Report

Federal Fiscal Relief and COVID-19: Implications for Californians

A Budget Center Analysis of the Coronavirus Federal Response Package

Economics, Health & COVID-19 · April 2020 · By Budget Center

Executive Summary

In recent weeks, in response to the rapid spread of COVID-19, the ensuing public health crisis, and heightened concerns about the economic implications of the crisis, federal leaders enacted three fiscal relief packages intended to provide support for public health responses; economic assistance for affected workers, businesses, and households; and fiscal relief for state, local, and tribal governments. 

The Coronavirus Preparedness and Response Supplemental Appropriations Act was signed into law on March 6, 2020 and includes $8.3 billion for federal, state, local, and community public health response efforts and loans for affected small businesses.

The Families First Coronavirus Response Act (FFCRA) was signed into law on March 18, 2020 and includes nearly $200 billion for paid sick and family leave provisions, nutrition and food assistance, administrative funding to states for unemployment insurance, fiscal relief and expansion options for state Medicaid systems, and coverage provisions for COVID-19 testing.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 and provides the largest amount of fiscal relief to date – approximately $2 trillion. The CARES Act includes one-time cash rebates for low- and middle-income households; additional support for unemployment benefits; loans for small businesses; direct funding for states, local governments, and tribal communities; funds changes to food assistance in the Families First legislation; an array of additional health care supports; and some additional support for human services, housing and homelessness, and student debt relief. While this analysis will focus on the relief and assistance summarized above, the CARES Act also includes $500 billion in loans and other investment for businesses and a series of tax provisions that primarily will primarily benefit large corporations and higher-income households.   

These federal actions are significant and needed. At the same time, millions of Californians are experiencing threats to their health and economic security, and for those excluded from the federal fiscal relief efforts, the economic hardship and health risks are particularly critical. State, local, and tribal governments are confronting significant declines in revenues that will challenge their abilities to maintain and provide vital programs and supports. As federal and state leaders consider additional relief options, they should prioritize gaps and areas of need where there is significant underinvestment for people and communities that are experiencing the most severe effects of the economic crisis and health pandemic. This includes undocumented immigrants who are left out of relief efforts – which is significant for California, home to 3 million undocumented immigrants. Further federal relief should also prioritize additional fiscal aid to state, local, and tribal governments; additional support for public health responses and to ensure health care coverage; increased SNAP benefits in light of increasing demand for food assistance; and additional help for those struggling to pay rent and for people experiencing homelessness.

The following sections summarize key provisions of the federal fiscal relief package. Please regularly check the Budget Center’s website for our latest commentary and analysis.

Contents

Economic Security

Food, Health & Housing

Government Relief

Education

Additional Relief

Economic Security

“Recovery Rebates” Will Provide Cash to Many Households, But Some Californians With Low and Moderate Incomes Will Miss Out

The CARES Act provides “recovery rebates” to most US households. These cash payments provide $1,200 per adult (or $2,400 for married couples) and $500 per dependent child under age 17. To qualify for the full rebates, individuals must have incomes of $75,000 or less, heads of households must have incomes of $112,500 or less, and married couples who file joint tax returns must have incomes of $150,000 or less. (The size of the rebates gradually declines for those with incomes above these thresholds.) There is no minimum income to qualify for the rebates.

The US Treasury Department will automatically provide the rebates either through direct deposit or by mailing a check to people who filed a federal tax return for tax year 2019 using the bank or address information provided on that return. For those who have not yet filed for 2019, the rebate will be provided using information on 2018 tax returns. People who did not file in either year could claim the benefit by filing a return now. Social Security and Railroad Retirement recipients who did not file will automatically receive the payment in 2020 based on information on their 2019 Social Security or Railroad Retirement benefit statement.

Although the recovery rebates will help many people who are struggling financially pay for basic needs, millions of Californians were excluded from these payments. To qualify for the rebates, generally all family members must have Social Security Numbers (SSNs) that are valid for work. This means that Californians who file their taxes with federally issued Individual Taxpayer Identification Numbers (ITINs) – as well as their children, many of whom are US citizens – will be denied these payments. This exclusion will exacerbate inequities in an already inequitable tax system and harm communities of color who have likely been disproportionately hurt by the COVID-19 economic shutdown. To address this shortcoming in the federal response, California policymakers could provide a recovery rebate through the state’s tax system targeted to families and individuals who file their taxes with ITINs.

Even Californians who do qualify for the federal recovery rebates could miss out on the payments unless the US Treasury Department makes it easier for them to benefit automatically. People who have very low incomes or no taxable income, such as those living on SSI/SSP, are not required to file their federal income taxes. Suddenly requiring them to do so in order to receive the rebate would be burdensome, especially when a statewide stay-in-home and local shelter-in-place orders are making it challenging to access tax preparation services, which most people rely on in order to file. To ensure that as many of these people as possible benefit from the rebates, the Treasury will need to use its authority to automatically provide the payments to non-filers using existing federal benefit systems. If the US Treasury fails to do this, state policymakers should explore options for making it easier for Californians who have very low incomes to access the recovery rebates.

