Update 439: HEROES Welcome in the House
But Path to COVID Relief in Congress Unclear
Despite the unrelenting bad economic news — 36 million unemployed in under two months, trillions of dollars of savings and other assets gone, forty percent of all households earning under $40,000 lost jobs in March — and the conspicuous inadequacy of PPP and other relief, Congress is having trouble finding bipartisan, bicameral agreement on how to save jobs, firms, and the economy.
Later today, the House will vote on and pass HEROES, a sprawling relief measure that also attends to program design flaws in previous efforts. But it will get no love or floor time in the Senate from Mitch and President Trump has already issued a formal notice of intent to veto. Details and next steps below.
Good weekends all and stay safe…
The House reconvened today to vote on the HEROES ACT, a $3 trillion proposal for the next round of coronavirus relief. If it passes the House tonight, it will go to the Senate where it will be dead on arrival.
While Senate Republicans won’t take up the full bill, some provisions might be included in a final package. Below, we analyze the key economic provisions in the HEROES Act and assess which might ultimately become law.
Millions of Americans have found their incomes cut and food supply lacking. The HEROES Act contains several provisions to help the hardest-hit individuals.
- Direct Cash Payments: The CARES Act provided $1,200 for individuals, $2,400 for married couples, and $500 for dependents under 17. The HEROES Act would allow households to receive $1,200 per family member, capped at $6,000 per household. It also allows ITIN tax filers, students, and dependents over 17 to receive payments — patching several of the major holes in the first round of cash assistance.
Rising unemployment necessitates another round of economic impact payments. Senate Democrats are on board as well. The Monthly Economic Crisis Support Act, introduced by Sens. Harris, Sanders, and Merkley, would increase economic impact payments to $2,000 and extend them on a monthly basis through the pandemic and three months after. The White House appears to support another round of one-time cash payments, which may secure a version of this provision in a final deal.
- Continuing Expanded UI: The HEROES Act extends CARES Act Unemployment Insurance (UI) provisions through January 31, 2021. This includes the $600 weekly increase to UI, as well as the expanded eligibility requirements. Despite record unemployment, maintaining the revamped UI looks like an uphill battle.
Senate Republicans are focused on forcing the economy to reopen. They will likely oppose the extension of the $600 per week benefits, claiming it’s overly generous and incentivizes workers to stay home.
- Hazard Pay: For months, members on both sides have been hailing essential workers as “heroes” but have not offered hazard pay. The HEROES Act may finally change this by creating a ‘Heroes Fund’ to increase essential worker wages by $13 an hour. Pay increases are capped at $10,000 per essential worker and are retroactive to January 27.
Senator Romney proposed a similar measure earlier this month, but it remains to be seen if other Senate Republicans will sign on.
Small Business Assistance
Late last month, Congress approved a $310 billion supplement for the Paycheck Protection Program (PPP). The HEROES Act broadens the PPP in several ways:
- removes the requirement that a business has to spend 75 percent of its loan on payroll to qualify for forgiveness
- sets aside 25 percent of existing PPP funds for businesses with 10 or fewer employees
- extends the loan coverage period from eight to 24 weeks
- extends the loan application period from June 30 to December 31
- opens the PPP to non-profits of any size, except 501(c)(4) organizations engaged in campaign finance activities
These changes carry relatively insignificant fiscal costs, which could make them more viable should the Senate craft its own bill in response to HEROES. However, these changes don’t go nearly far enough to support small businesses through the crisis.
Other notable provisions include:
- Main Street Lending Program: The Fed’s rollout of its new $600 billion Main Street Lending Program (MSLP) for small- and mid-sized businesses has drawn bipartisan criticism. Members on both sides of the aisle are concerned that the lending terms are too restrictive for many businesses. The HEROES Act would remove the MSLP’s $500,000 minimum loan size requirement and expand the program to include non-profits. Removing or modifying the minimum loan size could gain bipartisan support in the Senate.
- Employee Retention Tax Credit (ERTC): To incentivize small businesses to retain staff, the bill would expand the ERTC by increasing the reimbursement rate on wages from 50 to 80 percent, increasing the limit on qualified wages per employee to $45,000 a year, and clarifying when PPP recipients may qualify for the credit.
The ERTC expansion will help 60 million Americans stay employed and its proposed expansion will cost upwards of $200 billion. This proposal has support from Democrats on the Ways & Means Committee, but many are still hoping for the inclusion of the Paycheck Guarantee Act in a final package as the vehicle for wage replacement.
State and Local Assistance
States and localities are facing massive budget shortfalls for the upcoming fiscal year. Democrats have made assistance for state and local governments a top priority for the next relief package.
- State and Local Relief Funds: The largest provision in the HEROES Act is the $915 billion fund for states, local governments, tribes, and territories. States and the District of Columbia would receive $500 billion, while cities and counties would receive $375 billion. The fund comes with little to no strings attached, as it’s intended to provide assistance for both COVID response measures and lost tax revenue.
McConnell walked back his April 23 statement saying he would let states go bankrupt. Instead, he’s offering liability immunity for businesses (which we covered on Wednesday) in exchange for state and local aid. But the HEROES Act price tag might be too big for Republicans, who are likely to push for more restrictions on any state and local aid. There will likely be a deal struck on state and local funding in a final package given the White House is also open to providing more aid.
- Municipal Lending Facility (MLF): The Fed is standing up the MLF, which would purchase state and local bonds. The facility has drawn bipartisan rebuke for the population limit for cities and counties. The Fed will only purchase debt from cities exceeding 250,000 residents and counties exceeding 500,000 residents. Smaller local governments must apply for assistance through their state.
Senate Banking Committee Chairman Crapo expressed concern that no local government in Idaho would have direct access to the facility. The HEROES Act lowers the population limit for eligible jurisdictions to 50,000 residents, which could garner bipartisan appeal.
What’s Still Missing and What’s Ahead
Absent from the HEROES Act is a comprehensive wage replacement program. Keeping workers in jobs and receiving paychecks would obviate the need to continue topping-up CARES Act programs and simultaneously lay the groundwork for a quicker recovery. Rep. Jayapal’s Paycheck Guarantee Act would stem the tide of job losses and provide income for recently unemployed workers.
The presiding sense in Washington right now is that Congress recently passed a $2.1 trillion relief package and it needs time to digest. Meanwhile, the American appetite for additional relief is growing. Come June, if nothing has been done, Congress may come under pressure to do more in amount and something very different in kind.