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.
The CARES Act provides favorable tax treatment for coronavirus-related distributions of up to $100,000 to qualified individuals from their eligible retirement plans. Such distributions are not subject to the 10% additional tax otherwise generally applicable to distributions made before age 59 ½. The CARES Act also permits coronavirus-related distributions to be included in income in equal installments over a three-year period. Qualified individuals who take such distributions have three years to repay and undo the tax consequences of the distributions. The CARES Act also permits retirement plans to suspend certain plan loan repayments and temporarily increases the dollar limit on plan loans from $50,000 to $100,000. Notice 2020-50 expands the definition of a qualified individual to include additional factors such as reductions in pay, rescissions of job offers, delayed start dates, and being unable to work due to lack of child care due to COVID-19. The latest IRS guidance also permits factors such as adverse financial consequences to an individual arising from the impact of the COVID-19 coronavirus on the individual’s spouse or household member.
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.
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.”
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.”
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.
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 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.
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.