The 2021-22 Budget: CalWORKs Fiscal Outlook

analysis full gutter The 2021-22 Budget: CalWorks Fiscal Outlook December 2020 In this post, we describe our most recent following a change in economic growth, larger forecast for California Work Opportunity and CalWORKs caseload trends tend to lag economic Responsibility to Kids (CalWORKs) program costs trends, such that caseload typically increases and discuss recent caseload trends. With this post for about two years following an increase in we intend to provide information but do not include unemployment. In addition to these economic any explicit recommendations to the Legislature. fluctuations, CalWORKs caseload also exhibits a long-term downward trend corresponding to the Background long-standing decline in California birth rates. CalWORKs Provides Cash Assistance and Historically, CalWORKs Caseload Lags Employment Services to Low-Income Families. Unemployment Trends by a Year or More. One To qualify for CalWORKs, families must have one element of our caseload forecast is particularly or more children and generally earn no more than relevant to understanding current caseload about 80 percent of the federal poverty level. Once trends: the time lag between when unemployment qualified, adults generally are limited to a total peaks and when CalWORKs caseload peaks. of 48 months of cash assistance (as we discuss For example, as a result of the Great Recession, later, effective May 2022, the 48-month limit will be CalWORKs caseload reached its all-time high in the extended to 60 months). After adults have timed summer of 2011, whereas both initial jobless claims out, their children remain eligible for cash assistance and the unemployment rate peaked in the winter until their 18th birthdays. Cash grants generally are of 2009-10. This pattern, by which CalWORKs adjusted for family size and income, such that larger caseload follows jobless trends on a long lag, families and families with less income receive larger has occurred throughout the program’s history, grants than smaller families and families with more including after the Great Recession and after income. (When adults time out of the program, the the recession of the early 2000’s. One important family’s cash grant is reduced.) reason for this lag is that recently unemployed Program Costs Largely Are Driven by CalWORKs applicants generally are required to Underlying Caseload. CalWORKs has no cap on apply for unemployment insurance (UI) before they program enrollment, meaning all eligible families can qualify for cash assistance. The typical weekly who apply for the program receive cash assistance. benefit for a Californian on UI is about equal to the Consequently, program costs typically increase in maximum income allowed for a CalWORKs family proportion to increased caseload. of three. Consequently, households may choose not to apply for (and/or may not be eligible for) CalWORKs Caseload Largely Follows CalWORKs at least until their UI benefits expire. Economic and Demographic Trends. Our office forecasts CalWORKs caseload using three Prior to Coronavirus Disease 2019 primary factors: (1) current economic conditions, (COVID-19), CalWORKs Caseload Was (2) economic conditions over the last two years, Experiencing Historic Decline. CalWORKs and (3) the number of Californians ages 0-18. caseload reached its lowest level ever in February CalWORKs caseload tends to increase during 2020 (about 360,000 cases), following a historically economic downturns and decrease during economic long period of economic expansion combined with expansions. Although these increases/decreases the long-standing decline in California birth rates. are usually apparent to some degree immediately 2021-22 LAO Budget Series 1 analysis full gutter In Response to COVID-19, Governor office’s more modest projection of 375,000, and Temporarily Suspended CalWORKs lower also than the 2018-19 caseload of 387,000). Redeterminations, Increasing Caseload. In June and July—the most recent months for CalWORKs recipients generally must submit which we have data—caseload has actually trended “redetermination” paperwork once every six months downwards further, contrary to projections that it to remain on aid. The redetermination paperwork would increase continuously long past the end of is intended to determine whether participants 2020-21. continue to meet the eligibility requirements to Budget Act Included Policy Change Which participate in the program. Typically, between Will Increase Future Costs. In addition to the 6 percent and 9 percent of the caseload exits projected caseload-driven cost increases, the CalWORKs each month. Some cases exit 2020-21 Budget Act reverses a policy change because the head of household forgets to submit made during the previous recession. When their redetermination or makes an error on the CalWORKs was first established, adults in the paperwork, and many of these families successfully program could participate in the program for a total re-file the next month. Executive Order N-28-20 of 60 months (the maximum allowed for recipients suspended CalWORKs redeterminations for the of federal Temporary Assistance for Needy Families, months of March, April, and May. This policy or TANF, funding). Starting in 2011, California change cut the exit rate by more than half in reduced this to a 48-month time limit in an effort each of these months, temporarily increasing the to reduce program costs. 