Expanded Unemployment Insurance Will Help Many Workers Make Ends Meet During the Crisis

California’s Unemployment Insurance (UI) program provides weekly benefits to people who have lost work through no fault of their own. Under current state law, weekly benefits range between $40 and $450, and workers can qualify for benefits for up to 26 weeks. In 2019, the average unemployed worker received a weekly benefit of about $330 for 17 weeks. The UI program is financed through employer payroll taxes.

Federal recovery efforts significantly strengthen UI to help people who lose work during the COVID-19 economic shutdown. Specifically, federal legislation:

  • Expands eligibility for UI benefits. The CARES Act creates the Pandemic Unemployment Assistance (PUA) program to provide emergency unemployment assistance to people who lost work due to certain circumstances related to the COVID-19 crisis and who either 1) are excluded from regular UI programs or 2) qualify for regular state UI benefits, but use up those benefits and remain out of work. Workers excluded from regular UI include people who are self-employed, such as independent contractors, and workers who have not worked long enough to qualify for regular UI benefits. (In California, workers who have been misclassified as independent contractors are eligible for regular UI benefits.) The minimum benefit provided through the PUA will equal half of the state’s average weekly UI benefit. This new program will expire on December 31, 2020 and will be fully funded by the federal government.
  • Increases UI benefits. The CARES Act creates the Pandemic Unemployment Compensation (PUC), which provides an additional $600 weekly benefit on top of what workers receive through either their state’s regular UI program or the PUA. This additional benefit will be provided through July 31, 2020 and will be fully funded by the federal government.
  • Extends the number of weeks workers can receive UI benefits. The CARES Act creates the Pandemic Emergency Unemployment Compensation (PEUC), which provides an additional 13 weeks of state UI benefits after workers exhaust all of their regular UI benefits. This means that Californians will be able to qualify for up to 39 weeks of state UI benefits altogether. This new program will be fully funded by the federal government.
  • Fully funds federal Extended Benefits. The Families First Act specifies that the federal government will pay for the full cost of the federal Extended Benefits program (Fed-ED), which provides an additional 13 weeks of UI benefits to workers who exhaust their regular state UI benefits during periods of high unemployment. This means that if unemployment in California rises high enough to allow workers to access Fed-ED benefits, the state will not have to use its UI payroll tax funds to finance these benefits. Federal funding for this program is available through the end of 2020.
  • Provides federal funds to help administer UI. The Families First Act provides $1 billion in federal funding to states to help administer UI claims. A total of $118 million will be made available to California. Half of this amount ($59 million) will become available beginning in early April to states that meet certain basic UI processing and notification procedures. The second half of these funds ($59 million) will be made available to states whose UI claims increase significantly and that pledge to increase utilization of unemployment benefits, particularly for workers impacted by COVID-19.

Although these measures are designed to provide critical support to people who lose work due to the economic crisis, millions of Californians who will likely be hit hardest cannot access UI. Specifically, workers without work authorization are not eligible for state or federal UI benefits and were not included in the newly created PUA program. To address this gap in the federal response, California’s leaders could create a state-provided wage replacement fund for people who lose work and do not qualify for UI.

Federal Policymakers Temporarily Address Workers Lack of Paid Time Off

The United States lags behind other countries in the world in ensuring workers have access to paid time off to care for themselves or their families. This forces workers to make difficult choices between paying the bills or caring for themselves or their families. The federal Families First act temporarily addresses workers’ lack of paid time off by requiring employers to provide both paid sick days and paid leave through December 31, 2020. Specifically, the federal law:

  • Provides 80 hours of paid sick time for workers to care for themselves or another individual due to coronavirus-related symptoms, isolation, or quarantine or to care for a child whose school or child care provider has closed (prorated for part-time employees). Workers using paid sick days due to their own illness will receive payments equal to 100% of their wages up to $511 per day or $5,110 total. Workers using paid sick days to care for a sick family member or a child will receive payments equal to two-thirds of their regular pay, up to $200 per day or $2,000 total.
  • Expands the Family and Medical Leave Act. Workers who have been with an employer for 30 days are now provided up to 12 weeks of job-protected leave, but only for those who need to remain home to care for their children due to coronavirus-related school or child care center closures. This leave is not available for workers to tend to their own health or the health of their family members. Workers utilizing this leave must receive two-thirds of their usual pay after the first ten days, which are unpaid, up to a maximum of $200 per day or $10,000 total.

Even though the federal government will provide tax credits to businesses to cover the cost of the required leave policies, the federal law limits the reach of these new policies by exempting large businesses with 500 or more employees and by providing an avenue for organizations to exclude many different health care workers. In addition, small businesses with fewer than 50 employees can easily seek exemptions in providing paid time off to workers to care for their children. In California, 44% of workers are employed by organizations with 500 or more employees and are not covered by the federal Families First Act, many more are likely excluded due to the exclusions and exemptions.

When these new provisions are combined with California’s existing paid family and medical leave laws, many workers in the state likely have access to some kind of paid time off during this public health emergency to care for themselves or their families. However, there are some notable gaps in this patchwork quilt of leave laws, and certain workers may be unable to access paid time off – even during a pandemic.

