Update 469 — Growing Chorus for Relief
Administration Joins in; Will Mitch Switch?
‘Twas the week before Labor Day when all through the Senate, few creatures were stirring, at least from their tenets. In fact, the GOP Senate leadership needs a fig-leaf to act. Sticking to ideology is an increasingly risky proposition for the majority in the Senate, where the leadership sounds more tone-deaf and isolated by the week.
Below, we assess the current state of negotiations as Congress prepares to return from recess and consider demands for economic relief and whether CARES Act resources from the last relief bill in May may be redeployed.
Yesterday, Treasury Secretary Steven Mnuchin made clear his willingness to meet Speaker Nancy Pelosi “at any time to negotiate” the next corona relief package deal. Appearing before the House Select Subcommittee on the Coronavirus Crisis, Mnuchin testified on the Trump administration’s policy response to the economic crisis.
The hearing took a look at ongoing negotiations over Corona 5 and the Trump administration’s implementation of the CARES Act. Committee Republicans offered few policy prescriptions, instead blaming Democratic governors for keeping states’ economies closed. A more measured Mnuchin engaged with Democrats on possible areas of agreement. Democrats focused their questions on the unfinished business in the CARES Act. As negotiations are rejoined, hundreds of billions of fallow CARES Act dollars are doing little to nothing at a moment of dire national economic need.
Mnuchin Pushes for Piecemeal Relief
In May, House Democrats passed the HEROES Act, a comprehensive $3.4 trillion COVID relief package. After refusing to vote on the bill, Senate Republicans delayed until July to introduce their $1 trillion HEALS Act. Now, negotiations on the fifth coronavirus relief package have stalled for the last month. White House officials have refused to compromise on the price of the next bill — even after Speaker Nancy Pelosi lowered Democrats’ demand from $3.4 to $2.2 trillion.
Amid this impasse, Senate Republicans proposed an even smaller relief package, the Delivering Immediate Relief to America’s Families, Schools, and Small Businesses Act. At $500 billion, this ‘skinny’ version of the HEALS Act pursues a piecemeal approach to coronavirus legislation, containing only provisions that could obtain support from the entire GOP caucus. Democrats have been firm, however, that the next stimulus package should be comprehensive. During yesterday’s hearing, Mnuchin endorsed the GOP “piece by piece” approach, highlighting the need for urgent and bipartisan relief. Mnuchin listed his economic priorities as:
- additional Paycheck Protection Program funding
- continued enhanced unemployment benefits
- liability protection for universities, schools, and businesses
In addition to coronavirus relief negotiations, the federal government’s fiscal year-end is almost upon us. Congress will need to pass a new budget or a Continuing Resolution (CR) by September 30 to avoid a shutdown. The CARES Act’s airline industry Payroll Support Program and the highway authorization also expire on that date. These program extensions and the next relief package will likely be tied to a CR.
CARES Act’s Unfinished Business
Some CARES Act funds have yet to be fully exhausted even as the economy hobbles along. During yesterday’s hearing, Secretary Mnuchin fielded questions of how he plans to more effectively deploy these resources, if at all, in regard to several programs:
- Idle Small Business Relief: The Paycheck Protection Program (PPP) with its forgivable small business loans was one of the most popular CARES Act provisions across both parties and chambers. CARES provided $349 billion in PPP funding, which Congress topped up with an additional $310 billion in April after the initial funds ran out.
PPP has made 5.2 million loans with an average loan size of $101,000. As of August 8, the PPP is no longer accepting new applications despite $134 billion still sitting at the Small Business Administration. But there is clearly more need for relief. An August National Federation of Independent Businesses survey found 84 percent of businesses have already used up their PPP funds, and almost half anticipate needing additional financial support over the next 12 months.
At the hearing, Mnuchin supported repurposing the remaining $134 billion for the “hardest hit” small businesses. He also stated that repurposing PPP would be the “easiest to pass on a standalone basis.” House Democrats, while not opposed to the idea of repurposing, voiced different aims than Mnuchin. Rep. Nydia Velazquez said that repurposing the PPP funds should focus on minority-owned businesses previously left behind. Crucial in the next package is to ensure that no funding is left unclaimed as small businesses continue to shutter.
- Untapped Fed Facility Backstops: The CARES Act provided the Treasury with $454 billion for backstopping potential losses for the Federal Reserve’s 13(3) emergency lending facilities. So far, the Treasury has only committed $195 billion for backstops, meaning that $259 billion sits uncommitted five months later. Mnuchin argues it’s necessary to preserve funds for any additional facilities or replenishment of existing facilities.
The Fed facilities have shored up market confidence even as the Fed and Treasury have not deployed the resources to nearly their fullest extent. Because the Fed has done little lending, the backstops have not yet been needed to absorb losses. As of late August, the Fed had only lent $16.4 billion from backstopped facilities.
The facilities and Treasury backstops received little attention during yesterday’s hearing even though $259 billion is essentially lying fallow. Only Rep. Velazquez raised the issue over the $600 billion Main Street Lending Program (MSLP) and its effectively unused $75 billion backstop. Mnuchin said the MSLP is picking up steam now and that he expects the facility to lend $25 to $50 billion in total. Mnuchin’s high-end estimate of $50 billion would mean that the MSLP operated at 8.3 percent of its total capacity — hardly a ringing endorsement of the program’s efficacy.
Repurposing to Better Fiscal Relief Use
As Republicans and Democrats haggle over a price point for the next relief package, more than $393 billion in funds are leftover from the CARES Act. The next coronavirus package must ensure that these funds are not left untapped.
Given the Treasury’s $259 billion in uncommitted backstop funds, Congress should consider repurposing this money toward more direct fiscal use. Democrats have already floated reprogramming these funds. Senator Schumer announced the Economic Justice Act in July that would repurpose $200 billion worth of backstop funds to make long-term investments in communities of color. With markets now stabilized and the Fed not indicating the need for new 13(3) facilities, millions of families continue to struggle while funds remain uncommitted.
For the remaining PPP funds, Congress should consider prioritizing businesses with fewer than 10 employees, allowing businesses in the most need to get a second loan, and extending the program based on the health of the economy. A grant program would be an even better use for the leftover funds. This would offer a lifeline to those small businesses that were deterred from participating in PPP due to the program’s uncertain terms. Regardless of the method of distribution, this money must be spent now for the sake of struggling small businesses.