GAO Releases Report on Federal Response to COVID-19 Pandemic as of June 2020

On June 25, 2020, the GAO released its report assessing and evaluating the major federal actions in response to the COVID-19 pandemic, including the CARES Act expenditures. The report, critical of the delay in comprehensive reporting of government COVID-19 expenditures permitted by OMB, drew on data directly from agencies.

Among the key findings highlighted by the report:

(1) Appropriations: Approximately $2.6 trillion appropriated across the government: “Six areas—Paycheck Protection Program (PPP); Economic Stabilization and Assistance to Distressed Sectors; unemployment insurance; economic impact payments; Public Health and Social Services Emergency Fund; and Coronavirus Relief Fund—account for 86 percent of the appropriations.”

(2) Testing: Reporting to the CDC on viral testing remains inconsistent and incomplete across the country.

(3) IRS payments to deceased taxpayers: The IRS made stimulus payments totaling $1.4 billion (the $1200 payments) to 1.1 million deceased individuals. Although the IRS has access to Social Security death information, Treasury and its Bureau of the Fiscal Service (involved in disbursing payments) did not.

The report makes a series of recommendations on following topics including: (1) Paycheck Protection Program (PPP) integrity; (2) IRS and Treasury access to Social Security death data; (3) better data tracking in state unemployment programs on benefits claims to coordinate with the PPP (under which businesses are expected to rehire or retain workers to qualify for loan forgiveness); (4) Congressional action to direct the Department of Transportation to develop an aviation preparedness plan; and (5) Congress’ need to use revised Medicaid payment formulas to provide appropriate payments during an economic downturn.

 

Recent Developments in COVID-19 Related Policy

Recent policy action on the coronavirus front:

(1) LENDING: On Monday June 15, 2020, the Federal Reserve opened the Main Street lending program initiated in March in the CARES Act.

(2) TESTING: Senator Ted Cruz introduced a bill to provide tax incentives to businesses that test workers for Covid-19.

(3) OVERSIGHT: On Monday June 15, 2020, it was revealed that the inspectors general designated by the CARES Act to monitor spending — the Pandemic Response Accountable Committee — wrote to key Congressional committee chairs last week expressing concern that the administration’s recent legal rulings were blocking their ability to provide oversight of the spending programs.

(4) LIABILITY: States explore limiting liability for COVID-19 related claims, including Iowa legislation signed by the governor on June 18 that limits liability retroactive to January 1, 2020 and North Carolina’s limited liability bill that passed the senate.

(5) PRIVACY: The most recent round of proposed federal legislation aimed at protecting privacy in COVID-19 contact tracing apps, follows on the heels of earlier proposals as well as state level action on the privacy front (see e.g. California bill; Minnesota bill). Around the globe, countries have introduced contact tracing apps — including Japan’s introduction today (June 19, 2020) of its national tracing app.

CBO Letter to Senator Projects It Will Take Until 2030 for US GDP to Recover from COVID-19 Pandemic

In a June 1, 2020 letter in response to an inquiry from Senator Schumer, the CBO noted that it will take until 2030 for U.S. GDP to return to recover from the effects of the COVID-19 pandemic.

Specifically, the CBO projects with respect to nominal GDP: “Over the 2020-2030 period, cumulative nominal output will be $15.7 trillion less than what the agency projected in January . . . That different constitutes 5.3 percent of the value of the cumulative nominal GDP for that period that the agency predicted in January.”

And, with regard to real GDP the CBO now projects: “[O]ver the 11-year horizon, cumulative real output (in 2019 dollars) will be $7.9 trillion, or 3 percent of cumulative real GDP, less than what the agency predicted in January.”

House Voted Thursday to Extend Relief in the Paycheck Protection Program

On Thursday May 28, 2020, the House passed H.R. 7010, the Paycheck Protection Program Flexiblity Act of 2020 by a vote of  417-1. The legislation would relax various requirements for small businesses accessing the loans and loan forgiveness originally provided in the Paycheck Protection Program (PPP) enacted in H.R. 748 on March 27, 2020. In particular, H.R. 7010 would extend the period of time businesses have to spend their PPP loans and would reduce the percentage that must be spent on payroll (from 75% to 60%) to qualify for loan forgiveness. Additionally, for those loan funds that must be repaid, the bill delays and extends the repayment period.