State and federal policymakers should take action to address gaps in state and federal policies. For instance:

  • Federal policymakers should require large businesses with more than 500 employees to provide paid time off, which could reach more than an estimated 8 million additional workers in California. This could relieve fiscal pressure on state special funds that provide payments for different types of state leave in California.
  • State policymakers should extend job protections to all workers who use family or medical leave, regardless of the size of the employer, as proposed in the 2020-21 state budget proposal.
  • State policymakers should also increase the minimum required number of paid sick days provided by all employers, which is currently just three days or 24 hours, at least during the public health emergency.

Additional action beyond these steps will almost certainly be necessary to make sure workers have adequate access to paid time off during this pandemic to care for themselves or for their family.

Funding for Child Care and Early Education Boosted, but More Funding Will Likely be Needed to Mitigate the Effects of the Pandemic

Ensuring that children have a safe space to learn and grow while parents are at work is vital to the state and national economy. Workers who are deemed essential during the COVID-19 pandemic must have access to child care and development programs in order to show up for critical jobs keeping communities safe and healthy. At the same time, the COVID-19 pandemic has financially strained child care providers, with many indefinitely closing their doors as a result of decreased enrollment or due to safety concerns. The federal CARES Act contains funding to provide assistance for child care providers, workers, and their families. Specifically, the law provides:

  • $3.5 billion in funding through the Child Care and Development Block Grant. Of this amount, California is estimated to receive about $340 million in additional federal funds to be used in three ways:
    • To provide child care assistance for essential workers’ children regardless of their income eligibility for subsidized child care.
    • To continue payments to child care providers to make sure they can pay their staff, cover operating costs, and remain open or reopen in the future.
    • For cleaning and sanitization or other activities due to the pandemic that are necessary to remain open or reopen in the future. These dollars can be used by child care providers regardless of whether they are currently providing subsidized care.
  • $750 million for the Head Start program. Roughly 10% of the new Head Start funding will flow directly to Head Start providers across California to cover additional costs related to COVID-19 and to operate supplemental summer programs.
  • Loans for small businesses, including child care providers, to retain employees. Eligibility for these small business loans includes non-profit and for-profit child care providers. The loans may be forgiven if the funding is used on allowable costs such as payroll, rent, and utilities. Read more in the Small Business section. 

State and federal governments have failed to fund subsidized child care and development programs at the level necessary to provide services for all eligible families. Moreover, child care providers are chronically under-compensated for their critical work. A recent poll found that 30% of providers could not survive a closure of more than two weeks without public support. Now that federal funding has become available, it is imperative that the California administrators make this funding available as soon as possible. Lastly, while the funding in CARES Act is a start, additional funding will likely be necessary to make sure that parents, families, and providers stay afloat.

Food, Health & Housing

Federal COVID-19 Packages Provide Short-Term Response to the Pandemic, but Policymakers Must Increase Food Assistance to Provide Greater Relief

In order to provide food assistance to individuals and families confronting economic hardship due to COVID-19, federal leaders included assistance in the recently enacted relief packages using the federal Supplemental Nutrition and Assistance Program (SNAP). SNAP — known as CalFresh in California — is one of the nation’s most powerful and cost-effective antipoverty programs. SNAP is also one of the federal government’s fastest and most effective tools in boosting the economy during an economic downturn.

The Families First Act responded to the COVID-19 pandemic by enacting several temporary provisions in the SNAP program, including:

  • Suspending time limits on benefits for single adults under age 50 without children in their home;
  • Allowing states to provide temporary, emergency benefits to SNAP households up to the maximum monthly benefit; and
  • Giving the USDA the authority to allow states to adjust the administration of SNAP to respond to the public health emergency.

The CARES Act provided $15.8 billion to fund the changes made in the Families First Act and for an anticipated increase in program use in coming weeks and months. Given the increasing intensity of the economic effects of the crisis, federal policymakers should take additional steps to make sure people have enough food to eat, while capitalizing on SNAP’s ability to boost the economy. To do so, policymakers should increase the SNAP maximum allotment level, increase the minimum monthly benefits, and suspend any administrative actions that would limit benefits until the public health emergency is over and the economy improves.

Food Security Promoted Under Federal Relief, but Some Gaps Remain

In the midst of the COVID-19 pandemic, many Californians are struggling to meet their food needs due to the economic shock of job losses or reduced hours, as well as the closures of schools and child and adult care centers. Federal, state, and local policymakers must work together to ensure that combatting the virus does not leave people experiencing food insecurity. The Families First Act provided the first steps to promote safe and reliable access to food, including:

  • $500 million to support low-income pregnant women or mothers with young children through the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). 
  • $400 million to support providers such as food banks through the Emergency Food Assistance Program. These dollars will help organizations respond to an increased need for their services. Of this amount, up to $100 million will support food distribution and the remaining funds will go toward food purchases. 
  • $250 million to provide meals to older adults, some people with disabilities, and their caregivers. Of this amount, about $968,000 will go directly to tribal nations and organizations in California to provide meals to older adults and their caregivers. Additionally, the state will receive about $25 million to be used in the following ways:
    • About $17 million to provide home-delivered meals.
    • About $8 million to provide meals in group settings such as senior centers.
  • $100 million for U.S. Territories. These funds will provide support to Puerto Rico, American Samoa, and the Commonwealth of the Northern Mariana Islands.

