The 2021-22 Budget: Analysis of the Governor’s CalWORKs Proposals

analysis full gutter The 2021-22 Budget: Analysis of the Governor's CalWORKs Proposals February 2021 In this post, we provide important background were due between March and May of 2020. on the California Work Opportunity and (CalWORKs recipients generally must submit Responsibility to Kids (CalWORKs) program, redetermination paperwork once every six months updates on how caseload has been affected by the to remain on aid. The redetermination paperwork is coronavirus disease 2019 (COVID-19) pandemic, intended to determine whether participants continue and analyze the Governor’s proposed CalWORKs to meet the eligibility requirements to participate budget. In short, caseload has declined in the program.) This had the effect of reducing precipitously in the most recent data, reaching the exit rate from about 6 percent to 8 percent a new all-time low in November 2020 (the most of all cases to about 2.5 percent for those three recent month for which there are data). This months. Second, the order (along with extensions runs contrary to both the Governor’s budget from subsequent executive orders) prevented (which assumes a fairly rapid rate of caseload any month of CalWORKs participation during the growth from 2020 through 2022) and the historic COVID-19 emergency from counting against an relationship between caseload and economic adult’s 48-month lifetime limit. data (which suggests caseload should increase Under State Law, Local Revenue Growth following increased unemployment). In line with Automatically Triggers CalWORKs Grant other efforts the administration is proposing Increases. Following a major realignment of state to support low-income individuals during the and local responsibilities in 1991, some funds COVID-19 pandemic, we suggest the Legislature generated by a new sales tax and a portion of work with the administration to understand the the vehicle license fee accrue to a special fund factors leading to the lower than expected caseload with a series of subaccounts which pay for a and explore options for ensuring CalWORKs variety of health and human services programs assistance reaches eligible families. and responsibilities. Under state law, sufficient revenue growth in the Child Poverty and Family Background Supplemental Support Subaccount triggers an The CalWORKs program provides cash grants increase in CalWORKs cash grant amounts. In and job services to low-income families. The the past, this account funded two separate grant program is administered locally by counties and increases of 5 percent in 2013- 14 and 2014-15 overseen by the state Department of Social Services and another of 1.43 percent in 2016-17, as well (DSS). For more information about CalWORKs, as funding the repeal of the maximum family grant please see our report The 2020-21 Budget: policy starting in 2016-17. Department of Social Services. Below, we provide 2020-21 Budget Act Made Several Changes background on recent changes to the CalWORKs to CalWORKs Program. Among the most notable program. changes made to CalWORKs in the most recent Governor Temporarily Suspended Lifetime budget are: Limits, Redeterminations During the Ongoing • Extended lifetime limits for adult recipients Pandemic. Executive Order N-29-20 included two from 48 months to 60 months starting in May provisions affecting CalWORKs caseload during the 2022. COVID-19 pandemic. First, the order automatically recertified all recipients whose redeterminations 2021-22 LAO Budget Series 1 analysis full gutter • Offered adults increased flexibility in work is high—for example, during the Great Recession participation requirements for their entire time of 2008-09 (when unemployment peaked at on aid starting in May 2022 (currently, adults about 12 percent)—caseload grows (eventually are allowed this increased flexibility for a total reaching an all-time high of about 587,000 cases of only 24 months). in 2010-11). When the unemployment rate is low— • Provided $2.4 billion for county CalWORKs for example, during the pre-COVID-19 economic services (referred to as the single allocation), expansion—caseload declines (reaching what an amount not directly connected to the was then an all-time low of about 366,000 cases budget’s caseload projections. in 2019-20). Because the recession due to the COVID-19 pandemic has caused the unemployment • Temporarily eliminated $20 million for counties rate to reach historic highs (peaking at 15.6 percent to implement the CalWORKs Outcomes and in May 2020), caseload also was projected to Accountability Review. increase at an unprecedented rate (expected to • Eliminated a planned $30 million ramp-up of go from its then historic low all the way up to its the Home Visiting Program, under which some historic high of 587,000 in 2020-21 according to CalWORKs families with a child under two budget act projections). years old receive regular visits from a nurse, Caseload Increased Modestly Following a parent educator, or early childhood specialist Temporary Suspension of Redeterminations, who