by Matt Levin for CalMatters
CALIFORNIA — As the pandemic forces millions of Californians to adjust to a new reality, the words “housing crisis” provoke previously unthinkable questions: How to shelter in place without a home?
How to self-isolate in an overcrowded apartment? Less than two weeks ago, Gov. Gavin Newsom and California lawmakers were in the throes of tackling the twin issues voters considered the state’s most urgent concerns: the more than 150,000 Californians without a home and the state’s sky-high housing costs.
Legislators were introducing controversial bills to make it easier for developers to build more housing, hoping to ease the crippling shortage economists say have made rents and home prices among the most expensive in the country.
Newsom and local governments were about to square off over how to spend $1 billion in proposed help for the unhoused.
That feels like eons ago. As the COVID-19 pandemic forces millions of Californians to adjust to a new reality, the state’s “housing crisis” already means something different, provoking previously unthinkable questions:
How do you shelter in place without a home? How do you self-isolate in an overcrowded apartment? How far would a $1,000 stimulus check from the federal government go toward my rent or mortgage payment?
Here are five rapidly evolving housing issues to watch in the next few weeks, months and, yes, years.
Issue 1: The state’s housing crisis makes it harder to respond to COVID-19
First, there’s the obvious: how to protect the more than 150,000 homeless Californians from contracting and spreading the virus.
It’s worth reiterating here that the counts you’re hearing from state officials — 108,000 people sleeping outdoors, 43,000 in shelters — are major underestimates. Not only are those numbers more than a year old, but counting the homeless is an inherently unscientific and imprecise snapshot in time. That means more emergency housing units, money and supplies will be needed than what the official stats might indicate.
It’s also worth reiterating that other states don’t have to worry as much about this vulnerable population as California, which has the highest number of homeless residents in the country and by far the most living outdoors. Many of those homeless are seniors who have chronic health conditions and are particularly susceptible to COVID-19.
But there are other dimensions of the housing crisis that are making it tougher for public health authorities here to manage the pandemic. Mostly because it’s so expensive to live here, California is the worst state in the country when it comes to overcrowded housing.
That presents complications for millions of Californians instructed to stay indoors, especially if a household member is showing symptoms of COVID-19. The Centers for Disease Control and Prevention has recommended that someone who is symptomatic should self-isolate in a “sick room” with a separate bathroom. That may not be an option.
While the virus presents the most pressing public health risk, researchers are also concerned about the long-term physical and health effects of overcrowding if schools and workplaces remain closed for extended periods.
“On a daily basis, people are experiencing the crowdedness of their homes for longer periods of time throughout the day,’ said Claudia Solari, who researches housing overcrowding at the Urban Institute. “That kind of longer exposure could be a problem.”
Solari’s research finds overcrowding can be linked to physical and behavioral problems in children.
Issue 2: Housing the unhoused amid a pandemic takes an extraordinary — and extraordinarily complicated — effort
Newsom and local governments have announced unprecedented efforts to get people living outside to move indoors.
The state released $100 million to local governments for emergency shelter housing, with more likely on the way; purchased more than 1,300 trailers from the Federal Emergency Management Agency to isolate homeless people who are symptomatic; and offered to negotiate leases with more 950 hotels on behalf of counties to get more people off the streets. Two hotels have already been secured in Oakland, providing 393 rooms.
The city of Los Angeles, with the largest homeless population in the state, announced today it would convert 42 city recreation centers to emergency shelters to create 6,000 new beds.
But as sweeping as many of these actions have been, including many long sought by advocates, the task ahead is daunting and raises tough questions for public health experts and providers of services for the homeless.
“Health and healthcare are impossible to do with homelessness, they’re incompatible,” said Dr. Margot Kushel, a UCSF homelessness researcher.
Kushel points to several difficult-to-manage scenarios that may play out in coming weeks: How to discharge someone from a hospital if they don’t have a home in which to self-isolate? How to immediately house people with substance-abuse disorders without risking their health (an alcoholic could die if immediately cut off from alcohol, for example)? What to do with an encampment if someone starts coughing and running a fever?
That last question could be especially problematic. Kushel pushes back against the notion that large-scale sweeps may be necessary, arguing that dispersing an encampment would be an even larger public health risk. But she worries that contagion could be a pretext for governments to sweep people off the streets, especially for the Trump administration, which has threatened such action before.
State models show that 60,000 people who are homeless could be infected by the virus, with up to 20% needing hospitalization.
Issue 3: Renters and mortgage-holders need lots of help
“I think it’s a huge number,”said Carol Galante, director of the Terner Center for Housing Innovation at UC Berkeley.
Galante was a high-ranking official in the Department of Housing and Urban Development from 2009 to 2014, as the Obama administration wrestled with the Great Recession.
Galante said she could easily see this crisis become worse for renters and homeowners with mortgages unless bolder action is taken by the federal and state governments — especially for Californians.
One simple example: the $1,000 stimulus check some federal lawmakers are pushing for all Americans. That could pretty much cover your rent for the average one-bedroom apartment in Phoenix or Dallas or Atlanta. It would cover less than half of what a one-bedroom costs in San Francisco.
