economic development

The latest news and legislative activity affecting economic development

July 29, 2020
Legislative Updates

COVID-19 Package

Senate Majority Leader Mitch McConnell (R-KY) has a new plan for COVID-19 response that is coming two months after the Democratically controlled House passed its own $3 trillion rescue package. It includes cutting supplemental unemployment benefits to $200 weekly from $600 weekly until states are able to create a system that would offer 70% of a laid-off worker’s previous pay up to a state-set limit. The package includes $105 billion to help schools adapt for children to return to the classroom; $16 billion in grants to states for testing, contact tracing, and surveillance; and $20 billion for vaccine, therapeutic and diagnostic development; $20 billion to assist America’s farmers and ranchers who have suffered as a result of the pandemic; nearly $30 billion to protect our nation’s military and defense industrial base; and another round of Paycheck Protection Plan loans limited to businesses with no more than 300 employees, coming down from the 500-worker limit originally set in the third coronavirus stimulus bill passed in March and limiting loans to businesses that have lost at least of 50% of revenue compared to a previous year’s quarter. This plan also covers protections for businesses and health workers to prevent coronavirus-related lawsuits.

The unemployment benefit adjustment is due to all states currently offering close to 50% wage replacement. In this plan, the federal government would make up the difference to bring a recipient’s wage up to the 70% level once the transition is complete. Speaker Pelosi (D-CA) and others have rejected cuts to the $600 level and have called for negotiations to start on a bipartisan solution immediately. The problem is many Republicans argue that some people work less when they get $600 a week in expanded unemployment insurance benefits from the government because it is higher than their wages, but a new Yale University study finds no evidence of that happening. Another problem is some people aren’t receiving their benefits as states’ unemployment agencies have been so swamped with claims – leaving more than $100 billion of benefits unpaid, according to the Departments of Treasury and Labor.

Leading up to the latest plan, the Chamber of Commerce asked Congress to make a variety of changes to the Paycheck Protection Program, including extending the deadline and making the loans available to trade groups; to shore up the Economic Injury Disaster Loan program; to bolster the Employee Retention Credit; to set aside money to help schools reopen safely; to extend federal unemployment benefits passed in March but pare them down from the current amount of $600 a week; and to provide help to state and local governments, which Democratic lawmakers have championed for months. It also responds to the U.S. employment dropping by 4.1 million from the first week to the second week of July. Last week also marks the 18th week in a row that unemployment claims were more than twice of the worst week during the Great Recession. Consumer spending continues to decline, particularly in states like California and Texas where COVID-19 rates are spiking. While airline bookings increased at the end of June, as COVID spikes continue to rise, bookings have begun to decline, and cancellations have increased.

Another challenge to rejuvenating the economy is the country’s budget gap that expanded to $864.1 billion in June, reflecting a record $1.1 trillion in outlays largely tied to a surge in spending by the Small Business Administration for the Paycheck Protection Program. The nation’s deficit in the first nine months of the current fiscal year totaled $2.7 trillion—nearly three times as big as the shortfall registered for all of fiscal 2019. Perhaps some funding gaps can be filled by millionaires. About 80 millionaires across the globe calling themselves the Millionaires for Humanity, including Walt Disney heiress Abigail Disney, former BlackRock managing director Morris Pearl, and entrepreneur Djaffar Shalchi, are now pushing for higher taxes on the rich to help pay for the billions in new government relief programs made necessary by the coronavirus.

Nonprofit Relief

Earlier in July, the House passed a measure (S. 4209) that was introduced by Senator Tim Scott (R-SC) and had already passed the Senate to provide coronavirus relief to nonprofit groups and state, local and tribal governments. The bill would ease cash flow problem caused by Labor Department regulation requiring 100% payment of unemployment contributions for furloughed staff before aid can be received. It would reset it to 50%. President Trump is expected to sign it into law.

