Implementation of Title IV of the CARES Act
Summary
This is a hearing before the Committee on Banking, Housing, and Urban Affairs of the United States Senate, titled Implementation of Title IV of the CARES Act, on June 2, 2020, with Chairman Mike Crapo presiding. The witnesses listed are Thomas Quaadman of the U.S. Chamber of Commerce, Douglas Holtz-Eakin, President of the American Action Forum, and Heidi Shierholz, Senior Economist and Director of Policy at the Economic Policy Institute. A written question in the record describes the Paycheck Security Act as providing grants covering salaries and wages up to $90,000 for each furloughed or laid off employee. Letters submitted by CUNA are also listed as additional material.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
- Issuer
- Congressional materials
- Document type
- Congressional Hearing
- Case
- Chrg Chrg 116Shrg42248 Chrg 116Shrg42248
Cite this document
“Implementation of Title IV of the CARES Act.”
Original at www.govinfo.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/chrg-chrg-116shrg42248-chrg-116shrg42248/
, SHA-256 cf17b19cd1d8296fc97309d512e6d7f49966c2a6c6b827dd71f93cc1d7feec7c.Full text
S. HRG. 116–319
IMPLEMENTATION OF TITLE IV OF THE CARES
ACT
HEARING
BEFORE THE
COMMITTEE ON
BANKING, HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING TITLE IV OF THE CARES ACT
JUNE 2, 2020
Printed for the use of the Committee on Banking, Housing, and Urban Affairs
(
Available at: https: //www.govinfo.gov /
U.S. GOVERNMENT PUBLISHING OFFICE
42–248 PDF WASHINGTON : 2020
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania JACK REED, Rhode Island
TIM SCOTT, South Carolina ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska JON TESTER, Montana
TOM COTTON, Arkansas MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
MARTHA MCSALLY, Arizona DOUG JONES, Alabama
JERRY MORAN, Kansas TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota KYRSTEN SINEMA, Arizona
GREGG RICHARD, Staff Director
LAURA SWANSON, Democratic Staff Director
CATHERINE FUCHS, Counsel
TANYA OTSUKA, Democratic Counsel
COREY FRAYER, Democratic Professional Staff Member
CAMERON RICKER, Chief Clerk
SHELVIN SIMMONS, IT Director
CHARLES J. MOFFAT, Hearing Clerk
JIM CROWELL, Editor
(II)
C O N T E N T S
TUESDAY, JUNE 2, 2020
Page
Opening statement of Chairman Crapo ................................................................. 1
Prepared statement .......................................................................................... 37
Opening statements, comments, or prepared statements of:
Senator Brown .................................................................................................. 3
Prepared statement ................................................................................... 38
WITNESSES
Thomas Quaadman, Executive Vice President, Center for Capital Markets
Competitiveness, U.S. Chamber of Commerce .................................................. 5
Prepared statement .......................................................................................... 39
Responses to written questions of:
Senator Brown ........................................................................................... 55
Senator Cortez Masto ................................................................................ 56
Senator Jones ............................................................................................ 56
Douglas Holtz-Eakin, President, American Action Forum ................................... 7
Prepared statement .......................................................................................... 46
Responses to written questions of:
Senator Cortez Masto ................................................................................ 59
Senator Jones ............................................................................................ 60
Senator Sinema ......................................................................................... 60
Heidi Shierholz, Senior Economist and Director of Policy, Economic Policy
Institute ................................................................................................................ 8
Prepared statement .......................................................................................... 50
Senator Brown ........................................................................................... 61
Senator Cortez Masto ................................................................................ 63
Senator Jones ............................................................................................ 66
ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD
Letter submitted by CUNA ..................................................................................... 68
Letter submitted by NAFCU .................................................................................. 70
(III)
IMPLEMENTATION OF TITLE IV OF THE
CARES ACT
TUESDAY, JUNE 2, 2020
U.S. SENATE,
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,
Washington, DC.
The Committee met by videoconference at 10 a.m., Hon. Mike
Crapo, Chairman of the Committee, presiding.
OPENING STATEMENT OF CHAIRMAN MIKE CRAPO
Chairman CRAPO. This hearing will come to order. This hearing
is another remote hearing by video.
A few videoconferencing reminders: Once you start speaking,
there will be a slight delay before you are displayed on the screen.
