April 08, 2020
By Troutman Pepper

While much of this activity is evolving daily, last week was filled with discussion of a potentially massive new stimulus spending bill, multiple proposals from Democrats, and infrastructure mentions from President Trump. After hesitancy from Majority Leader Mitch McConnell (R-KY), critical negotiators appeared to coalesce around the need for a more focused and strategic next phase relief package. “Phase 4” is evolving into a “CARES Act 2.0” that may seek to increase the funding and timeline of existing programs, but also make changes and adjustments for certain industries.

On Tuesday, McConnell announced that he is working with Minority Leader Chuck Schumer (D-NY) and Treasury Secretary Steven Mnuchin to provide more immediate funding to the new SBA Paycheck Protection Program (PPP). Senate Small Business Committee Chairman Marco Rubio (R-FL) said the PPP needs an additional $200-250 billion in “days not weeks”. McConnell said he would like the Senate to vote as soon as Thursday, April 9. However, on Wednesday morning, House Speaker Nancy Pelosi (D-CA) and Schumer issued a joint statement with their list of items for the short-term spending bill, including funding for other areas such as healthcare providers, states, and food stamp recipients. Democratic leadership demands could slow down quick action on the SBA’s new funding.

The Senate is in recess until April 20, and the House is out of session indefinitely, but the White House and congressional leadership have acknowledged that more coronavirus relief packages will be needed. Leaders on both sides of the aisle are discussing with their members and committees, asking them to assemble priorities. Several potential provisions for a Phase 4 package, or CARES 2.0, are outlined below. It is possible that the House and Senate attempt to move a fast extension and supplemental funding of the CARES Act by unanimous consent in both the House and Senate to avoid forcing travel back to Washington.

Pelosi sent a letter to all Representatives on Saturday, April 4 stating she wants to bring another stimulus package to the floor by the end of April to provide more relief from the COVID-19 pandemic. Several of these priorities were also outlined in her April 8 statement:

  • greater assistance for small businesses including farmers,
  • more funding for state and local governments,
  • increased aid for hospitals, community health centers, health systems, and health workers,
  • hazard pay for front-line health care workers and other essential employees like grocery store workers, truck drivers, and postal workers,
  • more direct payments for individuals and families,
  • extended unemployment insurance, and
  • health insurance for laid-off workers who lose their insurance.

Trump Administration officials have discussed including the following in a Phase 4 or follow-on stimulus package:

  • a payroll tax cut,
  • capital gains tax cut,
  • creating a 50-year Treasury bond to lock in low rates, and
  • a waiver to clear businesses of liability from people who contract COVID-19.

Below are details regarding proposals seeking to adjust Phase 3, as well as potential changes in Phase 4 and beyond:

SMALL BUSINESS

  • The structure and target of the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) has already proven to be very popular. Treasury Secretary Steve Mnuchin has stated they may seek additional funding for the program on top of the $349 billion provided in Phase 3, and Speaker Pelosi is supportive.
  • Many members of Congress have proposed to double the length of the PPP from 8 to 16 weeks.
  • The Federal Reserve announced today it will establish a facility for lending to small businesses via the SBA’s PPP. Additional details will be announced this week.
  • Some startups with Private Equity minority shareholders may receive more clarity on top of the interim affiliate rule issued on April 3 for the PPP. Many private equity investors are seeking further guidance to clarify the definition of constructive control of startups, as many early investors have veto authority with a company’s board of directors.
  • Private equity firms are also pushing the Federal Reserve to expand its current facility lending programs to cover a broader range of assets. The Term Asset-Backed Securities Loan Facility (TALF) which is not yet up and running, only has eight qualifying assets, but some groups are pushing to have that also cover other investment-grade mortgages and commercial real estate, certificates of deposit, and other assets.

HEALTHCARE

  • This week, HHS is expected to release information regarding the rollout of $100 billion intended for the provider community. A push for increased funding for front-line healthcare workers on top of funding included in Phase 3 is expected in the next spending package.
  • Guidance from Congress is also expected on any future funding in Phase 4 that would be based on the areas hit the hardest, not simply hospital beds, as rumored.
  • Community healthcare centers are expected to receive approximately $10 billion in additional funding.
  • Free coronavirus follow-up treatment may be considered.
  • Surprise medical billing reform is expected to have another push in later phases, and increased healthcare and pension protections have been discussed.

STATE AND LOCAL GOVERNMENT ASSISTANCE

  • State and local governments received direct aid as well as assistance through the Treasury and Federal Reserve via municipal debt purchasing. However, states needs are increasing as consumption decreases and sales tax dwindles. A further delay of income tax filing will also hurt state budgets.
  • Secretary Mnuchin has announced a potential Fed facility intended for use by state and local governments to grant them faster access to capital.
  • The National Governors Association (NGA) has requested that “half of the next stimulus package go to states.”
  • State run universities and other institutions may require further assistance than what has already been provided.
  • Equitable emergency funding for Washington, DC as a non-state.

RESTAURANTS, HOSPITALITY & TOURISM

  • The American Hotel & Lodging Association is pushing lawmakers to raise the cap on small business loans from 250% of monthly payroll last week to 400%.
  • Restaurants and Hotels will seek assistance for business interruption and with insurance policies that do not cover their losses due to COVID-19. A $100 billion federally backed business interruption insurance program that could be used to pay for coronavirus and other future pandemic-related claims is one proposal that has been floated.

INFRASTRUCTURE (PHASE 5 & BEYOND)

  • President Trump has urged Congress to include $2 trillion to finance infrastructure projects, citing his wish to capitalize off low interest rates.
  • Speaker Pelosi has raised the prospect of including infrastructure legislation, possibly $760 billion over five years, and is beginning discussions with Democratic Caucus leaders.
  • Updates to public drinking water systems has been suggested as one item to be included.
  • Upgrades to rural broadband for telework and online schooling, as well as subsidies to smaller internet service providers during the COVID-19 outbreak have been discussed.

ENERGY (PHASE 5 & BEYOND)

  • Renewable energy tax credits are already in discussion as a possibility for inclusion in the next phase of relief. This could include the extension of solar investment tax credits, wind production tax credits, storage investment tax credits, and 45q carbon capture credits.
  • Some renewable energy advocates want to allow companies to take direct payments from the Treasury in lieu of the existing tax credits.
  • The nuclear power industry is seeking a 30% tax credit for some expenditures converted into grants among other aid, citing “severe financial strain” being experienced among utilities and reactor operators.

BROADCAST/MEDIA (PHASE 5 & BEYOND)

  • Local television broadcasters and newspapers have been hurt by the slowdown in advertising. Media companies and their respective trade associations are expected to look for some for assistance in the next phase.

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