“I keep thinking of all the people whose incomes have just gone to zero,” said Galante. “Hairdressers, waiters, waitresses — they can’t pay their rent.”
Newsom has received a flood of criticism from tenant-rights groups for not doing enough to prevent evictions in the wake of the pandemic. An executive order the governor issued this week simply allows local governments to impose an eviction moratorium — if they want to. In places that have imposed a moratorium, renters would have to demonstrate financial harm from the coronavirus crisis to avoid eviction.
The Trump administration announced a moratorium on foreclosures and evictions for federally backed mortgages on single-family homes. That would not apply to the vast majority of renters.
Issue 4: Rents and home prices may dip, but that’s not necessarily good news
Economists are saying the country is likely already in recession, and only the depth and breadth of a downturn are uncertain at this point. The worst-case scenarios — 20% unemployment, widespread layoffs over a prolonged period — are terrifying. Early indications are that jobless claims are reaching record levels already.
In most recessions, home prices and rents decline alongside falling incomes and wages. If a COVID-19-induced downturn is brief and the economy rebounds like President Trump has predicted, rents and home prices might only dip temporarily. But the possibility of a prolonged drop in housing costs is real.
Some might see a paradoxical benefit for Californians. Wasn’t the root of the “housing crisis” the fact that rents were too damn high? If housing prices drop, won’t more people be able to buy a house?
A rapid decline in rents and home values might be beneficial to Californians who can keep steady incomes and stable jobs. But for lower-income earners, especially in the service sector, rents will not drop as fast as their incomes. The state will be more unaffordable, not less.
Issue 5: If momentum for new home building dries up, trouble lies ahead
If California does enter a prolonged recession, its political leaders may want to look back to the 2010’s for a lesson in what policymakers shouldn’t do.
While the rest of the economy picked up steam after the Great Recession, homebuilding did not — particularly in places like the Bay Area, which saw an explosion in high-wage jobs. Meanwhile, the state only incrementally replaced funding for government-subsidized low-income housing programs it had slashed during the downturn.
The result? The housing crisis we were living in before COVID-19 hit: sky-high rents, declining homeownership, widespread gentrification and displacement and rising homelessness.
Galante, the former HUD official, fears that policymakers may make the same mistakes, just as things like affordable housing funding and zoning reform were finally at the top of the agenda.
“I think we need to be preparing and thinking about that recovery today, and part of that means doing the hard things,” she said.
Those hard things? Spending more on low-income housing even if state coffers start to bleed, and reducing the regulations developers face when trying to build.
Matt Levin is the data and housing writer for CALmatters. His work entails distilling complex policy topics into easily digestible charts.
This article is produced as part of WeHo Daily’s partnership with CalMatters, a nonpartisan, nonprofit journalism venture committed to explaining how California’s state Capitol works and why it matters.
Half of Californians Could get Coronavirus, Newsom Warns Trump
by Judy Linn for CalMatters
In a dramatic and unprecedented move, California issued a mandatory, statewide shelter-in-place order on Thursday after Gov. Gavin Newsom warned 56% of Californians — 25.5 million people — could be infected with coronavirus in the next two months.
The governor’s executive order means the most populous state in the nation will effectively shut down non-essential services — altering daily life for 40 million residents for the indefinite future. It allows Californians to continue to go outside to get food or medicine, to walk their dogs, to care for relatives and friends, to get health care, but generally, the directive is to stay at home.
The order is legally enforceable, meaning disobeying can result in a misdemeanor with up to $1,000 in fines or six months imprisonment, although Newsom said social pressures will likely be enough to encourage people not to gather in the middle of a public health crisis.
Newsom said he made the difficult decision based on modeling by state health officers and new data related to infection rates in the state. Similar shelter-in-place directives were already being used by a number of Northern California counties and the governor had previously asked seniors to stay home, but Thursday’s action now applies to everyone.
“Let’s bend the curve together,” the governor said in a livestream, referring to the effort to slow the spread of COVID-19 to prevent health facilities from being overwhelmed by patients. “Let’s not regret. Let’s not dream of regretting, go back and say, ‘Well, you know what, we coulda, woulda, shoulda.’ Not when the data all points to where I think most of us know we’re going.”
The directive was the culmination of swiftly escalating restriction in the face of an even more swiftly escalating peril. In just two weeks, Californians saw social gatherings limited first to 250 people, then only to the young and healthy, then locally outlawed in the Bay Area and some other counties. Sports events were canceled. Disneyland shut down for only the third time in history. Then millions of students were sent home from schools and colleges. Bars were told to issue their last call and restaurant seats emptied out.
It is unclear for the moment when normalcy will return, and Newsom’s executive order was much broader than many of shelter-in-place orders imposed earlier in the week by some cities and counties. What will remain open are the bare essentials: gas stations, pharmacies, grocery stores, banks and laundromats. Restaurants can offer take-out and delivery. About 500 members of the National Guard will be deployed for humanitarian work to help distribute food.
