COVID-19

Update on COVID-19 Spending in California

The public health emergency associated with coronavirus disease 2019 (COVID-19) has resulted in sudden and severe public health and economic consequences for Californians. In response, the federal and state governments have responded to the crisis with a number of policy and fiscal interventions using legislative and administrative actions. These efforts are aimed primarily at reducing the spread of the virus and mitigating its negative consequences.

Using data available as of November 1, 2020, this post provides a high-level summary of state and federal funds provided to date to respond to COVID-19. In this post we discuss: (1) the authorities, at both the state and federal levels, for COVID-19 spending; (2) the state, federal, and other funding sources for COVID-19 spending; and (3) the amounts of COVID-19 spending authorized so far, organized by different purposes and program areas.

This post includes all funds that have been allocated either to or by the state government. As such, it excludes funding allocated directly by local governments or money allocated by the federal government directly to local governments and other nonstate entities (such as health care providers or small businesses) in California. This post also excludes redirections of resources, for example, state employees whose job functions have changed as a result of the pandemic.

While this post reflects our best understanding of COVID-19 spending at this time, these activities remain ongoing. As a result, some specific spending amounts could be different than what we have displayed here.

Authority for COVID-19 Spending

COVID-19 first emerged in the United States in mid-January 2020. Over the subsequent two months, the virus became more widespread as community transmission developed worldwide.

In response to COVID-19, the Governor declared a state of emergency for California on March 4 and the President declared COVID-19 a national emergency on March 13. These declarations, at both the federal and state levels, give the executive branch significantly expanded authority to use powers ordinarily reserved for the legislative branch, including spending authorities.

This section describes existing and new authorities that the federal and state governments have used—and will likely continue to use—to spend monies responding to COVID-19. Figure 1 shows a time line for how and when these existing and new authorities—at both the state and federal levels—were activated and created since the onset of COVID-19.

Existing Authorities

Federal Emergency Declarations. On March 13, 2020, the President declared a national emergency via two authorities: the National Emergencies Act and the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act). On March 22, 2020 the President also declared a major disaster for California. The Stafford Act and state disaster declarations enable the Federal Emergency Management Agency (FEMA) to reimburse states for costs associated with measures taken before, during, and immediately after the incident to save lives and to protect public health and safety. FEMA generally reimburses the state for 75 percent of eligible state costs. The National Emergencies Act declaration allows the federal Department of Health and Human Services to modify or waive certain health requirements.

The State’s Disaster Response Emergency Operations Account (DREOA). DREOA provides the Governor’s administration access to funding from a state reserve account—the Special Fund for Economic Uncertainties—for response and recovery operation costs incurred by state agencies in responding to a declared emergency. The administration is required to notify the Joint Legislative Budget Committee (JLBC) of transfers into DREOA. The administration notified the JLBC of two DREOA of transfers related to COVID-19: $1.3 billion on March 25 and $1.8 billion on May 21. These funds are now available for emergency response activities.

California Emergency Services Act. The Governor’s state disaster declaration on March 4 authorizes the administration to use California Emergency Services Act (CESA). CESA provides broad spending and administrative authorities to the administration during a declared emergency. While the administration has cited this authority in various executive orders related to emergency closures and waivers, it has not yet explicitly used this authority for any COVID-19 spending.

New Authorities

Federal Legislation. Four separate pieces of federal legislation have been enacted since the start of the pandemic to fund the response to COVID-19. They are: the Coronavirus Preparedness and Response Supplemental Appropriations Act (which became law on March 6); the Families First Coronavirus Response Act (March 18); the Coronavirus Aid, Relief, and Economic Security (CARES) Act (March 27); and the Paycheck Protection Program and Health Care Enhancement Act (April 24). In addition, in August the President authorized the Lost Wages Assistance program through executive order, which provides a temporary administrative enhancement of unemployment insurance benefits.

