California's billion-dollar mask deal highlights coronavirus pressures

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The deal California Gov. Gavin Newsom announced to obtain 200 million medical-grade masks per month for the state underscores the state budget dilemmas that lie ahead.

As the state piles up expenses amid expectations of lowered revenues, Newsom will be faced with tough decisions come the state’s annual May budget revision.

California Gov. Gavin Newsom announced a deal to acquire 200 million medical-grade masks monthly.

The governor said he was tired of competing with other states to obtain personal protective equipment for healthcare workers, and the federal stockpile was too small to make a difference.

“We decided enough of the small ball, let’s go at scale and use the state’s purchasing power,” Newsom said during a Tuesday night interview on MSNBC.

The deal to acquire the 150 million N95 and 50 million surgical masks monthly for the state may give it enough to export to other Western states, said Newsom, who called California a “nation-state” during the interview.

The state will make a down payment of $495 million, with a projected total cost of $990 million, according to a California Department of Finance letter to the Legislature. The state has committed to purchasing medical safety gear that will cost $1.4 billion.

The news of the additional expenditures comes after the state’s Legislative Analyst’s office wrote Sunday that California and its municipalities may be eligible for $15.4 billion from the $2.2 trillion federal stimulus bill, while questioning if it will be enough.

The $20.5 billion in reserves estimated in the $222.2 billion budget the governor released in January could be reduced to the level that additional federal action is needed to ameliorate the economic and revenue consequences of this emergency, according to the LAO report.

“When the governor releases his May Revision, the state likely will be facing a budget problem,” the LAO wrote. “That problem would come from three sources, all related to COVID-19.”

Those three sources are: higher direct costs to respond to the public health emergency, higher indirect costs as a result of changes in the economy, and lowered revenues with many businesses closed.

The LAO wrote that analysts have estimated that in a typical economic downturn, “revenues are lower by tens of billions of dollars across a multiyear period. The length and severity of the public health emergency will determine the severity of the economic disruption and the ensuing revenue implications,” according to the LAO.

The state could get $8.5 billion with $6.9 billion going to localities, but the funding is at the discretion of the federal government. The stimulus bill provides relief for higher costs in dealing with the coronavirus pandemic, but not loss from revenue associated with the outbreak.

Newsom’s mask announcement on Rachel Maddow's MSNBC show shifts the tide for California, where just a few weeks ago the state said it was facing a shortage of personal protective equipment for health care workers and ventilators for patients. Working with Silicon Valley manufacturers, the state was able to obtain enough ventilators to send 500 to the federal government on Monday.

Newsom told MSNBC's Rachel Maddow that the state has secured the mask from a consortia of nonprofits and a manufacturer here in the state of California, upwards of 200 million masks on a monthly basis.

Newsom said the masks will be manufactured overseas and were sourced through the nonprofits and a California manufacturer with contacts in Asia.

The governor did not name the nonprofit or companies involved in the deal during Tuesday’s interview, but said he would reveal more during a Wednesday press conference slated for noon PST.

The state will also work with the federal government to “obtain and strategically place sterilization units across the state so that we can clean and re-use PPE such as N95 masks,” according to the Department of Finance letter.

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Coronavirus State of California California Gavin Newsom State budgets