The governor said social media companies such as NextDoor will begin to provide informational kits to check in on neighbors and loved ones. AmeriCorps and the California Conservation Corps will also ramp up outreach to fight isolation, he said.
“One-pagers so you know what kinds of things you need at home to protect yourself, those that are socially isolated, our seniors struggling with loneliness, as much or more than anything else to make sure we reach out, maybe call five people a day, just check in on them,” Newsom said.
Newsom said his decision wasn’t made lightly. Rather, it came after weeks of effort in collaboration with the Centers for Disease Control and Prevention to model the spread of the novel coronavirus in California, according to Health & Human Services Secretary Mark Ghaly.
“And we are very glad we had built that model,” Ghaly said. “It’s put us in a great position with our partners across the state to be prepared for what we are starting to see, which are hospitals with many patients, and patients who are in the ICU and having outcomes that we’ve seen in other countries.”
Earlier in the day, the governor said he had warned President Donald Trump that more than half of Californians — 25.5 million people — could be infected with coronavirus over the next two months as he sought at least $1 billion in federal aid from congressional leaders.
“If we change our behaviors, that inventory will come down,” Newsom said. “If we meet this moment, we can truly bend the curve to reduce the need to surge, to reduce the need to have to go out and to cobble all those assets together.”
In a letter dated Wednesday, California’s governor requested White House assistance to deploy the USNS Mercy hospital ship to Los Angeles as health officials project the state will fall short of hospital beds needed to handle a surge in COVID-19 cases. In the last 24 hours, the state reported 126 new cases, a 21% increase, and the rate is doubling every four days in some areas.
“We project that roughly 56 percent of our population — 25.5 million people — will be infected with the virus over an eight week period,” Newsom wrote.
Newsom also sent a separate letter to the leaders of the U.S. Senate and House of Representatives seeking at least $1 billion in federal funds to support California’s response to the pandemic. The money, he said, is needed to purchase and set up health care facilities that the state projects it will need to treat a flood of patients. This includes using state-run hospitals, mobile hospitals and retrofitting hotels and motels.
The governor also asked for additional congressional support to help families and low-income households cope with the crisis by extending unemployment insurance, increase reimbursement for Medi-Cal, the state’s Medicaid program, suspend work requirements for food stamps as families go hungry and allocate more funding for nutrition programs for children and seniors.
Newsom also called for loans for small businesses and technology and broadband funding for school districts with high concentrations of families in poverty as schools scramble to adapt to online learning or studying at home.
State health officials estimate that California hospitals have the capacity to handle a surge of about 10,000 people. However, some models project the state could need twice that, closer to 20,000 extra hospital beds.
He announced a series of steps being taken to bridge that gap. They include ramping up hospital beds by leasing motels and hotels, borrowing university dorms, staving off hospital closures and asking the federal government for two mobile hospitals in addition to the naval hospital ship.
He announced Seton Medical Center in Daly City, which had been slated for closure by Verity Health Systems, would continue operating and said a second hospital in Southern California would be named on Friday.
While government officials are conferring with pharmaceutical companies such as Gilead in seeking treatments, Newsom said he “was pleased” to see Tesla’s CEO Elon Musk tweet about the possibility of producing ventilators. Musk said Tesla’s cars contain sophisticated ventilation systems and SpaceX, his spaceflight company, makes life support systems.
“Ventilators are not difficult, but cannot be produced instantly,” Musk replied.
In Newsom’s letter to the president, the governor asked that the naval hospital ship be deployed to Los Angeles because it will free up beds at existing hospitals and health facilities to respond to acute care needs, such as heart attacks and strokes or car accidents.
Newsom sought to strike a chord with the president’s hometown.
“The population density in the Los Angeles Region is similar to New York City, (and) will be disproportionately impacted by the number of COVID-19 cases,” Newsom wrote.
Judy Linn covers state finances, workforce and economic issues for CalMatters. CalMatters reporter Rachel Becker contributed to this report.
This article is produced as part of WeHo Daily’s partnership with CalMatters, a nonpartisan, nonprofit journalism venture committed to explaining how California’s state Capitol works and why it matters.
Ask an Expert: Are California’s Coronavirus Projections Solid?
by Rachel Becker for CalMatters
Gov. Gavin Newsom has said more than half the state could become infected by the novel coronavirus. To make sense of the state’s numbers, CalMatters’ Rachel Becker spoke with Lee Riley, a professor of epidemiology and infectious diseases at the UC Berkeley School of Public Health and chair of the division of infectious diseases and vaccinology.
State models project that more than half of the state could become infected with the novel coronavirus over the next two months, a threat to 22.5 million people that has prompted a statewide order from California Gov. Gavin Newsom to shelter in place except for essential activities.
The California Department of Public Health reports that California’s case count has climbed, as of Saturday, to 1,223 confirmed cases and 23 deaths — certainly an underestimate because of limited testing. Reports from across the state indicate that tests are being reserved for the sickest and most vulnerable because of a shortage in testing supplies that followed a slow federal rollout of tests hampered by technical flaws.
