditional cash support to ensure that everyone has a minimum level of income to meet basic needs. This once radical concept went mainstream during the pandemic as the federal response to the crisis centered on cash-based policies, including recovery rebates, new federal unemployment benefits, and a significantly expanded federal Child Tax Credit. The success of these policies, together with emerging success stories from local Guaranteed Income pilots that started before the pandemic, helped build energy around providing unconditional cash as a permanent public policy.

Understanding what Guaranteed Income is, what values it promotes, and what it means for our existing safety net is important as policymakers and advocates look to guide the state in recovering from the pandemic and building an equitable California for its people and communities. This is the first of a two-part Q&A series on Guaranteed Income and California’s safety net; part two will focus on key questions about implementation of Guaranteed Income.

Jump to question

What is Guaranteed Income and how does it compare to Universal Basic Income and to other safety net supports?

Guaranteed Income (sometimes called basic income or guaranteed basic income) is an unconditional, often recurring cash payment provided by the government intended to help build an income floor below which no one can fall. Unlike Universal Basic Income (or UBI), which is envisioned to reach all people – even those with significant income or wealth – Guaranteed Income is intended to target communities most in need of cash. In this respect, Guaranteed Income is similar to other need-based cash supports and safety net programs, which aim to help people meet basic needs. 

Proponents of Guaranteed Income envision it as more accessible to people than existing safety net programs because it comes without the policy and administrative strings often attached to other supports, such as work requirements – though as discussed below, there are also opportunities within existing safety net programs to remove barriers and improve access. Guaranteed Income is also often envisioned to reach Californians who are blocked from existing supports due to discriminatory federal and state policies, such as people who are undocumented or people who were formerly incarcerated.

What are the origins of Guaranteed Income in the US? 

The modern concept of a guaranteed income in the US can be traced to racial and gender justice movements of the 1960s. The Black Panther Party’s platform declared that government has a responsibility to guarantee everyone a job or a minimum income. Similarly, Martin Luther King, Jr. called for a job for everyone who wants to work or a guaranteed income in his final book, Where Do We Go From Here? Chaos or Community. In addition, the National Welfare Rights Organization, which was led primarily by Black mothers, fought to change racist and sexist narratives around welfare and argued that everyone should be guaranteed a decent standard of living as a right, regardless of whether they work for pay.

What are the key ideas and values behind Guaranteed Income and providing direct cash support to people?

Three key ideas included in the concept of Guaranteed Income have a strong basis in equity values that guide how a society can enable people to live and thrive in their communities. Research evidence also backs up the effectiveness of these approaches for supporting people in meeting their basic needs:

1. Recognizing that basic economic security should be guaranteed regardless of work status: All people should have access to the support they need to meet their basic needs. This core value should hold firm regardless of whether an adult has a job or not and whether a child’s parent or guardian is working for pay or not. Work requirements have a long racist history in the US, directly contributing to racial inequities in who struggles to meet basic needs. Yet many public supports in the US require that individuals or families show that they have earned income or have completed work requirements in order to be eligible for support. The share of public support that is only available to people who are working has increased in recent years, blocking access for many individuals and families at the highest risk of experiencing homelessness, hunger, and other hardships. 

Research shows that most California households with low incomes are already working anyway – they simply do not earn enough to get by because of low wages combined with unaffordable costs for housing, child care, and other necessities. Research on welfare-to-work programs also has found that work requirements were not linked to meaningful improvements in stable employment or reductions in poverty for program participants. Providing basic needs support without excluding people who are not working for pay is a more effective and more equitable policy approach.  

2. Providing unrestricted cash support: In terms of values, unrestricted cash support respects the dignity and autonomy of recipients by allowing people to choose for themselves the best way to spend their resources. Also, when support is provided as unrestricted cash, families and individuals have the flexibility to address whichever needs are most pressing. In this way, cash can be more effective and efficient than providing support in the form of in-kind benefits (like food or clothing) that may or may not address a family’s most urgent current needs. 

Studies have demonstrated that unrestricted cash support for households with low incomes is linked to better physical health, mental health, and school achievement, and increases in children’s employment and earnings in adulthood. Emerging research specifically from recent Guaranteed Income pilot projects has also shown promising results. 

3. Minimizing red tape and burdensome requirements for participants: Simplifying and streamlining access to supports is important to ensure that complicated paperwork and burdensome participation requirements do not block individuals and families from receiving the support they need. 

