Senate Passes Another Round of Coronavirus Relief to Replenish the Paycheck Protection Loan Program and Other Programs; Agriculture Receives Relief; House Approval Expected Thursday

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Summary

Late yesterday, the Senate passed the Paycheck Protection Program Increase Act of 2020. The measure appropriates a total of $484 billion, mainly to refund the Paycheck Protection Program (PPP), but also to provide additional funding for hospitals and testing, and includes $10 billion in Economic Injury Disaster Loan grants that lack the same strings attached to PPP loans.

In a rare showing of bipartisan harmony, over the last two weeks, both Democrats and Republicans agreed that additional stimulus legislation would be required to replenish the popular PPP. The party peace, however, was short lived—this legislation came hard on the heels of an inter-party fight over how much additional stimulus funds should be allocated and what those funds should be allocated for. We suspect negotiations on the next phase of Coronavirus relief legislation to be contentious.

Notably, the legislation is relatively clean of any hidden agendas, as these things typically go.  The fight over additional labor protections for workers has been postponed, but will likely resurface in the next round, as promised by prominent Democrats.  Further, substantive criteria in the Act such as who would qualify and changes in the rules of the road with regard to the loans, such as the 75%/25% payroll operations ratio, were not changed, despite some media reports that the law was adjusted to address alleged improper use by larger employers.

In sum, even more funding is likely down the road as are more substantive changes to the law beyond funding, but it does appears that Congress will take these issues up in a more regular order.

Analysis

As Seyfarth announced here, the $349 billion Congress originally appropriated to fund the PPP dissipated quicker than most expected—the program went live on April 3 and was exhausted in only two weeks. Over the last two weeks, Congress has proceeded through numerous starts and stops in its attempt to pass legislation appropriating additional money for small business loans.  Last week, Republicans sought unanimous consent for a $250 billion package to replenish the small business loan program, but Sen. Ben Cardin, (D-Md), objected to the request for unanimous consent as Democrats sought additional funding for state and local government. Late yesterday afternoon, Senator McConnell announced Democrats and Republicans had finally reached a deal on a legislative vehicle to fund additional small business loans. President Trump also signaled he’d sign the legislation upon passage, tweeting Tuesday that he’s urging lawmaker to pass the bill "with additional funding for PPP, Hospitals, and Testing."

While the bill passed the Senate with unanimous consent, the House is expected to return Thursday for an in-person vote on the legislation. Even though members will not be forced to return, House Majority Leader Steny Hoyer (D-Md) told reporters he expects enough lawmakers to establish the necessary quorum to clear the package with a roll call vote. Republican Whip Steve Scalise (R-La) also announced that, upon passage of the measure, the House could meet as early as Thursday, April 23rd at 10:00 a.m. to consider and vote on the measure. Interestingly, the Whip also announced that House Members should be prepared to vote on a yet-to-be-unveiled rule change related to remote voting by proxy; however, this morning Speaker Pelosi announced they would not muscle through a major rules change to the way House lawmakers vote, and instead has announced a bipartisan task force to further study the issue before taking any action.

The legislation, if passed by the House and signed by the President, would appropriate in total $484 billion for small businesses, hospitals, and for testing. Broadly, the appropriations breaks down to $310 billion in additional lending authority for the PPP, $60 billion for separate disaster loans to small businesses, $75 billion for hospitals, and $25 billion for virus testing. The Act would cross off wish list items for both Republicans and Democrats: the legislation fulfills Democrats desire to increases funding for hospitals and testing, while Republicans negotiated additional money more for small businesses than previously requested. Democrats, however, were unable to deliver on their desire to appropriate additional funding for state and local governments.

Appropriations for Small Business Administration (SBA) Loans

The meat of the measure allocates an additional $310 billion to replenish the PPP, originally created through The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which passed with overwhelming, bipartisan support and was signed into law by President Trump on March 27th, 2020.  Between Congress’ original allocation to the PPP, and the additional money appropriated by this Act, Congress will have provided a total of $659 billion for the PPP. 

The legislation would also set aside $60 billion of the $310 billion pie for exclusive use by credit unions and community banks: $30 billion for insured depository institutions with between $10 and $50 billion in assets; $30 billion for community financial institutions, insured depository institution and credit unions with less than $10 billion in assets. Despite Treasury Secretary Steven Mnuchin’s proclamation that larger firms would now be blocked from using the program, the language of the new legislation provides only an increase in funding; the law does not alter eligibility requirements for the program.

Title II of the Act would add $60 billion for emergency Economic Injury Disaster Loans (EIDL), and amends Section 1110(e)(7) of the CARES Act to add $10 billion in EIDL grants. The program, which is separate from the PPP, quickly went through the $10 billion originally allotted to it as part of the first small business plan.