2020-21 budget-related caseload. legislation extends this time limit back to 60 months COVID-19 and Subsequent Recession Was starting in May 2022. The administration estimates Projected to Increase Caseload. The economic this policy will cost about $70 million ongoing, contraction experienced in the spring of 2020— although the initial costs in 2022-23 are estimated as a result of the COVID-19 pandemic—was to be about twice that large (this is because the unprecedented in both its speed and scale. In policy change retroactively extends eligibility for an its May Revision of the 2020-21 budget, the estimated 80,000 cases that have already timed administration projected that historically high out under the 48-month limit with associated unemployment would result in a historically limited-term costs). high CalWORKs caseload averaging about Base Forecast 724,000 cases in 2020-21 (or about 25 percent greater than the previous all-time high caseload We Project Large Revisions to CalWORKs in 2010-11). Following further deliberations and Cost Estimates in 2019-20 and 2020-21. Even some preliminary spring caseload data, the final though the budget assumed a caseload notably 2020-21 budget assumed a somewhat more below initial May Revision estimates, preliminary modest caseload increase to about 587,000 cases caseload data (and our own updated projections) (approximately equal to the previous all-time high). indicate further downward revisions are likely in (Our office projected a more modest increase in prior and current years. Relative to the budget act, caseload, to about 420,000.) we project caseload-related savings in 2019-20 Preliminary Data Show Caseload Has at $350 million. Projecting forward from the latest Come in Below Projections. Although few data, we project 2020-21 caseload will average data are yet available from 2020-21, caseload about 393,000, or 33 percent below budget act from 2019-20 appears to have come in far projections, for associated costs savings of about below projections. Whereas the budget act $1.6 billion. After accounting for an error related assumed 2019-20 caseload would average about to double-counting some federal funding (that 412,000 per month, initial data suggest that was discovered by the administration after the number was closer to 367,000 (lower even than our enactment of the 2020-21 budget), we project 2021-22 LAO Budget Series 2 analysis full gutter savings of about $880 million General Fund in Recent Caseload Trends 2020-21 relative to budget act assumptions. Contrary to Expectations, Recent Data We Project CalWORKs Costs to Increase by Suggest Caseload Is Declining. As noted above, About $300 Million in 2021-22. Because caseload both the administration and our office projected typically follows economic trends on a lag, we caseload increases immediately following increased project an increase of about 10 percent in 2021-22 unemployment starting in March 2020. Recent (for an average caseload of about 430,000) relative data, however, tells a different story. Although to our updated estimate of 2020-21 caseload. caseload increased between March and May, Alongside costs related to the extension of lifetime this increase appears almost entirely due to limits (our estimates for that policy change are the temporary suspension of redeterminations. roughly equal to the administration’s), this produces Since redeterminations were reinstated, caseload a $287 million General Fund year-over-year increase declined in both June and July (the most recent in 2021-22 relative to our updated estimate of months for which data are available). As shown in 2020-21 costs. Figure 1, applications for the program dropped We Project Further Increases in Out-Years. below 2019 levels in April and remained low We project caseload to peak in 2022-23, consistent through October, suggesting further caseload with historic evidence suggesting caseload peaks declines may be revealed when more recent data roughly two years after peak unemployment. are made available. We further project caseload to remain above Current Economic Conditions Are Distinct pre-pandemic levels through at least 2024-25. From Historic Precedent. The economic fallout Combined with the extension of lifetime limits, from COVID-19 differs from other recent recessions these increases result in additional cost pressures in three important ways, potentially explaining why in the out-years. caseload has not followed expectations based on historic trends: Figure 1 CalWORKs Applications Have Run Below 2019 Levels Since April 16,000 14,000 12,000 2019 10,000 8,000 2020 6,000 4,000 2,000 February March April May June July August September October November 2021-22 LAO Budget Series 3 analysis full gutter • Recent