By: Miller Williams
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES” Act), a federal economic stimulus program aimed at reducing the economic impact of COVID-19, was signed into law.
While this historic stimulus package will provide some short-term economic stability, Founders believes that additional stimulus measures will likely be necessary in coming weeks which may increase and expand upon current provisions of the CARES Act.
Title I and Title II of the CARES Act outline economic assistance programs for small businesses and families. Key provisions include $349 billion in emergency loans and grants for small businesses, as well as beneficial allowances related to tax and bankruptcy law. Families and workers are assisted in the form of direct payments, increased federal unemployment benefits, and delayment of foreclosures and student loan payments.
Notably, the SBA 7(a) “Paycheck Protection” loan program has been enhanced by the CARES Act to provide emergency funding for the hard-hit hospitality sector. While SBA 7(a) loans were previously accessible to generally only companies with less than 500 employees, the CARES Act allows for the inclusion of hospitality sector businesses with less than 500 employees per location – i.e. restaurants, hotels, retail stores, and other multi-unit businesses.
Title III of the CARES Act provides initiatives aimed to support the health care system, including measures to increase hospitals’ access to necessary drugs and equipment, and allowing the FDA to expedite and prioritize the production of key drugs to fight COVID-19. For individuals, Title III expands insurance and Medicare coverage of COVID-19 testing and treatment, including the availability of tele-health care, and expands federal provisions for sick leave and paid leave for re-hired employees.
Title IV and Title V of the CARES Act detail aid provisions for severely distressed sectors of the U.S. economy – namely airlines, financial institutions, the health care industry, and sectors that are critical to national security. Title IV appropriates $500 billion in loans for these sectors and other mid-size businesses with more than 500 employees, including $454 billion for the financial industry to help support favorable loans made to other businesses, states, and municipalities. Title V specifically appropriates $150 billion for administration to states and local governments on a by-need basis, and $100 billion for health care providers to cover expenses and lost revenues due to the response to COVID-19.
April 14, 2020 Update
Since the Act was finalized on March 27, the federal government and small business administration have released several guidelines regarding the enactment and timeline of its provisions. Notable guidelines include:
- PPP Loans available through the enhanced $350 billion SBA lending program will be processed and underwritten by commercial banks, rather than the Federal Reserve. In order to encourage lending, the Federal Reserve voted on April 9 to create the Paycheck Protection Program Lending Facility “PPPLF” which allows commercial lenders to maintain healthy liquidity balances by borrowing corresponding amounts at interest rates near zero percent. Along with the ability for lenders to sell the PPP loan to the SBA in the event of default, these measures effectively neutralize the risk of issuing PPP loans.
- Direct Checks to individuals are in the process of distribution as of April 9. The checks will vary in size based on income. The IRS has provided guidance stating that funds will first be distributed electronically to accounts with direct deposit information on file (from previous tax returns). The IRS recently launched a portal for non-taxpayers and others who do not already have direct deposit details on file to submit this information. Physical checks will be mailed to those who do not submit direct deposit information in batches of approximately 5 million per week, starting the week of May 4.
Secretary of Treasury Steve Mnuchin, as well as congressional leaders, have pledged to increase funding provisions of the CARES Act through additional legislation, if necessary. On Friday, April 3, Senate majority leader Mitch McConnell stated that “there will be a next measure.” This may include replenishing the $350 billion amount allotted for small businesses, additional direct payments to individuals, and increased aid to local governments, health care systems, and other industries. In addition, the next stimulus measure may contain provisions not included in the CARES Act, such as possible cuts to payroll taxes and capital-gains taxes, liability waivers for companies whose workers contract COVID-19, and the creation of a 25-year or 50-year bond. House Speaker Nancy Pelosi has stated that the next stimulus bill may cost over $1 trillion, though the timing and provisions of additional legislative measures is uncertain, as Congress is scheduled to be in recess until May 4.
Although the $2 trillion CARES Act is a landmark stimulus measure (for comparison, the 2008 Troubled Asset Relief Program (“TARP”) totaled $700 million in aid), the total economic ramifications of COVID-19 are yet to be determined for both the U.S. economy and the world economy. Founders expects that getting the U.S. back on track to normalized economic activity will necessitate further acts of federal stimulus over the longer-term.