So far, about 25,200 tests have been conducted in California’s commercial, private, and public health laboratories. But nearly 12,700 of those results are still pending — leaving California in a data limbo, without a clear sense for how the epidemic is evolving.
CalMatters spoke with Lee Riley, a professor of epidemiology and infectious diseases at the UC Berkeley School of Public Health and chair of the division of infectious diseases and vaccinology, to make sense of the numbers.
Why is the novel coronavirus spreading so far, and so fast?
We don’t really know why this is happening. But one of the observations being made in China, where they have a lot of experiences now, is that the virus seems to be able to transmit even before someone becomes symptomatic.
And then even after an infected person recovers from the illness, they continue to shed the virus up to two weeks to even 20 days. So there’s more opportunity for an infected person to transmit. That’s why I think so many other people get infected — because there’s many more days of infectious period for a person to contract the virus. That may be one of the reasons that it’s spreading so quickly.
I don’t have enough information about the source of the data that the governor is using to make any real comments. It’s not disclosed how those numbers were derived. The projection was probably made on not having the control measures that we currently have [such as Thursday’s shelter in place order]. If we didn’t do anything, then yes, certainly, we could have millions of people getting infected.
But we are doing things. And, I don’t know how people are behaving, but the fact that we’re not seeing the explosive increase in the number of deaths tells me that, number one, the healthcare providers are really doing a good job preventing deaths, and that measures that are being taken right now are working, at some level.
“THE VIRUS SEEMS TO BE ABLE TO TRANSMIT EVEN BEFORE SOMEONE BECOMES SYMPTOMATIC. AND THEN EVEN AFTER AN INFECTED PERSON RECOVERS FROM THE ILLNESS, THEY CONTINUE TO SHED THE VIRUS UP TO TWO WEEKS TO EVEN 20 DAYS.”
How are the testing delays and shortages affecting those numbers?
One caveat is that these numbers that we’re getting may be somewhat delayed because as you know, the testing is increasing in number, and so there’s a real backlog of the tests. We don’t really know exactly what’s happening now. The numbers that we’re seeing are based on the tests that were done several days ago, and they’re just coming up because [at] a lot of the testing services, there’s a huge backlog right now.
We don’t know which direction this is going to go. We may see a continued increase, a huge bump in the next several days, but that just means the results are just coming in.
The governor’s projections that 56% of Californians might become infected, and that 20% might get sick enough to require hospitalization — can you put those numbers into context? Have we ever seen anything like it before?
If that’s true, that would be unprecedented. We always talk about the 1918 influenza epidemic, right? Even compared to that, this would be far greater in terms of the number. Mind you, when we talk about this level of infection, that doesn’t mean that all those people are going to have severe disease.
The governor’s estimates are that maybe 20% will have disease severe enough to need hospitalization. That would still be a lot of hospitalizations, and that would overwhelm the healthcare infrastructure in California.
What do you think of the state’s shelter in place directive — can it slow the spread of the epidemic?
I think so. That is really, probably, the best strategy at this point, short of vaccines or other modalities. That’s what we really need to be doing.
In Wuhan, in the province of Hubei, which is a large province in China with more people than California, they certainly didn’t have millions of infected people. The epidemic was put under control in about three months. So if we compare what happened in China to what’s happening in California, there’s a huge difference in terms of the projections that have been made.
Although, one thing that should be stressed is that in China they had much more draconian control measures. They not only restricted international travel — people coming in to China or going out — but also intra-country travel. And so that may have also helped. The U.S. is a big country, and so far, and the U.S. hasn’t restricted intra-country travel, and even within California, we’re not really restricting travel between cities — although that’s probably going to happen anyways because people are being asked to stay in their homes.
What do you think the future holds?
At some point, we need to start thinking about what we are going to do next year. Is the same thing going to happen again next year? If so, are we going to keep doing the same every year? We don’t know, and I think that’s important. More research needs to be done to really understand about the structure of this virus to see if this is a virus that’s going to become seasonal, or endemic [meaning it’s always around], or disappear, like the first SARS. So those are some of the issues we really need to start thinking about, and start planning for next year, and be prepared for next year.
Rachel Becker is a reporter with a background in scientific research.
This article is produced as part of WeHo Daily’s partnership with CalMatters, a nonpartisan, nonprofit journalism venture committed to explaining how California’s state Capitol works and why it matters.
With Coronavirus, CA’s Economy is in Uncharted Territory
by Ben Christopher for CalMatters
COVID-19 is almost certain to cause the first pandemic-induced recession of the postwar era. For millions of Californians and their families, that may mean less work, lower income and more financial stress.
Social distancing may be good for public health these days, but it isn’t good for the California economy. As the coronavirus pandemic forces millions of residents to cancel dates and travel plans, retreat from social life to shelter in place , key cogs of the state’s economic engine are grinding to a halt.
That’s an unprecedented shock for a modern economy, experts say — one that will test the resilience of California’s decade-long boom and the adequacy of its $18 billion cash reserve.