Research in California and nationally documents that people who are eligible for support often fall through the cracks simply because of bureaucratic processes that are difficult to navigate. In fact, burdensome administrative processes have often been intentionally deployed to block eligible people from accessing public support – particularly Black and brown people. Removing these barriers is important to make public support systems more equitable.

more in this series

See the Budget Center’s part two Q&A: Implementing Guaranteed Income Through Cash and a Strong Safety Net

Are there opportunities to improve existing safety net programs and public supports in ways that align with promising features of Guaranteed Income?

Existing public safety net programs are critical to helping millions of Californians make ends meet. Safety net programs that help people meet their needs for health care, food, housing, child care, and other basic needs provide support to more than 1 in 3 Californians every year, and research shows that California’s poverty rate (under the California Poverty Measure) would be more than one and a half times as high without these important public supports. 

There are many policy and administrative opportunities to apply key ideas from Guaranteed Income to improve these existing public supports – particularly in terms of streamlining access and removing burdensome or inequitable participation requirements. For example, in the early stages of the COVID-19 pandemic temporary changes were adopted for supports such as CalWORKs (or TANF), CalFresh (or SNAP), and Medi-Cal (or Medicaid) that reduced required paperwork and office visits and removed work requirements in order to facilitate access to needed assistance. Maintaining and building on these types of changes would make existing supports more equitable and would align with Guaranteed Income values and practices. Proactively coordinating eligibility and application processes across the systems that administer different supports would also streamline access to needed resources. Some of these changes can be made by state and local policymakers, while others would require action by federal policymakers.

Where has Guaranteed Income been tried in California and the US? 

Guaranteed Income has not yet been implemented at scale as an ongoing federal, state, or local policy, but dozens of smaller-scale pilots are underway in California and the US, typically spearheaded by mayors or other local leaders. (See maps compiled by Mayors for a Guaranteed Income and the Stanford Basic Income Lab.) Two of the most well-known recently completed pilots include the Magnolia Mother’s Trust in Jackson, Mississippi, and the Stockton Economic Empowerment Demonstration (SEED), in Stockton, California.

At the state level, California recently became the first state to provide state funds to support local Guaranteed Income pilots. In 2017, Hawaii was the first state to explore Guaranteed Income as a possible state policy through a “basic economic security working group,” and Alaska has had a Universal Basic Income-like policy in place since 1982 – the Alaska Permanent Fund, which pays annual dividends to every state resident based on state oil revenues.

What do recent changes to the federal Child Tax Credit show us about opportunities to expand unconditional cash support to families, similar to Guaranteed Income?

Recent changes to the federal Child Tax Credit show how policymakers can modify existing safety net programs to make them more like Guaranteed Income. The American Rescue Plan Act, signed into law in March 2021, made the Child Tax Credit fully available to families with the lowest incomes – without any work requirements. This change is expected to extend the credit to 27 million more children, essentially establishing a Guaranteed Income for families with children in the US, helping to ensure that all children can grow up with support to meet their basic needs, whether or not their parents or guardians are working for pay. Although this change was put into place for just one year, advocates are working to make it permanent and to ensure that the credit is permanently extended to immigrant children who were excluded during the Trump Administration, so that all families with children can count on having a guaranteed income each year to meet their basic needs.

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Introduction

Millions of California workers turned to unemployment insurance benefits over the last 18 months after suddenly losing their jobs – a reality that can hit workers, families, and communities, pandemic or not. In trying times, everyone should have the opportunity to buy food, pay rent, and care for their families as they look for new, stable employment. State and federal unemployment insurance benefits are the lifeline that help families keep their homes and put food on the table.

But with federal unemployment benefits expiring soon, and families seeing a drop in support, California policymakers must develop a plan to finance an increase in state unemployment benefits. This will allow workers – particularly those paid low wages and struggling to find gainful employment that allows them to afford the cost of living in California – to support their families any time they lose a job, not just when the federal government steps in to help.

Understanding the role of unemployment benefits in workers’ lives, how benefits are financed, and the true costs of covering benefits is key as policymakers look to guide the state in recovering from the pandemic and building an equitable California.

Why are unemployment benefits important for Californians?

Losing a job is devastating for working Californians and their families. Suddenly losing a primary source of income and not knowing how long it will take to find new work to restore income affects the health and social well-being of families and their community. That’s why it’s important for policymakers and businesses to share responsibility in making sure that workers have a strong safety net to turn to when layoffs or a recession hit, including access to unemployment benefits that help workers pay for rent, food, and other basic needs while they search for new employment.