Uber and Lyft Drivers Sue the NY Depart. of Labor; Argue Their Unemployment Claims Wrongly Processed Like Independent Contractors, Thus Delaying Access to COVID-19 Emergency Relief

On May 25, 2020, several Uber and Lyft drivers sued the NY Department of Labor contending that their claims for unemployment benefits have been delayed because the Department is incorrectly processing their claims as those of independent contractors not employees — even though The New York State Unemployment Insurance Appeal Board ruled in 2018 that three Uber drivers (and other similarly situated individuals) were employees for purposes of the State’s Unemployment Insurance Program. (State of New York Unemployment Insurance Appeal Board, Decision in the Matter of Uber Technologies, Inc. Appeal Board No. 596722, A.L.J. Case No. 016-234949 (July 12, 2018)).

This week’s plaintiffs explain the harm in the context of the current pandemic: “[Despite the State Unemployment Insurance Appeal Board rulings, the] DOL has continued to treat app-based drivers’ applications as though they are independent contractors, placing the burden on drivers to prove their earnings and employment status. As the DOL has not required app-based car service companies to supply their earnings data, drivers’ benefit rates cannot be determined, delaying the delivery of benefits to drivers by months.”

Latest COVID-19 Funding Legislation Passes the House; Significant Negotiation Expected as it Moves to the Senate

Late on Friday May 15, 2020, the most recent round of COVID-19 funding legislation, H.R. 6800, The Health and Economic Recovery Omnibus Emergency Solutions Act (“HEROES Act), passed the House by a mostly partisan vote of 208-199. The bill, which was introduced in the House earlier this week on May 12, 2020, includes approximately $3 trillion in relief for state and local governments, individuals, and the healthcare system.

Wisconsin Supreme Court Strikes Down State’s COVID-19 Stay-at-Home Order; Declines Transition Period

On Wednesday May 13, 2020, the Wisconsin Supreme Court struck down Wisconsin’s COVID-19 stay-at-home order in a 4-3 decision (see page 31-32 of the court’s opinion). The stay-at-home order — Emergency Order 28 — had been issued Wisconsin Department of Health and Human Services Secretary Designee Andrea Palm on March 24, 2020.

Although the legislature had requested that the court delay any order by a week to provide time for new transition rules, the court declined saying:

‘We have declared rights under the law wherein we have concluded that Emergency Order 28 is invalid and therefore, unenforceable. Although a very unusual request, on April 21, 2020, the Legislature asked this court to issue a temporary injunction of Emergency Order 28 but then requested a stay of that injunction for at least six days. We perceive this request as being grounded in a concern for an orderly transition from Order 28 to a lawful rule.
However, more than two weeks have passed since we began our consideration of this case. Therefore, we trust that the Legislature and Palm have placed the interests of the people of Wisconsin first and have been working together in good faith to establish a lawful rule that addresses COVID-19 and its devastating effects on Wisconsin. People, businesses and other institutions need to know how to proceed and what is expected of them. Therefore, we place the responsibility for this future law-making with the Legislature and DHS where it belongs.” (At pages 30-31) (Emphasis added).

Without a delay period, the court’s decision immediately lifted the state-wide restrictions. Businesses, however, continue to face any local limits and stay-at-home orders, such as those imposed by Milwaukee. But some bars opened immediately on Wednesday after the court’s decision.

Major New COVID-19 Legislation Introduced in the House Today: H.R. 6800, The $3 trillion “HEROES” Act

The next major round of COVID-19 legislation, H.R. 6800, The Health and Economic Recovery Omnibus Emergency Solutions Act (“HEROES Act), was introduced in the house today, May 12, 2020. The package includes approximately $3 trillion in relief for state and local governments, individuals, and the healthcare system.