The law also makes several policy changes to better support children and their families, including:

  • Assistance to children who normally receive free or reduced-price school meals. As these children cannot receive these meals when their schools have closed due to the COVID-19 emergency, states may provide emergency food assistance to their households if their school has closed for at least five consecutive days. 
  • Flexibility for child and adult care centers. Care providers that participate in the Child and Adult Care Food Program may now provide takeaway meals in a manner consistent with social distancing guidelines.
  • Flexibility around WIC program requirements. The law allows states to seek waivers for administrative requirements that will create barriers to enrolling families while WIC clinics are closed. 

While these federal actions offer much needed assistance to families hard hit by the COVID-19 emergency, there are still important gaps remaining. Federal funding to food banks for food purchases, for example, may not be available until July. In the meantime, as the number of people relying on these organizations increases substantially, additional dollars to support this work is critical. Workers and volunteers also need to be able to keep themselves and the community safe as they provide food, which means they need help acquiring sanitation supplies and other personal protective equipment. Federal policymakers should make necessary funds and supplies available immediately. In the absence of further federal action, California’s leaders should help fill the gaps.

Federal Actions Provide Funding Support for Public Health Activities to Protect Health and Safety

Investing in public health infrastructure and ensuring that health care workers have the supplies and training they need to treat patients with COVID-19 is critical to slowing the spread of the virus as well as mitigating the overall threat to population health. Boosting support for public health responses is a priority in the recently enacted federal fiscal relief packages. 

The Coronavirus Preparedness and Response Supplemental Appropriations Act appropriates $8.3 billion in emergency funding for federal agencies to respond to the COVID-19 outbreak. Of this amount, California is expected to receive at least $63.2 million from the US Department of Health and Human Services. This includes initial funding that California and Los Angeles County received on March 4th to support COVID-19 response efforts. This legislation also expands the use of Medicare telehealth services by waiving restrictions on billing, allowing patients to receive care at a distance, and minimizing the risk of elderly patients contracting the virus.

In response to the rapid spread of the virus and the surge in COVID-19 patients, the CARES Act provides an additional $100 billion for hospitals and health care providers to purchase equipment, testing supplies, and construct temporary hospitals and emergency operation centers to increase the capacity of facilities. The legislation also allocates $1.32 billion in supplemental funding for community health centers for coronavirus testing or the prevention, diagnosis, and treatment of COVID-19. Other public health budget allocations include: 

  • $45 billion to increase FEMA’s Disaster Relief Fund;
  • $16 billion to replenish the Strategic National Stockpile;
  • $4.3 billion for program and response efforts of the Centers for Disease Control and Prevention, including $1.5 billion for state, local, and tribal public health responders; 
  • $1 billion to increase the production rate of personal protective equipment and medical equipment; and
  • $425 million for the Substance Abuse and Mental Services Administration, including $50 million for suicide prevention programs.

The CARES Act also requires all testing and vaccines – when developed – to be covered by private insurance without cost-sharing and reauthorizes grants for telehealth programs, rural health programs, and the “Healthy Start” program for maternal and child health. Additionally, the legislation builds on initial federal actions and further expands Medicare telehealth flexibility, allowing beneficiaries to access services from a broader range of providers to reduce exposure to COVID-19. For more information on how the Medi-Cal program is affected, please see the following section on COVID-19 testing. 

Governor Newsom has also taken measures to slow the spread of the virus and increase the state’s capacity to care for the influx of new patients. In addition to issuing a stay at home order, the Governor has issued executive orders to increase the health care workforce, including temporarily recruiting retired health care professionals and medical and nursing students into the workforce. The Governor also recently announced an initiative encouraging Californians to check in on family, friends, and neighbors over age 65 to mitigate social isolation and food insecurity, as well as a new statewide hotline for Californians to ask questions and receive assistance during this crisis. In order to protect population health and safety during this pandemic, California and federal leaders must work together to provide the resources and coordination needed to prepare communities for an anticipated surge in COVID-19 cases.

Relief Package Ensures That COVID-19 Testing Is Available Free of Charge, but Does Not Directly Address the Cost of Treatment

Testing is crucial to understanding how many people have COVID-19 and is key to slowing the spread of the disease in California and across the nation. While testing got off to a slow start, the pace has begun to quicken as more test kits become available and the number of testing sites increases. However, some people may be dissuaded from being tested for COVID-19 if they must pay out of pocket for the test. To address this potential obstacle, the Families First Act establishes multiple pathways for people to receive no-cost testing for COVID-19. Specifically, the bill:

  • Requires private health plans and public health coverage programs, such as Medicare and Medicaid (Medi-Cal in California), to provide testing for COVID-19 at no cost to the person receiving the test.
  • Allows states to temporarily expand eligibility for Medicaid to uninsured populations solely for the purpose of COVID-19 testing. The cost of this optional expansion would be borne entirely by the federal government. However, only people who meet federal immigrant eligibility requirements for Medicaid would be eligible for this 100% federally funded testing, according to the National Immigration Law Center. As a result, some uninsured immigrants, including those who are undocumented, would be excluded from this limited expansion.
  • Provides $1 billion to reimburse health care providers for the cost of COVID-19 testing for people who remain uninsured. This funding would be provided through the National Disaster Medical System.