State Budget and New Control Sections. The 2020-21 state budget authorized spending for a variety of COVID-19-related purposes. In addition, the Legislature approved the addition of two budget control sections to provide the administration with greater spending flexibility (with legislative notification and approval). (“Control sections” generally allow the administration to spend new funds that were not part of the budget act or to reallocate existing funds.) Specifically the Legislature added:

• Control Section 36 to the 2019-20 Budget Act to provide the administration with appropriation authority of up to $1 billion for COVID-19 response. The administration requested authorization for slightly more than $800 million of the $1 billion provided.

• Control Section 11.90 to the 2020-21 Budget Act to give the administration the authority to reallocate certain federal funds if they are not spent before September 1, 2020. To date, the administration has requested authority to reallocate $400 million in funding under this authority.

Funding Sources for COVID-19 Spending

This section describes the major state, federal, and other sources of funding for COVID-19 spending that flows through the state budget. This section, like the rest of the post, excludes funding from local governments and funding from the federal government directly to local governments and other nonstate entities. Figure 2 provides an overview of funding sources for COVID-19-related spending in the state. (As the figure shows, and we discuss later in the post, federal funding for unemployment benefit enhancements is about three times larger than funding for all other COVID-19 purposes combined.)

State Funding

General Fund Spending. The General Fund is the state’s main operating account and, as such, is the main state funding source for spending on disasters. In many cases, the General Fund provides cash upfront to fund emergency operations and response, but the state later receives federal reimbursements for much of the cost. In particular, through the FEMA program discussed earlier, the federal government typically reimburses 75 percent of eligible state costs in responding to a disaster and repairing public facilities after a disaster. The Governor’s administration intends to seek FEMA reimbursement for COVID-19-related state costs that do not have another federal funding source, such as those described below.

Special Fund Spending. Special funds are state funds that receive revenues from specific sources (for example, licensing or regulatory fees). The Legislature can allocate monies from special funds to the purposes for which the fund was created. The state is spending some special fund monies on COVID-19. These amounts are generally very small, however. For example, the state provided $4 million from the Mental Health Services Fund for suicide prevention and other mental health needs in response to COVID-19.

Federal Funding

This section describes the major sources of federal funding for COVID-19 spending administered by the state. There are two types of funding described in this section: (1) flexible funding, which the state has substantial discretion to allocate for various purposes, and (2) designated funding, which must be spent in specific program areas.

Flexible Funding

Coronavirus Relief Fund (CRF). The CARES Act established the CRF to provide money to state, local, tribal, and territorial governments for “necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019” between March 1 and December 30, 2020. California’s state government received $9.5 billion from the CRF. (While not included in this post, cities and counties in California with populations greater than 500,000 also received a combined $5.8 billion in CRF directly from the federal government.) Guidance from the U.S. Department of the Treasury outlines the eligible uses of these funds.

Enhanced Federal Match for Medicaid Programs. Medicaid is an entitlement program whose costs generally are shared between the federal government and states based on a set formula. In March, Congress approved a temporary 6.2 percentage point increase in the federal government’s share of cost for state Medicaid programs. This means that, beginning January 1, 2020 and ending the first quarter in which the federally declared COVID-19 public health emergency is not in effect, the federal share of Medicaid programs in California generally will increase from 50 percent to 56.2 percent. (This federal cost share change does not apply to the optional expansion population under the Patient Protection and Affordable Care Act.) The budget anticipates this change will result in lower total state General Fund costs of nearly $8 billion over 2019-20 and 2020-21. We consider this “flexible funding,” because, essentially, these additional federal funds free up General Fund dollars that can be spent on any purpose.

Designated Funding

Unemployment Insurance (UI). Most employees are eligible to receive weekly UI benefits when they become unemployed. Federal law enacted in March 2020 made a few significant changes to UI, including providing recipients with an additional $600 per week on top of their typical benefit through July 31, 2020 and expanding UI to cover self-employed workers. After these benefits expired, the President also took executive action to temporarily increase weekly benefits by $300 for a limited time. We estimate the state will pay $30 billion in 2019-20 and $80 billion to unemployed Californians in 2020-21 using federal funding for enhanced federal unemployment benefits. (This includes the costs of Pandemic Unemployment Assistance to individuals who are self-employed or who otherwise would not qualify for UI compensation.) As shown in Figure 3, this is more than the federal and state governments are providing for all other COVID-19-related expenditures combined.