According to the Democratic staff of the House Committee on Appropriations summary , the bill includes, just in its funding for governments and financial services:

State Fiscal Relief – $500 billion in funding to assist state governments with the fiscal impacts from the public health emergency caused by the coronavirus.
Local Fiscal Relief – $375 billion in funding to assist local governments with the fiscal impacts from the public health emergency caused by the coronavirus.
Tribal Fiscal Relief – $20 billion in funding to assist Tribal governments with the fiscal impacts from the public health emergency caused by the coronavirus.
Fiscal Relief for Territories – $20 billion in funding to assist governments of the Territories with the fiscal impacts from the public health emergency caused by the coronavirus.
CARES Act Coronavirus Relief Fund Repayment to DC – Provides an additional $755 million for the District of Columbia to assist with the fiscal impacts from the public health emergency caused by the coronavirus
Treasury Inspector Generals – $35 million for the Treasury Inspector General for oversight of Coronavirus Fiscal Relief Fund payments to state and local governments, and $2.5 million for the Treasury Inspector General for Tax Administration for oversight of IRS payments.
Community Development Financial Institutions (CDFI) – $1 billion for economic support and recovery in distressed communities by providing financial and technical assistance to CDFIs.
Tax Credit Implementation – $599 million for implementation of additional payments to individuals.
Assistance to Homeowners–$75 billion to states, territories, and tribes to address the ongoing needs of homeowners struggling to afford their housing due directly or indirectly to the impacts of the pandemic by providing direct assistance with mortgage payments, property taxes, property insurance, utilities, and other housing related costs.
Elections – $3.6 billion for grants to States for contingency planning, preparation, and resilience of elections for Federal office.
Broadband – $1.5 billion to close the homework gap by providing funding for Wi-Fi hotspots and connected devices for students and library patrons, and $4 billion for emergency home connectivity needs.
Assisting Small Businesses – $10 billion in grants to small businesses that have suffered financial losses as a result of the coronavirus outbreak. Office of Personnel Management Inspector General Office (OPM IG) – $1 million for the OPM IG to combat healthcare fraud associated with COVID-19.
General Services Administration Technology Modernization Fund – $1 billion in funding for technology-related modernization activities to prevent, prepare for, and respond to coronavirus.
Postal Service – $25 billion for revenue forgone due to the coronavirus pandemic, plus language providing additional protections to Postal workers. An additional $15 million is provided for the Postal Service Inspector General for oversight of this funding.

The Fed Begins Its Corporate Bond Buying Program Today as Part of a Plan to Stabilize Credit Markets

Back in March 2020, the Fed had announced a plan to engage in the purchase of corporate bonds as part of its pandemic response to help stabilize credit markets. On May 11, 2020, the Federal Reserve Bank of New York announced that “the Secondary Market Corporate Credit Facility (SMCCF) [would] begin purchases of exchange-traded funds (ETFs) on May 12.”

Per its April 9, 2020 term sheet, the “SMCCF may purchase U.S.-listed ETFs whose investment objective is to provide broad exposure to the market for U.S. corporate bonds. The preponderance of ETF holdings will be of ETFs whose primary investment objective is exposure to U.S. investment-grade corporate bonds, and the remainder will be in ETFs whose primary investment objective is exposure to U.S. high-yield corporate bonds.” (See N.Y. Fed Statement). The Primary Corporate Credit Facility is expected to become operational in the “near future.”

DOL: Part-time Workers Can Qualify for CARES Act $600 Unemployment Payments

The CARES Act legislation passed in late March 2020 included enhanced unemployment payments of $600 per week (Section 2104 of the Act). The Department of Labor, as part of Q&A guidance issued over the weekend on May 9, 2020, confirmed that part-time workers can be eligible to receive the extra $600 payments (Question A.4). The guidance also addressed other questions concerning payments, overpayments, recovery, and state reporting of the $600 payments (Federal Pandemic Unemployment Compensation).

Unemployment Rate Now at 14.7%. But the Real Rate May be Higher.

On Friday May 8, 2020, the Department of Labor Bureau of Labor Statistics released the unemployment rate for April 2020: 14.7%.  During the Great Depression, the unemployment rate is believed to have reached 25%. During the Recession which began in December 2007, unemployment topped out at 10% in October 2008. One note about the current 14.7% rate — experts question whether it captures the full level of unemployment as the circumstances of the pandemic mean that many who are currently not working are not in a position to “actively” seek work. Additionally, unemployment is not borne equally across all populations, posing particular challenges in some industries, regions, socio-economic groups, and communities.

