The apparent success has “suddenly” become apparent, reports the Washington Post. Perhaps surprisingly would be a better term. The national media got stunned by the May jobs report in which the US economy gained back 2.5 million jobs as economists expected a loss of eight million or more. That miss led more than one economist to wonder whether BLS got things wrong, but only Paul Krugman was dumb enough to publicly suggest a conspiracy at the White House — which he later retracted.
A few days later, the media seems to have absorbed the fact that they got it very wrong about economic recovery in May, incremental though it might have been. So how did things go, er … right? The program quarterbacked by Marco Rubio and pushed hard by the White House has “suddenly” succeeded, the Post declares, after an undeniably rocky start:
Once beset by a flood of complaints, balky computer systems, changed rules and frantic calls to the Treasury Department, the federal government’s small-business Paycheck Protection Program is suddenly looking like a measured success.
The U.S. economy buckled in March and April amid the coronavirus pandemic, but it appeared to regain some of its footing in May, adding 2.5 million jobs. The economy remains extremely weak, with a high unemployment rate and a surge in Americans seeking assistance. Many economists say conditions will remain shaky for at least another year.
But they also say things would be even worse without the giant loan forgiveness program, which Sen. Marco Rubio (R-Fla.) shepherded through Congress and then helped defend during chaotic weeks of implementation.
There’s nothing all that sudden about the PPP’s success, nor really about the moderate recovery seen in May. Granted, neither might have been particularly visible, but that might have been because the media wasn’t digging into it very well, either. Media outlets might have been less blindsided if they had kept their eyes on the ball.
From what we see so far — and this is still a ways away from the finish line — the PPP did precisely what it was designed to do. Congress and the White House created the PPP as part of the CARES Act to keep payrolls in place until governments allowed businesses to reopen. At first, that was thought to be just a couple of weeks, but when governors started extending those shutdowns, the jobs meltdown went nuclear. Still, a second infusion and some tightened rules directed the funds to payroll support until reopenings began in May, at which point in time furloughed workers started getting recalled, too.
There’s nothing “sudden” at all about the way it unfolded. It’s just that the media missed it, mainly because they didn’t have a lot of interest in telling positive stories about policies backed by the White House. Rubio deserves credit for shepherding the bill and fiercely defending its approach after initial stumbles at Treasury nearly killed PPP, but so do Donald Trump and Steve Mnuchin. The Post article barely mentions either, except to highlight Mnuchin’s missteps and to note that Trump just signed an extension to the grant period.
Those rules should buttress the momentum of the program’s “sudden” success by allowing small businesses longer to achieve loan forgiveness:
Here are some of the ways the new rules could give business owners more flexibility with the way they use their loans and still qualify for forgiveness:
More time to spend the money: Instead of eight weeks, borrowers now will have 24 weeks from the day they get their PPP funds to use them.
Less money must be dedicated to payroll: To qualify for full forgiveness of their loans, borrowers now must allocate at least 60% of their PPP funds for payroll expenses and may use the rest to pay for overhead costs such as rent, mortgage interest and utilities. This change will help small businesses operating in high-rent areas. If a business owner spends less than 60% on payroll she may still qualify for partial forgiveness. The same principle applied under the old rules but the threshold percentage was less than 75%.
More time to rehire staff: To qualify for full forgiveness under the old rules, business owners had to maintain the average number of employees they had on staff as of Feb. 15 and pay them at their same rate. Or they at least had to meet those criteria by June 30. The new rules extend that safe-harbor date to Dec. 31.
Full forgiveness also may be available when a business can’t hire back their full staff under Covid-related workplace safety requirements mandating that they operate at less-than-full capacity.
More time to repay: Under the old rules, any portion of the loan that was not forgiven had to be paid back within two years. That has been extended to five years for loans made on or after June 5. For owners who got their loans before June 5, they can make an agreement with their lender to extend their repayment period, said Veena Murthy, a principal at accounting firm Crowe LLP.
The whole point of PPP was to use it as effective helicopter money. Repayment isn’t a high priority; supporting payrolls and keeping doors open is the priority. The fine-tuning of PPP allows for greater effectiveness in ameliorating an artificial depression caused by direct government intervention in halting commerce. Its targeting was the most precise of the federal attempts to deal with the economic crisis, so it’s not even surprising that it has been the most successful.
For now, anyway. Much remains to be seen as to the long-term effectiveness of PPP, even with the new rules. If we cannot soon get back to normal commerce (or some reasonable facsimile of it), then many of these businesses will fold anyway. Restaurants in particular cannot long survive on 25% or 50% capacity caps, even with take-out a new and popular option. Outdoor seating won’t work in the fall for much of the country and for most of it in the winter. It’s too soon to say anything has yet rescued the US economy. However, it seems clear that PPP has kept it afloat for a while longer, and that’s to the credit of everyone who backed and ran it.