These policies will help to ensure that COVID-19 testing is available to Californians with and without health coverage and that people are able to receive the test free-of-charge.

However, the federal relief legislation does not directly address the cost of treatment for people who are diagnosed with COVID-19, which could amount to tens of thousands of dollars or more. Californians who are uninsured would be responsible for 100% of these costs. Moreover, many Californians with private health insurance face large deductibles and other out-of-pocket costs when they access health care, and therefore would have to pay a substantial portion of the cost for COVID-19 treatment.

The roughly 13 million Californians enrolled in Medi-Cal generally would be protected from large cost-sharing for treatment. However, some people qualify for Medi-Cal through the “Medically Needy” program, which requires them to pay a monthly share of the cost for any services before Medi-Cal will pay the remainder. (California has asked the federal government for permission to waive this share-of-cost requirement for COVID-19-related services.) In addition, the state’s costs for Medi-Cal could rise substantially as more people seek treatment for COVID-19 and as enrollment rises due to the economic downturn. 

In order to reduce the significant financial impact of COVID-19 treatment on individuals as well as on the state budget, the next round of federal relief legislation should 1) require private insurers to cover COVID-19 treatment without cost-sharing for patients and 2) provide sufficient federal funding to fully offset states’ costs for COVID-19 treatment provided through Medicaid as well as costs borne by hospitals and other providers who treat uninsured patients with COVID-19.

Federal Aid Will Help Address Housing and Homelessness Needs Resulting from the COVID-19 Crisis

Ensuring that all Americans remain secure in their current housing, or can rapidly access emergency housing, is crucial to combat the detrimental health and economic impacts of COVID-19. The job losses resulting from nationwide shelter-in-place guidelines have created additional financial strain for families who were already struggling to afford their housing, and individuals experiencing homelessness are unable to safely shelter in place and are particularly vulnerable to COVID-19. These challenges are especially serious in California, where the pre-existing housing crisis has resulted in over half of renters, and more than a third of homeowners with mortgages, being housing cost burdened even before the COVID-19 crisis, and with roughly 151,000 individuals who are homeless, including 108,000 who remain unsheltered. 

To address these issues nationwide, the CARES Act includes both regulatory action and funding to support housing stability during this public health crisis and to address the needs of individuals experiencing homelessness. Specifically, the CARES Act:

  • Includes temporary eviction protections for renters in housing secured by federally-backed mortgage loans, as well as allowance for delayed payments and protection against foreclosures for homeowners and landlords with federally-backed mortgages. These federal actions complement state-level actions by Governor Newsom to protect renters from eviction and homeowners from foreclosure due to the COVID-19 crisis, with state-level actions protecting Californians not covered by the federal actions. 
  • Allocates roughly $3.3 billion for federal subsidized housing programs to remain stable and safe for residents. These programs include: the Housing Choice Voucher program, project-based rental assistance, public housing, tribal housing, and other housing programs administered by the US Department of Housing and Urban Development. This funding will support services and deep cleaning for quarantined residents and offset reduced income for these programs from tenant rent payments.
  • Provides funds specifically targeted to addressing and preventing homelessness and helping households cover the cost of utilities, including:
    • $4 billion for cities and states through the Emergency Solutions Grants program, to be used for temporary emergency shelters, staff costs, eviction prevention, and rapid rehousing of individuals experiencing homelessness, with at least $2 billion of these funds distributed to jurisdictions based on greatest COVID-19 related needs.
    • $200 million for the Federal Emergency Management Agency (FEMA) Emergency Food and Shelter Program, which supports shelter, food, and services provided by local service organizations.
    • $900 million for the Low Income Home Energy Assistance Program (LIHEAP), which helps families pay home energy bills.

The CARES Act also includes additional federal dollars that are not exclusively restricted to addressing housing or homelessness, but may be used to address these needs (see the State and Local Fiscal Relief section for additional details). These include:

  • $5 billion for cities and states through the Community Development Block Grant program (CDBG), with $3 billion of these funds distributed to jurisdictions based on COVID-19 public health needs and related economic and housing disruptions.
  • $1 billion for the Community Services Block Grant (CSBG) program.
  • $45 billion for the FEMA Disaster Relief Fund.
  • $150 billion for states and local governments through the Coronavirus Relief Fund, including an estimated $15 billion for California.

