President Donald Trump and congressional Republicans are being pressured by anti-establishment organizations to provide no further federal spending in response to the coronavirus. But the president and his team appear poised to move in the opposite direction, having recently revealed plans to put forth a US$1 trillion national infrastructure spending blueprint in the coming days and signaled that the president would like to sign into law a new bipartisan COVID-19 response measure in the neighborhood of US$2 trillion, doubling the maximum amount preferred by Senate Majority Leader Mitch McConnell (R-KY). The shift by the White House in recent days to a new “go big” posture in advance of bipartisan negotiations on the next consensus measure reflects the urgency Trump’s advisors are feeling to leave no stone unturned in the effort to revive the American economy as the November presidential election moves closer.
Topics covered today include: tax and economic development, health, international trade, government oversight and US states developments.
Members of Congress, meanwhile, are positioning new bills on topics such as infrastructure and renewable energy to be factors in the upcoming bipartisan COVID-19 talks, even as they simultaneously prepare for action on police reform legislation in reaction to an historic national outcry against racial inequality. Federal Reserve Board Chairman Jerome Powell told Congress Tuesday that the economic recession triggered by the pandemic lockdown this spring has had a disproportionate impact on American minorities and could result in a deepening of racial income disparities if not reversed through decisive fiscal and monetary policy action.
The Save Our Country Coalition, an entity formed in April by Washington activists and fundraising icons who would once have been characterized as figures in the “Tea Party” movement, is reported by The Hill to have sent a letter to President Trump warning that “runaway government spending is the new virus afflicting” the US economy and urging that no further deficit spending be supported by Republicans in reaction to COVID-19. The letter’s signatories include Stephen Moore, a veteran of Washington who at one point was Trump’s pick for a seat on the Federal Reserve Board of Governors. Many of the letter’s signers attacked budget agreements secured by congressional Republicans during the administration of President Barack Obama, but have declined to criticize President Trump in recent years as the federal budget deficit under his watch has exploded, reversing progress made earlier in the decade to reduce the trajectory of debt being incurred by the government.
Renewable energy backers are urging Congress to include measures to support US wind, solar and other clean energy industries in the next coronavirus response measure, a push illuminated yesterday by hearings in both the House and Senate. Bloomberg reports:
Renewable energy advocates urged . . .Senate and House committees to ensure that clean energy isn’t left out of the next round of economic recovery packages. Thus far, such legislation has avoid helping specific economic sectors, instead focusing more broadly on economic aid to households and small businesses, and addressing the health challenges of the coronavirus.
The clean energy sector lost more than 620,000 jobs since early March, with energy efficiency and renewable energy job losses making up more than 500,000 of those layoffs, Lisa Jacobson, president of the Business Council for Sustainable Energy, told [a] Senate committee.”
The House Committee on Transportation and Infrastructure today will begin consideration of a nearly US$500 billion surface transportation bill, elements of which could become candidates for inclusion in the upcoming bipartisan COVID-19 response measure. The committee is expected to plow through hundreds of proposed amendments in the first major test of recently-approved House rules that allow committees to debate and vote on legislation virtually, without Members of Congress having to be physically present in the committee chamber. The committee action can be seen live beginning today at 10 a.m. EDT.
Tax and Economic Development Updates
During his testimony yesterday discussing the Federal Reserve’s semiannual monetary policy report, Chairman Powell made clear to the Senate Committee on Banking, Housing and Urban Affairs that “[t]here’s a reasonable probability that more will be needed both from you and from the Fed.” Chairman Powell also testified: “Recently, some indicators have pointed to a stabilization, and in some areas a modest rebound, in economic activity. With an easing of restrictions on mobility and commerce and the extension of federal loans and grants, some businesses are opening up, while stimulus checks and unemployment benefits are supporting household incomes and spending . . . .That said, the levels of output and employment remain far below their pre-pandemic levels, and significant uncertainty remains about the timing and strength of the recovery …Until the public is confident that the disease is contained, a full recovery is unlikely.” Chairman Powell also hinted at the need for continued support for workers during the ongoing period of expected higher-than-normal unemployment, as well as additional aid for state and local governments, as some of the policies he views as necessary as part of continued economic recovery efforts. We expect to hear similar testimony and may learn additional details about the Federal Reserve’s position during Chairman Powell’s testimony today before the House Committee on Financial Services.