Can Employers Bar At-Risk Employees from Returning to Work? EEOC Pulls and Revises FAQ on COVID-19

The Equal Employment Opportunity Commission pulled its Technical Assistance Q&A regarding “return to work” for employees whom the employer believes are at a higher risk for severe illness if they were to contract COVID-19. The original guidance posted on Tuesday May 5, 2020 indicated that an employer could exclude an employee from returning to work solely because the employee has an underlying condition placing that worker at higher risk for serious COVID-19 illness.

The revised guidance released on Thursday May 7, 2020, now provides that: “If the employer is concerned about the employee’s health being jeopardized upon returning to the workplace, the ADA does not allow the employer to exclude the employee – or take any other adverse action – solely because the employee has a disability that the CDC identifies as potentially placing him at “higher risk for severe illness” if he gets COVID-19.”  (Response to Question G4) (emphasis added).

An employer can only bar such an employee from returning to work if “the employee’s disability poses a ‘direct threat’ to his health that cannot be eliminated or reduced by reasonable accommodation.” (Response to Question G4)

SBA Updates on Round 2 of Paycheck Protection Program, but Loan Forgiveness Guidance Still Awaited

The Small Business Administration released a statement Sunday providing details on Round 2 of the Paycheck Protection Program (the loan/grant program for small businesses initially enacted in the CARES Act and then refunded through supplemental legislation, H.R. 266, a few weeks later). The joint statement from the SBA and Secretary of the Treasury Steven Mnuchin noted that in this second round of loans which began on April 27, 2020, over $175 billion has been disbursed through 2.2 million loans. The average loan size is now $79,000.

Responding to concerns that smaller lending institutions were closed out of the loan process in Round 1, the statement offers data on the lenders in this Round: “Nearly 500,000 of the loans were made by lenders with less than $1 billion in assets and non-banks.  These lenders include Community Development Financial Institutions, Certified Development Companies, Microlenders, Farm Credit lending institutions, and FinTechs.  Over 850,000 loans—about one third of the 2.2 million loans—were made by lenders with $10 billion of assets or less.”

Important questions remains, however, about exactly how these small businesses can ensure that the loans they are receiving through the Paycheck Protection Program qualify for loan forgiveness. These businesses and their advisors continue to await further guidance from the goverment. On Friday, the AICPA issued a statement urging immediate  guidance on these time sensitive questions for businesseses.

 

European Central Bank Announces New Monetary Policy Measures in the Face of COVID-19

On April 30, 2020, Christine Lagarde, President of the European Central Bank (ECB), announced new monetary policy measures in response to the economic crisis triggered by the COVID-19 pandemic. At an ECB press conference, Largarde first set the stage for further action, observing (at 8:30 minutes in): “The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime. Measures to contain the spread of the coronavirus (COVID-19) have largely halted economic activity in all the countries of the euro area and across the globe.”

After reviewing prior ECB action, Lagarde outlined (at 10:30 minutes in) new ECB steps including new incentives for bank lending: “Specifically, we decided to reduce the interest rate on TLTRO III [targeted longer-term refinancing] operations during the period from June 2020 to June 2021 to 50 basis points below the average interest rate on the Eurosystem’s main refinancing operations prevailing over the same period. Moreover, for counterparties whose eligible net lending reaches the lending performance threshold, the interest rate over the period from June 2020 to June 2021 will now be 50 basis points below the average deposit facility rate prevailing over the same period.” (See also Largarde’s written statement).

Unemployment claims for week ending April 25, 2020 at 3.839 million; running total for past 6 weeks tops 30 million

The Department of Labor released the unemployment claims statistics for the week ending April 25, 2020, reporting 3,839,000 new claims. This number marks “a decrease of 810,000 from the previous week’s revised level . . . [which had been revised upward] by 15,000 from 4,427,000 to 4,442,000. The 4-week moving average was 5,033,250, a decrease of 757,000 from the previous week’s revised average.” Over 30 million workers have filed unemployment claims during the past 6 weeks. Estimates for April 2020’s unemployment rate have prompted comparisons to peak rates during the Great Depression.