The COVID-19 crisis will exacerbate the challenges with housing affordability and homelessness that California is already facing. The CARES funding to address these needs is vitally important, but even with this help, many Californians will struggle to maintain stable housing as a result of this crisis. Additional funding beyond what CARES provides is needed in the short-term for flexible emergency cash assistance to help families and individuals in crisis meet their basic needs and avoid falling into homelessness, as well as more funding to address emergency health and shelter needs for individuals experiencing homelessness. Over the longer term, this crisis also intensifies the imperative for public policy responses to increase California’s inadequate supply of affordable housing.

Government Relief

Significant, But Insufficient, Relief Provided for State, Local, and Tribal Governments Under CARES and Families First Acts

COVID-19 is resulting in a large portion of the state’s business activity grinding to a halt due to stay-at-home orders. As a result, many Californians find their incomes sharply reduced and are pulling back their spending on all but essential goods. As a result, state and local government tax revenues, which are heavily reliant on income and sales tax revenues, will be much lower than expected. At the same time, governments will be faced with rising costs related to the public health response to the virus and the increased demand for services due to the economic strain placed on households. The resulting budget problems may force state and local governments to cut vital services, causing even greater harm to the economy, unless they receive federal assistance to cover budget shortfalls. The federal COVID-19 response package does include some assistance to states, local, and tribal governments to help directly address the public health costs and other economic and fiscal costs associated with the pandemic. 

Coronavirus Relief Fund

The largest pot of funding is a $150 billion Coronavirus Relief Fund included in the CARES Act for states, territories, tribal governments, and local governments with populations over 500,000, to draw down for virus-related costs this year. California will receive an estimated $15.3 billion of this funding, of which an estimated $9.5 billion will be for the state government and $5.8 billion will be for local governments, according to the Center on Budget and Policy Priorities. Additionally, $8 billion is reserved for tribal governments nationwide. At the time of this publication, it is unclear whether states will be able to use these funds to fill revenue shortfalls or whether the funds will be more narrowly available only for health-related costs of the virus. 

Medi-Cal (Medicaid)

Another source of fiscal relief for the state is a temporary increase in the federal share of funding for Medi-Cal, the state’s health coverage program that serves around 13 million residents with low incomes. Medi-Cal is California’s version of Medicaid, which is jointly funded by the federal government and states. Currently, the federal government pays one-half of Medi-Cal costs for most beneficiaries and services, with the state picking up the other half. Under the Families First Act, the federal government’s share (the “Federal Medical Assistance Percentage,” or FMAP) will increase by 6.2 percentage points between January 1, 2020, and the end of the quarter in which there is no longer a declared COVID-19 public health emergency. The Legislative Analyst’s Office estimates that this increase, if in place through December 2020, could translate to between $1.5 billion and $2.5 billion in General Fund savings in 2019-20 and 2021-21 if there were no changes to existing Medi-Cal enrollment and costs. However, the crisis will likely cause Medi-Cal costs to rise as more beneficiaries require COVID-19 testing and treatment and as unemployment increases and more people enroll in the program. These cost increases could exceed the federal funding increase. Therefore, as federal policymakers consider a fourth coronavirus relief package, they should consider a larger increase in the federal Medicaid share, and ensure that it remains in place for as long as the economic fallout of the virus remains rather than ending when the public health emergency is declared over.

Education, Child Care, Community Development, and Transit

The federal package also includes $30 billion for an “Education Stabilization Fund” to support K-12 and higher education (discussed below in the K-12 education and higher education sections), $3.5 billion to support state child care and development systems (discussed in the child care section), and $5 billion in Community Development Block Grant (CDBG) funds for states and local governments to “prevent, prepare for, and respond to coronavirus” (discussed in the housing and homelessness section). Of the $5 billion CDBG allocation, $2 billion will go to existing grantees, $1 billion will go directly to states and territories (allocated based on the risk and prevalence of COVID-19 and related economic and housing market disruptions), and the remainder will be available on a rolling basis for states and local governments according to a formula determined by the US Department of Housing and Urban Development, which will also incorporate risk, prevalence, and economic and housing market factors. Additionally, $25 billion is allocated to provide relief to mass transit systems that have faced large drop-offs in ridership and therefore revenues, but need to remain operational so that essential workers can get to their jobs.

While the federal fiscal relief for state, local, and tribal governments is significant, more fiscal support will be needed in the near future in order to help those governments weather declines in their revenues and avoid making cuts to vital programs and services right when the demand and need for those services is increasing. For instance, annual state budget shortfalls alone – not including local and tribal government shortfalls – totaled $227 billion in the worst year of the Great Recession (adjusted for inflation). California faced huge shortfalls during this period, including a $60 billion shortfall in the 2009-10 fiscal year (equivalent to over $75 billion in 2019-20 dollars). The initial effects of the COVID-19-fueled recession for state governments are expected to be even larger due to rapidly rising unemployment and steeper decreases in income and sales tax revenues, and local governments will experience shortfalls due to decreasing sales, tourism, and business-related taxes, at the same time that state and local governments face increased costs to directly address the COVID-19 crisis. The extent of these shortfalls will become clearer in the coming weeks and months. Federal leaders should seek to provide additional fiscal relief to mitigate the financial distress of state, local, and tribal governments and safeguard the health and economic supports they provide to their communities.   

