New Jersey’s Middle Class is Shrinking & Poverty is Rising – But We Can Reverse the Tide

Raymond CastroThese are prepared remarks to be delivered to the Assembly Human Services Committee this morning.

Thank you for the opportunity to testify on the urgent issue of poverty in New Jersey. While this is a very complicated subject, we are optimistic that we can begin to address it by changing state policies that we already know are contributing to this problem, particularly in neglecting New Jersey’s poorest children.

A solution cannot come fast enough. As Speaker Prieto has pointed out, the level of poverty in New Jersey is the highest it has been in modern history. New Jersey’s middle class is shrinking, with poverty and income inequality increasing, even during the economic recovery. Unlike past recoveries, where nearly all groups saw increased incomes, in this recovery those at the very top are seeing nearly all of the gains.

Between 2010 and 2014, the number of very, very poor households in New Jersey grew at a faster pace than any other group – followed by the number of very wealthy households. Meanwhile, the middle continued to hollow out. Households with incomes less than $10,000 a year grew by 14 percent, more than twice the national average of 6 percent, while those with incomes over $200,000 grew by 6 percent. The largest decrease was in households right in the middle, earning between $75,000 and $99,999 – which shrunk by eight percent – twice the national average.

These disturbing trends mean:

  1. We cannot rely only on a growing economy to reduce income inequality and grow the middle class. As long as virtually all the income that increases goes to the wealthiest, income inequality will worsen.
  2. The shrinking middle class and growing poverty are two sides of the same coin. More and more middle-income families are falling into poverty and relying on temporary assistance to get back on their feet, and with a tattered safety net, it is harder than ever for families to climb the ladder out of poverty into the middle class.
  3. State policies and actions have been woefully inadequate in addressing these problems, in some cases, contributing to the downward spiral.
  4. Unless something is done soon, New Jersey will continue to suffer economically and socially.

We can make a real difference if we at least eliminate those state policies and actions that are acting making poverty worse in New Jersey. In the past few years, for example, the state has eliminated the Heat and Eat program and imposed SNAP time limits for childless adults, resulting in needless hunger for tens of thousands of New Jerseyans. And a lack of any state-funded outreach for SNAP is one of the main reasons why New Jersey’s participation rate continues to be among the lowest in the nation. We are also proposing legislation to monitor what has happened to childless adults on SNAP, and whether the state offered them the training and education they need to remain eligible.

Another new problem is the decline in Medicaid enrollment. After a major increase in enrollment as a result of the Medicaid expansion that started in January 2013, enrollment dropped by 43,000 from June to December of last year. One of the main reasons for this decrease is that many households are becoming ineligible due to the county welfare agencies’ redetermination of their income, which is required annually by the federal government. There have been reports that some these redeterminations have not been accurate, resulting in the unnecessary loss of Medicaid, so improved quality control may be needed. Also, in some cases, the household’s income increased just barely – enough to kick them out of the Medicaid system but not enough to afford quality health coverage on their own. To address that problem, we recommend that the state explore a waiver or the Basic Health Program, which allows the state to increase the income limit for Medicaid from 138 percent of the federal poverty level to 200 percent.

The state should also invest in outreach to offset normal attrition in Medicaid enrollment. Outreach is also essential now because most New Jerseyans who were motivated to apply for Medicaid have already done so leaving those who have many barriers to enrollment that must be overcome.

Given that these choices on SNAP and Medicaid are also costing New Jersey tens of millions of federal dollars that could boost the state’s economy – both programs are almost entirely covered by federal dollars – they simply do not make any sense.

However one of the most effective things that the legislature can do is begin to restore cutbacks in TANF (Temporary Assistance To Needy Families), also known as Work First New Jersey – a crucial anti-poverty program that helps the poorest of the poor, but that hasn’t been increased in New Jersey in 29 years. Yes, 29 years.

It also makes sense to start with children because that is where the greatest need is.

New Jersey’s children represent the largest age group who are poor (25 percent) and they also have the highest poverty rate (16 percent). They are disproportionately Black and Latino, which speaks to the enormous racial inequities in our state.

The newest research shows that poverty has a dire impact on the cognitive and social development of these kids, which is one reason many states have increased their TANF benefit in recent years. Adjusting for the cost of housing, New Jersey has the tenth lowest TANF benefit in the nation. Our neighbors in New York have raised their TANF benefit three times since 2000, and it’s now almost twice the size of New Jersey’s.

The erosion of TANF benefits is one of the main reasons why there are 140,000 children who live in extreme poverty in New Jersey (which is defined as half of the Federal poverty level or $10,000 a year for a family of three). The average family of three only receives $424 dollars a month, the same as it would have received three decades ago. Adjusting for inflation, the purchasing power has been cut in half. As a result, New Jersey’s TANF benefit has dropped to only a quarter of the federal poverty level, down from about 60 percent in 1981.

As a result, TANF has virtually disappeared as a viable safety net for children. Since 1987, when the TANF benefit was last increased by Gov. Kean, enrollment decreased by about 80 percent. And whereas in the past, most children living in poverty received TANF support in New Jersey, less then 20 percent of poor children receive any help now.

Restoring the TANF benefit is a moral and economic imperative. New Jersey cannot afford to leave children behind. Granting billions of dollars in tax credits to corporations while cutting back on basic assistance to children is unconscionable. It is also a poor investment. Child poverty costs New Jersey an estimated $13 billion each year – so we can either pay now to support these children, or pay much more when they are older.

It’s bad enough that governors and legislative leaders have not requested any funding to increase the TANF benefit. But it’s worse because the state has known for many years that it was not enough to live on. State guidelines have been in effect since 2002 that show how much the TANF benefit needs to be in order for children to live in a decent and healthy environment. In 2014 that standard was $2,636 for a family of three – seven times higher than the TANF benefit.

On February 8 we will be releasing a comprehensive report on TANF with specific recommendations for legislative action. I look forward to working with you to protect and support children in our state and make a real difference in reducing poverty in New Jersey.

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