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As the coronavirus crisis drags on and the timeline for a vaccine remains uncertain, U.S. households and small businesses are rapidly running out of money, according to new federal data released yesterday, the Washington Post reported. Low-wage workers who had little in savings to begin with have been some of the hardest hit by shutdowns at hotels, restaurants, stadiums, gyms, bars and many other businesses, Federal Reserve data show. As a result, many are struggling to pay their bills, even with government aid. It is a similar story for small businesses. About half will be out of cash within a month, according to a separate release from the Census Bureau. While the federal government has moved swiftly to provide emergency loans and grants to small businesses, many owners have told the Washington Post the grants came with too many strings attached. Others say they worry about taking on loans when they do not know how long they will be closed or operating at half-capacity.

Many small doctors’ practices are struggling to survive as many patients shelter at home and put off consultations for all but the most urgent issues, the Washington Post reported. Although they’re still ministering to patients amid a health crisis, they’ve been unable to get loans under the Paycheck Protection Act, passed as part of the coronavirus relief package in late March. A survey done by a Richmond-based advocacy group for primary care doctors, called the Larry A. Green Center, found that half the doctors who sought such loans were unsuccessful. Of 2,774 doctors who responded to the survey, 19 percent said they had to temporarily close their practices because of financial problems; 42 percent had to lay off or furlough staff. About 10 percent say they will have to close in the next month because of financial shortfalls. Some are angry their plight has been ignored by federal lawmakers while cash-starved hospitals are slated to receive $100 billion in government relief. About $3.9 billion of that pool has gone to practices with 10 or fewer clinicians, according to the American Academy of Family Physicians, but it has generally paid out far less than the Small Business Association loans.

Republicans universally rejected a $3 trillion stimulus measure drafted by House Democrats to bolster the U.S. economy, but the draft plan has the seeds for an eventual, smaller compromise, Bloomberg News reported. With House Speaker Nancy Pelosi (D-Calif.) pushing the House toward a Friday vote on the Democratic package, a Senate Republican aide said that Majority Leader Mitch McConnell (R-Ky.) doesn’t plan to move on any GOP alternative until June at the earliest. The framework for a compromise — probably still weeks away — likely will be built on state and local government aid, expanded tax breaks and legal protections for businesses and assistance for unemployed workers. There are several pressure points looming that will increase the stakes, including expiring pandemic unemployment insurance and Paycheck Protection Program provisions at the end of July, and the Sept. 30 ending of grant funding for airlines, as well as the fiscal year. Republicans are counting on the lifting of lockdowns in many states along with the previous stimulus money still flowing out to juice the economy enough that another big spending package won’t be necessary. That aligns them with President Donald Trump, who has said he’s in “no rush” for another stimulus package. Treasury Secretary Steven Mnuchin, who was a linchpin in the negotiations that produced the previous stimulus bills, dismissed the Democratic bill and said that both sides should spend the next 30 days assessing how well those earlier efforts are working. Federal Reserve Chairman Jerome Powell yesterday urged Congress to keep spending in order to avoid long-term damage. “Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery,” he said. Read more.

The “Health and Economic Recovery Omnibus Emergency Solutions Act” (HEROES Act), introduced on May 12 by Rep. Nita Lowey (D-N.Y.), is the latest legislative spending package aimed at stabilizing the economy amidst the COVID-19 pandemic. In addition to providing funding for states, localities and territories to pay essential workers, conduct additional testing and provide an additional round of direct payments to households, the legislation has included a few bankruptcy provisions. According to the bill summary:

• Sec. 20104 protects Economic Impact Payments from any form of transfer, assignment, execution, levy, attachment, garnishment, legal process, bankruptcy or insolvency law, and any other means of capture prohibited for payments made under Chapter 7, Subchapter 2, of the Social Security Act.

• Section 90001 (c) makes a technical clarification to ensure that hospitals in bankruptcy still qualify for PPP loans due to the essential nature of their operations.

• Sec. 110203 extends and expands the eviction moratorium and foreclosure moratorium in the CARES Act to include all renters and homeowners, improves the forbearance provided under the CARES Act, and specifies the loan modifications and loss mitigation that should be available to homeowners following a moratorium to prevent any homeowner from facing a lump-sum payment that they cannot afford. Additionally, this section protects federal relief payments from being taken in bankruptcy proceedings, ensuring that homeowners in bankruptcy proceedings can participate in the mortgage forbearance program created by the CARES Act and other COVID-19 mortgage assistance; increases the amount of home equity protected in the bankruptcy process to $100,000; makes it easier for homeowners to exit bankruptcy so they can resume normal economic activity and continue paying off their mortgages; and opens up chapter 13 to more homeowners and small businesses by raising the limits for debt to qualify for a bankruptcy through chapter 13.

Click here for the bill text.

Click here for the bill summary.

