By Kate Hickner
After days of intense negotiations, the U.S. Senate unanimously passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) Wednesday. The House is expected to vote to approve the CARES Act Friday morning and President Trump has indicated that he will sign it immediately.
The CARES Act provides for a $2 trillion economic stimulus package designed to mitigate the harm caused to Americans and businesses by the coronavirus pandemic. The bill is the largest stimulus package in U.S. history. It is also the third Congressional action taken this month in response to the pandemic, following the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, which provides $8.3 billion in emergency appropriations, and the Families First Coronavirus Response Act, which was designed to provide aid for families.
Here is a broad overview of some of the most significant provisions of the CARES Act:
Small Businesses
The CARES Act includes $367 billion in support for small businesses through the newly created Paycheck Protection Program and relaxed requirements for the Small Business Administration’s (SBA) Economic Injury Disaster Relief Program. KJK will be publishing additional information on the SBA programs in the coming days.
The Paycheck Protection Program creates a new type of loan under the SBA’s existing §7(a) program that makes loans through traditional lenders. Here’s what you need to know:
- Loan amounts are capped at the lesser of $10M and 2.5x the total of the employer’s average monthly payroll (typically over the preceding 12 months, with special calculations for seasonal employers and businesses that have not been operating for a year.
- Loans can be used to pay employees, rent, mortgage and bridge loan interest, and utilities.
- The loans will be forgivable, with the principle amount of the loans forgiven in the amount of up to 8 weeks of payments for the above expenses. The amount of forgiveness will depend on the employer maintaining its headcount.
- Interest rates will not exceed 4% and no personal guarantees or collateral will be required.
The legislation also provides additional changes:
- $10 billion for SBA emergency grants of up to $10,000, which the SBA must distribute within three days.
- $17 billion for SBA to cover 6 months of payments for small businesses with existing SBA loans
Large Businesses and Municipalities
The Act includes a $500 billion emergency loan program, including loan guarantees and investments, for large businesses and municipalities suffering from economic distress as a result of the pandemic, including at least $46B for industry-specific loans (e.g., the airlines):
- Borrowers may not pay dividends or make other capital distributions with respect to the common stock of the eligible business for up to a year after the loan is no longer outstanding
- In general, borrowers must retain 90% of employment levels as of March 24, 2020 through September 30, 2020
- Includes oversight provisions
- Administered through the Federal Reserve
Individuals
The Act includes direct payments to individuals in the following amounts:
- One-time $1,200 check to most adults making $75,000 or less, with the payments phasing out for those making more than $99,000 (thresholds are doubled for married couples)
- Plus $500 payment to cover every child under 17 in qualifying households
Unemployed Individuals
For workers who are laid off and receiving unemployment coverage, that coverage has been expanded significantly:
- Extension of unemployment insurance by 13 weeks
- An increase by $600 per week for four months (in addition to the amounts paid by the states as a base rate)
- Accessibility for individuals not historically covered (e.g., independent contractors, the self-employed, gig economy workers, freelancers, furloughed workers who are still receiving health insurance from their employers)
- Projected to cost about $250 billion
Student Loans
Federal student loan borrowers will also receive support, deferments and forbearance:
- Payments on federal student loans suspended and no interest to accrue through September 30
- Individuals receiving student loan repayment assistance from their employer will not need to pay income tax on such amounts, up to $5,250, received between date of Act and January 1, 2021
Foreclosures & Evictions
The Act includes increased protections for borrowers and tenants:
- Forbearance on a federally backed mortgage loan of up to 60 days, which can be extended for four periods of 30 days each, for those experiencing financial hardship because of the pandemic
- Servicers of federally backed mortgage loans may not begin the foreclosure process for 60 days from March 18, 2020
- Forbearance on multifamily federal mortgage loans of up to 30 days, which can be extended for two 30 day periods
- Borrowers with federally backed mortgage loans who have tenants may not evict tenants for failure to pay rent for a 120-day period, and may not charge fees or penalties for late payments
Food Assistance
The bill appropriates $450 million for The Emergency Food Assistance Program,which supplies food banks:
- Approximately $350 million dedicated to purchase additional food
- $100 million for distribution of the food
- No expanded eligibility or benefits for the Supplemental Nutrition Assistance Program or the Child Nutrition Program
Hospitals and Medical Equipment
Support for health care providers is expanded in the CARES Act:
- $100 billion public health and social emergency fund for hospitals, physicians and others to reimburse for expenses and lost revenue during the pandemic
- Provide $1 billion for the Defense Production Actto address shortages of personal protective equipment (PPE), ventilators and other medical supplies
- Medicare reimbursement increases of 20% for treating coronavirus patients
- Elimination of previously scheduled payment reductions to hospitals, including previously scheduled $8 billion reduction related to hospital’s treatment of uninsured and Medicaid patients and a 2% budget cut under sequestration
In addition to the provisions referenced above, the bill includes important provisions related to retirement account distributions, business and social security taxes, state and local governments, the Peace Corps, the arts, the Real ID and many other programs. For example, the CARES Act includes an important retention tax credit for employers that keep certain workers on payroll during the crisis.
During the next few days, KJK will be reviewing the CARES Act and its practical implications for our clients, friends and communities in much greater depth. We are closely monitoring these developments as we continue to learn about the nuances, eligibility conditions and other strings attached to the programs described above. We are working to better understand when and how funds will become available. Please stay tuned for additional guidance.
In the meantime, if you have questions about the CARES Act or any other COVID-19 related matters, please feel free to reach out to Kate Hickner at keh@kjk.com or 216.736.7279 or contact any of our KJK attorneys.