To minimize background noise, please click the mute button until
it is your turn to speak or ask questions. If there is a technology
issue, we will move to the next Senator until it is resolved. I re-
mind all Senators and the witnesses that the 5-minute clock still
applies, and there is a box—should be—on screens showing the 5
minutes. I am going to keep tapping that tap to remind you of the
clock so that we can stay on time, because we are also pushed up
against a vote again today at 11:45. At 30 seconds remaining, I will
try to remember to give a gentle tap. To simplify the speaking
order process, Senator Brown and I have again agreed to go by se-
niority for this hearing.
Also, for all of the Members, once you have checked in or signed
into the remote hearing system, you are recorded as present. There
are some who have wondered whether they had to stay engaged
and proved their presence. Once you are checked in, you are signed
into the Committee hearing.
With that, we will welcome everyone to this virtual hearing, and
we welcome the following witnesses: Mr. Thomas Quaadman, exec-
utive vice president of the U.S. Chamber Center for Capital Mar-
kets Competitiveness; Dr. Douglas Holtz-Eakin, president of the
American Action Forum; and Dr. Heidi Shierholz, senior economist
and director of policy at the Economic Policy Institute.
Congress and the Administration have taken extraordinary ac-
tions to mitigate the impact of the COVID–19 pandemic and pro-
vide conditions that will lead to a forceful economic recovery.
The Coronavirus Aid, Relief, and Economic Security Act, or
CARES Act, has been central to that effort.
Today we will focus on Title IV of the CARES Act, which pro-
vided a $500 billion infusion into the Exchange Stabilization Fund,
and the Department of Treasury to assist that fund, the bulk of
(1)
2
which is being used to support the Federal Reserve’s emergency
lending facilities.
This unique lending authority, known as 13(3) authority, is au-
thorized under Section 13 of the Federal Reserve Act and plays a
critical role in stabilizing markets.
We will receive testimony from each witness on the impact that
the 13(3) facilities have had so far on the economy, what the policy
tradeoffs are of expanding or restricting the term sheets of the
13(3) facilities, how the unused funds from Title IV should be
prioritized or leveraged, and an overall focus on Title IV implemen-
tation.
Beginning on March 17, 2020, and before the CARES Act was
signed into law, the Federal Reserve had already announced six
13(3) facilities.
On April 9, 2020, after the passage of the CARES Act, the Fed-
eral Reserve Board and Department of Treasury announced new
and expanded lending programs to provide up to $2.3 trillion in
loans. This was a powerful step forward to support the flow of cred-
it in the economy.
At the Banking Committee hearing with Secretary Mnuchin and
Chairman Powell on May 12, 2020, Secretary Mnuchin noted that
the mere announcement of the Corporate Bond Facility, without
putting up $1 of taxpayer money, unlocked the entire primary and
secondary market for corporate bonds.
The Federal Reserve’s recent Financial Stability Report high-
lighted a similar effect on financial markets resulting from the an-
nouncement of other facilities, noting that ‘‘Indicators of market
functioning improved after the announcement of the CPFF, the
MMFL, and the PDCF.’’
Although the announcement of many of these facilities can help
move markets toward more normal functioning, becoming oper-
ational is key to achieving their full potential.
With respect to the Federal Reserve’s emergency lending facili-
ties, I look forward to hearing how announcing and
operationalizing the facilities have impacted the economy and fi-
nancial markets so far; how the facilities have provided or stand
to provide necessary credit to households, businesses, States, and
local governments; ways that the facilities could be improved; and
how existing term sheets could be further expanded or opportuni-
ties to build upon the efforts of existing facilities.
The Main Street Lending Facilities and Municipal Liquidity Fa-
cility extend a lifeline to States, local governments, tribes, and
businesses by supporting over $1 trillion of lending with $110 bil-
lion of Title IV funds.
Incorporating widespread restrictions in these facilities could
render the facilities ineffective and leave businesses and their em-
ployees without critical resources they desperately need.
Excessive restrictions not only risk ineffectiveness for the Main
Street Lending Facilities, but also for other facilities as well.
For example, on May 11, the Fed updated the term sheet for the
Municipal Liquidity Facility to lower the population thresholds for
cities and counties, despite not being included in the CARES Act
at all.
3
While this was a step in the right direction, it still leaves many
smaller and rural communities without direct access to financial
resources, including no cities or counties in Idaho.