State unemployment benefits – supplemented with temporary federal unemployment benefits – have been helping millions of Californians pay for basic needs while they cannot work as COVID still moves through homes and communities. Without the combination of state and federal benefits, many workers would not be able to put food on the table or keep their homes. 

How much support do unemployment benefits provide Californians?

California’s unemployment benefits are a lifeline when someone suddenly loses a job, but the benefits on their own don’t provide enough money for most workers to support their families while they search for new jobs. The state’s benefits replace only about half of a worker’s lost earnings, up to a maximum of $450 per week – the equivalent of living off of $23,400 per year.

For many California workers, it’s not possible to afford the cost of living on half of their income, and economic barriers only further stack up for workers paid low wages. Workers in low-wage jobs typically have a hard time making ends meet even when working full-time and are blocked from opportunities to build savings to turn to in times of crisis. For example, the majority of California renters with low incomes who spend at least half of their income on rent would have to spend their entire unemployment benefit on rent alone if they had no other income, leaving nothing at the end of the month for food or other basic needs.

Workers of color, including American Indian, Black, Latinx, and Pacific Islander Californians – and particularly women – are especially at risk of being unable to support their families while out of work because many have been segregated into low-paying jobs where unemployment benefits are too low to cover basic living costs.

How much support are unemployment benefits providing Californians during the pandemic, and what will happen on September 6 when federal unemployment support ends?

The average Californian has been getting just $319 per week from state unemployment benefits during the pandemic, which amounts to annual earnings of $16,588 – well below what’s needed to support a family no matter where they live in the state. However, recognizing that state unemployment benefits don’t provide enough money to cover basic living costs, the federal government supplemented workers’ state benefits throughout most of the pandemic with an additional $300 to $600 per week. Together, these benefits fully replaced the earnings many workers had lost, helping keep food on the table and preventing evictions for families as they endured months of unemployment. State and federal unemployment benefits also supported businesses and the economy by making sure that millions of people who had lost work could keep spending money and supporting businesses in their communities.

On Labor Day – September 6, 2021 – these additional federal unemployment benefits will expire, and Californians who remain out of work due to the pandemic – as well as those who lose work in the future – will have to get by on state unemployment benefits alone. This will make it harder – if not impossible – for many Californians to meet basic needs, particularly Black Californians, who persistently face high rates of unemployment due to hiring discrimination and other barriers to work created through centuries of structural racism.

Who pays for unemployment benefits in California?

California businesses finance unemployment benefits for their workers, and businesses play a critical role in determining how much support this vital safety net provides to Californians. Specifically, California’s unemployment benefits are financed through payroll taxes paid by employers, which generate revenues that are deposited into the state’s unemployment insurance fund. Revenues accumulate in this fund and are available to pay unemployment benefits whenever workers lose their jobs through no fault of their own. How much an employer pays into the fund each year is determined by applying a payroll tax rate based on schedules in state law to a portion of each employee’s annual pay – called the “taxable wage base.”

Each state determines its payroll tax rates and taxable wage base. In California, employers pay payroll taxes based only on the first $7,000 of each employee’s annual pay. That’s the lowest “taxable wage base” allowed under federal law, and just five states have bases this low. California’s base has been frozen at just $7,000 since 1983, and has never been increased to keep up with inflation or rising wages. Consequently, businesses currently pay payroll taxes on just 12% of the average California worker’s earnings – the smallest share in the nation. This severely limits the amount of revenue California can generate for unemployment benefits.

California’s low taxable wage base essentially amounts to a tax break for the state’s businesses. It means that for decades, California employers – particularly large, profitable corporations – haven’t been required to cover the true cost of state unemployment benefits, leading to chronic underfunding of the state’s unemployment fund. This is why California had to borrow billions of dollars from the federal government to pay for unemployment benefits during the pandemic – a repeat of what happened during the Great Recession. It also makes it virtually impossible for state policymakers to increase unemployment benefits so that they cover working families’ basic living costs.

How can state lawmakers ensure that businesses share in the responsibility for supporting their workers during layoffs?

Over the next decade, state policymakers do not need to take any action to ensure that businesses share in the responsibility for paying down the unemployment fund debt – other than avoiding a shift in responsibility for the debt to the state. Under federal law, California businesses will automatically and very gradually pay off the principal of the federal loans the state took out to pay for unemployment benefits during the pandemic through small increases in the federal payroll tax rate. (California will have to pay the interest on these loans.) Since the debt resulted from decades of businesses not paying the true costs of unemployment benefits before the pandemic, businesses will now be required to pay more in the years to come to make up for insufficient contributions.

