As chief fiscal officer for the world’s fifth-largest economy, State Controller Betty T. Yee is closely tracking the fast-growing impacts of the global pandemic of novel coronavirus, known as COVID-19. While the State Controller’s team is adjusting workplace procedures in alignment with federal and state directives, the office continues to be fully operational. Dedicated staff are maintaining critical state operations including accounting, reporting, and auditing functions; payments for state payroll, retirement rolls, Medi-Cal, income tax refunds, vendors, and local governments; payroll and leave accounting for state, state court, and California State University employees; and much more.
With the duration of this public health emergency unknown, economic uncertainty will significantly affect California’s near-term economic outlook. The fiscal prudence of recent years put the state on strong footing heading into this crisis, with nearly $20 billion in budget reserves including the Rainy Day Fund approved by voters in 2014. However, the unprecedented surge in unemployment, business losses, and public health needs is quickly draining state and local resources.
In March, the Legislature and governor enacted fast and flexible emergency appropriations for critical needs. The rainy day is here, and state and federal efforts are under way to assist people and businesses in a struggling economy.
Assistance for Individuals
In the two-week period ending March 28, nearly 10 million Americans filed for unemployment benefits – more than a million of them in California. Governor Gavin Newsom waived the normal one-week waiting period for filing for unemployment insurance, which offer payments of up to $450 per week.
The federal Coronavirus Aid, Relief, and Economic Security (CARES) Act signed March 27 will add $600 to each unemployment payment through July 31. The Act also will tack on 13 weeks of federally funded benefits once the standard 26 weeks of state unemployment are exhausted, as well as making 39 weeks of benefits available to many who normally would not qualify, such as the self-employed.
Under the CARES Act, most adults in the U.S. can expect to receive a federal stimulus check. A single person with an adjusted gross income (AGI) up to $75,000 on the most recent of their 2018 or 2019 tax return should receive $1,200, as will head of household filers who earned up to $112,500. Married couples qualify for $2,400 up to an AGI of $150,000. Check values go down for every $100 of additional income, topping out at $99,000 for a single and $218,000 for a married couple. Another $500 will be added for every child 16 and under.
Tax Deadline Extensions and Other Relief
As chair of the California Franchise Tax Board, Controller Yee announced the deadline to file returns and pay taxes on 2019 income is extended to July 15 in conformity with the Internal Revenue Service. The July 15 deadline also applies to first- and second-quarter estimated payments, 2020 LLC taxes and fees, and 2020 non-wage withholding payments. Taxpayers will have the same extension to protest a proposed tax assessment or appeal a Notice of Action.
The California Department of Tax and Fee Administration granted business taxpayers who file a return of less than $1 million three additional months to file until July 31. Higher-value return deadlines will be decided individually.
The California State Association of Counties and the California Association of County Treasurers and Tax Collectors pledged to use all existing authority to cancel penalties and interest for property owners unable to pay their property taxes on time due to circumstances due to COVID-19. They cautioned nonpayment by those who can afford to pay “will tip local governments into insolvency.” Those whose finances have not been affected should pay as scheduled. Property tax questions should be directed to the treasurer-tax collector in the county where the property is located.
The CARES Act creates a refundable Employee Retention Tax Credit allowing a business to apply half of employees’ wages – up to $10,000 per worker – against employment taxes. To be eligible, the business must be at least partially suspended by government order due to COVID-19 during the quarter for which the credit is claimed, or gross receipts for the quarter are less than 50 percent of those from the year prior (eligibility ends when gross receipts rebound to 80 percent of the same quarter from the year before). For employers with more than 100 employees, qualified wages must have been paid to employees while not providing services due to a government-ordered COVID-19 shutdown. Other federal tax relief for business affected by COVID-19 includes:
- Increasing the carryback of net operating losses of the previous five years;
- Delaying payment of the employer share of social security taxes; and
- Enabling businesses to write off interior building improvements immediately, rather than depreciating them over 39 years.
More Aid for Businesses, Nonprofits, and Governments
The $2.2 trillion CARES Act aims to help businesses, nonprofits, and governments mitigate financial impacts of COVID-19. The Act makes $454 billion available for loans, loan guarantees, and other investments made to provide liquidity to businesses and municipalities struggling due to the dramatic change in circumstances. Several key rules apply to businesses for the duration of the loan and 12 months after repayment including a moratorium on stock buybacks, caps on executive compensation and severance pay, and majority establishment in the United States. Small businesses may apply for the Paycheck Protection Program, a loan to keep workers on payroll which is forgivable if criteria are met.
Many existing state programs stand ready to offer support. The Governor’s Office of Business and Economic Development (GO-Biz) is the go-to state office for small business. California’s small-business support centers help owners figure out which loans are best for them, develop resiliency strategies, and find other resources.
The California Infrastructure and Economic Development Bank (IBank) offers loan programs for businesses affected by disasters. As a unit within GO-Biz, IBank serves businesses with up to 750 employees. The Disaster Relief Loan Guarantee Program provides loan guarantees of up to $1 million for small-business borrowers in declared disaster areas, while the Jump Start Loan Program loans from $500 to $10,000 to low-wealth entrepreneurs in declared disaster and emergency areas. For businesses with up to 500 employees, California Capital Access Program is a loan-loss reserve program administered by the California Pollution Control Financing Authority that may provide up to full coverage on losses as a result of certain loan defaults. The U.S. Small Business Administration (SBA) Economic Injury Disaster Loan Program offers disaster assistance to the entire state of California. SBA is hiring to fill disaster response jobs.
The threat of COVID-19 has only intensified the need to ensure all Californians have a place to call home, a top priority of Controller Yee. To this end, the governor and Legislature quickly approved $500 million for emergency funding for activities related to the COVID-19 response.
Governor Newsom’s March 18 executive order directed $150 million of these funds to be used to reduce the risk of the COVID-19 virus to homeless Californians. The State Controller’s Office already has made the initial $100 million disbursement to local governments to house those most at risk. The governor has ordered another $50 million of emergency funds to purchase trailers and secure hotel and motel rooms to homeless individuals. Hoteliers can benefit from the lease of these unused rooms during a time of greatly decreased travel.
The governor has banned the enforcement of eviction orders for renters affected by COVID-19 through May, while the federal government announced a moratorium on evictions of homeowners with federally backed mortgages. Most large banks, credit unions, and servicers have committed to a 90-day grace period for mortgage payments, no foreclosures for 60 days, and other relief.
The CARES Act provides more than $15 billion to address housing and homelessness through Emergency Solutions Grants, Community Development Block Grants, rental assistance vouchers, and several other programs. More than 10 percent of these funds are expected to be allocated to California’s state and local governments. Most California cities and counties indicate they will use these funds to build shelters or repurpose buildings to immediately shelter homeless residents.
Opportunities to Help
Medical and behavioral health care providers and administrators, medical residents, and nursing students are urged to register for the California Health Corps to help maintain adequate staffing levels. The governor’s office is working to connect volunteers with opportunities to fill critical needs in their communities, from meal delivery to blood donation. The state also hopes to identify businesses or organizations equipped to contribute key items in short supply.
This article was released by the California State Controller’s Office.