%1

A congressional commission charged with supervising hundreds of billions of dollars in emergency lending programs for businesses and municipalities provided a blueprint on Monday for where it will focus its oversight efforts, Politico reported. Among the more than 50 questions posed in its first report, the bipartisan panel pressed the Federal Reserve and Treasury Department on how they will measure the success of those lending programs — almost none of which have yet started. “If the agencies use economy-wide metrics, like GDP growth, unemployment rates, or wage growth, how will they isolate the effects of this program from other factors, including other federal and state relief measures?” the four-member commission, which does not yet have an appointed chair, asked. “If the agencies use more narrow metrics, like [company borrowing costs], how will they assess how changes in those metrics affect the broader economy, including the financial well-being of the people of the United States?” they added. While the massive bailout is a centerpiece of the government's efforts to rescue the economy from the coronavirus crisis, Treasury has not begun lending to airlines and businesses important to national security, though it has received applications. Commission reports are required every 30 days on the progress of the Fed and Treasury in carrying out lending to businesses and municipalities. The current members are Sen. Pat Toomey (R-Pa.); Bharat Ramamurti, a former aide to Sen. Elizabeth Warren (D-Mass.); Rep. Donna Shalala (D-Fla.) and Rep. French Hill (R-Ark.).

The U.S. Justice Department has sent grand jury subpoenas to big banks seeking records as part of a broader investigation into potential abuse of a $660 billion emergency loan program to help small businesses hurt by the novel coronavirus, Reuters reported. The previously unreported subpoenas issued by the department’s Washington fraud division do not necessarily indicate wrongdoing on the part of the banks, but will compound growing worries among lenders that they risk being swept up in a federal crackdown on Paycheck Protection Program fraud. The program allows small businesses hurt by the pandemic to apply with lenders for a government-backed loan which can be forgiven provided at least 75 percent is spent on payroll costs. Policymakers worry that the huge pot of cash has been a magnet for fraudsters, and U.S. Treasury Secretary Steven Mnuchin has warned that companies found to have lied to secure loans could face prosecution. The Justice Department opened a probe into the program last month and has already brought criminal charges against borrowers it alleges lied about the state of their businesses and numbers of employees.

Buried in debt, Eric Brown used to worry that one of his lenders would arrive at his worksite and repossess a piece of heavy machinery he uses to lay utility cables underground. His company, Brown Bros. Telecom & Utility in Dalton, Ga., filed for bankruptcy March 13 after collecting less money than expected on a completed project. But to his surprise, getting a fresh financial start has been easier than he thought, thanks to a new law meant to make the process cheaper and faster while helping owners retain their ownership, the Wall Street Journal reported. “It’s been an absolute game-changer,” said Brown. “And so far, it’s kept me working.” The problems facing Brown’s company predated the economic fallout from the coronavirus pandemic, but attorneys and others who work with small businesses say that the timing will be a big help to companies that have seen their revenue decline amid government-imposed restrictions to slow the spread of the virus. The new rules became law in August last year following bipartisan legislation from congressional lawmakers who relied on recommendations from two legal advisory groups, the National Bankruptcy Conference and the American Bankruptcy Institute. The Small Business Reorganization Act’s changes took effect on Feb. 19, and so far about 350 small businesses are using the new process, according to the U.S. Department of Justice. As part of the rules change, companies must file debt repayment plans more quickly, which is aimed at preventing bankruptcy attorneys from dragging out the process to boost their fees. Small businesses no longer need to pay Justice Department fees or file a formal disclosure statement, a legal document that lawyers charge thousands of dollars to write up. It also gives small-business owners access to a court-appointed financial expert to help fix their problems. The law originally applied to companies with about $2.7 million in debt. In March, Congress raised that limit to $7.5 million for 12 months as part of a sweeping stimulus bill aimed at helping businesses cope with the coronavirus.

The Treasury Department on Friday made it slightly easier for small-business owners to avoid having to repay government-backed loans they took out under a program designed to keep them from laying off employees and permanently closing, the New York Times reported. Officials released a term sheet to guide borrowers on how to convert their Paycheck Protection Program loans into grants. The terms appeared to ease a requirement that businesses rehire a certain percentage of their employees in order to obtain forgiveness. But they did not do away with a requirement that many businesses found onerous: At least three-quarters of the money must be spent on payroll expenses and the rest on rent and utility bills. Many small businesses faced a quandary after receiving the loans: Despite having cash, they had to remain closed. There were plenty of expenses the money could go to, such as retooling their interiors to accommodate social distancing or making other, overdue payments. But the law said that they had to spend the money paying employees, even if there was no work for them to do. And when employees turned to state unemployment benefits — with an extra $600 a week injected by the federal government’s $2 trillion CARES Act package — many found it was financially better to be out of work than to return to work. Many small businesses were wondering whether the loans they had gotten would be forgiven after all or — in the worst case — whether the federal authorities would eventually accuse them of fraud. Friday’s guidelines said businesses that had to lay some employees off and were unable to rehire them could still get forgiveness as long as the layoffs occurred early on during the lockdowns. Combined with a safe-harbor provision that frees businesses that took out smaller loans from the worry of an audit, the guidance could solve a significant problem for many owners. Earlier this week, federal officials said they would take business owners at their word for loans under $2 million. Read more. 