What we know so far: The coronavirus is almost certainly causing the first pandemic-induced recession of the postwar era. For millions of Californians and their families, that may mean less work, lower income and more financial stress, particularly for those least able to weather the shock: Californians living at or below the poverty line, those without savings or outside financial support and people living on the street.
What we still don’t know: how bad this will get. Never before in the state has so much business activity come to such an immediate and widespread stop at once, the experts say. Policymakers, businesses and regular Califorians are just beginning to grapple with what this all might look like.
“It’s so much larger than anything we’ve encountered before,” said Jesse Rothstein, professor of public policy at UC Berkeley. “I think this is going to be larger than the Great Recession. I hope it doesn’t last as long, but the magnitude of the shock is bigger.”
The state’s enormous, diversified economy — fifth largest in the world — isn’t reliant on any one industry. But sunny California’s tourism, hospitality and retailsectors — together providing about one in five jobs, according to state statistics — are proportionately larger here. So are transportation, warehousing and other trade-related industries. All are taking the most immediate financial hit.
And while the tech sector that has driven so much of the state’s economic growth may very well be better equipped to handle — even prosper from — the new housebound economic order, such a dramatic slowdown is likely to leave few sectors unscathed.
“A month ago California was in a situation where we still had one of the strongest economies we’ve ever had,” said Rob Lapsley, president of the California Business Roundtable, which represents major employers in the state. “Now, the underlying analysis on all of this is uncertainty. Nobody knows. We’re in uncharted territory.”
Will the coronavirus crisis cause a recession?
Earlier this week, President Trump said the U.S. economy may be headed for a recession. Some experts say we’re already there.
According to a team of economic forecasters at the UCLA Anderson School of Management, the countrylikely entered recession this month. California, said Jerry Nickelsburg, who directs the forecast, probably will get hit harder than the nation as a whole.
“Over the last week … transportation in the U.S. has plummeted,” he said. “People are not going on vacation. Transatlantic flights have been canceled, which means less travel but also takes a lot of (air) cargo out of the system.”
The forecasters project the state unemployment rate to go from just under 4% in January to 6.3% by the end of the year.
Hitting bars, restaurants, gyms and hotels especially hard, the economic constriction, like the contagion that precipitated it, is likely to spread quickly as newly unemployed workers stop spending, shuttered businesses cut off their orders and lenders and landlords stop receiving their monthly checks.
“You add it all up and who is holding up the economy? Health care,” said Nickelsburg. “That’s not enough.”
Who gets hit the hardest?
During a public health emergency, when millions of people are being told to steer clear of restaurants, bars, hotels and airplanes, it doesn’t take a lot of imagination to surmise which industries will suffer the most.
Liz McAlpine was a bartender in Oakland before the restaurant where she works went take-out only, cut her schedule to four hours a week and put her on boxing and bagging duty for deliveries. She makes about $14 an hour and can no longer count on the tips that one made up a considerable portion of her earnings. She had side jobs that have fallen through. She said she has $17,000 in student loans to repay. Her three housemates are now out of jobs, too.
“I THINK THIS IS GOING TO BE LARGER THAN THE GREAT RECESSION. I HOPE IT DOESN’T LAST AS LONG, BUT THE MAGNITUDE OF THE SHOCK IS BIGGER.”—Jesse Rothstein, UC Berkeley professor of public policy
“None of us have a Plan B or C or D,” she said. We have no idea what we’re going to do. I have a tent.”
The pandemic has hammered both the state’s neighborhood bars and bistros and its biggest tourism draws. This month, Disney shuttered the gates of the Magic Kingdom, and the Coachella music festival was postponed from April to October. The opening of a 466-room Marriott in Anaheim was canceled and has yet to be rescheduled while, nationwide, roughly 8 in 10 hotel rooms sit empty.
Retail, hospitality, food and travel are not just major employers in the state. They also hire a disproportionate number of California’s low-wage workers.
The top job categories for the state’s working poor, according to an analysis by the Public Policy Institute of California, include janitorial services, food preparation andjobs in the arts and entertainment industry. Another PPIC analysis estimates that 22% of food and accommodation workers in California are at or below the poverty line already.
“Poverty in California is really about working poverty,” said Sarah Bohn, one of the authors of both analyses. “The social safety net plays an important role, but for the vast majority of low-income families, it’s really about their earnings.”
Many of these workers are “already vulnerable (to) becoming homeless or suffering other sorts of housing instability,” said Chris Hoene, executive director of the California Budget and Policy Center, a think tank that focuses on low-income Californians. “What will change in their hours or work schedule mean for them?”
And when the public health emergency does end, many laid-off workers may not be able to count on getting their old jobs back, said UCLA’s Nickelsburg. One possible side effect of this downturn is that it will accelerate trends that were already developing before the pandemic.
”Brick-and-mortar retail was already contracting,” he said. “To the extent that (the epidemic) forces more contraction for brick-and-mortar, you might not expect all those businesses to come back.”
Meanwhile, Amazon announced that it would be hiring 100,000 workers to handle the flood of online delivery requests. A company spokesperson said 12,000 of those hires are expected to be in California.