Longer-term, California’s leaders should permanently modernize the state’s unemployment insurance system to 1) ensure that businesses pay the true costs of benefits for their workers – avoiding debt – and 2) make it possible to increase benefits so that workers can meet basic needs and provide for their families during layoffs or recessions. This can be achieved by substantially increasing the taxable wage base for employer payroll taxes so that it applies to a much larger portion of workers’ earnings and adjusting that base annually to keep up with rising wages.

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Introduction

Policymakers are preparing to make decisions on the 2021-22 state budget — and just as there are signs the pandemic is starting to ease in California. Still, data and experience show the economic and health effects of the recession will linger on for Californians, especially people in low-wage jobs, families in low-income households, and Californians of color. How can policymakers address the challenges and barriers for Californians now and meet their ongoing needs, look beyond this budget year to equitably allocate the state’s resources, and confront the widening wealth and income inequality in our state? 

Our new Q&A shares key information to keep in mind as policymakers make decisions on behalf of Californians and our local communities.

1. Governor Newsom will soon release his “May Revision” budget proposals. What is the May Revision, why is it important, and how does it relate to the 2021-22 state budget that the Legislature will pass in June?

State law requires California governors to revise their proposed budget for the upcoming fiscal year by May 14. This update, known as the “May Revision,” is a key part of the annual state budget process that determines policy priorities and the allocation of resources to support Californians and local communities. Governors use the May Revision to unveil new proposals or to amend or withdraw the policy recommendations they advanced in January as part of their initial proposed spending plan. In addition, the May Revision:

  • Updates the governor’s revenue forecast, which estimates the amount of funding that state leaders will have to invest in public services and systems;
  • Adjusts key budget-related estimates, such as the projected number of K-12 students and the number of people who are expected to receive health care services through Medi-Cal;
  • Revises spending estimates across a broad range of programs and systems, from K-12 schools and higher education to health and human services and the state prison system.

The May Revision gives governors a high-profile opportunity to influence budget and policy decisions by promoting their own priorities for California just weeks before the Legislature’s June 15 deadline to pass the budget bill. The May Revision also sets the stage for budget negotiations in late May and early June between the governor and the leaders of the state Senate and Assembly (collectively known as the “Big 3”), who must reach an agreement on the contours of the final budget. While the 2021-22 state budget will incorporate many of Governor Newsom’s May Revision proposals, it will also reflect many of the Legislature’s own spending and policy priorities.

2. State revenues have been coming in ahead of projections for several months now, despite the pandemic and the recession. Why is that? Who is continuing to do well during this devastating public health emergency, and who has been left behind?

The state’s main revenue sources, the personal income tax, sales tax, and corporation tax, have all performed better than expected for a few main reasons. First, Californians with high incomes — who contribute a large share of personal income taxes due to the state’s progressive income tax system — have largely been shielded from job and income losses during the pandemic and have benefited from the strong growth in the stock market. Additionally, the federal relief to individuals and businesses has buoyed consumer spending and business investment and, in turn, sales tax revenues. Finally, many large corporations have been able to weather the crisis and some have even seen large profit increases.

Meanwhile, Californians in low-paying jobs, and particularly Black and Latinx Californians and women, have borne the brunt of the job and income losses and other hardships. For example, about 3 in 5 Black and Latinx households lost earnings during the pandemic, compared to less than half of white and Asian households. More than 1 in 3 California women lived in households that struggled to pay the bills last fall, and Black and Latinx women were the most likely to live in households that struggled to pay the bills, stay current with their rent or mortgage, and afford enough food.

3. Earlier this year, the governor projected a $15 billion budget “windfall,” and since then state revenues have continued to surge. The federal American Rescue Plan also will bring in another $26 billion in direct fiscal aid to the state. How should the state spend these funds?

In January, Governor Newsom proposed a $165 billion spending plan that included a $15 billion budget “windfall.” Moreover, in recent months state revenues have continued to outpace projections by billions of dollars. These gains are the result of stronger-than-expected economic conditions, the state’s progressive tax system, and the fact that state leaders underestimated revenues in this year’s budget. This also means that state spending is trending back to where it might be expected to be in a normal year. But, this is clearly not a normal period for California and, while economic projections are for continued growth, the state is facing significant needs stemming from the public health and economic effects of COVID-19.

