Analysis of the 2007-08 Budget Bill: Health and Social Services

Evaluating COLAs for Cash Assistance Programs

For 2007-08, the Governor proposes to provide the statutory January 2008 cost-of-living adjustment (COLA) for Supplemental Security Income/State Supplementary Program (SSI/SSP) recipients and suspend the July 2007 California Work Opportunity and Responsibility to Kids (CalWORKs) COLA for low-income families with children. Under the Governor’s proposal, grants for SSI/SSP recipients would move further above the federal poverty guideline while the grants for CalWORKs families would move further below the poverty guideline. In order to more effectively utilize General Fund resources to reduce poverty, we recommend redirecting $124.4 million of the funds proposed for the SSI/SSP COLA to provide the CalWORKs COLA.

How Are COLAs Calculated?

California Necessities Index (CNI). Current law requires that CalWORKs and SSI/SSP grants be increased each year by the percentage increase in CNI. The CNI is based on the change from December to December of five components of the federal consumer price index (CPI). By statute, the five components are food, rent, fuel/utilities, apparel, and transportation. From December 2005 to December 2006, the weighted average of the costs for these components increased by 3.7 percent, based on actual data available in January 2007. (The Governor’s budget, prepared prior to the release of this price data, estimated that the December to December increase in CNI would be 4.2 percent).

Timing of COLAs. The statutory COLA for CalWORKs goes into effect each July, the start of the fiscal year. The statutory COLA for SSI/SSP is provided each January, along with the federal statutory COLA, resulting in a six-month cost for the COLA. The full-year cost of the SSI/SSP COLA is double the first year cost.

Calculation of CalWORKs COLAs. The CalWORKs COLA is calculated by multiplying the CalWORKs maximum grant by the change in CNI. The CalWORKs has a system of regionalized grants. In lower-cost counties (generally inland counties with lower comparative rental costs), the grant is 4.9 percent less than in higher-cost counties. The SSI/SSP COLA calculation is more complicated, as discussed below.

Calculation of the SSI/SSP COLA. The SSI/SSP grant is comprised of two components, a federal portion known as SSI (currently $623 per month for an individual) and a state portion known as SSP (currently $233 per month for an individual). There are separate grant levels for couples and for other living situations (for example, individuals residing in non-medical boarding homes). The COLAs are funded by both the federal and state governments. The state COLA is based on the CNI and is applied to the combined SSI/SSP grant. The federal COLA (based on CPI for Urban Wage Earners and Clerical Workers) is applied annually to the SSI portion of the grant. The remaining amount needed to cover the state COLA on the entire grant is funded with state monies.

Governor's Proposal

The Governor proposes to provide the SSI/SSP COLA and to suspend the state CalWORKs COLA. Based on preliminary estimates of CNI (4.2 percent), the Governor’s budget reflects a cost of $216.7 million to provide the SSI/SSP COLA and a cost avoidance of $140.3 million from suspending the CalWORKs COLA. Based on the actual CNI (3.7 percent), the cost for providing the SSI/SSP COLA is now estimated to be $171.6 million, a savings of $45.1 million compared to the Governor’s budget. Similarly, the cost avoidance from suspending the CalWORKs COLA would be $124.4 million, rather than the $140.3 million estimated in the Governor’s budget.

Figure 1 shows the maximum monthly SSI/SSP and CalWORKs grants in 2006-07 and as proposed by the Governor for 2007-08. The grants shown reflect the actual CNI of 3.7 percent and an estimated CPI (the basis for the federal SSI COLA) of 1.4 percent. Pursuant to the Governor’s proposal to suspend the CalWORKs COLA, maximum monthly grants remain unchanged for CalWORKs families, however food stamps benefits increase due to federal inflationary adjustments. (The SSI/SSP recipients are categorically ineligible for food stamps. The CalWORKs families are entitled to food stamps, and their estimated maximum allotments are included in Figure 1.)

The CalWORKs grants shown in Figure 1 assume that the state will successfully appeal the Guillen law suit. For a more detailed discussion of the potential impact of the Guillen case on CalWORKs grants, please refer to the “California Work Opportunity and Responsibility to Kids” section in this chapter.

Comparing Grant Levels

One of the objectives of the CalWORKs and SSI/SSP programs is to provide recipients with a minimum standard of living. One way of assessing whether this objective is being achieved is to compare the maximum monthly grants with the federal poverty guideline. In order to make the comparison on an equal basis, maximum food stamps allotment must be added to the CalWORKs grant. Figure 2 compares CalWORKs and SSI/SSP grants to the poverty guideline from 1994-95 through 2007-08. Figure 2 shows that each recipient category has maintained a steady relationship with respect to the federal poverty guideline. By this measure, SSI/SSP couples have faired best, as their maximum grant has been typically between 130 percent and 140 percent of the federal poverty guideline. (In other words, the purchasing power of their grant was 30 percent to 40 percent above the federal poverty level.) The SSI/SSP individuals faired second best, with their maximum grant typically between 99 percent and 107 percent of the federal guideline. The CalWORKs families were the furthest below the poverty level, with combined maximum monthly grant and food stamps benefits typically in the range of 75 percent to 80 percent of the federal poverty guideline. Figure 3 summarizes in table format, the relationship of each grant to poverty as proposed for 2007-08.

Targeting Anti-Poverty Funds

COLA Funding. As discussed above, the Governor’s budget suspends the CalWORKs COLA and includes $217 million for the SSI/SSP COLA, based on an estimated CNI of 4.2 percent. Given the actual CNI of 3.7 percent, however, the cost of the SSI/SSP COLA has been reduced to $171.6 million. Funding of cash assistance COLAs is a policy decision for the Legislature. We discuss an approach to targeting these funds in tough budget times below.

Legislative Analyst’s Office (LAO) Approach. Given the state’s fiscal condition, our approach to allocating assistance payment COLAs would be to target the funds to reduce poverty. Specifically, additional resources would be provided first to CalWORKs families (who are well below poverty), second to SSI/SSP individuals (who are just above the poverty guideline), and third to SSI/SSP couples (who are significantly above the poverty guideline). Using the $171.6 million as a budget guideline, greater poverty alleviation could be achieved by redirecting $124.4 million to provide a 3.7 percent CalWORKs COLA, and using the remaining $47.2 million to provide a 1.9 percent COLA for SSI/SSP individuals. The SSI/SSP couples would receive the pass through of the federal COLA, but no separate state COLA.

Comparing the LAO Approach to the Governor’s Proposal. Figure 4 compares the costs and benefits of the LAO approach, described above to the Governor’s proposal. As the top portion of Figure 4 shows, under the LAO approach, benefits are higher for CalWORKs families and lower for SSI/SSP recipients than under the Governor’s approach. The bottom portion of the figure compares the fiscal impact. Both approaches have identical General Fund costs of $171.6 million in 2007-08. However, in 2008-09, the LAO approach costs less than the Governor’s. This is because the SSI/SSP COLA is provided in January of 2008, resulting in six months of costs. The costs for 2008-09 for the SSI/SSP COLA double to account for a full-year of paying higher benefits. Because the CalWORKs COLA is provided in July 2007 for an entire fiscal year, there is no corresponding increase in 2008-09.

Analyst’s Recommendation

In order to more effectively utilize General Fund resources to reduce poverty, we recommend redirecting $124.4 million of the funds proposed for the SSI/SSP COLA to provide the CalWORKs COLA. With the remaining $47.2 million, we recommend providing a partial COLA to SSI/SSP individuals, while passing through the federal COLA for both individuals and couples. This approach is budget neutral in 2007-08 and results in out-year savings of about $124 million compared to the Governor.

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