Elementary and Secondary School Emergency Relief Funds. The federal government provided additional funding to school districts through the Elementary and Secondary School Emergency Relief (ESSER) Fund. This funding was allocated to states based on the Title I, Part A formula under the federal Every Student Succeeds Act. (The Title I, Part A formula bases a state’s allocation on the number of low-income and disadvantaged children served in the state’s public school system.) California received about $1.6 billion in ESSER funding.

Grants From the Centers for Disease Control and Prevention (CDC). The California Department of Public Health (CDPH) has received several different CDC grants totaling $604.4 million to fund COVID-19 public health activities. (While not included in this post, Los Angeles County also received direct CDC allocations, totaling $336.6 million.) Approximately 60 percent of California’s allocation flowed from CDPH to local governments (not including Los Angeles County due to its direct allocation). The grants have allowed the state and local governments to expand epidemiology and laboratory capacity, case investigation and contact tracing, public education, technical training, data collection and analysis, infection control, and ongoing COVID-19 disease monitoring.

Other Designated Federal Funding Amounts. In addition to the funding amounts described above, through the CARES Act, the federal government provided other funding across a wide variety of program areas for COVID-19 response. For example, the federal government provided stimulus funds for transit agencies, which experienced high declines in ridership after the onset of COVID-19. In addition, this legislation funded expansions to various state nutrition programs, including those that serve children, seniors, women with infants and children, and other groups.

Other Funding

In some cases, a portion of COVID-19 costs that are incurred by the state will eventually be reimbursed by private sources, for example, private health insurers. For example, federal law requires all private health insurers to cover the cost of COVID-19 testing without any required cost sharing, such as deductibles or copayments, on the part of the individual enrolled in coverage. This means that some of the state’s plans to increase testing and expand testing sites and labs will eventually include significant payments by private insurers to cover costs. (This post and all of the figures exclude funds that private sources spend directly in response to COVID-19, for example, for medical treatment for individuals diagnosed with COVID-19.)

Types of COVID-19 Spending

This section provides our estimates of the total amount of COVID-19 spending authorized so far. Rather than identify costs by the state department or program, this section describes costs according to the expenditure’s function. There are six different types of functions, which we describe in detail below. All of the figures in this section represent state spending amounts incurred using both state and federal funding. Figure 4 provides an overview of each of the types of spending discussed in this section. (This figure, and the discussion below, excludes UI funding as those amounts significantly exceed spending in all other areas.)

Control the Spread of COVID-19. First, the state is conducting a number of activities to reduce the transmission and spread of COVID-19 among Californians. For example, this includes funding for testing and contact tracing, disease monitoring, purchasing and distributing personal protective equipment (PPE) like masks, and disseminating information to the public about the virus. We estimate the state and federal governments are spending $8.6 billion on these activities, about $215 per Californian.

Facilitate Physical Distancing. Related to the previous category, the state also is attempting to control the spread of the virus by allowing or supporting individuals to stay at home or otherwise isolate themselves from other people. For example, this includes funds to support remote student learning, provide home-delivered meals to older adults, acquire hotel and motel beds for people experiencing homelessness, pay for temporary hotel rooms for agricultural workers who have tested positive for or been exposed to COVID-19, and temporarily suspend prison intake. We estimate the state and federal governments are spending $9.1 billion on these activities, about $230 per Californian.

Provide Medical Treatment. In response to COVID-19, the state is providing health-related services to treat individuals who are infected with COVID-19. For example, this includes the costs to acquire or lease facilities, such as hospitals, arenas, and convention centers; purchase equipment; and pay staff in order to expand hospital and medical capacity. We estimate the state and federal governments are spending $1.6 billion on these activities, about $40 per Californian.