In addition, the American Rescue Plan will deliver $26 billion in direct fiscal aid to the state. These funds are one-time and can be spent over multiple years. 

State policymakers should use unanticipated state revenues and the new federal aid to:

  • Continue to address the ongoing public health crisis;
  • Provide assistance to the households and organizations harmed by the pandemic, particularly people of color that were disproportionately affected;
  • Fill gaps in federal assistance, particularly for people who are undocumented and have been excluded from federal aid;
  • Invest one-time dollars in ways that achieve longer-term impact, such as capacity-building and infrastructure investments in child care, behavioral health, housing, and homelessness, as well as capitalized operating reserves that can support future investments; and 
  • Restructure vital state supports so that they include the people previously excluded because of ableist, ageist, racist, sexist, and classist policies that have blocked Californians’ access to benefits, security, and opportunity.

4. The governor’s January proposal included a lot of “one-time” investments. California is also receiving substantial federal “one-time” funding. Yet, the state and Californians had significant ongoing needs pre-COVID, and the pandemic exposed and created a set of greater needs. What are some key ongoing needs and investments that state leaders need to address?

One-time spending is not adequate to support Californians who struggled to meet their basic health, housing, and child care needs even before the pandemic, with an inequitable burden on Black and brown Californians and those with low incomes. Nor is one-time spending adequate to support critical systems and service providers that face ongoing operating costs and need long-term funding commitments to responsibly budget and plan. Clear needs for boosted ongoing state support include:

  • Investing in local efforts to address homelessness through reliable, flexible state funding at a scale that responds to the scale of the crisis.
  • Addressing housing affordability by focusing on the needs of California’s low-income renters — through direct assistance, robust legal aid and enforcement, and affordable housing production.
  • Expanding comprehensive Medi-Cal coverage to all undocumented Californians who are otherwise eligible, with special urgency to cover seniors, and ensuring that all income-eligible Californians have access to nutrition assistance regardless of immigration status.
  • Providing ongoing funding for local public health departments to ensure they can respond to COVID-19 and other threats to population health.
  • Bolstering funding for mental health care and substance use treatment and expanding the behavioral health workforce.
  • Addressing the long-standing underfunding of subsidized child care to ensure all families have access to affordable care and providers are paid fair rates.

State leaders need to be bolder in committing to ongoing support — while also boosting support to a level that meets the scale of need — for the systems and services Californians rely on to meet basic needs and that are vital to public health and well-being. State leaders should seek to increase revenues in equitable ways and make structural changes to revenue and budget policies to ensure ongoing investments can be made to support Californians.

5. California is home to tremendous wealth yet the needs of Californians in low- and middle-income households are vast and Californians of color have been blocked from economic and health opportunities for generations. Why has there been so little urgency among state policymakers to consider new revenues to address ongoing needs and confront the widening wealth and income inequality that preceded and was exacerbated by the pandemic?

Raising new state revenues to support ongoing investments is often an uphill battle, even when there are significant needs for Californians and communities. This year, several factors are further dampening the sense of urgency among policymakers for new revenues. The better-than-expected revenues the state has been receiving — largely due to the continued prosperity of wealthy households — and the influx of federal relief funds have given state leaders more options to balance the budget for the upcoming fiscal year. In subsequent years, options may be more limited to balance the budget, and policymakers may need to consider how to increase revenues, reduce spending, or a combination of these and other strategies. Additionally, the strong revenue growth has raised concerns that revenues are approaching the state’s constitutional spending limit, known as the “Gann Limit.” If this limit is exceeded, policymakers must spend revenue over that limit in specific ways, so they lose the flexibility to spend those funds to best address the needs of Californians. The looming gubernatorial recall likely creates even more hesitancy among state leaders to advance tax policy changes. 

These factors combine to create an especially challenging year for the prospect of raising revenue. However, many of the needs faced by Californians — particularly for Californians of color, who have been disproportionately affected by the health and economic consequences of the pandemic — existed long before this crisis and will exist long after if the state does not make the investments required to address those needs. State policymakers can take steps that raise revenues to support those investments and make the tax and revenue system more equitable for all Californians, not just the wealthy few.

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When Governor Gavin Newsom released his proposed 2019-20 budget this past January, one of the biggest surprises was that he did not include a proposal to extend California’s tax on health insurance plans — or  “managed care organizations” (MCOs) — which expires on July 1. (An extension of this tax would require federal approval.) The Governor’s position is puzzling because the MCO tax package generates a net state General Fund benefit of roughly $1.5 billion each year. If the MCO tax goes away, so does this General Fund benefit, thus reducing the capacity of the state budget to support public services and systems, such as child care for working families and higher education.