Recession Has Disproportionately on UI claims in forecasting CalWORKs Affected Workers Without Children. As caseload. Had we not done so, our forecast Figure 2 shows, workers with and without would reach improbably large levels in the children each accounted for about half of out-years. all job losses during the Great Recession, • Recent Economic Trends Have Shifted whereas workers without children accounted Back and Forth in Unprecedented Ways. for 71 percent of pandemic-related job losses. Many traditional economic measures, such Since workers without children are ineligible as gross domestic product growth, exhibited for CalWORKs, this may explain why caseload an unprecedented “sea-saw” effect over has not increased in proportion to the increase the summer—first falling rapidly, and then in unemployment. recovering almost as quickly as they fell. This • Initial Jobless Claims Appear to Have is unlike other recent recessions, after which Overstated the Extent of Job Loss. Between economic growth resumed only gradually February and July, more than 6 million claims following a months-long period of economic for UI were filed, while only about 2 million stagnation. jobs were recorded as lost. (This difference Recent Economic Stimulus May Have in part reflects that self-employed individuals Temporarily Decreased CalWORKs Demand. were newly eligible for UI under federal Federal coronavirus relief measures were both coronavirus relief legislation, but are not larger and quicker in their effects than stimulus recorded in total employment figures, and also in other recent recessions. Personal income possibly that some individuals applied who for Californians actually increased by about were not eligible.) Typically, there is not such a 6 percent between the first and second quarters large disparity between these two measures. of 2020 even as unemployment increased more Given this disparity, we reduced our reliance Figure 2 Unlike Great Recession, Recent Job Losses Concentrated Amongst Workers Without Children COVID-19 Share of Workforce Share of Job Losses Workers With Children 43% 29% Workers Without Children 57% 71% Great Recession Share of Workforce Share of Job Losses Workers With Children 48% 49% Workers Without Children 52% 51% Note: COVID-19—share of workforce as of February 2020 and share of job losses as of September 2020. Great Recession—share of workforce as of summer 2007 and share of job losses as of winter 2009/2010. 2021-22 LAO Budget Series 4 analysis full gutter than 10 percentage points, in part reflecting federal Future Trends Unclear relief measures that put cash in people’s pockets. Caseload Might Increase After Stimulus In addition, the state placed a moratorium on Ends, Public Health Restored. We anticipate evictions, potentially providing additional relief several future events which will affect enrollment in to cash-strapped families. These relief efforts CalWORKs, although their exact timing or impact may have reduced demand for cash assistance on caseloads is unclear: programs like CalWORKs, at least in the short term. Public Health Measures May Affect • Federal Stimulus Will Eventually Be CalWORKs Applications. Another important Exhausted. Currently authorized federal relief difference between current economic conditions funding will be expended by 2020, and it is and other recent recessions is the public health not clear whether additional relief measures crisis itself. As a result of the ongoing pandemic, will be authorized or for how long. At some most county human services offices have been point, all relief funding will be expended. To affected by public health closures since March. We the extent this funding has reduced demand have talked to several of these offices throughout for CalWORKs assistance, its expiration may the state, and we understand that they have made lead to increased caseloads. extraordinary efforts to ensure CalWORKs remains • Improvements in Public Health. At some accessible even during public health lockdowns. point, some combination of vaccines and Such steps include expanding online and telephone therapeutics will allow for normal economic application and approval processes, maintaining activities to resume, including normal physical drop boxes for paper applications, and operations at county human services allowing for in-person applications by appointment. departments. To the extent that public Nevertheless, it remains possible that public health concerns or related policy measures have closures have affected the ability, and desire, of suppressed CalWORKs applications, the some potential CalWORKs applicants to enroll in restoration of public health may lead to the program. increased caseloads. On the other hand, public health concerns have also resulted in the loss of income for many families, and thus the restoration of normal economic activity could dampen caseload increases. LAO Publications This report was prepared by Ryan Anderson, and reviewed by Ginni Bella Navarre and Carolyn Chu. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. 2021-22 LAO Budget Series 5