works with the family to improve maternal Then Fell Precipitously. CalWORKs caseload health, parenting skills, and child cognitive increased by about 11,000 cases (3 percent) during development. the first three months of the COVID-19 recession (March through May 2020) before decreasing in Caseload Trending Much Lower Than subsequent months. As Figure 2 on the next page Budget Act Expectations shows, this period of caseload growth was primarily Recent Recession Was Projected to Increase driven not by an increase in cases added, but by a Caseloads. As Figure 1 shows, CalWORKs decrease in cases exiting following the temporary caseload generally follows trends in California’s suspension of redeterminations. (Generally, when unemployment rate. When the unemployment rate cases added are greater than cases exited, net Figure 1 CalWORKs Caseload Generally Follows Unemployment Trends Caseload Measured in CalWORKs Families 650,000 14% 600,000 12 550,000 CalWORKs Caseload 10 500,000 8 450,000 6 Unemployment Rate 400,000 4 350,000 2 300,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021-22 LAO Budget Series 2 analysis full gutter Figure 2 CalWORKs Caseload Briefly Increased Before Precipitous Decline Caseload Measured in CalWORKs Families Suspension of Redeterminations 40,000 35,000 30,000 25,000 Old Cases Exited 20,000 15,000 New Cases Added 10,000 5,000 Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov 2019 2020 10,000 5,000 Net Change in Caseload -5,000 -10,000 800,000 Caseload Since 2002 -15,000 600,000 -20,000 400,000 200,000 2021-22 LAO Budget Series 3 analysis full gutter caseload grows, and vice versa.) In November, recent CalWORKs Fiscal Outlook post, we discuss CalWORKs caseload reached a new all-time low three potential reasons for low levels of CalWORKs following the fastest five month period of caseload applications in recent data: (1) job losses have not declines since at least 2002 (see insert in Figure 2). yet affected workers with children as severely as Caseload Decline Reflects Relatively Few past recessions, (2) the extraordinary level of federal Applications Coupled With Higher Than Usual and state relief offered to individuals (in particular, Denial and Exit Rates. After a brief increase in enhanced unemployment insurance) temporarily has spring 2020, CalWORKs applications fell in the reduced CalWORKs demand, and (3) public health summer and fall to their lowest level since at least concerns temporarily have reduced CalWORKs 2002. Moreover, since spring, a larger share of demand (for example, applicants are reluctant or applications (about 60 percent) has been denied unable to come to county offices to have their compared to recent years (about 48 percent). questions answered while completing applications). Finally, Figure 3 shows that the exit rate has We continue to believe each of these factors accelerated in October and November to about plays some role in the low number of CalWORKs 10 percent of the caseload, above the recent applications. average of about 6 percent to 8 percent. (This figure Reasons for Higher Denial, Exit Rates Are also shows the significant decline in exits in the Unclear. The available data do not offer a clear spring of 2020—largely reflecting the temporary picture as to why CalWORKs applications are being suspension of redeterminations.) Each of these denied at historically high rates, nor why CalWORKs factors helps explain the rapid caseload decrease exits have increased. However, public health observed in recent months. concerns may play some role in either or both of Low Applications Likely Due to Combination these trends. For example, a growing number of of Economic and Public Health Factors. In our applications are now completed online rather than in county offices, where staff Figure 3 could be available to answer applicant questions. Without CalWORKs Exit Rate Increased in Most Recent Data staff assistance, applicants may be more likely to incorrectly Suspension of or incompletely fill out their Redeterminations 12% applications, resulting in a denial of benefits. 10 Budget Overview The Governor’s budget 8 proposes a CalWORKs funding level of about $7.2 billion (all 6 fund sources) in 2021-22, a $729 million (11 percent) increase 4 over the revised 2020-21 level. This increase is the net effect of 2 the caseload assumptions and policy proposals described below. Budget Includes Large Jul OctJanAprJul OctJanApr Jul OctJanAprJul OctJanApr Jul OctJanAprJul Oct Revisions to CalWORKs Caseload, Cost Estimates in 2015 2016 2017 2018 2019 2020 2019-20 and 2020-21. Relative to the 2020-21 Budget Act, the Governor’s budget projects 2021-22 LAO Budget Series 4 analysis full gutter caseload-related savings on CalWORKs cash Families funding reflects a projected exhaustion of assistance in 2019-20 of about $280 million General one-time carryover funds in 2020-21.) Fund. (The administration also reports that about Budget Includes 1.5 Percent Grant Increase $330 million from the 2019-20 single allocation is Triggered by Local Revenue Growth. The currently