WASHINGTON, D.C. – Today, the Senate is set to release a new coronavirus aid proposal that would cut federal unemployment benefits by $400, even as recent reporting shows that 1/5 workers have filed unemployment claims and the Department of Labor released data showing that unemployment claims are rising for the first time since March. These crucial benefits have kept millions out of poverty thus far, and the emerging deal between Congress and the White House would devastate American families that have relied on government assistance to survive in this time of unprecedented economic turmoil.
Instead, the next relief package being released today appears to include another $100 billion for the Paycheck Protection Program (PPP). The program was intended to help keep small business workers on payroll, but because of the administration’s poor design, the program ended up helping large corporations from the start with little oversight while small mom-and-pop shops, especially in communities of color, were left behind and closed down themselves.
Today, the Washington Post illustrates the PPP failures: many of the workers intended to stay on payroll have not been rehired.
“Cutting unemployment benefits, even as we know that many large corporations have yet to rehire the employees that the Paycheck Protection Program was intended to protect, is a grave mistake, and shows the misplaced priorities Congress is pursuing in this next relief package,” said Kyle Herrig, President of Accountable.US. “The fact is we cannot solve the economic crisis until we solve the public health crisis. Until then, it is wrong to ask workers to bear the brunt of this crisis while pumping billions into a program that isn’t proven to actually help the people it was supposed to.”
READ THE WASHINGTON POST’S TAKE ON IT HERE:
Companies were encouraged but not required to use the money for payroll.
By Peter Whoriskey
July 27, 2020 at 9:26 a.m. EDT
If the name of the Paycheck Protection Program didn’t make its purpose clear, its key sponsors spelled it out.
Sen. Marco Rubio (R-Fla.) explained that the program “was designed as an alternative for unemployment and to prevent unemployment.” Treasury Secretary Steven Mnuchin and the director of the Small Business Administration announced that the “overarching focus” of the effort was “keeping workers paid and employed.”
But a closer look at three large companies that received millions from the $517 billion program shows that some companies have not retained most of their staff on the payrolls.
The Fairmont Grand Del Mar in San Diego, a luxury hotel owned by a group led by Richard Blum, a private equity chief and the husband of Sen. Dianne Feinstein (D-Calif.), received $6.4 million from the program. The hotel has been closed and most of its hundreds of workers are unemployed and unpaid, union officials said. To maintain their health insurance, workers send money back to the company.
A large group of restaurant companies operating under the umbrella of Orlando-based Earl Enterprises — including Planet Hollywood International, Bertucci’s and Buca di Beppo — similarly received loans in amounts ranging from $26 million and $54 million, according to the federal data, but in the places most affected by the coronavirus pandemic, the restaurants employ only limited crews. The rest of the staff is unemployed and unpaid, employees said.
And the Omni Hotels & Resorts, owned by Texas billionaire Robert Rowling, were approved for multiple loans from the program — one for each of 15 hotels — totaling $30 million to $71 million. But seven remain closed, and at those, most workers are on unpaid furloughs, union officials said. The company also has declined union requests to continue to pay health insurance for furloughed workers, union officials said.
The companies say that they can’t rehire many people because they can’t fully reopen properties when a government pandemic order limits guests. But their decisions to withhold the money from payroll have left employees to rely on government unemployment checks, which in some states have been difficult to obtain and, for many, will soon stop when the benefit expires. Other furloughed employees are getting kicked off company health insurance because employers are not funding their premiums.
“It was a rotten move,” said Nazareth Reza, a 33-year-old mother, who for eight years had been a banquet server at the Fairmont Grand Del Mar. “They have the money.”
“It makes me mad that the company got the money but we are still out of a job,” said Tomas Garcia, 26, formerly a server at Buca di Beppo in Albuquerque.
“It’s pretty cruel kicking people off of their health insurance in the middle of the pandemic,” said Christopher Cook, 47, who has worked 22 years at the Omni Providence, mostly in the purchasing department. His family lost the company insurance on June 1. “If they received that [government] money — that’s mind-blowing to me.”