Education

CARES Act Provides Funds to Address Potential Reductions to State K -12 Education Spending

The vast majority of funding for California’s K-12 school districts, charter schools, and county offices of education (COEs) is determined by the state’s annual Proposition 98 minimum funding guarantee, which reflects state General Fund revenues and the health of the state’s economy. While the extent of the economic impact of the COVID-19 pandemic remains unclear, for every dollar that 2019-20 General Fund revenue falls the 2019-20 Prop. 98 funding guarantee will decrease by approximately 40 cents. The potential drop in K-12 education funding comes at a time when many school districts are facing challenges in meeting students’ needs.

To help shore up funding for K-12 education, the federal CARES Act establishes an Elementary and Secondary School Emergency Relief Fund that will provide an estimated $1.7 billion grant to the California Department of Education (CDE). At least 90% of this grant will be allocated to local school districts, charter schools, and COEs based on the proportion of federal Title I, Part A funding they received in 2018-19. Local school districts may use the federal CARES grant for a wide range of activities including coordination of response efforts to the coronavirus, planning for long-term school closures, purchasing educational technology, and providing mental health services. The CDE may use up to 10% of the federal CARES grant for emergency needs to respond to the COVID-19 pandemic. 

The CARES Act also provides the Governor of each state an Emergency Education Relief grant. California’s grant is estimated to be $355 million, which can be used to provide support for local K-12 school districts and institutes for higher education that have been most significantly impacted by the coronavirus as well as any education-related entity that the Governor deems essential for carrying out emergency educational services to students.

Emergency Financial Aid for Students’ Basic Needs, Some Federal Loan Payments Suspended for 6 Months Under CARES Act

Ensuring Californians have access and the resources to attend and thrive across the state’s higher education institutions broadens opportunities for individuals and families, as well as strengthens our state’s workforce to drive long-term economic growth. Due to the COVID-19 pandemic, college campuses have closed and moved to distance learning requiring different technology and adaptations. Many students already confront significant hardships to afford tuition and living expenses, including student-parents, current and former foster youth, undocumented students, and those from families with low incomes. These students now face added layers of stress and financial insecurity. Institutional staff, including professors, counselors, and janitors, among others, also face new challenges due to distance learning and closures. The federal CARES Act provides funding for higher education institutions and relief for some federal student loan borrowers. Specifically, the CARES Act:

  • Allocates about $14 billion to higher education institutions nationally. Of this amount, California is estimated to receive approximately $1.75 billion – roughly 14%.
    • Higher education institutions must allocate at least half of the funds for emergency financial aid grants to cover students’ basic needs, including expenses related to food, housing, course materials, technology, health care, and child care.
    • The remaining funds can be used to cover administrative costs and expenses related to COVID-19, such as technology for online learning.
  • Suspends payments for some federally held student loans until September 30, 2020. Qualifying loans are Direct Loans and Federal Family Education Loans (FFEL) currently owned by the US Department of Education. During the 6-month period, they will not accrue interest and will not negatively affect borrowers’ credit ratings.
  • Suspends involuntary collection of federal student loans. While payments for some federally-held student loans are suspended, the Department of Education will also halt collection actions such as wage garnishment, reduction of tax refunds, or other federal benefit payments (such as Social Security), to cover repayment of defaulted student loans. The government will also refund borrowers more than $1.8 billion that was collected since the declaration of a National Emergency on March 13, 2020. 
  • Prevents students who are unable to finish school from being penalized for future federal grants or loans. Student eligibility for subsidized loans and Pell grants are limited to a certain number of years and conditioned on satisfactory academic progress. If a student is forced to leave school as a result of COVID-19, the school term will not count towards their lifetime eligibility and they will not be required to return the Pell grants or federal loans received. Additionally, for students who leave prior to the end of the term, their grades will not reflect poorly on their academic progress and will not hinder future eligibility for Pell grants or federal loans.

While payments for some federal loans have been suspended, FFEL loans held by commercial lenders, campus-based Perkins loans, and private education loans are not covered in the provisions of the current federal relief bill. The federal government could consider including such loans in a future relief package and also extend the relief provisions for student loan borrowers beyond September 30, 2020. Additionally, most state and federal student financial aid is linked primarily to tuition and largely fails to assist students with other major costs of college attendance, including housing and food. While CARES Act resources are helpful, additional funding will likely be needed to ensure the basic needs of students and higher education employees are met.

