The U.S. House of Representatives has just joined the Senate in passing the $2 trillion COVID-19 “Phase 3” relief bill, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The bill will soon be sent to the president and signed into law and the administration will launch the massive effort to implement its provisions over the coming weeks. In addition to ensuring the federal government has the funding it needs to defeat COVID-19, the package is meant as an economic stimulus to ease the strain of the pandemic response by injecting hundreds of billions of dollars directly into distressed industries, small businesses and unemployment benefits
The efforts to inject liquidity into struggling businesses and prevent large-scale unemployment is accomplished through loans and loan guarantees, targeted tax relief, incentives to maintain employment, broadened unemployment benefits and direct payment to individual tax payers.
As a critical aspect of this package is to bolster an economy jolted by the pandemic, there are numerous provisions that will have far-reaching impacts on the business community. The following is a summary of some of the key aspects of the package.
Title I focuses on supporting small businesses primarily through a $349 billion loan program to help small businesses cover payroll and other expenses. Borrower, lender and certain other fees would be waived for participation in the program, rates would be set at 4% and the federal government guarantee on these loans would be increased (based on loan size). Forgiveness of the amounts of this debt used to cover payroll during the current economic downturn is meant to give a government-secured incentive to maintain the current workforce.
Title II provides a significant boost to unemployment insurance across the board. The package creates a temporary Pandemic Unemployment Assistance program through the end of 2020 to capture workers who are not traditionally eligible for unemployment but who are affected nonetheless. Title II extends unemployment insurance for 13 weeks for workers who exhaust their underlying benefits and provides a temporary additional $600 per week boost to filers.
For businesses, Title II provides a payroll tax credit of 50% for wages paid during the COVID-19 crisis while delaying payment of payroll taxes. Additional flexibilities are afforded companies through relaxation or waiving of requirements related to net operating losses, corporate Alternative Minimum Tax credits, limitations on business interest as well as qualified investment property.
Title IV focuses on providing industry relief and freeing up capital to ensure the economy can still function in the short term. It provides financial tools to support particularly hard-hit industries, flexibility for banks and financial institutions to deal with a rapidly evolving environment, and tools for the federal government to ensure the supply of critical materials.
Specifically, the proposal authorizes a $500 billion Coronavirus Relief Fund to provide financial support to struggling industries, including the passenger and air cargo industries as well as those “critical to national security.” In addition to financial support, the airline industry would see relief from certain taxes but be required to maintain regular flight schedules and access as is practical.
Title IV also temporarily waives requirements to the FDIC, the Federal Reserve Board, the Comptroller of the Currency and the National Credit Union Administration to help alleviate credit concerns. The bill sets the Community Bank Leverage Ratio at 8% and expands the administration’s authority to use the Defense Production Act to help bolster supplies of resources critical to battling the pandemic.
As important as the language of the package is, the upcoming implementation and the economic response will be critical to watch to understand what additional actions Congress and the executive branch may take. Conversations about additional stimulus have already begun on Capitol Hill. Both the House and Senate are now in recess until after the projected mid-April peak in domestic COVID-19 cases. They will continue conferring with the Treasury Secretary on the effectiveness of these programs and the potential needs for more action to support certain communities and sectors of the economy.