California Assembly debates Secure Choice bill in August 2012
California, the nation’s richest state, also has by far the nation’s highest incidence of poverty, an anomaly that is, or should be, embarrassing to the liberal Democrats who dominate its governance.
The state’s high poverty level – nearly one quarter of its population or some 9 million people, according to a Census Bureau index – has several roots, including a decline in middle-income private-sector jobs, a huge population of ill-educated workers stuck in low-skill, low-wage jobs, a shortage of housing that pushes its costs sky-high, and a chronic educational “achievement gap.”
Democratic politicians say they want to attack the state’s immense poverty problem. In recent years, they’ve raised the minimum wage, created a state earned income tax credit, mandated sick leave, expanded federally financed Medi-Cal coverage for the poor, and targeted school aid to underachieving students.
The Democratic Party’s most liberal elements have pressed for more, particularly in health and welfare services, but Gov. Jerry Brown, worrying aloud about an economic downturn, has been reluctant to do anything that obligates the state to spend billions more dollars.
Moreover, neither Brown nor the Legislature has been willing to confront either the state’s housing shortage – the biggest factor in the Census Bureau’s poverty calculation – or regulatory and tax policies that may discourage middle-class job creation.
On Monday, two new poverty war fronts were opened. A board controlled by Brown’s appointees adopted a broad plan to create a pension program for up to 7 million mostly low-income private-sector workers, and Brown and legislative leaders agreed to raise the state’s minimum wage to $15 per hour by 2022, affecting about 5 million workers and short-circuiting a ballot measure battle next fall.
The politicians involved publicly patted themselves on the back. Senate President Pro Tem Kevin de León declared that California is on “the cutting edge” on wages and pensions and “moving forward for working Californians.”
Both plans, however, are fraught with uncertainty and thus potentially unforeseen consequences.
The pension plan would be relatively modest at first, requiring employees, unless they opt out, to enroll in individual retirement plans financed with payroll deductions. But the Democratic left wants it to become more comprehensive, with guarantees against investment losses that would move it toward a defined-benefit plan somewhat akin to those covering public employees.
Employers are rightfully concerned that they could find themselves on the hook for pension costs at some point in the future. And with the simultaneous minimum wage deal, they may already be on the hook indirectly, forced to raise wages that then could be tapped to finance the pension plan.
Where this is leading is quite uncertain. It could, indeed, lift some Californians out of poverty. But it could also depress hiring as employers face billions of dollars in new costs, and without some effective action on housing and job creation, the real-world effect on poverty could be little or nothing.