Business Relief

The Main Street Lending Program, targeting mid-sized and larger businesses, faced significant criticism due to its sluggish start. It is now issuing an additional $2 million in emergency loans to struggling U.S. businesses and recently adjusted its qualifications to include nonprofit organizations. For the smaller businesses, on June 5, President Trump signed the Paycheck Protection Program (PPP) Flexibility Act into law. While the law does not include all of the provisions for which small businesses were hoping, including continual exclusion of VC- and PE-backed companies, it did provide some relief provisions for PPP beneficiaries. The law:

  • Expands the period of loan forgiveness from eight weeks to 24 weeks after issuance of the loan
  • Reduces the minimum requirements of loan use toward payroll costs from 75% of the loan to 60%
  • Allows companies with PPP loans to defer their payroll tax payments
  • Includes two new exceptions let borrowers obtain full forgiveness even without fully restoring their workforce.
  • Changes made by the PPPFA have been incorporated in new forgiveness applications released by the SBA.
  • Extends time to pay off the loan to five years instead of the original two.

Childcare

House leadership fast-tracked consideration of two measures addressing childcare, skipping committee-level consideration because of the COVID-19 pandemic. The House passed the Child Care Is Essential Act (HR 7027) and the Child Care for Economic Recovery Act (HR 7327) that address what both Republicans and Democrats have called for more investments in the childcare industry because workers can’t return without safe childcare.

May 26, 2020
Legislative Updates
Taxes

The IRS expects to tell some employees in Kentucky, Texas, and Utah to return to their worksites starting June 1. Certain employees, including those at a higher risk of serious health complications from COVID-19 and those who can work from home won’t be subject to the latest recall, which will affect about 11,000 employees in the three states. The action moves beyond the agency’s previous call for volunteers to staff offices amid the pandemic. The agency previously offered incentive pay to employees who were willing to voluntarily return to their office to perform tasks such as opening mail, processing paper tax returns, and taking phone calls.

Regulations

Trump signed an executive order last week directing federal agencies to ease up on businesses that make good-faith attempts to follow agency guidance and regulations during the coronavirus pandemic. The extent to which the order would provide protection for businesses against pandemic-related liability would be limited as legislation would be needed to guard against lawsuits, but it would shield companies from fines for civil regulatory violations. With around 38 million people filing for unemployment, the administration is aiming at other means to help businesses keep workers employed and stay afloat during the pandemic. While it addresses business community demands, it leaves the more complicated task of negotiating greater liability protections for businesses to Congress as it works on the next coronavirus legislative package in the Republican-controlled Senate.

Small Business Aid Extension

On May 21, the Senate voted under unanimous consent for the Small Business Lending Continuity Act, led by Senator Marco Rubio (R-FL), Chairman of the Senate Committee on Small Business and Entrepreneurship, and Senators Tammy Duckworth (D-IL), Chris Coons (D-DE) and James Risch (R-ID). The bill would fix an error in the CARES Act that inadvertently results in the SBA’s flagship 7(a) Loan Guarantee Program shutting down whenever the newly-created Paycheck Protection Program (PPP) runs out of funding. If left unfixed, SBA’s 7(a) Loan Guarantee Program’s FY2020 $30 billion authorization cap would be void until July 1, 2020. The program runs the risk of shutting down if PPP reaches its authorization cap of $310 billion. The bill is now under consideration in the House, which plans to vote on related legislation that extends the length of time PPP dollars can be used.

The House will vote after Memorial Day on the Paycheck Protection Flexibility Act, which was introduced by Reps. Dean Phillips (D-MN) and Chip Roy (R-TX). The legislation responds to companies requesting the ability to use the funds for rent and other expenses and expressing concerns about running out of money to pay employees. Most of all, this legislation changes the program’s original intent from keeping workers on small business payrolls to helping the companies themselves recover from the crisis and endure the economy’s slow re-opening. It has bipartisan support and would:

  • Extend the period businesses need to use their loan funds to qualify for forgiveness from 8 to 24 weeks
  • Allow businesses to rehire employees and qualify for loan forgiveness under the program beyond the existing June 30 deadline
  • Extend the period for paying back portions of the loans that aren’t forgiven beyond two years because although the law that created the program allowed the loan terms to be up to 10 years, SBA instead put a two-year due date on them
  • Eliminate the “75-25 rule” implemented by the administration that says businesses have to spend at least 75% of the loan on payroll costs and no more than 25% on other expenses like rent and utilities
  • Ensure businesses obtaining money under the program can defer payroll taxes under the Families First Coronavirus Response Act (FFCRA), eliminating a restriction on “double dipping” imposed by that law

After initial delays, most of the small business that applied for the PPP have now received funding. However, according to a new survey, many are struggling to meet the strict criteria to turn the loans into grants. A National Federation of Independent Business poll revealed 75% of businesses that received PPP loans found it very or somewhat difficult to understand its terms and conditions, and almost 40% reported that it would be difficult to spend the required 75% of the proceeds on payroll.

