Making Sense of the California Comeback Plan

As California and the rest of the nation emerge from the yearlong Coronavirus pandemic and its associated restrictions, many small business owners and individuals find themselves in a radically changed economic landscape. Small businesses that rely on foot traffic have been especially hard-hit by the pandemic, and many families are struggling to cope with basic expenses like food, rent, and utilities.

The California Comeback Plan

On May 13 of this year, California Governor Gavin Newsom announced a sweeping plan aimed at providing much-needed relief to the state’s many small businesses struggling in the wake of the COVID-19 pandemic. The relief program is but one facet of the governor’s $100 billion California Comeback Plan, which targets the state’s most pressing challenges.

The plan includes:

  • $4 billion in grants to small businesses
  • $6.2 billion in tax cuts to businesses that have suffered due to the pandemic
  • An increase in the CalCompete grant program cap to $360 million
  • A $250 million one-time grant program to incentivize businesses to relocate to California.
  • An additional $147 million in payroll tax credits

The plan includes the largest state rebate tax in history, totaling almost $12B. It also reaches out directly to those suffering from economic hardship, expanding the Golden Gate Stimulus Check program to allow two-thirds of state residents to receive $600 in direct relief. The plan will allow middle-class families earning under $75,000 annually to be eligible for relief—and qualifying families with dependents (including the undocumented) will be eligible to receive an additional $500 in stimulus.

Newsom stated that going back to the way things were prior to the pandemic is not a workable solution, and so is targeting his aid plan to benefit middle-class families who are struggling to meet their most basic financial obligations, such as rent, utilities, and food.

The plan also includes the largest renter-assistance package of any state. The earmarked $5.2 billion will go to help struggling families get current with back rent, and another $2 billion to help pay essential water and utility bills.

Direct Benefits to Small Businesses

The plan includes many factors designed to bolster small business sustainability. For example, the plan maintains many tax credits including the proposed Main Street Small Business Tax Credit and the California Competes Tax Credit. The plan also includes what’s called the State Small Business Credit Initiative, in which the administration intends to apply for an estimated $895 million in American Rescue Plan funds to assist small businesses in accessing capital.

There will also be $250 million in one-time aid to California’s struggling ports, $12 million over the next 2 years to address homelessness, and $12.5 million from the California Rebuilding Fund in the form of loans to small businesses.

Focus on Housing

The economic pressures of the COVID-19 pandemic have placed millions of families in financial hardship, with some falling months behind on rent and in danger of eviction. Newsom’s relief plan will provide…

  • Legal assistance for eviction and foreclosure prevention: $20 million ARP funds per year for the next three years ($60 million total) for legal aid services for tenants and mortgage holders.
  • Affordable housing preservation: $300 million ARP funds to preserve affordability for HCD legacy projects.
  • First-time homebuyer assistance: $100 million ARP funds to expand the existing program administered by the California Housing Finance Agency (CalHFA).
  • Seasonal farmworker housing: $30 million total one-time General Fund (an increase of $20 million from the January proposal) for deferred maintenance and habitability improvements

How Is California Paying for the Plan?

The state budget, announced earlier this year, actually includes a budget surplus. The additional $75.7 billion in revenue will provide:

  • $38.1 billion in discretionary funds
  • $37.6 billion in constitutionally required obligations for K-12 schools and community colleges
  • $11 billion for reserves and to pay down long-term liabilities.

The plan has received some initial criticism from those concerned about excessive spending. For example, some expressed concern that the governor is still attempting to access $12 billion in reserves and is borrowing to meet the proposed spending limits.

Other critics have noted that the plan’s high price tag might result in Federal funds being in short supply for any future emergency. Concern that the Governor is exceeding the State Appropriation Limit has also been raised—but the final cost of many of the proposal’s programs remains to be hashed out in the legislature.

And finally, there are those concerned that the administrative and logistic challenges of managing such a large amount of discretionary spending will be problematic, and propose instead a phased-in approach to soften the transition and ease logistical burdens.

At Moskowitz LLP, we understand that the landscape of tax laws and regulations can be daunting to navigate. That’s why our skilled accountants and attorneys are here—to assist our clients with their tax questions, from the simple to the complex. And what’s more—we’ll make sure you never pay a penny more than you owe in tax. Contact us today!