PPIC Report Explores Potential Impacts to California’s Safety Net Programs in Economic Recession

The Public Policy Institute of California (PPIC) released a report this week exploring potential impacts on several key programs within California’s social safety net, despite the state currently experiencing an “unusually bright” economic picture. PPIC looks back at previous economic downturns and considers how California balanced the state budget, as required by the state constitution, while maintaining support for residents through Medi-Cal, CalWORKs, SSI/SSP, and the relatively new California Earned Income Tax Credit (CalEITC).

During the Great Recession a decade ago, the share of Californians who were poor grew from 12.2 percent to 16.6 percent. Three large state safety net programs registered $1.9 billion in cuts annually from 2008 to 2012, representing 15 percent of all cuts in state General Fund spending. In looking ahead, PPIC forecasts what may lie ahead for California’s safety net:

• Using past experiences to project trends in the next economic recession, 500,000 to 1.2 million Californians could fall into poverty during a mild or moderate recession.
• Poverty rates remained elevated for several years after state revenues began to recover, underscoring the necessity of planning for the entire economic cycle.
• Medi-Cal has expanded dramatically in recent years and now provides health coverage for millions of low-income families and individuals. Ensuring It continues to play this critical role while maintaining increasing health care costs will be a challenge.

In a moderate-to-severe recession, PPIC notes that program cuts will be inevitable. PPIC recommends two principles to frame spending decisions: 1) prioritize protecting the most vulnerable Californians – those who are harmed most in economic downturns and depend on multiple safety net programs for basic necessities; and 2) recognize the staggered timing of recessions, revenue shortfalls, and poverty, and aim to restore cuts when revenue is recovering but poverty is still high.

California’s more than $20 billion in reserves is expected to provide a cushion in a budget crisis, but an important unknown is the role of the federal government in the next recession. In previous recessions, federal support protected California from more severe safety net spending cuts; given the current federal political climate, PPIC notes, it remains unclear what amount of assistance California will receive when the economy slows next.

The full PPIC report is available here.