unspent, although counties still have two administration estimates a budget year cost of quarters in which they can make claims towards this $52 million (annual cost of about $71 million) to appropriation. These savings eventually will revert fund a 1.5 percent increase to cash grants starting to the General Fund.) The budget further projects in October 2021. This increase was triggered, and 2020-21 caseload will average about 405,000, will be funded, by revenue growth in the Child or 30 percent below budget act projections, for Poverty and Family Supplemental Subaccount. associated costs savings on cash assistance of Figure 6 on the next page shows this increase about $470 million General Fund. would raise grants for all Assistance Unit (AU) sizes Projected Caseload Increase, Policy Changes in high-cost counties to at or above 49 percent of Drive Cost Increases in 2021-22. As shown in Figure 4, the bulk Figure 4 of the 2021-22 funding increase CalWORKs Budget Summary is due to a projected 19 percent All Funds (Dollars in Millions) increase in caseload (from Change From 2020‑21 the revised 405,000 cases in 2020‑21 2021‑22 2020-21 to about 482,000 cases). Revised Proposed Amount Percent Other cost drivers include the Number of CalWORKs Cases 405,317 482,436 77,119 19% extension of lifetime limits to Cash Grants $3,589 $4,387 $798 22% 60 months for adults scheduled for Single Allocation May 2022 (estimated to cost about Employment services $1,223 $1,238 $15 1% $22 million in 2021-22, with higher Cal-Learn case management 32 21 -12 -36 costs anticipated for future years) Eligibility determination and 648 666 18 3 administration and the various policy proposals Subtotals ($1,904) ($1,924) ($21) 1% described below. Stage 1 Child Carea $486 $424 -$62 -13% General Fund Accounts for Home Visiting Initiative $90 $73 -$18 -19% Small, but Growing, Share of Other County Allocations $422 $406 -$16 -4% CalWORKs Costs. Figure 5 shows Otherb $4 $9 $6 154% how CalWORKs costs are shared Totals $6,495 $7,224 $729 11% between federal, state, and local a In 2020-21 and prior years, this was included in the single allocation. Starting in 2020-21, it is a separate allocation. We revenue sources. While General present it as a separate line item in both years for ease of comparison. b Primarily includes various state-level contracts. Fund grows notably year over year (79 percent), it still accounts for a fairly small share of overall Figure 5 program costs (29 percent). The CalWORKs Funding Sources General Fund still accounts for a (Dollars in Millions) fairly small share of overall program Change From 2020‑21 costs (29 percent). The General 2020‑21 2021‑22 Fund typically pays for year-to-year Revised Proposed Amount Percent increases in CalWORKs costs Federal TANF block grant funds $2,811 $2,566 -$245 -9% because federal funding does State General Fund 1,169 2,096 928 79 not increase proportionally with Realignment and other county fundsa 2,515 2,561 46 2 caseload or policy changes. Totals $6,495 $7,224 $729 11% (The reduction in year-over-year a Primarily various realignment funds, but also includes county share of grant payments, about $60 million. Temporary Assistance for Needy TANF = Temporary Assistance for Needy Families. 2021-22 LAO Budget Series 5 analysis full gutter Figure 6 Governor’s Budget Includes 1.5 Percent Increase to CalWORKs Grants As Shown, for CalWORKs Familes With No Other Income Lower-Cost Counties Before 1.5 Percent After 1.5 Percent Increase Increase AU As Share As Share Sizea of FPLb of FPLb Amount Amount 1 $520 49% $528 50% 2 661 46 671 47 3 834 46 847 47 4 1,007 46 1,022 47 5 1,180 46 1,198 47 High-Cost Counties Before 1.5 Percent After 1.5 Percent Increase Increase AU As Share As Share Sizea of FPLb of FPLb Amount Amount 1 $550 52% $558 53% 2 696 48 706 49 3 878 49 891 49 4 1,060 49 1,076 49 5 1,242 49 1,261 49 a Assistance unit (AU) size is the number of family members who are eligible for CalWORKs. b Share of 2020 FPL guideline for a family size equal to AU size. FPL = federal poverty level. 2021-22 LAO Budget Series 6 analysis full gutter the federal poverty level (FPL) (assuming household the single allocation to the level suggested by the size equals AU size), whereas grants for most AU overall caseload forecast, consistent with prior sizes in lower-cost counties would be at about practice. The net effect of this adjustment and the 47 percent of the FPL. (As part of the 2018-19 administration’s projected caseload increase is a Budget Act, the Legislature set a goal to increase relatively modest decrease in the single allocation. CalWORKs grants to 50 percent of the FPL for a Budget Extends Temporary Suspension family that is one person larger than the AU size, a of State Lifetime Limits. The budget includes considerably higher target than would be reached in $46.1 million to continue the suspension of any 2021-22 under the Governor’s budget.) Ultimately, month counting towards adults’ 48-month lifetime the amount of this grant increase will depend on limits during the COVID-19 pandemic. (This revenue and