California Plans Rent Forgiveness Using Federal Stimulus Surplus

SAN FRANCISCO — Swimming in cash from an unexpected budget surplus and federal stimulus money, California is planning rent forgiveness on a scale never seen before in the United States.

A $5.2 billion program in final negotiations at the State Legislature would pay 100 percent of unpaid rent that lower-income Californians incurred during the pandemic and would be financed entirely by federal money. The state is also proposing to set aside $2 billion to pay for unpaid water and electricity bills.

When California became the first state to shut down its economy last year, Gov. Gavin Newsom predicted dire shortfalls in the state’s budget. But a year later, the state finds itself with so much money that it is poised to not only cover 100 percent of unpaid rent for low-income tenants, but also to give an additional $12 billion back to taxpayers, by sending state stimulus checks of at least $600 to millions of middle-class Californians.

The state’s separate rental relief program would be available to residents who earn no more than 80 percent of the median income in their area and who can show pandemic-related financial hardship. In San Francisco, a family of four would have to earn less than $146,350 to qualify.

California is not the only state flush with money.

At least 22 states that had unused pandemic relief money and that had trimmed their budgets anticipating fiscal challenges have now found themselves with a surprising surplus in revenue. Idaho is on track for a record-breaking $800 million surplus at the end of this month, while others like Oklahoma, Utah and Washington reported similar budget increases. And while some states haven’t yet decided how to spend the money, others are funneling the cash into education, construction and reviving local arts.

As Congress debates the Biden administration’s infrastructure plan, some Republican lawmakers have pointed to the surpluses in California and other states and suggested using those funds to help pay for a narrower and less costly public works plan.

Emilie Simons, a spokeswoman for the White House, said the surpluses and deficits in state budgets do not change the infrastructure needs facing America, and that many states are still strained economically by the pandemic. Forty-five states have cut state-government employment since the pandemic began, including many states that now have surpluses, she said.

“This crisis has adversely impacted state and local governments, and that is not fully captured by one economic indicator,” Ms. Simons said.

In California, the governor proposed a $100 billion recovery package that pours money into everything from the most expensive education bill in the state’s history, to billions of dollars to buy hotels and apartments for the homeless and a program to forgive traffic violation fines for low-income residents. Mr. Newsom and the Democratic-dominated Legislature are now ironing out the details of what would be the nation’s most generous rent payment program.

“Nationwide this is certainly the largest rent relief there’s ever been,” said Russ Heimerich, a spokesman for the California Business, Consumer Services and Housing Agency, a state umbrella organization that is overseeing the rent relief program. “The big question is can we spend it all.”

The enormous wealth of tech entrepreneurs and Hollywood moguls, and the sales of surging stocks and multimillion dollar homes helped produce this year’s record budget surplus. California’s tax system, heavily reliant on capital gains and the incomes of the wealthy, fills state coffers in years when the stock market does well.

California is grappling with a problem other states might envy: handing out so much money can be a slow, bureaucratic process. A more modest program, already in place, was aimed at covering some but not all back rent, yet it has struggled to keep up with demand. Only around 8 percent of the $619 million in requests for rental assistance in that program through Monday morning had been paid, according to Mr. Heimerich. After complaints that the 32-page form for rent relief took three hours to complete, the state abridged the application. It now takes an average of 30 minutes, is available in six languages and is easier to fill out on a smartphone.

Other states have offered pandemic-related rental relief programs, but some of those that cover 100 percent of the back rent set restrictions on the assistance. Georgia limits its rent relief to $15,000 per household. Oregon and other states do not have a financial cap, but instead cover a maximum of 12 months of missed rent regardless of cost.

For California, the pandemic has been a case of a long-term crisis running into a short-term emergency.

The state already has more than half of the nation’s unsheltered homeless population — each night about 114,000 Californians sleep outside or in their cars — and federal data show the homeless count was rising just as the pandemic hit. The cause is no mystery: The state has a $700,000 median home value and California renters are among the nation’s most burdened, with 27.3 percent of tenants paying more than half of their pretax income in rent, the third-highest rate in the nation.

Kevin Faulconer, the former Republican mayor of San Diego who is challenging Mr. Newsom in an upcoming recall election, said the rent relief program was only a temporary fix.

“One-time gimmicks are no substitute for permanent tax relief,” Mr. Faulconer said Monday. “California is unaffordable for middle-class families, that’s why they’re leaving our state en masse.”

Before the pandemic, housing and homelessness regularly ranked as the top issues for voters and last year the state lost population for the first time, as middle-class homeowners fled the state for cheaper housing elsewhere. While some of this was driven by one-time factors, the state has consistently seen more people leave than move in from another state over the past decade, and in the process lost a net of 900,000 residents to out migration. The issue has become so prevalent that bitterness about incoming Californians has stoked a backlash in cities like Boise, Idaho, where housing prices have jumped with the influx of newcomers with bigger home-buying budgets.

Worried that the pandemic would exacerbate what is already the state’s most pressing issue, California responded aggressively, passing one of the nation’s strictest eviction moratoriums and moving some 35,000 homeless Californians into hotels, a model that has proliferated nationwide. The governor has proposed spending $12 billion on homelessness, including $7 billion to buy motels and apartments to convert them into shelters and $1.75 billion to build affordable housing.

While government efforts have been key to keeping tenants housed during the pandemic, rental programs in California and elsewhere have been plagued with problems and slow to get the money out. Studies show that about a third of tenants have at some point used federal stimulus or unemployment money to pay their rent since last year, but a much smaller number, as low as 2 percent, have been able to access a rental program. Consequently, a majority of renters still had to borrow or draw on savings to cover bills during the pandemic, leaving them less able to weather future emergencies as the economy recovers.

On Monday, state lawmakers were working on a bill to extend the eviction moratorium past its June 30 expiration date, according to several officials in the Legislature who requested anonymity to discuss ongoing negotiations. A vote could come as early as this week. Lawmakers are expected to extend the eviction moratorium and cover 100 percent of the rent for lower-income tenants, up from 80 percent of their rent bill through current programs, the officials said.

“California has over $5 billion in federal funds to help pay the rent of low-income people,” said Jason Elliott, a senior counselor to Mr. Newsom. “Our challenge is to distribute this as quickly as possible while guarding against fraud and making sure we prioritize those who are struggling the most.”

Tom Bannon, the head of the California Apartment Association, a group that represents landlords in the state, said he was open to a short-term extension of an eviction moratorium but called for speedier disbursement.

“California has got to ramp up distribution of its federal rental assistance dollars,” he said.

At the beginning of the year, the U.S. government allocated $23.7 billion in emergency rental assistance to all 50 states, and Washington, D.C., based on their share of the country’s population. California received the largest chunk — $2.6 billion — which the state has decided to funnel into covering low-income tenants’ back rent.

By comparison, Texas, with the second largest share of the population, received $1.9 billion.

If California does extend eviction protections past June, it would be joining just a handful of other states to have done so. Hawaii's and New York’s moratoriums will end in August, while New Jersey, Vermont and Washington, D.C., plan to end theirs sometime after each jurisdiction has lifted their state of emergency status, according to the Eviction Lab at Princeton University.

Zolan Kanno-Youngs and Emily Cochrane contributed reporting.