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).
The new guidance clarifies the terms of the $500 billion lending program for state and local governments. The Municipal Liquidity Facility will be available to U.S. states and the District of Columbia, U.S. cities with a population exceeding 250,000 residents, U.S. counties with a population exceeding 500,000 residents, and certain multi-state entities. The new guidance sets forth revised eligibility criteria, including the requirement that eligible issuers that are not multi-state entities must have been rated at least BBB-/Baa3 as of April 8, 2020 by two or more major nationally recognized statistical rating organizations. The term sheet also sets out pricing details. Pricing will be at a fixed interest rate based on a comparable maturity overnight index swap rate plus the applicable spread (ranging from 150 to 590 basis points) based on the long-term rating of the security for the eligible notes.
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.
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)
The new guidance extends deadlines that affect participants’ rights to healthcare coverage, portability, and continuation of group health plan coverage under COBRA. Among other changes, the guidance extends the normal 60-day period to elect COBRA continuation coverage and the date for making COBRA premium payments by the length of the “Outbreak Period,” which is defined as the period from March 1, 2020, until 60 days after the announced end of the national emergency due to COVID-19 or such other date announced by the agency. The guidance also extends the timeframe for special enrollment in a group health plan under HIPPA, and the timeframe for participants to file benefit claims or appeals of denied claims.
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.
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).
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.
Section 2102 of the CARES Act established a temporary federal program called Pandemic Unemployment Assistance (PUA) that provides up to 39 weeks of unemployment benefits, and provides funding to states for the administration of the program. An individual receiving PUA benefits who meets certain eligibility requirements may also receive the $600 weekly benefit amount under the Federal Pandemic Unemployment Compensation (FPUC) program. The April 27 guidance from the Employment and Training Administration provides states with additional instructions and FAQ guidance for implementing the emergency unemployment relief. The FAQ provides, for example, that an individual who “refuses to return to work when called back by the employer because he or she wanted to receive unemployment benefits” is not eligible for PUA. Furthermore, the FAQs provide that once the regular 2019-2020 school year is over, individuals eligible for PUA as primary caregivers for children unable to attend school should rely on “their customary summer arrangements for caring for their children.” Absent “some other qualifying circumstances,” such individuals will not be eligible for PUA once the school year has ended.
The Municipal Liquidity Facility (MLF) will provide up to $500 billion in lending to states and municipalities to help manage cash flow stresses caused by the coronavirus pandemic. The expanded scope permits purchase of short-term notes issued by U.S. states and counties with a population of at least 500,000 residents, and U.S. cities with a population of at least 250,000 residents. The reduce population thresholds permit substantially more entities to borrow directly from the MLF. The expansion also permits certain multistate entities to participate. The termination date for the facility has been extended to December 31, 2020.
This afternoon, H.R. 266, the Paycheck Protection Program and Health Care Enhancement Act, became law. The new legislation adds $310 billion of new funding to the Payroll Protection Protection Program (the small business loan/grant program) introduced in the CARES Act, which ran out of funds in under two weeks. In addition, the new legislation allocates $75 billion for health care related costs, and $25 billion for testing.
The guidance seeks to address borrower and lender questions concerning the implementation of the Paycheck Protection Program (PPP), established by section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act or the Act). The additional guidance as of April 23rd seeks to clarify whether “businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan.”
The Joint Committee on Taxation released its explanation of the CARES Act on Wednesday April 22, 2020, and includes an appendix with the estimated revenue effects originally prepared on March 26, 2020.
The Department of Labor released the unemployment claims statistics for the week ending April 18, 2020, reporting 4,427,000 new claims. This number marks “a decrease of 810,000 from the previous week’s revised level . . . [which had been revised downward] by 8,000 from 5,245,000 to 5,237,000. The 4-week moving average was 5,786,500, an increase of 280,000 from the previous week’s revised average.”
Estimates suggest that “[e]merging markets and developing countries have about $11 trillion in external debt and about $3.9 trillion in debt service due in 2020.” A Brookings Institution posting highlighting these numbers argued that the debt problem is not limited to a few countries: “One indication that the problem is widespread is that already 90 countries have approached the IMF to access emergency financing instruments. It seems clear that this is not just a low-income or an African country problem.” The posting advocates immediate, comprehensive and coordinated action. The major global financial players share similar concerns. At their April 15, 2020 virtual meeting, G20 Finance Ministers and Central Bank Governors agreed, among other actions, to suspend debt service for the poorest countries. The World Bank and IMF have announced their own relief actions. Others have advocated stronger relief measures including cancellation, not merely suspension of certain debt payments.