Rachel Michelin, president of the California Retailers Association, which represents the state’s largest retailers, said consumers shifting to online sales may “might make a dent” in the financial landslide now burying the association’s members — but only a small one.
Even if the shelter-in-place order is lifted, she said, “you have people who aren’t working, consumers who are now wondering, ‘Am I going to have a job?’” she said. “I think people are going to think twice about buying things they don’t necessarily need until we get past this.”
A prolonged economic freeze would be particularly hard for smaller businesses that don’t have the cash reserves to cover overhead like payroll, rent, mortgages and taxes until things improve.
“How do you give restaurants, in this case, the ability to hibernate?” said Jot Condie, president of the California Restaurant Association. How do they “ramp down operations so that when the all-clear is given, they can hit the switch and their workers can start working again and get back into the game, and restaurants can be open for business?”
With slim margins and high overhead costs, Condie said, many restaurants won’t survive much longer than a month without outside help.
“HOW DO YOU GIVE RESTAURANTS, IN THIS CASE, THE ABILITY TO HIBERNATE? [HOW DO THEY] RAMP DOWN OPERATIONS SO THAT WHEN THE ALL-CLEAR IS GIVEN, THEY CAN HIT THE SWITCH AND THEIR WORKERS CAN START WORKING AGAIN?”—Jot Condie, California Restaurant Association
Ann Callahan owns and operates a bed-and-breakfast in San Diego’s Hillcrest neighborhood, a cozy getaway spot that has become a kind of pandemic boarding house.
Although all of her typical conventioneer clients have cancelled, she still has four rooms booked. Three are occupied by out-of-towners who want to spend the crisis close to loved ones in the area, and a couple from London whose cross-county American holiday was abruptly cancelled.
Callahan said she’s set up new protocols, making sure chairs are at least six feet apart and directing all guests to use hand sanitizer before using appliances. She said she’s lucky to have enough money saved up to weather a prolonged crisis. But no one knows how prolonged this one will be.
“It’s not like 9/11. When it hit us, everything closed. But then we knew the worst of it was over going forward,” she said. “We don’t know when we’ve hit the peak of the pandemic.”
The state is prepared to extend hundreds of millions of dollars in loans to small businesses through its infrastructure bank, the treasurer’s office and the office of the Small Business Advocate. The federal Small Business Administration also announced that it would make loans for post-disaster rebuilding available to small companies weathering the shutdowns.
“The biggest thing we’ve been hearing from employers is (they’re) concerned about capital: How do they make payroll? How do they ensure that business can stay open if they’re seeing a massive decrease in demand for their goods and services?” said Mark Herbert, director of Small Business Majority, a group that lobbies on behalf of small businesses in Sacramento.
And in a sign that the slowdown is sending business both small and large reeling, shipments in and out of California’s major ports have started to slow. That’s likely to affect the state’s trade, transportation, warehousing and manufacturing sectors.
In Los Angeles, cargo volumes last month were 23% lower than February 2019, and 41 vessels have already canceled their scheduled trans-Pacific voyages to and from the port through April. That’s up from a typical 17 cancellations over the same period.
In the Long Beach and Oakland, the state’s two next largest ports, volume is also down, with cancellations up.
That’s not an unprecedented dip, said Mike Zampa, spokesperson for the Port of Oakland. There is always a slump in Pacific Rim trade in February, as factories across Asia shutter for the Lunar New Year.
“Once the factories come back online, the order of imports tends to come back up,” he said. “But there’s no question at all that the spread of the virus has affected imports throughout the U.S.”
Are there any economic winners in this pandemic?
As consumers stock up, stay home and try to take the edge off, supermarkets sales, online retailing and demand for cannabis and booze have been skyrocketing.
All that online shopping ought to be good news for the Inland Empire’s burgeoning warehousing and logistics industry, said Rob Lapsley of the Business Roundtable. Amazon operates more than a dozen fulfillment centers in the region.
Warehousing and logistics have been “the backbone of that region’s growing economy since the recession, a completely enhanced logistics economy down there that’s been replacing a lot of our manufacturing jobs,” he said.
But online shopping isn’t likely to make up for losses elsewhere. And the surge in spending on non-perishable groceries, toiletries and marijuana now may simply lead to less spending in the future. (Those who loaded their trunks with toilet paper this week may not need a re-up on new rolls anytime soon).
Thebiggest employer in the California private sector is certain to see a huge surge in spending throughout the pandemic: the health care industry. Hospitals, clinics and labs across the country are now scrambling to ramp up capacity to test, treat and contain those who are infected. Policymakers in Washington and Sacramento are scrambling too, which will likely mean billions more in government spending.
That could benefit workers in certain niche industries, like the country’s medical-device manufacturers, which are rushing to meet demand as hospitals and clinics run out of equipment. Roughly 17% of those workers are employed in California.
But the surge in demand for medical services could bring its own disruptions.