Importantly, in a change from the previous stimulus package, the measure the Senate passed  allows agricultural enterprises, as defined by section 18(b) of the Small Business Act (15 U.S.C. 647(b)) with not more than 500 employees, to receive EIDL grants and loans. Agricultural enterprises eligible for the program include “those small business concerns engaged in the production of food and fiber, ranching, and raising of livestock, aquaculture, and all other farming and agricultural-related industries.” SBA disaster relief loans under the original iteration of the CARES Act excluded most agriculture businesses other than cooperatives, nurseries or those in aquaculture, asking them to instead take out USDA loans with standard interest rates, mostly passing the buck to the Department of Agriculture to provide the necessary aid. Notably, the original iteration of the package appropriated broad subsidies for large agribusinesses, but did not account for the small farmer. Fast forward to this iteration of the package, even though Secretary of Agriculture Sonny Perdue has announced that U.S. farms will receive $19 billion in financial aid, the legislation still contains a much needed expansion of EIDL eligibility for agricultural businesses to fix the oversight in the original Act.

While this legislation appropriates much-needed funds to replenish the PPP, it fails to address complaints from various industries regarding eligibility for the loans. For example, the legislation does not address venture capital firms’ concern that startups funded by private equity would be ineligible for the PPP. Additionally, lenders are imploring lawmakers to save the SBA’s 7(a) program, which was the government's primary lending plan for small firms before Congress established the PPP. Upon passage of the CARES Act, Congress combined the funding authorization caps for the PPP and the 7(a) program through June 30, when the PPP is set to expire.  Under the CARES Act small businesses are not technically eligible for the original 7(a) loans while the PPP is active, but not when it runs dry. Despite that this issues is commonly recognized, Congress failed to address it in the new stimulus legislation. Because the new legislation does not address the issue, it is possible that the PPP will once again runs out of money before it expires, leaving employers without the additional recourse of obtaining a normal 7(a) loan. Hopefully, some of these concerns will be addressed in the next round of relief.

Hospitals and Health Care Workers

The new stimulus legislation provides a $75 billion increase—bringing the total to $175 billion—for reimbursement to hospitals and health care providers. Reimbursement to hospitals for this fund is only available for expenses or lost revenue due to Coronavirus. The measure requires hospitals and health care providers to document all Coronavirus-related care and submit a report regarding the same to the Secretary of Health and Human Services. In order to receive funds, the bill requires eligible health care providers to submit an application justifying its needs for the funds.

Testing, Testing, Testing

Most major news outlets have reported on governors, health officials like Dr. Fauci, and a variety of lawmakers repeat the mantra that the country is in dire need of a robust, multi-faceted testing apparatus. For example, as explained in more detail here, Representative Raskin (D-MD) recently introduced a measure that would establish federal-state partnerships for combatting the virus where a state submits a detailed plan for the same.  That bill’s very first requirement for such plans is in fact testing, including publicly administered testing, employment-based testing requirements, mobile testing programs, school-based testing, or other testing requirements for social activities, and group testing.

This bill would appropriate an additional $25 billion for necessary expenses for testing. The funds are intended to cover expenses to research, develop, validate, manufacture, purchase, administer, and expand capacity for testing.  The bill also allocates $11 billion for states and localities to increase testing capacity.  Finally the measure allocates $1 billion for CDC for contact tracing, $1 billion for the National Institute of Health to develop rapid testing, $1 billion for the Biomedical Advanced Research Authority to develop testing, and $825 million for community and rural health clinics.

Conclusion

The Paycheck Protection Program Increase Act of 2020 reflects the kind of compromise amongst factions James Madison envisioned in Federalist No. 10.  This past week, the news media has repeatedly reported on the intense negotiations between Treasury Secretary Steven Mnuchin, Mitch McConnell (R-Ky), Charles Shumer (D-NY), Nancy Pelosi (D-Ca), and Kevin McCarthy (D-Ca). The bill is not duplicative of the measure Mitch McConnell attempted to pass last week, nor does it not contain the hefty appropriation for state and local governments the Democrats pushed for. Indeed, in announcing the relief package, Senator McConnell praised Democrats willingness to move from their original position to pass the much-needed stimulus. While the legislation leaves a number of items off some policy wish lists, it accomplishes the most important goal: replenish the PPP so that small businesses can access the funds necessary to ensure paychecks for their employees. 

Congressional leaders and the Administration have termed this only interim relief as legislative leaders negotiate another round of relief.  Continue to monitor this space for additional updates on Coronavirus relief legislation.