In related news, lawmakers and government officials are preparing to make significant changes to the Paycheck Protection Program, amid cooling demand for government-backed loans and criticism from business owners who say they can’t tap the funds, the Wall Street Journal reported. The changes are likely to include giving businesses more flexibility to spend the money, according to lawmakers and others following the deliberations. Under the original terms, 75 percent of the funds were required to be spent on employee salaries for the loans to be forgiven. The government also is expected to extend the time to spend the loan money beyond the two months it originally set. Both changes follow complaints from restaurants, hair salons and others who say they can’t hire back staff while they are closed during the coronavirus pandemic and need more money to cover their overhead costs. The steps being considered will mean a shift in the program’s focus — from one that was primarily aimed at keeping employees on the payroll, to also helping to keep small businesses from failing. Change is being driven in part by cooling demand for loans, which business advocates say reflects an inability of companies to use the money. The initial tranche of $350 billion in loans ran out April 16, after about two weeks. But three weeks after the second $310 billion tranche of funding was opened up, about 37 percent of the funds remained available, according to figures on the SBA website. “Liberalizing the rules by lowering the requirement to spend 75% on payroll-related costs and/or extending the time frame that funds can be used is critical for the survival prospects of millions of small businesses, and the ultimate success of this program,” said Ann Marie Mehlum, a former top SBA official and senior adviser at FS Vector, a financial advisory firm. Read more. (Subscription required.) 

As the Democratic-run House of Representatives approved its $3 trillion coronavirus relief bill on Friday night, analysts are saying it’s likely that President Donald Trump will end up signing a new aid package into law next month or later following extensive negotiations, MarketWatch.com reported. The House’s 1,815-page bill, dubbed the HEROES Act, calls for almost $1 trillion in additional aid for state and local governments, a second round of direct payments to American households and $200 billion for “hazard pay” for essential workers. The measure also incorporates a cannabis-banking bill, and it would roll back a cap on state and local tax (SALT) deductions and make changes to the federal government’s new Paycheck Protection Program for small businesses, such as eliminating a rule that requires that 75 percent of a PPP loan’s proceeds go toward payroll expenses. “We expect that negotiations over a finalized version of the Phase 4 bill will take at least until the end of May,” said Height Capital Markets analysts in a note. “We expect a final package to come together successfully but note that passage will likely be delayed into June.” Henrietta Treyz, director of economic policy at Veda Partners, said in a note that the next package is likely to have a final price tag of between $1 trillion and $1.5 trillion, and “it will now come in June at the earliest.” Senate Majority Leader Mitch McConnell has repeatedly stressed moving slowly on the next package and often criticized the House Democrats’ approach. But the White House probably would support another round of direct payments, according to a CNBC report on Thursday citing two Trump administration officials. The next package would follow last month’s $484 billion measure that has been described as a “Phase 3.5” response to the coronavirus crisis. It also comes after the $2.2 trillion CARES Act that passed in late March, a mid-March package costing an estimated $192 billion, and an $8 billion measure that was finalized in early March. 

The owners of restaurants, bars and other establishments in Illinois that open too soon can now be charged with a Class A misdemeanor under a measure enacted by the governor, the New York Times reported. Gov. J.B. Pritzker (D) filed an emergency rule on Friday that his office said was intended to prevent the spread of the coronavirus as a growing number of businesses defy stay-at-home orders across the country. In Illinois, where a stay-at-home order remains in effect through May, a Class A misdemeanor carries a punishment of up to a year in jail and up to a $2,500 fine. The rule also applies to businesses such as barbershops and gyms, according to Pritzker’s office. As of Sunday, 4,177 people had died from Covid-19 in Illinois, according to state health officials, and there have been 94,191 confirmed cases of the virus.

The White House has threatened to veto a $3 trillion coronavirus relief bill that House Democrats hope to bring up for a vote on Friday, UPI.com reported. Known as the HEROES Act, the legislation Democrats unveiled on Tuesday aims to funnel money to state and local governments to address issues that were not included in previous measures and increase funding for the U.S. Postal Service. Since it was announced, Republicans have balked at the package, deriding it as a partisan move filled with expenses unrelated to the coronavirus pandemic, a notion the White House repeated Thursday in its letter to the House of Representatives. "This proposed legislation, however, is more concerned with delivering on longstanding partisan and ideological wishlists than with enhancing the ability of our nation to deal with the public health and economic challenges we face," the Trump administration said. "If H.R. 6800 were presented to the president, his advisors would recommend that he veto the bill." In late March, President Donald Trump signed a more than $2 trillion COVID-19 bailout package, and Senate majority leader Mitch McConnell, R-Ky., said instead of working on a new bill focus should now be on maximizing the effects of the first package. "We now have a debt the size of our economy," McConnell said. "So I've said, and the president has said as well, that we have to take a pause here and take a look at what we've done."