“If there are a lot of cases in the ICU, hospitals are going to have to try to collect from either insurers or patients, and the question is whether anyone will have enough cash flow to service that while the hospitals are overflowing,” said Mathy, from American University. “This would be a very bad time for hospitals to start going bankrupt.”
And the various jobs that fall into the “health care and social assistance” category created by federal economic analysts is broad. Most health care work is not related to the coronavirus.
Kate Schmidt, a retired Olympian javelin thrower, now runs her own rehabilitation service, helping her well-heeled clients at their homes. It’s a business that takes her from house to house, touching her clients, their belongings, their pets.
“I do all of the things we aren’t supposed to do now,” she said. And many of her clients are of an age that puts them at higher risk of lethal infection.
If she were responsible for transmitting the virus to any of them, she said, “I would never be able to forgive myself, so I pulled the plug.”
She’s put her business on hold. Unlike many personal-care workers, she has enough money saved to make it through a few months without income. But she’s still trying to find a way to keep her business operating.
“I’m trying to figure out Zoom, to see who amongst my clients will take me on their phone in their house,” she said.
A spokesperson for Zoom, the San Jose-based teleconferencing company, declined to share new usage numbers. But if any sector is equipped to deal with, and benefit from, California’s new work-from-home regimen, it would be the tech sector.
The demand for remote-working options to keep housebound people productive could become a silver lining in what is otherwise a very dark economic cloud for the state. That’s to say nothing of the demand for productivity-diminishing entertainment options available at such online sites as Netflix, based in San Jose, and Burbank-based Disney, which recently debuted its wildly popular Disney+ streaming service. Neither company responded to requests for new subscription data.
But not all of Silicon Valley can serve consumers stuck in their living rooms, said Carl Guardino, CEO of the Silicon Valley Leadership Group. Apple is in the manufacturing and retail business. Square, the San Francisco company that helps businesses process credit-card purchases on smartphones and tablets, depends on the health of small businesses. AirBnB is in the hospitality industry.
And electric-car maker Tesla “is obviously an innovation-economy company,” said Guardino. The firm, which employs roughly 10,000 people in the Bay Area, is suspending production at its Fremont factory as of March 23.
Investors on the whole don’t seem to think that tech is all that much more insulated than the rest of the economy. Since the beginning of the year, the S&P 500 Index, which tracks the performance of stocks belonging to the country’s largest companies, has fallen by 26%. The NASDAQ Index, which includes tech giants like Apple, has plummeted by 21%.
What about the state budget?
Call it Jerry Brown’s “I told you so” moment.
In the years after the Great Recession, Brown pushed the state to build a stockpile of cash that fiscal analysts say should weather a mild recession without necessitating serious cuts in funding for public schools, colleges or social-welfare programs.
According to the Department of Finance, the state has roughly $21 billion in reserves, most of that in an $18-billion rainy day fund. And in case that starts to run low, the state controller reported having nearly $42.8 billion available as cash that could be shifted among various state agencies to keep things running.
With any recession, the state budget takes a hit from both ends. As economic activity slows, the flood of revenue destined for state coffers dries up. In the short term, as panicked investors cash out of the stock market, there may actually be an increase in capital-gains tax revenue, which is paid when stocks, bonds and other assets are sold.
But in the longer term, “basically every source of state tax revenue that you can imagine is going to be down,” said Jeffrey Clemens, an economist at UC San Diego. That includes sales taxes, which depend on transactions in the now-paralyzed retail sector, and the state’s progressive income tax, which is particularly prone to whipsawing with each boom and bust.
We may not know the extent of the damage for a while.
Normally, budget bean counters rely on the bulk of filings during tax season to flesh out the state’s spending plan for the coming year. But the state and federal governments are extending tax deadlines, which will give budget officials an incomplete picture.
On the other side of the equation, there’s now increased pressure on state spending. That would be true even during a typical downturn, as more Californians turn to state programs like unemployment insurance, CalFresh food stamp benefits and CalWORKS, the welfare program.
Add to that the unique costs of addressing a public health crisis.
State legislators passed a bill allowing Gov. Newsom to spend up to $1 billion “for any purpose,” with much of it likely to go toward expanding the capacities of hospitals to treat the severely ill and of public health authorities to set up testing and quarantine sites. In the months ahead, uninsured Californians may turn to Covered California, the state’s subsidized health insurance market, for coverage. And if infections ramp up as expected, low-income Californians are likely to increase their use of Medi-Cal, California’s Medicaid program.
State lawmakers will need to pass a budget by mid-June. Because California’s Constitution limits how much the state can borrow and for what purpose, the only way to patch a fiscal hole without cutting services or jacking up tax rates in the middle of a recession is to draw down the rainy day fund or turn to the feds for help.
It’s not yet clear what kind of help Washington might offer. The Trump administration has proposed sending many American households some $500 billion over the next two months, with the bulk going to low earners. They’re also proposing another $300 billion in loans for small businesses.
Unlike past recessions, when stimulus packages of tax cuts and new spending have been enacted to entice people to go spend money at restaurants, bars and shops, new public spending is likely to have a very different impact this time, said UC San Diego’s Clemens.