The Governor has expressed concern that pursuing a reauthorization of the MCO tax could conflict with the state’s efforts to renegotiate, with the federal government, two Medi-Cal “waivers” that will expire in 2020. (Waivers help to determine how services are delivered in Medi-Cal, our state’s Medicaid program.) However, the nonpartisan Legislative Analyst’s Office (LAO) has evaluated this concern and concluded that the Newsom Administration “has not laid out a convincing rationale” for letting the MCO tax package lapse. Furthermore, the LAO notes that “California’s prospects of receiving federal approval of a reauthorized MCO tax are strong.”

In order to help shed light on a critical policy issue that has major implications for the state budget but has largely been flying under the radar, here are five key facts about California’s current MCO tax package:

1. The current MCO tax package took effect in 2016 following more than a year of intense lobbying by the Brown Administration.

The current MCO tax package was approved by the Legislature on a bipartisan vote in early 2016, following over a year of all-hands-on-deck lobbying by Governor Brown and his administration. Due to new federal rules, California’s then-current MCO tax no longer complied with federal guidelines and needed to be revised. Ultimately, Governor Brown called the Legislature into special session with the goal of creating a new MCO tax that would adhere to federal rules while also generating substantial General Fund savings. In addition to a revamped MCO tax, the final tax package included offsetting state tax cuts for the health insurance industry that were designed to ensure that the industry, as a whole, would be no worse off financially as a result of the revised MCO tax. The final tax package won broad support, including from health plans, and took effect on July 1, 2016.

2. The MCO tax package reduces — or “offsets” — state General Fund spending on Medi-Cal by well over $1 billion per year, freeing up these dollars to support other state priorities.

This General Fund offset results from a complex financing arrangement. (See this LAO report for an overview of how it works.) Essentially, California taxes MCOs and uses the proceeds to leverage federal funds to support Medi-Cal, our state’s Medicaid program. The MCO tax package frees up around $1.5 billion in General Fund revenues each year that would otherwise go to Medi-Cal. These freed-up funds support an array of public services and systems that are funded through the state budget.

3. By leveraging federal dollars for Medi-Cal — at no cost to the state’s General Fund — the MCO tax allows California to come closer to claiming its fair share of federal Medicaid funding.

It’s long been known that the main formula for determining how much federal funding states receive for their Medicaid programs is flawed, and in a way that puts California at a financial disadvantage. (This formula is officially known as the “FMAP.”) For California, the key problem is that the state “receives a low federal matching rate despite its relatively low ability to fund [Medi-Cal] program services,” according to the US Government Accountability Office (GAO). By providing another way for California to tap federal Medicaid funds — at no cost to the General Fund — the MCO tax helps to lessen the inequities that are built into the FMAP formula by boosting federal support for Medi-Cal.

4. If the MCO tax were allowed to expire, state General Fund costs for Medi-Cal would ultimately increase by more than $1 billion per year, but without any additional benefit to the Medi-Cal program.

If the MCO tax expires, policymakers would have to replace the lost MCO tax revenues with state General Fund dollars in order to maintain current federal Medicaid matching funds and keep the Medi-Cal program whole. In fact, this is what Governor Newsom’s proposed 2019-20 budget assumes — that the General Fund will backfill the foregone MCO tax revenues. This, in turn, would reduce the amount of state funds available to support other key public services and systems.

5. Alternatively, extending the MCO tax would free up General Fund dollars that could be used to expand key services beginning in the 2019-20 fiscal year, which starts on July 1.

As noted above, Governor Newsom assumes that state General Fund spending on Medi-Cal will rise beginning in 2019-20 due to the (presumed) expiration of the MCO tax — an assumption that is built into his proposed state budget. Alternatively, if the MCO tax were extended, this General Fund “backfill” for Medi-Cal would not be necessary. As a result, these General Fund dollars, ultimately reaching around $1.5 billion per year, would be newly available — relative to the Governor’s current multi-year budget forecast — to pay for other state priorities. For example, these freed-up dollars could help to move California closer to universal health coverage. Key policy options here include improving and expanding Medi-Cal and creating new state subsidies to reduce the cost of coverage for low- and moderate-income Californians who purchase health insurance on the individual market.