Additional Relief

Federal Package Contains Relief for Small Businesses to Maintain Payrolls and Cover Operating Costs

With businesses across the state forced to close their doors or operate on a limited basis, many small businesses are resorting – or may resort – to laying off workers, and some may not even be able to survive the shutdown without immediate aid. The federal COVID-19 relief package includes loan programs, limited grants, and tax credits that aim to help small businesses weather the shutdown and keep workers on payroll. Specifically, the loan, grant, and tax credit provisions in the CARES Act include:

  • $349 billion for a new “Paycheck Protection Program,” which allows the US Small Business Administration (SBA) to make 100% federally-guaranteed loans of up to $10 million to small businesses (generally those with 500 employees or less, but size thresholds vary by industry), including sole proprietorships, self-employed individuals, nonprofit organizations, Tribal businesses, and veterans organizations. The loans, available until June 30, 2020, can be forgiven if businesses retain their employees and payrolls over an 8-week period, and the proceeds are used for payroll costs (including direct compensation as well as health and retirement benefits and paid leave), mortgage, rent, and utility costs. The forgivable amount will be proportionally reduced if the employer reduces its workforce (without quickly rehiring) or cuts worker pay. 
  • $17 billion in subsidies for payments on certain other types of SBA loans. For six months the SBA will pay the principal, interest, and fees on certain new and existing loans. 
  • $10 billion for Economic Injury Disaster Loan (EIDL) grants. The existing EIDL program offers low-interest loans of up to $2 million to small businesses and nonprofit organizations to cover payroll and other expenses during a disaster. Under the CARES Act, eligibility for the EIDL program is expanded to include self-employed individuals and independent contractors, cooperatives, employee-owned businesses, and tribal small businesses. Additionally, those receiving an EIDL loan can get an advance of up to $10,000 as an emergency grant within three days of application for an EIDL. 
  • The creation of the Employee Retention Tax Credit. For employers whose operations have been fully or partially suspended due to COVID-19 or who have experienced significant revenue losses, the CARES Act creates a temporary, refundable payroll tax credit for 50% of wages (including health insurance costs) up to $10,000 paid to employees. Thus, the maximum per-employee credit is $5,000. While employers with more than 100 full-time employees can only claim the credit for wages paid to employees that have been furloughed or had hours cut, employers with 100 or fewer full-time employees can claim the credit for wages paid to any employee. Employers receiving loans under the Paycheck Protection Program are not eligible to claim the Employee Retention Credit.

While the federal fiscal relief for small businesses is substantial, these actions may not be enough to keep many small businesses afloat or to maintain workers’ jobs and incomes, given that the help might not come soon enough or be sufficient in size. Small business groups are pressing for additional grant assistance that would be available quickly enough to allow employers to avoid layoffs and continue to pay their workers without incurring additional debt. This deserves consideration in the next federal COVID-19 response, since the state and local governments will in all likelihood soon be facing revenue shortfalls and will lack the resources to provide sufficient assistance to small businesses and their workers.

CARES Act Includes Other Investments and Relief to Help People Facing Health or Economic Challenges

Aging and Disability Services

Older adults and people with health conditions are particularly vulnerable during this time, as they are more susceptible to experiencing complications due to the virus and may be socially isolated. The CARES Act includes $955 million for aging and disability services programs to “prevent, prepare for, and respond to coronavirus.” Of this total, $820 million is for grants to states and territories for programs under the Older Americans Act, including funding for congregate and home-delivered meals and tribal nutrition services, (discussed more above in the nutrition assistance section), supportive services for older adults and family caregivers, and elder rights protection. Services offered under Title III of the Older Americans Act, including supportive services and nutrition services, are available to all adults age 60 and older, but are targeted to people with the greatest economic or social needs, including those who have low incomes, people of color, individuals with limited English proficiency, and people living in rural areas. For the Title III funds made available under the CARES Act, the state/local match requirement is waived.  The remainder of the $955 million supports aging and disability resource centers ($50 million), which provide information and counseling on long-term services and supports, and centers for independent living ($85 million), which provide resources and supports for people with disabilities living independently in the community.

Flexibility on Retirement Plan Distribution Rules

Some individuals who lose their jobs or lose hours may need to tap into their retirement funds early to cover basic living expenses, but there is generally a 10% penalty for withdrawing funds from tax-preferred retirement plans before the age of 59 ½. The CARES Act allows individuals to make early withdrawals of funds of up to $100,000 for coronavirus-related purposes without an early withdrawal penalty. Eligible purposes include: 1) being diagnosed with COVID-19; 2) caring for a spouse or dependent who is diagnosed with this disease; or 3) facing financial consequences due to being quarantined, furloughed, laid off, having hours reduced, or being unable to work due to a lack of child care. The amounts withdrawn will be subject to federal income tax over three years instead of taxed fully upon withdrawal. Additionally, the individual will be allowed to recontribute the funds withdrawn within three years without regard to the annual cap on retirement contributions. This will provide some relief for people who have built up balances in their retirement accounts but experience sudden income losses, though it will be of little help to Californians who have lacked access to employer retirement plans and have not had the resources to save for their futures through private retirement plans. Another provision waives the required minimum distribution for certain retirement accounts for 2020 so that retirees do not have to withdraw funds (and pay tax) based on large 2019 account balances that may no longer exist after the virus-related hits to the stock market. This provision will only benefit those who have managed to save substantial sums and are not in the position of needing to withdraw those funds to cover their day-to-day expenses. For older adults who lack substantial savings and are facing economic hardships, more direct aid will be needed to help them weather this crisis.