At the same time, the Federal Reserve is receiving some pushback against certain policies implemented in response to the ongoing economic downturn, as well as its calls for continued federal stimulus measures. For example, Senator Pat Toomey (R-PA) is raising concerns about the Federal Reserve’s decision to update its US$250 billion Secondary Market Corporate Credit Facility to – effective yesterday – begin purchasing corporate bonds with a portfolio based on an index of the entire US$9.6 trillion bond market. According to Senator Toomey, the decision “run[s] the risk that we diminish price signals that we get from the corporate bond market, which can be extremely important in enabling us to detect problems.” Chairman Powell addressed these concerns by pointing out that “[i]f market function continues to improve, then we’re happy to slow or even stop the purchases, and if it goes the other way, we’ll increase.” While Chairman Powell acknowledged that “[m]arket function has improved really substantially,” he also suggested that the central bank “want[s] to be there if things turn bad in the economy or if things go in a negative direction.” To that end, a group of conservative deficit hawks – led by the Free Market Coalition, “a grassroots organization made up of members of the business community, manufacturers, and concerned citizens that are committed to promoting free markets, reducing the scope and size of big government, and growing American business and manufacturing” – sent a letter to President Trump and Senate Majority Leader McConnell “urg[ing]” that the multi-trillions of dollars of federal government debt spending in the wake of the Coronavirus come to a stop. There is no limit to worthy causes, but there is a limit to other people’s money.” While White House Economic Advisor Larry Kudlow responded that the administration is “still assessing the whole situation” and that “[e]verything is pre-decisional right now,” Senate Minority Leader Chuck Schumer (D-NY) is advocating that several upcoming deadlines – including the June 30 deadline for Paycheck Protection Program (PPP) applications, the expiration of the eviction moratorium and various deadlines related to state budgets – necessitate that Congress take action on another COVID-19 relief package before July 4.
According to reports, Representative Jennifer Wexton (D-VA), along with more than 30 Members of Congress, today is expected to send a letter to Treasury Secretary Steven Mnuchin and Small Business Administration (SBA) Administrator Jovita Carranza requesting that they “immediately disclose information on all [PPP] loans for businesses with multiple employees.” This letter follows a letter led by House Majority Whip James Clyburn (D-SC) to a number of major financial institutions requesting that they release information about their PPP lending process, expressing “significant concerns” that “the two-tiered system that some banks reportedly developed for wealthy clients may have diverted PPP funds intended for vulnerable small business owners in underserved and rural markets.” Notably, the push for PPP loan information may grow even stronger as it has come to light that at least four Members of Congress have benefited from the program. We may learn more about this and other PPP issues during today’s House Committee on Small Business hearing focused on “loan forgiveness and other challenges” related to the small business lending program. For example, the National Association of Realtors is expected to include in its testimony a call for automatic forgiveness for PPP loans under US$150,000. Note that yesterday, the Internal Revenue Service released an interim final rule allowing PPP loan recipients to spend up to US$46,154 per individual on payroll costs – including certain benefits to employees, though not owners – over the extended 24-week covered period and qualify for loan forgiveness. Additionally, this morning, the SBA released a three-page “EZ” loan forgiveness form, which requires fewer calculations and less documentation than the full application, for loan recipients that are self-employed, have no employees or that did not reduce salaries by more than 25%.
A few additional tax and economic development regulatory updates related to the COVID-19-induced economic downturn:
- The Federal Deposit Insurance Corporation has released its most-recent quarterly banking profile, which indicates that bank profits fell by nearly 70% in Q1 2020.
- Senator Diane Feinstein (D-CA) has sent a letter to federal mortgage regulators urging that they “issue guidance to mortgage servicers requiring uniform and comprehensive consumer disclosures that clearly explain all federal mortgage forbearance options available during the coronavirus pandemic.”
- The Securities and Exchange Commission has issued a temporary conditional exemption from broker registration for registered municipal advisors to address disruption in the municipal securities markets as a result of COVID-10, which permits registered municipal advisors to solicit banks, their wholly-owned subsidiaries that are engaged in commercial lending and financing activities and credit unions in connection with direct placements of securities issued by their municipal issuer clients.