Stimulus Talks

While many agree on the need for stimulus legislation, they differ widely on details. The U.S. Chamber of Commerce is backing proposals for aid to state and local governments but Republicans fear the additional aid could delay re-openings, and instead want to see how state and local governments will use funds that have already been appropriated. Treasury Secretary Steve Mnuchin said Congress will likely need to pass more stimulus legislation, although not immediately. Mnunchin also added that the U.S. Postal Service may not need the $10 billion loan that Congress originally appropriated due to an increase in business. Senate Majority Leader Mitch McConnell (R-KY) wants to wait and see how the economy looks in late June/July and determine the best package then.

Main Street Lending

The economic hardship in the U.S. is projected to last at least through June as the country copes with the coronavirus hardship. Since more than 38 million Americans have already reportedly filed for unemployment, President Trump’s economic advisors warn that the economy could shrink another 40% for the second quarter through June. A bipartisan congressional oversight panel concluded that the U.S. Federal Reserve bank has dragged the launch of the Main Street Lending Program for small businesses. After the central bank received over 2,000 comments between April 9 – April 30, it announced broadening the program to include more businesses. Fed Chair Jerome Powell disputed the notion that the central bank could be moving more quickly and says the lending program will be operational by early June. The oversight panel wants to ensure lending programs benefit small and medium-sized business most in need, and the Fed emphasized that participants should make reasonable efforts to refrain from laying off workers.

Economic Hits on Airports and Produce

Airports across America had 2.5 million fewer operations amid the pandemic. In April alone, flights into and out of the 520 U.S. airports with air-traffic towers fell 54.5% compared with the same month last year, according to Federal Aviation Administration data. Meanwhile, produce companies that go between farmers, restaurants and schools, lost 80% of their business overnight due to the coronavirus and subsequent shutdown of operations. Distribution companies continue to struggle and are seeking government funding relief, similar to what has been provided to others along the agricultural supply chain.

March 25, 2020
Legislative Updates

See above on coronavirus response for details.

In addition to the enacted funding for employers to provide paid leave and the Small Business Administration declaring disaster states to enable low-interest loans, more tax cuts and incentives are expected in the next coronavirus legislation. The Small Business Administration (SBA) has accepted COVID-19 disaster applications for Ohio, Virginia and Massachusetts (along with about half the states at this point) to enable small businesses/nonprofits/entrepreneurs to seek up to $2 million in low-interest disaster relief loans. President Donald Trump has also invoked the Defense Production Act to fire up the manufacture of critical equipment in the fight against the coronavirus to address the shortage in masks, ventilators and related equipment needed to respond to COVID-19.

Economic Development Administration:
The Economic Development Administration (EDA) is launching a redesign of their Regional Innovation Strategies (RIS) program. With a 40% budget increase and recent reauthorization the new program will be called Build to Scale (B2S) and embrace a streamlined application process. Congress appropriated $33 million for the program in FY20. To date, this program has run six national competitions, soliciting more than 1,300 proposals from across the country and awarded $100 million in grants that have been matched by more than $115 million in community funding for 224 projects.  

The redesign will:  
• Modernize the branding and language to better reflect the spirit of the entrepreneurship-communities the program serves
• Increase exposure and applications, including those from underserved communities
• Create a more customer friendly Notice of Funding Opportunity that will lead to better stakeholder engagement.    

New OMB Chief:
Vought Tapped as Permanent OMB Chief: Trump nominated deputy budget director Russell Vought to head the White House’s Office of Management and Budget, a position Vought has held in an acting capacity for more than a year. The vacancy was created after Trump announced on March 6 that acting Chief of Staff and OMB Director Mick Mulvaney would become U.S. special envoy for Northern Ireland, while Rep. Mark Meadows (R-N.C.) would become his new chief of staff. Mulvaney as OMB chief joined the White House as acting chief of staff, yet retained his OMB title. In practice, however, Vought handled the day-to-day operations of OMB.