Congress Nears Fourth Fiscal Response: PPP Deficiencies, No State Fiscal Relief

Update: The House passed the $484 billion Senate bill (the Paycheck Protection Program and Health Care Enhancement Act) on a 388-5 vote margin on Thursday evening (4/23/20). President Trump is expected to sign the bill into law shortly…

Yesterday the U.S. Senate approved a $484 billion (2.2% of GDP) bill to expand lifelines to small (and not-so-small) businesses and hospitals, and to finally ramp up testing and contact tracing efforts. Regrettably, the bill does not expand the existing federal lifelines to state and local governments, as Congressional Democrats had originally proposed. The U.S. House of Representatives is expected to vote on the bill, which would be the fourth emergency fiscal response to the coronavirus, on Thursday. Related reading:

Crux of the bill: The main provision of the bill appropriates an additional $310 billion for the Paycheck Protection Program (PPP), which provides business loans that will be forgiven if used to maintain payrolls. The CARES Act had provided $349 billion for PPP loans, but that funding was depleted in under two weeks, leaving applications in limbo.

The good (PPP) news: The program has seen high take-up, despite a glitchy start and initial skepticism about participation by several major banks. The bad (PPP) news: Funds ran out well before many loan applications were processed, and the first-come, first-serve nature of the program has disadvantaged smaller mom and pop businesses (e.g., Ben’s Chili Bowl, an iconic fixture in my native Washington, DC, hasn’t seen their PPP loan application processed, much to their frustration).

The PPP loans were notionally intended for small business, defined as establishments employing 500 people or fewer. Defined as such, small businesses accounted for 47% of private-sector employment in 2017, with the subset of businesses employing under 20 people accounted for 33% of private-sector employment (see the U.S. Census Bureau’s annual Statistics of U.S. Businesses Survey data). Keeping these smaller business afloat and these jobs intact would help prevent a slow, painful recovery. But in a nod to restaurant chains and hotels, the CARES Act loosened the eligibility requirement to businesses or franchises employing under 500 people in one location. Consequently, over 100 publicly listed firms have received PPP loans, contributing to the rapid depletion of the initial loan funding—and frustrating members of Congress and smaller businesses alike. Public ire and backlash even induced burger chain Shake Shack—which employees nearly 8,000 workers—to return $10 million in PPP loans.

This wouldn’t have been an issue if Congress had created the PPP program as an unlimited authorization. It’s likely that an additional $310 billion will again be depleted, and Congress will have to revisit the issue, leaving many applications in limbo in the interim. If the lifeline is a sensible way to maintain employment and help small businesses survive, make it a big enough lifeline to satiate all demand!

Other major provisions: The Senate bill would also provide an additional $75 billion in emergency funding for hospitals and $25 billion to finally roll out a widespread coronavirus testing and contact tracing program. (The latter seems like a major omission from the first three bills, no?) Lastly, the bill would provide an additional $60 billion for the Small Business Administration’s Economic Injury Disaster Loan program for low-interest rate bridge loans.

What’s missing from the bill: There is zero state and fiscal relief in the Senate bill, an issue that will be separately revisited (with less leverage for its proponents) unless the House amends the Senate bill. State and local budget cuts pose a major risk both to the public health response and to a rapid economy recovery. Senators Bill Cassidy (R-LA) and Bob Menendez (D-NJ) recently introduced a bipartisan bill to provide $500 billion in additional state fiscal relief, as recently requested by a bipartisan group of governors led by Governors Larry Hogan (R-MD) and Andrew Cuomo (D-NY). But Senate Majority Leader Mitch McConnell (R-KY) is already trying to spike the effort, citing misplaced (or bad faith?) concerns about rising federal debt:

Related reading:

Brace yourself for the coming asinine news and punditry cycle of handwringing about rising federal debt as multi-trillion dollar deficits become the new (and necessary) norm… Misplaced concerns about public debt (and bad faith fear mongering) greatly impeded our recovery from the Great Recession. Let’s not repeat that mistake again.

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