This time around, most of the financial support is likely to be directed at “making sure that people don’t default on mortgages or miss rent payments just because they were an hourly worker who had their hours massively cut back,” he said.
Allowing the private sector to wait out the crisis in suspended animation could soften, or least delay, stress on the state budget.
Beyond that, there’s the fiscal reserve.
“If there is any silver lining, it is found in the condition of California’s budget, which entered 2020 on strong footing,” Gabriel Petek, the state’s nonpartisan legislative analyst, wrote this week. Earlier this year, his office estimated that California’s nest egg is big enough to weather a recession “typical of the post‑World War II era,” with no need to find money elsewhere.
NORMALLY, BUDGET BEAN COUNTERS RELY ON FILINGS DURING TAX SEASON TO BUILD NEXT YEAR’S SPENDING PLAN. BUT THE STATE AND FEDERAL GOVERNMENTS ARE EXTENDING TAX DEADLINES, GIVING OFFICIALS AN INCOMPLETE PICTURE.
But nothing about the current situation is typical.
“While it’s a substantial amount of discretionary reserves, we are anticipating that we need to do everything that we can to meet this moment and not go small,” Newsom said at a recent press conference.
And once that moment passes, the state’s longer-term fiscal future may look a little more grim.
With the collapse in stock prices, the state’s public-employee pension systems — mainly California Public Employees’ Retirement System and the California State Teachers’ Retirement System — are taking a beating. The balance belonging to the public employee system dropped by $69 billion — or 17% —since last month, according to the Sacramento Bee.
At last count, the combined retirement liability for state workers and teachers topped $250 billion. And because the funds depend largely on investment earnings to keep up with pension checks, Wall Street’s rout will lead to bigger unfunded liabilities at CalPERS and CalSTRS.
“I don’t even want to think about the impact on the pension funds,” said Brad Williams, a veteran budget analyst and partner at Capitol Matrix Consulting. “We know that pensions were underfunded going into this, and…once you get behind, it’s hard to claw back, so we really need a bounce back in markets to avoid pretty dire circumstances.”
Just how bad will this downturn be?
The size of the economic hit will depend on the severity and duration of the public health emergency. On that question, uncertainty abounds. But most experts are projecting a range of outcomes that span from “very bad” to “very, very bad.”
The UCLA forecast projectsa recession that will last through the fall. That assumes the worst of the pandemic will be over by summer.
“That’s based on very little data, but it looks like, in places like China and South Korea, that the number of new cases…is declining now,” said Nickelsburg. “So that’s what we’re basing it on.”
The best-case scenario, said Chris Thornberg, founding partner of the consulting firm Beacon Economics, is that social distancing measures will have their desired effect and slow the spread of the virus. In that relatively rosy picture, there is a sharp, but short-term, decline in retail and restaurant spending. But soon the public health emergency abates and economic activity revs back up within a few months. It’s what some analysts call a “V-Shaped” recession — down and then up again.
“If we have sufficient panic now” — meaning a coordinated pause of daily financial life — “it will be nothing more than a blip,” he said. “For once in my life, I’m espousing panic.”
But there are less rosy scenarios. If hundreds of thousands of people are sickened, if prolonged periods of isolation are mandated, if individuals and companies are pushed into bankruptcy in the meantime — or all of the above — “then swaths of people get laid off and that’s when it feeds back on itself.”
UCLA FORECASTS A RECESSION THAT WILL LAST THROUGH THE FALL. THAT ASSUMES THE WORST OF THE PANDEMIC WILL BE OVER BY SUMMER.
It’s not clear that a modern economy has ever experienced a disruption quite like this one.
In virtually every downturn in American history — from the Great Depression through the Great Recession — contractions have started in large, but not particularly labor-intensive, industries like manufacturing and construction. In general, said Gabe Mathy, an economist and economic historian at American University in Washington, D.C., spending on day-to-day things like restaurants, bars, gyms and shopping trips continues apace, offering some stabilizing ballast to the economy at large. Even in bad times, people still need to get their hair cut.
“During the Great Recession, spending on services was higher at the (lowest point), in 2009, than it was after the recovery,” he said. “Obviously this recession is going to look very different than the Great Recession.”
Mathy calls what we’re seeing now is a services recession — “the first one we’ve seen in world history” — and it’s hitting the economy in a sector that employs 86% of all American workers. The California labor force is particularly concentrated in the service sector.
“I don’t want to be too catastrophic, but the job losses we’re likely to see might be kind of eye-popping,” he said.
In a national poll sponsored by NPR and PBS and conducted in mid-March, 18% of respondents said they or someone in their household had either been let go or had their work hours cut.
In the second week of March, there were 58,208 applications for state unemployment insurance, an indicator of how many Californians have lost their jobs since the beginning of the public health crisis. In a live-streamed address this weekend, the governor said that the total clocked in at 135,000 on a single day last week.
The typical daily figure in the previous months was less than 6,000.
Ben Christopher covers California politics and elections, Judy Lin, Jackie Botts and Anne Wernikoff contributed reporting to this article.
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