After learning that some small businesses received less than they asked for under the Paycheck Protection Program, three Democratic Senators want more scrutiny of the banks, the New York Times reported. In a letter to Treasury Secretary Steven Mnuchin and Small Business Administrator Jovita Carranza on Wednesday, three members of the Senate Banking Committee asked for more oversight of banks making loans under the Paycheck Protection Program. The program is designed to provide forgivable loans that help small businesses pay their employees and some of their overhead during the coronavirus lockdowns. But some business owners are saying that they had not received as much money as they had asked for, and said they had been told that the decision was made by the banks — not the Small Business Administration, which is funding the program. “Whether inadvertent or intentional, this troubling report warrants a response from your agencies,” the senators, Sherrod Brown of Ohio, Robert Menendez of New Jersey and Tina Smith of Minnesota, wrote in the letter. Treasury rules say that for Paycheck Protection Program loans to be forgiven, businesses must spend the money in precise ways, including rehiring a certain portion of their employees. If the amount they receive isn’t enough to rehire enough employees, their loans cannot be forgiven. The senators asked Mnuchin and Ms. Carranza to offer those borrowers options for getting additional funds to cover the gap. They also asked whether the officials had a plan for identifying which borrowers had not gotten as much money as they needed and determining the reason for the discrepancy.

Federal Reserve officials warned the virus outbreak and a partial shutdown of the U.S. economy would result in a decline in the current quarter of historic proportions and risk the potential of massive bankruptcies that could create a lasting scar, Bloomberg News reported. “You will get business failures on a grand scale and you will be taking risks that you would go into depression” if shutdowns persist, Federal Reserve Bank of St. Louis President James Bullard said yesterday. Cleveland Fed President Loretta Mester noted similar concerns after outlining a baseline outlook that included unemployment reaching or exceeding 20 percent. That could happen, she said, if the virus isn’t contained effectively this year or “if there is considerably more harm in terms of business and personal bankruptcies or if instabilities in the banking system arise.” Minneapolis Fed President Neel Kashkari warned of a “gradual, muted recovery” from the outbreak, while Dallas Fed President Robert Kaplan said that the economy will need more fiscal stimulus if the jobless rate continues to rise. Fed officials in mid-March cut interest rates to near zero and have unveiled unprecedented lending programs to cushion the blow from the pandemic. Even so, economic output may plunge by about 40 percent in the current quarter, Bullard warned, adding that the government orders to keep businesses closed are unsustainable. “We cannot hit the pause button for very long in major economies around the world, certainly not in the U.S.," Bullard said. "There’s a 90-day limit or shelf life on this policy, maybe 120 days shelf life.”

Treasury Secretary Steven Mnuchin said Monday that the government will look to make fixes to help restaurants and others participate in the $660 billion small-business aid program, a move that could help ease some of the criticism surrounding the program, the Wall Street Journal reported. The Paycheck Protection Program’s forgiveness requirements mandate that borrowers spend 75 percent of the loan on worker salaries, and for the forgivable amount to be spent over an eight-week period. That has drawn objections from many business owners who say they need more money for rent and other overhead costs and from industries that remain mostly closed, as mandated by state regulations. The National Restaurant Association, for example, has suggested the period should begin at least three weeks after applicable state restaurant closures are lifted. Mnuchin signaled yesterday that he would be open to some program tweaks. “One of the things we’re particularly sympathetic to are the restaurants,” Mnuchin said. “Many of the restaurants are just beginning to open up and have said that they’d really like to hold the money. They can’t do that; that’s not something we can do. But we’ll look at a technical fix.” Small-business advocates, lawmakers and small firms themselves have been pushing for federal agencies to issue additional guidance on the program’s forgiveness requirements, and for more leniency in the terms. Read more. (Subscription required.) 

In related news, Treasury Secretary Steven Mnuchin also said yesterday that he sees no need for the country to buy back debt and that he plans to borrow money long-term to lock in low interest rates, as the coronavirus pandemic rocks the economy, Reuters reported. “One of the reasons I do feel comfortable with us spending all this money is because interest rates are very low. And we’re taking advantage of long-term rates,” Mnuchin said. “Because of the amount of debt we have in short-term that does roll off and the amount of debt we’re using for these deficits, I think we have tremendous opportunities without needing to buy back debt.” The Treasury last week announced a record-busting plan to borrow $3 trillion during the April-June quarter to fund coronavirus economic rescue programs and cover a massive drop in revenues. It launched a new 20-year bond to extend maturities. Read more. 

When the federal government agreed to funnel $2.2 trillion in emergency aid to Americans devastated by the economic shutdown, the nation’s banks were given a central role. There were three main prongs of relief for taxpayers and American businesses, all routed through the banks in various ways: stimulus checks, a $660 billion package for small businesses and unemployment benefits, the New York Times reported. The small-business aid, the Paycheck Protection Program, had a chaotic introduction and ran dry within days. Some banks withheld stimulus cash from people with overdrawn accounts. And some banks’ debit cards, used to distribute unemployment benefits, didn’t work properly. Several lawmakers have begun exploring ways to sidestep banks to deliver aid. Among the proposals, mainly from Democrats: using Internal Revenue Service records and payroll processing companies, as well as the Federal Reserve, to help distribute money more swiftly. Democrats are also pushing for additional stimulus funds, but it’s not clear that more aid will win approval, especially with top Republicans urging restraint. Top Democrats in the House, who are working on their own coronavirus legislation, want to expand the existing programs, including a provision for lending exclusively through nonprofits or mission-focused lenders known as community development financial institutions, which lend to poor communities not served by banks.