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The CARES money can’t be used to backfill county coffers hit with tax revenue losses and other indirect costs stemming from the virus.
As the coronavirus pandemic continues to wreak financial havoc at nearly all levels of society, San Diego County officials are not as excited as one might expect after receiving $334 million from the federal stimulus CARES Act this week.
That’s because the funds – allocated based on the region’s population size – are restricted for direct response efforts to the COVID-19 crisis: things like increased laboratory staffing and public services, sanitation, bulk orders for medical equipment and shelters.
Make no mistake. The county is spending on those things and quarterbacking the region’s coronavirus response via public health orders that – in addition to state and federal rules and guidance – help dictate what local cities can and can’t allow. County officials are also gathering regional data on the number of infections and hospitalizations, analyzing COVID-19 tests in county labs and serving as first responders, addressing coronavirus cases that turn up in county facilities, including detention centers, a psychiatric hospital, nursing home and a long list of other facilities.
The county has spent $30 million on COVID-19 response efforts to date, an amount that is expected to rise to $60 million by June 30. Monthly COVID-19 crisis spending rose to $14 million from $7 million a month ago, county supervisors were told this week.
Much or all of that work should be eligible for CARES Act funding, and future funds county officials hope to obtain from the Federal Emergency Management Agency and the state, which has already given the county $1.6 million being used at the Convention Center-turned-homeless shelter.
It’s what the CARES funding and other emergency aid can’t be used on that is giving county officials heartburn.
The CARES money can’t be used to backfill county coffers hit with tax revenue losses and other indirect costs stemming from the virus. In other words, the collateral damage.
“More challenging than these one-time costs are the ongoing financial challenges we will be dealing with for the foreseeable future,” Andrew Pease, executive director of the county’s health and human services agency, told county supervisors at their April 7 board meeting held by video conference.
County officials estimate such indirect impacts may result in a shortfall of $260 million to $395 million for the coming fiscal year, said Tracy Sandoval, a county general manager. Such a loss could total 10 percent of the county’s $3.9 billion general fund. Much of it, an estimated $156 million, will be lost in sales tax-based revenues used to pay for public safety and social services, among other things.
“There is also a sobering truth of what lies ahead for us fiscally,” warned Helen Robbins-Meyer, the county’s top executive, at the April 7 Board of Supervisors meeting. “These challenges can be far worse than 9/11 or the 2008 Great Recession. We will recover, but when you see the unemployment numbers, you realize business and consumer behavior will change. Normal revenue streams will dramatically drop and thus, county government will also need to change.”
The county’s finances are better positioned than a lot of other government agencies to deal with the economic toll of the pandemic.
COVID-19 response costs are being paid with the county’s general fund. The county had $2.4 billion leftover in the fund last year after spending $3.9 billion, 2019 audited financial statements show. Though some of the money is currently restricted, that large cushion helped San Diego County jump into action before receiving outside aid and will help it weather the storm ahead.
Still, much like outside emergency relief is “one-time funding for response efforts,” so too is their reserve fund, said Robbins-Meyer at the April 7 meeting.
“Thankfully we have reserves to help us get through the initial phases of this crisis, but don’t let that be a false sense of security. Reserves are only one-time funding, and these issues are likely to last for several years if we are truly in a recession. It’s just too early to know with certainty how deep or how protracted the economic impacts will be,” Robbins-Meyer said.
Sandoval, the county general manager, told county supervisors this week future financial strain will occur just as rising unemployment leads more people to the county for its safety net programs.
Aside from lost sales tax revenues, property tax delinquencies will also impact county cash flows to the tune of $40.6 million, lost interest earnings could total $20 million and lost gas taxes could reach $11 million, Sandoval said. Meanwhile, lost hotel taxes could translate into $2.6 million less for the county.
The county will also provide other agencies their expected property taxes on schedule, even as property taxes remain delinquent, resulting is $174 million less cash on hand until the money comes in, county officials estimate.
Deep market losses in the county pension fund will also impact the county’s bottom line long term. Records show the fund, known as SDCERA, lost $1.2 billion from the end of February to the end of March, coming in at $11.9 billion in total assets last month, for a decrease of more than 9 percent.
If losses come in at 7 percent year-over-year when the books are closed June 30, contributions to the county pension fund will need to increase by $497 million over five years from 2022 to 2026, according to a presentation by Sandoval this week. (Most of that will come from the county – which makes up 92 percent of the fund, county officials said.)
The county pension fund could require even more payments on top of that if pension officials lower future long-term earnings expectations to 6.75 percent. Doing so would add $128 million over three years, from 2024 through 2026, Sandoval’s report said.
As the economic toll for everyone and everything deepens, pressure is mounting to lift social restrictions and reopen society, and county supervisors disagree about the right timing to do so.
County Supervisor Dianne Jacob succinctly made her priorities clear to her board colleagues this week: “Until we solve the health crisis, we are not going to solve the economic crisis,” she said.
Here’s a breakdown of the county’s current $14 million monthly COVID-19 tab:
County officials also set aside $5 million this week for a small business loan program to help owners in the county’s unincorporated areas stay afloat amid closures and shelter-at-home orders. (The city of San Diego has launched a similar loan program for city of San Diego businesses.)
Any CARES Act money left unspent on direct emergency response efforts by Dec. 30 will be returned to the U.S. Treasury, county officials said.