Conclusion

The current MCO tax package leverages federal funds for Medi-Cal, leaves the health insurance industry no worse off financially, and provides a net annual state General Fund benefit of roughly $1.5 billion, with these freed-up dollars supporting critical public services and systems. It’s not too late for the Newsom Administration to reverse course and work with state lawmakers to craft an updated MCO tax package that can win federal approval this year.

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Does California need significant new investments in its transportation infrastructure? Given our state’s deteriorating highways, roads, bridges, and other transportation infrastructure, not to mention billions of dollars in deferred maintenance, the answer should clearly be “yes.”

Governor Brown and state legislative leaders agree. They recently enacted Senate Bill 1, the Road Repair and Accountability Act of 2017, allocating $54 billion over the next 10 years in a transportation package that is split equally between state and local investments. This transportation package provides funding for highway and road maintenance and rehabilitation, public transit, improving conditions for pedestrians and bicyclists, and facilitating goods movement. The revenue to pay for these investments comes from a 12-cent increase in the state excise tax on gasoline (the “gas tax”), increased diesel fuel taxes, and new transportation improvement fees.

The new transportation package seeks to address billions of dollars in deferred maintenance and represents the culmination of deliberations that started in 2015, with an initial proposal from the Governor and a special legislative session on transportation funding that ran from June 2015 to December 2016.

While the overriding question should be whether California needs these transportation investments and improvements, much of the attention leading up to and following the enactment of the package has focused on questions about the fairness of the gas tax, whether the funds actually will be spent on transportation improvements, and whether the package was hastily passed without sufficient debate. After briefly recapping what the package actually includes — on both the spending and revenue sides — we examine each of these questions, in part by adding some much-needed context.

How Will the Money Be Spent?

The funds from the $54 billion package will be split equally between state and local transportation programs.

Major state-level allocations include:

  • $15 billion for highway repairs.
  • $4 billion in bridge repairs.
  • $3 billion to improve trade corridors.
  • $2.5 billion to reduce congestion on major commute corridors.

Major local-level allocations include:

  • $15 billion for local road repairs.
  • $8 billion for public transit and intercity rail.
  • $2 billion for local “self-help” communities that are making their own investments in transportation improvements.
  • $1 billion for active transportation projects to better link travelers to transit facilities.

How Will the Money Be Generated?

The package generates $54 billion in new revenues over 10 years from a series of tax and fee increases:

  • $24.4 billion from a 12-cent increase in the base gas excise tax starting November 1, 2017.
  • $10.8 billion from a 20-cent increase in the diesel fuel base excise tax and a 5.75-cent increase in the diesel fuel sales tax starting November 1, 2017.
  • $16.3 billion from a new annual transportation improvement fee that will take effect on January 1, 2018. This fee will range from $25 to $175 per vehicle based on the value of the vehicle. For instance, a vehicle valued at less than $5,000 would incur a fee of $25, while a vehicle valued at $60,000 or more would incur a $175 fee.
  • $200 million from a new annual fee of $100 on all zero-emission vehicles starting on July 1, 2020.

In addition, the base gas and diesel fuel excise taxes, the new transportation improvement fee, and the new zero emissions vehicle fee will be annually adjusted for inflation starting in 2020-21. Further, the base gas and diesel fuel excise taxes and new transportation improvement fee will be annually adjusted for inflation starting on July 1, 2020. The new road improvement fee will be annually adjusted for inflation starting on July 1, 2021.

The Question of Fairness: Gas Taxes and Vehicle Fees Are How We Fund Transportation

Whenever increases in the gas tax are considered, issues are raised about the fairness of the tax. As noted in our primer on California’s tax system, there are different ways to assess the fairness of taxes. Most people agree that a fair tax system asks taxpayers to contribute to the cost of public services based on their ability to pay. When lower-income households spend a larger share of their budgets on taxes than higher-income people do, we refer to those taxes as regressive. Conversely, taxes that require higher-income people to spend a larger share of their budgets on taxes are considered progressive. Lower-income households spend more of their incomes on daily necessities, such as basic transportation. In this respect, gas taxes are regressive.

However, this critique of the gas tax as a way to fund transportation improvements would be more concerning if we had other, more progressive ways of funding these improvements. The reality is that transportation funding in California, and nationally, primarily relies on a set of usage-based excise taxes and fees — taxes and fees that people pay to use highways, roads, transit facilities, ports and airports, and so on. While usage-based taxes and fees may be mostly regressive, they are fair in that they are paid as the cost of using the service. Even alternatives in transportation funding — toll roads and charges based on vehicle miles traveled (VMT), for instance — still raise revenues based on people’s use of highways and roads, and not with regard to users’ incomes. Another potential alternative, the carbon tax — a tax imposed on the burning of carbon-based fuels such as coal, oil, and gas — would still generate revenues based on the demand for and use of those fuels.