What portion of the Paycheck Protection Program has gone to affected employees is unknown. The Trump administration has said that 51 million jobs were “supported” by the program, but a Washington Post analysis of data on 4.9 million loans shows that the Small Business Administration reported that many companies had “retained” more workers than the companies said they employed. Academic efforts to examine whether the program boosted employment have shown mixed results.
Research by economists from the Massachusetts Institute of Technology and the Federal Reserve estimated that the program boosted employment at eligible firms between 2 percent and 4.5 percent. A study by a team of Harvard economists concluded that the program had “little material impact on employment at small businesses.”
The hotel and restaurant companies that have received the loans but have yet to rehire say they are operating within the rules of the Paycheck Protection Program. Eventually, the companies say, they could use the money to pay employees. If they don’t, the companies will be required to pay the money back to the government in what amounts to a low-interest loan. The interest rate on the loans is 1 percent.
“Any amount that’s not forgiven will be repaid with interest,” Omni officials said in a statement. “We’re grateful to have participated in the PPP loan program, and it is instrumental to our survival during this pandemic. … Throughout this global crisis, our greatest concern has been the hardship it placed on our Omni family, and we have diligently worked to minimize the impact. COVID-19 has placed heavy burdens on many, and all parties are having to navigate unfortunate circumstances.”
Earl Enterprises, the Orlando-based umbrella for Buca di Beppo and Bertucci’s restaurants, said it is trying to hire people. So far, about 5,000 restaurant employees have returned to work out of more than 9,000 who were employed before the pandemic.
“We are bringing back our staff as quickly as we can and we are committed to keeping our operations running while adapting to the ever changing landscape,” company spokeswoman Amy Sadowsky said in a statement. “We are not up to pre-Covid staff levels, nor is anyone else that we know of in the restaurant industry. … We have experienced severe downturns in our dine-in business, even in areas in the Northeast where the virus seems to be in retreat, our customers’ habits have changed.”
About 12 million more people were unemployed in June compared with February, according to government figures, and an estimated 5 million workers lost their health insurance coverage between February and May, according to Families USA, a nonpartisan consumer advocacy group.
“By design, PPP is a historic pro-worker relief program that has kept tens of millions of workers connected to employment,” Rubio said in a statement. “If employers have not used funds to keep workers on payroll, they will be required to pay that money back to the Treasury.”
Treasury officials did not respond to requests for comment.
When Congress approved the Paycheck Protection Program in March as part of the pandemic relief legislation, it was presented to the public as a measure that would help maintain jobs and that would be limited to small businesses.
The program issued money to businesses as loans, but to encourage employers to keep workers, the loan was “forgiven” — it did not have to be repaid — if a company retained most of its employees and spent most of the money on payroll. The size of the loan, according to the legislation, was to be based on the size of the company’s payroll.
To direct the loans to small businesses, the program limits the size of those that could apply — generally, none could have more than 500 employees.
“This legislation provides small business job retention loans … to keep workers employed,” Mnuchin said in a statement after the bill’s passage. “The loans will be forgiven as long as the funds are used to keep employees on the payroll and for certain other expenses.”
But after pressure from businesses — particularly hotel and restaurant lobbyists — the program was altered in key ways that received relatively little attention.
The first key move came late in the drafting of the bill, when a clause was added that allowed some big firms — mainly hotel and restaurant chains — to apply. The added language said that big hotel and restaurant companies would be eligible as long as their individual locations had fewer than 500 employees.
“We were able to get it [the program] applicable to individual properties … regardless of how many properties you operate,” Jon Bortz, chairman of the American Hotel and Lodging Association, said in a video chat for the group. “I think that was great.”
