Feds leave California on the hook for $300M

When California took the unprecedented step in spring 2020 to move thousands of homeless residents into hotels to protect them from the ravages of COVID-19, it did so believing the federal government would foot a large chunk of the bill.

Now, following what California officials say is an abrupt aboutface from the Federal Emergency Management Agency, cities and counties suddenly are on the hook for hundreds of millions of dollars they expected FEMA to cover. At a time when budgets already are tight, it's left local governments scrambling.

“It's going to be quite a problem in the next few years if something doesn't change to fix it,” said Wendy Huff Ellard, a disaster recovery lawyer with Baker Donelson who represents several California counties seeking compensation from FEMA.

At issue is a letter FEMA sent the state in October, saying it would not pay for hotel stays of longer than 20 days between June 11, 2021 and May 11, 2023.

That will cost California state and local governments more than $300 million collectively, according to an estimate from the Governor's Office of Emergency Services.

That means individual cities and counties throughout the state could be out tens of millions (Sonoma County has $32 million at risk, while San Diego County has up to $28 million) or even more (San Francisco estimates the change will cost it $114 million).

Limiting hotel stays

Gov. Gavin Newsom launched the hotel shelter program — dubbed Project Roomkey — in April 2020, just a month after the COVID pandemic prompted him to declare a state of emergency. Health experts were terrified that California, with its massive homeless population, would see the virus wreak havoc in crowded shelters and unsanitary encampments.

The state rolled out a plan to move unhoused people with COVID, as well as those particularly vulnerable to the virus — people who were over 65 or had pre-existing respiratory, immune or other chronic diseases — into empty hotel rooms.

Individual cities and counties leased and paid for those hotel rooms with the expectation that FEMA would reimburse them. At first, the federal agency agreed to cover 75% of the cost for eligible expenses, including the rooms and services such as meals, security and cleaning. By January 2021, FEMA agreed to reimburse 100% of those costs.

In all, Roomkey served about 62,000 people over the course of the pandemic.

When Roomkey launched, FEMA had no rules governing how long someone could stay in a hotel room, according to the Governor's Office of Emergency Services. Officials there claim FEMA didn't set the 20-day limit until October 2023, long after the unhoused residents had moved out.

In its letter, FEMA said it capped stays between June 2021 and May 2023 because by that time transmission rates were down and 20 days was the Centers for Disease Control and Prevention's maximum recommended period of quarantine. Newsom lifted the state's stayat-home order in June 2021.

“Things had changed,” said Robert Fenton, regional administrator for FEMA Region 9, in a phone call with CalMatters. “The vaccine was readily available. Testing was readily available.”

Fenton, who wrote the October letter, insisted FEMA's policy has not changed — despite the assertions of state officials and multiple cities and counties. Fenton said that from the beginning, the federal agency said it would pay for shelter stays that were based on “health guidance” and limited to what was needed to address immediate threats to health and safety.

State and local officials should have known that referred to the CDC guideline of quarantining for up to 20 days — because that's the policy Newsom and local health departments followed themselves, Fenton said. But there is no evidence FEMA made that 20-day rule explicit prior to October.

The CDC's 20-day quarantine recommendation was for people who had or were exposed to COVID. But the state, and California cities and counties, interpreted FEMA's rules to mean the federal agency would pay for hotel rooms for unhoused people who were unusually susceptible to the virus — but had not been infected or exposed.

Fenton said he sent the October letter spelling out the 20-day cap after seeing the reimbursement requests submitted by California cities and counties.

“It's not new,” he said. “What I'm doing is clarifying the original guidance of the original policy and providing that back to them.”

California officials disagree. The state sent FEMA a letter last month asking the federal agency to reconsider the 20-day cap.

“California is committed to maximizing federal aid to local communities and intends to aggressively advocate for FEMA to rescind the decision to deny public assistance to local governments,” Brian Ferguson, a spokesman for the Governor's Office of Emergency Services, said in an email to CalMatters.

The governor's office looks forward to the federal government “honoring its commitments,” spokesman Daniel Lopez added in an email.

But while the state, which serves as a middleman between local officials and FEMA, can put pressure on FEMA, it has no authority to force the federal agency to change its mind, said Ellard.

“When everything was really bad and it was top of mind for everyone, FEMA was advising a lot of the applicants that it would provide the necessary support, that the federal government would be there to support the need,” said Ellard. “And now that things have calmed down a bit, the story has changed. I think FEMA and the federal government generally has seen the size and scale of the recovery and the expenses and now is walking back some of the earlier approvals.”

The October letter also made clear that FEMA would not reimburse cities and counties for unoccupied rooms leased through Roomkey.

That's a tough pill to swallow for local officials, who sometimes had empty quarantine rooms as virus transmission rates fluctuated.

`Blindsided' by FEMA's letter

Sacramento County didn't limit how long people could stay in its Roomkey hotel rooms, said Kyle Hammon with the Sacramento County Department of Human Assistance. Until the program ended, people generally were allowed to stay until they got permanent housing or wanted to leave for other reasons.

“Our county, for sure, and other counties, I'm sure we all were pretty blindsided by this,” he said of FEMA's letter.

The 20-day cap could force Sacramento County to forfeit nearly $9 million in FEMA reimbursements officials there had been counting on.

That's about 1% of the county's annual discretionary revenue.

“It is difficult to say where exactly the impacts would be felt, but there would be either cuts or at the very least missed opportunities,” Patrick Kennedy, chair of the county Board of Supervisors, said in an email.

In all, the county spent more than $50 million on Project Roomkey — $8.8 million of which FEMA already reimbursed.

FEMA's choice to introduce a new rule years after counties spent the Roomkey money is “indefensible,” said Susan Ellenberg, president of the Santa Clara County Board of Supervisors. Her county could lose nearly $16 million thanks to the 20-day rule and FEMA's refusal to reimburse for vacant rooms. To make matters worse, the county anticipates a $250 million budget deficit in the next fiscal year, according to The Mercury News.

“Unfortunately, the message is that we can't count on our federal government to be accountable for promises that have been made and money that was spent in reliance on those promises,” Ellenberg said.

Using hotel rooms as shelter is not cheap: Alameda County estimated Project Roomkey cost about $260 per participant per night.

There were other options to help pay. The state kicked in more than $260 million, and counties also used federal CARES Act and American Rescue Plan funding. Some counties, including San Benito, Sutter and Calaveras, ran hotel programs without applying for FEMA funds.

But for most local governments, especially those with the largest homeless populations, FEMA was intended to be a big part of their Roomkey strategy.

Now that the federal agency is poised to deny California governments hundreds of millions of dollars, local officials have limited options. If FEMA denies their claims, they can appeal and even go to arbitration at an administrative court in Washington, D.C.

The process could take a year or more, Ellard said.

She worries FEMA might even use the 20-day cap to try to claw back money already paid to counties. If a county can't pay, it could mean they get less funding during the next disaster, she said.

“California is committed to maximizing federal aid to local communities and intends to aggressively advocate for FEMA to rescind the decision to deny public assistance to local governments.”

— Brian Ferguson, spokesman for the Governor's Office of Emergency Services