CORONAVIRUS

Democrats Propose New Paycheck Protection Program That Offers Direct Grants

It would cut banks out of the process and offer relief to businesses of all sizes until the coronavirus crisis is resolved.

Congress took two major steps to provide Americans relief as the coronavirus pandemic cost the nation tens of thousands of lives and millions of jobs: It boosted unemployment benefits and created a new program aimed at preventing layoffs.

Now, Senate Democrats are proposing a third initiative designed to plug the holes in the Paycheck Protection Program, which provides forgivable loans covering two months of payroll and other costs for businesses with up to 500 employees.

The proposed Paycheck Security Act, offered by Sens. Mark Warner of Virginia, Bernie Sanders of Vermont, Doug Jones of Alabama and Richard Blumenthal of Connecticut, would cut the middle man ― banks ― out of the process and provide qualifying businesses with direct grants from the federal government to achieve the same purpose for at least six months.

“It is a heck of a lot simpler than what we have done up to now,” Sanders said during a press call on Friday.

The direct approach is similar to that taken by countries like Germany and Denmark. In essence, it’s what the Paycheck Protection Program could have looked like had Congress not relied on lending institutions to act as the first point of contact. Democrats initially proposed a direct government lending program for businesses but were rebuffed. 

Banks were asked to process hundreds of thousands of PPP applications, many of which became backlogged due to high demand and insufficient funding. Some companies had an easier time accessing the money than others. Smaller businesses that had no prior relationships with a bank, for example, had greater difficulty securing funds than larger employers ― an issue that froze out some minority communities.

In addition, the terms of the program weren’t favorable to some employers who worried they might not be in business for the required two-month period and hence might be stuck paying off the loan.

The new plan offered by Democrats would cover salaries and wages up to $90,000 for each furloughed or laid-off employee, plus benefits such as employer-sponsored health insurance. It would also cover a portion of fixed operating costs such as utilities, maintenance or rent.

In order to qualify for the program, businesses would have to show a drop in revenue of at least 20%. Unlike the Paycheck Protection Program, employers and nonprofits of all sizes would be eligible ― unless they hold more than 18 months of average payroll in cash or cash equivalents.

Democrats did not release a cost estimate for the plan, but they suggested the overall price tag would be lower than existing coronavirus relief programs.

“It will be much less costly to our economy and our country in the long run if we can offer direct grants to businesses facing heavy losses so that they can keep workers on payroll and benefits through the next several months of this crisis,” Warner said.

Warner said he would favor eventually replacing the Paycheck Protection Program with the new proposal, rather than approving a third round of funding under the current measure. Congress has appropriated nearly $600 billion for that program.

The idea of direct government support for businesses struggling due to the coronavirus has bipartisan support. Sen. Josh Hawley (R-Mo.) last month pushed for the government to cover 80% of employee wages until the pandemic is over. Progressive Rep. Pramila Jayapal (D-Wash.) introduced a bill that would cover 100% of business payroll costs for at least three months.


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