Some people contend that transportation should be funded from the state’s General Fund, or by general obligation (GO) bonds where the service on the debt is paid out of the General Fund, because the General Fund in California is largely reliant upon the state’s progressive income tax. However, this raises a major concern: Using General Fund dollars would put transportation investments in competition with other vital programs and services for limited state funding. General Fund dollars should be reserved for services for which lower-income households are especially burdened by the cost of the service (e.g., health insurance) or programs from which the entire society benefits and which we want to encourage (e.g., K-12 education).

Usage-based taxes and fees also make sense as a source of transportation funding because they can be structured in ways that meet other policy goals. For instance, because driving creates emissions that are harmful to the environment, taxes and fees can be designed to encourage alternative forms of transportation. Further, concerns about the impacts on lower-income individuals can be addressed by providing offsets. For instance, California could expand its Earned Income Tax Credit (EITC) — a refundable credit for low-income Californians — as a means of offsetting increased gas costs.

There is another factor to consider as to the wisdom of the recently enacted increase in California’s gas tax: our state’s gas taxes have not been increased in 23 years. Since the state last increased the rate, the real (inflation-adjusted) buying power of the gas tax per mile driven has dropped significantly. (Miles driven is a good proxy for the deterioration of roads.) There are a few reasons for this. One is that the tax is not indexed to inflation. Second, it is imposed as a fixed amount per gallon, not a percentage of the sales price of gasoline, so it does not increase as gasoline prices increase. Finally, because cars are more fuel-efficient than years ago, drivers pay less per mile driven than they did in 1994, when the gas tax last rose. When gas tax revenues fail to keep up with both inflation and wear and tear, less money is available to maintain and build streets and highways, and a backlog of deferred maintenance accumulates. The cost of addressing the deferred maintenance on the state’s transportation assets (not even including local roads) is now $57 billion. The relatively large 12-cent-per-gallon increase in the gas tax, which represents an approximate 4 percent increase in the overall cost of gasoline, is partly the result of 23 years of no increases. Furthermore, since the new package starts to adjust the gas tax rate for inflation in 2020, it will result in much more gradual annual changes in the rate, in turn helping ensure that revenues keep up with ongoing needs.

Lastly, it is important to put the gas tax in the broader context of the transportation package overall. State leaders structured the transportation improvement fee on vehicles — another key piece of the package’s revenue mix — so that it is based more on people’s abilities to pay, with the fee increasing relative to the value of the vehicle.

One of the other critiques offered about the new package is that the funds are not assured to go toward transportation improvements.

This critique is simply not based in fact. As noted in our quick summary above, the funds are all earmarked for state and local transportation investments. In addition, the package includes a set of accountability provisions designed to ensure that the revenues are spent as intended. Among these is a constitutional amendment (ACA 5) that will require voter approval on the June 2018 ballot. ACA 5 would 1) prohibit spending the funds on anything other than transportation and 2) create a state transportation inspector general within the California Department of Transportation (Caltrans) to ensure both that funds are spent as intended and that this spending complies with state and federal requirements.

The Question of Timing: State Leaders Have Been Working on a Transportation Package for Over Two Years

Opponents of the package have also charged that the package was “rammed through,” without enough opportunity for deliberation.

This simply is not the case. Governor Brown initially proposed a similar package in early 2015 and called a special legislative session that ran from June 2015 through the end of 2016, without resolution. The Governor then outlined the contours of a new package in his proposed budget for 2017-18, released in January, and state legislative leaders crafted alternative proposals in the weeks that followed. So, at a minimum, the new transportation package represents deliberations that had been underway for more than two years. And, given that the state has not increased the gas tax in 23 years, while billions of dollars in deferred maintenance has mounted, enacting a new transportation funding package was long overdue.

Ultimately, the most important question is whether California needs to invest more in its transportation infrastructure, improving its highways, roads, public transit and other alternative transportation options, and its ability to move people and goods efficiently. Years of neglect and billions of dollars in deferred maintenance, exacerbated by a lack of political will to increase taxes and fees, mean that the answer to that question is clearly “yes,” and that the recently enacted transportation package is a significant advance for California.

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