A large-scale initiative, dubbed “Operation Warp Speed” (OWS), aims to deliver 300 million doses of a safe and effective COVID-19 vaccine by January 2021. The joint effort between the Department of Health and Human Services (HHS) and the Department of Defense is part of the administration’s greater goal to accelerate vaccines, therapeutics and diagnostics, and was appropriated nearly US$10 billion in the CARES Act. This HHS Fact Sheet explains that the accelerated timeframe is possible in part because “protocols for the demonstration of safety and efficacy are being aligned, which will allow the trials to proceed more quickly, and the protocols for the trials will be overseen by the federal government, as opposed to traditional public-private partnerships.” HHS announced on May 15 that 14 likely vaccine candidates had been chosen from over 100 currently in development. Under the OWS plan, that number will be narrowed down to seven of the “most promising” vaccines, which will then go through early-stage clinical trials. From that point, three-to-five of the most hopeful candidates will undergo testing in large-scale randomized trials. The distribution methodology would be tiered and prioritize the elderly and the needs of the essential workforce.
A promising development for COVID-19 drug treatment came out of the United Kingdom on Tuesday. A study conducted by the University of Oxford through the Randomised Evaluation of COVid-19 thERapY (RECOVERY) drug trial program concluded that the anti-inflammation steroid dexamethasone reduced deaths by one-third for patients on ventilators and one-fifth for patients on oxygen. While there is no evidence the drug improves the health of mildly ill patients and the study has not yet been peer-reviewed, its results are being heralded as a significant breakthrough.
The House Committee on Energy and Commerce announced a blockbuster lineup of witnesses for its hearing next Wednesday titled “Oversight of the Trump Administration’s Response to the COVID-19 Pandemic.” National Institute for Allergy and Infectious Diseases Director Anthony Fauci, Assistant Secretary for Health Admiral Brett P. Giroir, Food and Drug Administration Commissioner Stephen Hahn, and Centers for Disease Control and Prevention Director Robert Redfield are all slated to appear. In the committee’s press release, Chairman Frank Pallone (D-NJ) said, “there have been a lot of unfortunate missteps in the Trump Administration’s response to the COVID-19 pandemic. This hearing will provide us an opportunity to hear from key administration health officials about what is working, what still needs to be improved and what more Congress can do to help.”
The US, Mexico, and Canada have agreed to further extend restrictions on non-essential passenger travel until July 21. The restrictions, which do not apply to goods trade, have been in place since late March. The US-Mexico-Canada Agreement, the successor to the North American Free Trade Agreement, will enter into force in two weeks, on July 1. Yesterday, Customs and Border Protection unveiled updated interim implementing instructions to help companies prepare for entry into force.
The House Committee on Oversight and Reform’s Select Subcommittee on the Coronavirus Crisis has launched an investigation into the coronavirus crisis in nursing homes. The panel sent letters to the Centers for Medicare and Medicaid Services (CMS) – the federal agency that oversees nursing homes – and the five largest for-profit nursing home companies. This announcement follows reports that over 40,000 residents died in nursing home facilities, and a June 11 briefing, during which the panel heard testimony on the lack of sufficient testing, personal protective equipment and staffing. The panel faulted CMS for providing inadequate guidance and oversight, and largely deferring to states, local governments and the nursing homes themselves. The lawmakers requested information from CMS and the nursing homes covering the period from January 1, 2020 to the present.
In the meantime, the Republican members of the Select Subcommittee sent letters to five Democratic governors who instituted polices that allowed nursing homes to take in COVID-positive patients as part of their pandemic response. The lawmakers asked the governors to explain their “lethal” decisions and to provide information. Additionally, three Republican senators, Senators Ted Cruz (TX), Rick Scott (FL) and Ron Johnson (WI), sent letters to all governors requesting information on how their states have allocated CARES Act funds and those from other federal coronavirus response measures.
Senator Sherrod Brown (D-OH), ranking member of the Senate Committee on Banking, Housing and Urban Affairs, and Senate Minority Leader Schumer sent a letter to the Special Inspector General for Pandemic Recovery, Brian Miller, reminding him of the assurances of impartiality and independence that he gave to Congress during his confirmation hearing in May. The senators reiterated their earlier concerns about Miller’s ability to hold the administration accountable for any misconduct or abuses, considering his prior work in the White House Counsel’s office, about which concern “has grown as President Trump continues to dismiss other inspectors general.” They emphasized that Miller’s duty is to the American people, not the President, and urged him to get his office up and running as soon as possible. If Miller encounters any problems in performing his duties, the senators said that he must report them to Congress.