The change opened the program to big operations, according to federal figures: The Omni hotels received 15 separate loans; 11 loans were approved for Silver Cloud Inns; the Benihana restaurants were approved for 19 loans valued at $6 million to $16 million, although the company said it ultimately did not accept the money. There were many more recipients of similar scale. The largest request may have come from the Ashford Group, an outfit whose companies used more than 100 filings to seek $126 million total and received $76 million, according to a Post review of securities filings, although it later returned the money.
The next critical set of changes came in May, with another round of legislation that also responded to requests from business groups. Three tweaks in the program, little noticed at the time, made it easier for companies to get the loans forgiven — that is, to transform the government loan into a gift.
While the original legislation had limited loan forgiveness if companies did not rehire to pre-pandemic staffing levels, the new legislation weakened that rule. Now companies that make what the bill says are “good faith” efforts to bring employees back could have their loans forgiven.
The new legislation also extended the period of time that businesses could use the money — from eight weeks to 24 weeks — a change that, combined with other aspects of the program, meant that employers could bring back fewer workers and still win loan forgiveness.
Finally, the new legislation dropped the requirement that companies should spend at least 75 percent of the money on payroll to qualify for loan forgiveness.
The administration had added that requirement to ensure that the program was “devoted primarily to payroll.” But some members of Congress, including Feinstein, pushed for making that requirement more flexible. Feinstein is married to Blum, who leads the investment group that owns the Fairmont Grand Del Mar. A Blum family trust also owns the Claremont hotel in Berkeley, Calif., which received about $6.4 million from the Paycheck Protection Program. That hotel is closed and most employees have not received paychecks, workers said.
In a letter, Feinstein asked her Senate colleagues to drop the 75 percent requirement because it is “impossible” for businesses in regions where rents are high.
“I ask that you ensure that the threshold is appropriately flexible to accommodate small businesses in different situations, while still maintaining the requirement that small business receiving PPP funds continue to pay their employees,” her letter said.
A hotel industry group also wrote to ask for the same thing, noting that mortgages and other overhead is more burdensome to hoteliers than payroll: “an average hotel pays more in debt service and real estate taxes than total payroll expenses,” the group’s April 8 letter said. To keep people employed, the industry lobbyists argued, hoteliers must be able to pay their overhead.
One version of the bill dropped the 75 percent requirement entirely; ultimately there was a compromise and the portion that had to be allotted to payroll was dropped to 60 percent.
Owen Blicksilver, a spokesman for Blum, said that the hotel is trying to bring furloughed employees back as soon as reopening is allowed. However, some employees have received letters indicating that there would be “permanent layoffs” and including severance documents, according to a copy of a letter reviewed by The Post.
“The PPP funds will all be spent on the employees and forgivable items before year end for both properties,” the spokesman said.
Feinstein’s office also responded.
“The senator has no involvement in her husband’s financial or business decisions,” spokesman Tom Mentzer said by email. The senator supported the legislation offering recipients more flexibility “because she and her office received numerous calls and letters from local businesses asking for changes to help them keep workers on payroll. She has repeatedly sought changes to the PPP program to make it more efficient and expand it to include nonprofits and prioritize the smallest businesses.”
For some furloughed workers, more galling than the absence of a paycheck is the companies’ refusal to continue health insurance coverage. Under the rules for the program, employers would be reimbursed for program money that was spent on employee benefits. The companies did not say why they were not continuing to provide health insurance.
The Fairmont Grand Del Mar will stop paying for health coverage for furloughed workers as of July 31, Blicksilver said. Since April, the company has paid a portion of the cost but has required employees to send a check for their own portion.
The Omni Providence stopped paying for the health insurance of furloughed workers as of June 1. A spokesperson said furloughed workers continue to have “access” to the company health insurance — but only if the employee pays for it.
Marty Leary, research director for Unite Here, a union that represents employees at many Omni locations, dismissed the assertion that the employees have access to health insurance.
“That’s like saying they have access to a Mercedes-Benz if they have $50K to spend,” he said.
Cook, the Omni Providence employee, put it more strongly.
“What you see here is an utter lack of compassion,” he said.