caseload assumptions. To the extent exemption, already put into place by executive caseload comes in below the administration’s order, is estimated to cost $18.2 million in 2020-21.) forecast, realignment revenue could support a larger grant increase. Assessment Budget Aligns Single Allocation to Projected Budget Very Likely Overestimates Caseload Caseload Levels. The final 2020-21 budget Growth. The administration informs us that package provided counties more funding for when its caseload estimate was constructed the CalWORKs-related services than would be typical most recent data available were from June 2020. based on the assumed caseload. This funding to These data predate the rapid caseload decrease counties is referred to as the single allocation. As observed in the summer and fall and the most Figure 7 shows, the Governor’s budget would align recent federal extension of unemployment insurance Figure 7 CalWORKs Single Allocation in Governor’s Budget All Funds (Dollars in Millions) Change From 2020‑21 2020‑21 2021‑22 Revised Proposed Amount Percent Employment Services Caseload-driven costs $1,043 $1,238 $194 19% Maintenance of 2020 Budget Act funding levels 180 — -180 — Subtotals ($1,223) ($1,238) ($15) (1%) Administration and Eligibility Caseload-driven costs $614 $666 $52 8% Maintenance of 2020 Budget Act funding levels 34 — -34 — Subtotals ($648) ($666) ($18) (3%) Stage 1 Child Carea Caseload-driven costs $415 $424 $9 2% Maintenance of 2020 Budget Act funding levels 71 — -71 — Subtotals ($486) ($424) (-$62) (-13%) Cal‑Learn Case Management Caseload-driven costs $17 $21 $3 18% Maintenance of 2020 Budget Act funding levels 15 — -15 — Subtotals ($32) ($21) (-$12) (-36%) Totals $2,390 $2,348 ‑$41 ‑2% a In 2020-21 and prior years, this was included in the single allocation. Starting in 2020-21, it is a separate allocation. We present the item here in both years for ease of comparison. 2021-22 LAO Budget Series 7 analysis full gutter benefits. As Figure 8 shows, the administration’s and exits. This analysis could inform additional forecast essentially extrapolates from the initial steps that could ensure CalWORKs reaches eligible caseload increase observed during the spring, an families. For example, if the increased exit rate is increase which now appears driven entirely by the due to participants struggling to comply with the suspension of redeterminations. Even assuming administrative requirements for redeterminations, caseload resumed growing in December and the Legislature may wish to consider suspending continued growing throughout the budget window the redetermination requirement through the (see “Alternative Assumptions” in the figure below), duration of the public health emergency (federal we estimate CalWORKs costs would come in about law has already extended a similar moratorium on $450 million below Governor’s budget projections Medi-Cal redeterminations through the spring). in 2020-21 and $900 million below in 2021-22. Another potential response may be to provide Thus, we anticipate large downward revisions to the outreach to families who became disenrolled in the administration’s caseload projections in May. program since spring and offer them assistance in Pausing State Lifetime Limits During re-enrolling in the program, or to provide additional Pandemic Is Reasonable. The Legislature and statewide outreach (similar to efforts provided to administration currently are considering various programs such as the California Earned Income Tax options (such as the proposed Golden State Credit). To determine what steps would be most Stimulus) for providing extraordinary assistance effective, we recommend the Legislature request to low-income Californians during the current DSS to report at budget hearings on their findings. pandemic. As CalWORKs already provides important assistance to some of California’s lowest-income families, taking steps (such as temporarily Figure 8 suspending the state’s 48-month Recent Caseload Data Far Below Budget Projections lifetime limit on aid to adults) to Caseload Measured in CalWORKs Families ensure the program continues to Suspension of reach as many of these families as Redeterminations possible is prudent. 600,000 Consider Additional Strategies for Preventing Caseload Declines and Increasing 500,000 Administration CalWORKs Enrollment. In Projections addition to the Governor’s 400,000 Actual Caseload proposal to suspend temporarily the state’s lifetime limits on 300,000 Alternative aid, the Legislature may wish Assumptions to consider other options for ensuring CalWORKs continues 200,000 to reach low-income Californians during the current pandemic. 100,000 In particular, we are concerned by the precipitous caseload declines in a time of significant July January January January January economic strain. We understand 2018 2019 2020 2021 2022 that DSS currently is working to better understand and validate the recent trends in CalWORKs caseload applications, denials, 2021-22 LAO Budget Series 8 analysis full gutter 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 9