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.
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.”
The CBO has updated its economic projections through the end of 2021 to account for the 2020 coronavirus pandemic. The CBO estimates that the real (inflation-adjusted) GDP will contract by 11 percent in the second quarter of 2020, which is equivalent to a decline of 38 percent at an annual rate. Furthermore, the number of people employed in the second quarter of 2020 will be almost 26 million lower than the number in the fourth quarter of 2019. The CBO also considers the effects of recent legislation, noting that “greater federal spending and lower revenues will cause real GDP and employment to be higher over the next few years than they would be otherwise.” However, in CBO’s assessment, “as long as some degree of social distancing remains in place, the economic boost that might be expected from recent legislation will be smaller than it would be during a period of economic weakness without social distancing.”
The report — “Questions About the CARES Act’s $500 Billion Emergency Economic Stabilization Funds” — focuses on the CARES Act’s provision of $500 billion to the Treasury Department for lending to businesses and to state and local governments. Notably, it finds that “Treasury has not disbursed any of the $46 billion it can use to provide loans and loan guarantees to the airline industry and businesses critical to maintaining national security.” Furthermore, “the Treasury has only disbursed $37.5 billion of CARES Act funds, which were invested in the Fed’s Secondary Market Corporate Credit Facility.” The report sets forth a list of “general and specific questions” for the Commission’s future work.
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 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.
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.
The Congressional Budget Office has released preliminary estimates of the budgetary impact of the CARES Act, reporting that: “On a preliminary basis, CBO and JCT estimate that the act will increase federal deficits by about $1.8 trillion over the 2020-2030 period.” The CBO estimate includes:
• “A $988 billion increase in mandatory outlays;
• A $446 billion decrease in revenues; and
• A $326 billion increase in discretionary outlays, stemming from
emergency supplemental appropriations.”
On Wednesday April 15, 2020, U.S. Treasury Secretary Mnuchin and SBA Administrator Carranza announced that the Payroll Protection Program, introduced by the CARES Act has exhausted its $349 billion appropriation in fewer than 14 days, noting that “[b]y law, the SBA will not be able to issue new loan approvals once the programs experience a lapse in appropriations . . . .[and] urg[ing] Congress to appropriate additional funds for the Paycheck Protection Program . . . at which point we will once again be able to process loan applications, issue loan numbers, and protect millions more paychecks.”
The Department of Labor released the unemployment claims statistics for the week ending April 11, 2020, reporting 5,245,000 new claims. This number marks “a decrease of 1,370,000 from the previous week’s revised level [which had been revised upward] by 9,000 from 6,606,000 to 6,615,000. The 4-week moving average was 5,508,500, an increase of 1,240,750 from the previous week’s revised average.”
An updated version of the Working Paper, Regulating in Pandemic: Evaluating Economic and Financial Policy Responses to the Coronavirus Crisis by Hiba Hafiz, Shu-Yi Oei, Diane M. Ring, and Natalya Shnitser has been posted. The Working Paper is revised and updated to incorporate the CARES Act (H.R. 748) as well as recent action by the Federal Reserve, the Department of Labor, and other agencies.
The Department of Labor just released statistics for Unemployment Claims for the week ending April 4, 2020 revealing 6,606,000 new claims. This number marks “a decrease of 261,000 from the previous week’s revised level [which had been revised] upward by 219,000 from 6,648,000 to 6,867,000. The 4-week moving average was 4,265,500, an increase of 1,598,750 from the previous week’s revised average.”
Over the past two weeks, the federal government has unleashed a series of new programs providing business loans, refundable tax credits, direct payments to Americans, and enhanced unemployment compensation — all in an effort to begin to manage the fallout from the COVID-19 crisis. In the midst of this flurry of legislative action and program rollouts, the GAO has issued a report detailing patterns of improper payments (estimated at almost $175 billion for fiscal year 2019) across 6 federal agencies. Although the report includes recommendations, some targeted and some more general, it seems unlikely that these agencies (or others looking on) can quickly learn from the analysis and modify systems as they race to distribute funds in an economic crisis. Moreover, in a time of constrained personnel resources due to COVID-19, stay-at-home orders, and overwhelming demand, agencies may find their ability to execute accurate delivery even more constrained than in the past.