Accommodate Increased Government Workload. As the state has expanded services, benefits, and health infrastructure over the course of the pandemic, there are additional administrative costs for government workers to plan and deliver those services, benefits, and health infrastructure. For example: (1) schools have used CRF monies to address increased administrative expenses; (2) the federal government provided additional funds for the state to administer UI; and (3) the state has provided funding to the counties to help support their additional workload associated with enrolling new participants onto county-administered programs, like CalFresh and Medi-Cal. We estimate the state and federal governments spending $1.4 billion on these activities, about $36 per Californian.

Support Essential Work. While the pandemic is ongoing, some workers, often called essential workers, cannot do their jobs remotely and work in sectors of the economy that are necessary for the needs of society. These workers have continued to do their jobs, so the state has undertaken some activities to mitigate their risk of contracting or spreading COVID-19 or to provide other support that allows them to continue working. For example, the state has provided expanded child care access for essential workers and begun a public awareness campaign about mitigating the spread of the virus among essential workers. We estimate the state and federal governments are spending $779 million on these activities, about $20 per Californian.

Mitigate the Secondary Effects of the Pandemic. The pandemic has resulted in a variety of significant secondary negative consequences. This includes:

• Adverse Economic Consequences. Due to stay at home orders and ongoing concerns about virus transmission, unemployment in California has reached record levels. High unemployment has significant negative consequences for the personal economic situations of many Californians. We estimate the state and federal governments are spending $114.1 billion to address the negative economic consequences of the pandemic, of which UI represents $110 billion. This represents nearly $3,000 per Californian.

• Other Negative Effects. In addition, as a result of physical distancing and other changes in people’s daily lives, the pandemic has taken a toll on Californians’ mental health and disrupted the ordinary provision of various public services. For example, school closures disrupted how students would traditionally receive free or reduced price meals during the school day. Both the federal and state government provided additional money so local educational agencies could continue providing meals to students who are now learning remotely. The state also is spending $6 million on mental health-related services, such as emergency funding for substance abuse. Altogether, the state and federal governments are spending $1.4 billion to mitigate these other negative secondary consequences of COVID-19, about $35 per Californian.

State and Federal Spending on COVID-19

COVID-19 Spending by Type. Figure 4 shows how the state and federal governments are spending to respond to COVID-19 by type and program area. Figure 5 shows the same data but organized by program area and then type. As the figures show, most spending is dedicated to controlling the spread of COVID-19 and facilitating physical distancing. Within controlling the spread of the virus, most spending is in the public health area (for example, purchasing masks and other PPE and testing and contact tracing). Within the physical distancing category, most money has been spent on schools and community colleges to help local educational agencies shift to remote learning. The state also has spent money on housing and homelessness to facilitate physical distancing.

COVID-19 Spending by Allocation. Figure 6 shows each individual expenditure that we have included in our estimates. The figure is organized by the six different types of COVID-19 spending identified in the previous section. The Appendix also provides more detail on the major individual COVID-19-related expenditures.

Issues for Legislative Consideration

This post reflects our best understanding of COVID-19 spending provided to date. Given the Legislature, administration, and/or federal government are likely to take additional actions to spend more money on COVID-19 response, the figures estimated in this post likely will change, perhaps substantially, in the near future.

As the Legislature begins to consider its upcoming budget and legislative session, viewing the state’s response through the overarching purposes of those expenditures hopefully enables the Legislature to more easily identify gaps and areas for more action. For example, some issues to consider:

• Is the Legislature satisfied with how COVID-19 spending has been allocated to date (for example, by program area, type, and the groups served)? Does the spending on these different purposes align with the Legislature’s view of the state’s needs? Are there any gaps in the current spending approach?

• Has COVID-19 spending allocated to date been effective? Has it achieved the Legislature’s objectives?

• What is the administration’s overall plan to control the spread of the virus and mitigate its negative effects? Does this spending plan align with that plan?

• Much of the federal COVID-19-related funding provided to California to date has been designated, for example, for K-12 education. Where the Legislature does have flexibility in allocating funding, is it satisfied with the distribution of funding?

Appendix