- HHS has updated its FAQs on the CARES Act reporting requirements, explaining that providers that have received emergency relief funds do not need to submit a quarterly report to the department or the Pandemic Response Accountability Committee (PRAC), the new council of existing inspectors general created under the act. The department confirmed that the statutory reporting requirement is met by its public release of the data.
- Another person was charged with fraud related to the PPP. The owner and operator of several information technology companies in the Chicago area allegedly made false statements to a financial institution, fraudulently seeking more than US$400,000 in PPP loans. Unlike many other people charged with PPP-related fraud, who had no employees, this defendant overstated his company’s payroll expenses.
- After initially siding with Treasury Secretary Mnuchin on his claim last week that the names and amounts of PPP borrowers are “confidential” and “proprietary” information, Senator Marco Rubio (R-FL), chair of the Senate Committee on Small Business, said yesterday that there will be disclosure, at least regarding the recipients of large loans, and that discussions are underway now on the release of information regarding the recipients of smaller loans.
- POLITICO reports that at least four members of Congress have received PPP loans and “there are almost certainly more.”
- Another CARES Act program, the Paycheck Protection Program Liquidity Facility, launched by the Federal Reserve to extend credit to financial institutions that originate PPP loans, may also be scrutinized like the better known SBA and Treasury program. Wall Street on Parade reports that, of the US$57 billion of Fed loans to financial institutions, 9%, or US$5.3 billion, went to a small New Jersey bank, Cross River Bank. This loan amount represents more than twice the bank’s total assets as of March 30.
- Senator Dianne Feinstein (D-CA), ranking member of the Senate Committee on the Judiciary, wrote a letter to Federal Reserve Chair Powell and three other regulators requesting that they clarify mortgage relief options. The senator’s letter follows a report by the Inspector General for the Department of Housing and Urban Development, which found that banks and servicers provided borrowers with incomplete and inconsistent information on CARES Act mortgage relief options.
- As noted above, the House Committee on Energy and Commerce will hold a hearing on June 23 titled “Oversight of the Trump Administration’s Response to the COVID-19 Pandemic.”
Illinois Attorney General Kwame Raoul (D) announced he tested positive for COVID-19 on Monday after beginning to feel ill over the weekend. His announcement has caused a number of leaders in Illinois government to also be tested, including the governor. Attorney General Raoul has been active in recent weeks in response to protests and in dealing with the COVID-19 crisis.
Thirty-nine state attorneys general, including Massachusetts Attorney General Maura Healey (D), sent Google and Amazon a stern letter regarding privacy issues related to COVID-19 contact tracing apps. Attorney General Healey also yesterday broadcasted, and encouraged the use of, an anonymous tip line for workers who feel unsafe at their location of employment because of a lack of preventative measures available to mitigate the spread of COVID-19.
With so much interest in attending President Donald Trump’s rally Saturday in Tulsa, Oklahoma Governor Kevin Stitt (R) said earlier this week he has asked the campaign to consider a larger, outdoor venue to accommodate them. Some Trump supporters have already started waiting in line outside the 19,000-seat BOK Center in downtown Tulsa. Yesterday, Oklahoma State Health Department Commissioner Lance Frye said in statement that people who plan to attend the campaign rally should get tested for the coronavirus before the event and consider being tested afterward. As of Monday, there were 8,417 confirmed cases with the total death toll unchanged at 359. The health department says 6,578 people have recovered. While acknowledging the state has seen a recent surge in the number of people testing positive for the coronavirus, the governor said much of that is due to an increase in testing.
Illinois Governor J.B. Pritzker (D) announced US$275 million in funding for the Low-Income Home Energy Assistance Program (LIHEAP) and Community Services Block Grant (CSBG) programs. This funding includes an additional US$90 million allocated under the CARES Act, allowing the state to increase eligibility for these programs to one million income-qualified Illinoisans. The state’s FY21 budget will increase the eligibility income threshold up to 200% of the federal poverty level, and provide support to qualifying low-income households for rent, food, temporary shelter, utility bills and other essential services.