Each of these facilities, especially those funded by the CARES
Act, provide an opportunity to support businesses, employees,
States, and local governments whose lives have been suddenly
turned upside down by the Government’s effort to stop the spread
of COVID–19.
The work to get these facilities up and running has been of im-
mense importance, and it now must be ensured that they are struc-
tured to achieve the greatest impact for those in need.
I appreciate each one of you joining us today.
Senator Brown.
OPENING STATEMENT OF SENATOR SHERROD BROWN
Senator BROWN. Thank you, Mr. Chairman, for holding this
hearing.
The pandemic has been the ‘‘great revealer.’’ It reminds us how
vulnerable many Americans are and how the economy and Govern-
ment policy tilt in favor of the wealthy, the powerful, and the privi-
leged.
A grocery store worker in southwest Ohio told me recently, ‘‘I do
not feel safe at work; they do not pay me much. They tell me I am
essential, but I feel expendable.’’
Long before this pandemic, millions of Americans knew that we
have a system that treats them like they are expendable. Their
hard work is not paying off. For some it feels like the system is
broken, and for black and brown workers, it never worked to begin
with.
It is those black and brown communities across our country who
have been hit hardest by the coronavirus. They are more likely to
get sick, they have less access to health care, they make up the
communities hurt by Jim Crow and redlining laws, they dispropor-
tionately make up our essential workers. It is not because they do
not work as hard; it is not because of individual choices. We all
work hard; we are all trying to do something productive for our
family and our community; we all want to build a better country
for our daughters and for our sons.
No, it is because of a system that has been making it harder for
their work to pay off and putting their lives at risk for genera-
tions—long before this virus appeared.
It does not matter if they are jogging in their neighborhoods, if
they are protesting injustice, if they are asleep in their beds, or if
they are driving to the store. Black men and women know that sys-
temic racism puts their lives and the lives of their children at risk.
All the time.
This is their everyday.
When Breonna Taylor was killed by police in Louisville, when
George Floyd was killed by police in Minneapolis, people came to
the streets across this country to peacefully protest. It is an expres-
sion of fear and grief and frustration and anger. It is same grief
we had in Cleveland when 12-year-old Tamir Rice was gunned
down by police in a park.
4
More black sons and daughters and mothers and fathers killed
by police officers, the very people who are supposed to protect all
Americans. More death, when many are already grieving the loss
of family members and friends to the coronavirus and grappling
with the economic stress that this pandemic has caused.
Black communities led the Nation in mourning the killings of
George Floyd and Breonna Taylor over the last week—leading calls
for justice and long-term changes to dismantle systems of oppres-
sion.
In the midst of that trauma and grieving, millions of those same
Americans still go to work, day after day, week after week.
Our job is to show victims of systemic racism at the hands of
their own Government that the same Government will protect
them from this pandemic—that we hear them, that we see them,
that we fight for them, and that their lives matter.
Our response to this crisis must be to stand behind the people
who make this country work—all workers, whether you punch a
clock or swipe a badge, whether you earn a salary or work for tips,
whether you are raising children or caring for an aging parent,
whether your hard work is not paying off now, or whether it has
never paid off the way it should.
Not everything, of course, is about money. But the work we do
on this Committee should show Americans that the Government is
actually on their side. Our work on this Committee needs to ad-
dress wealth inequality, needs to make sure everyone is treated
fairly.
Instead, we are repeating the mistakes of the past, helping the
rich and powerful, and the corporations they run, while leaving
most Americans again to fend for themselves. We have committed
trillions of dollars to bail out corporations, without requiring those
corporations to take care of their workers.
Dr. King said, ‘‘One day our society will come to respect the sani-
tation worker. For the person who picks up our garbage, in the
final analysis, is as significant as the physician, for if he does not
do his job, diseases are rampant. All labor has dignity.’’
It is black and brown workers who have been robbed of their dig-
nity on the job—far, far too often.
If we want to be a country where every person has dignity, we
need to start by recognizing that all labor has dignity.
But so far, our response to this crisis is not the response of a
Government that believes that.
Congress can always find trillions of dollars for corporations—for
tax cuts, for bailouts. When hardworking families need help with
rent or to put food on the table, this President and this Senate says
we simply cannot afford it.
The President and his Administration had already made racial
and economic inequality worse in just 31⁄2 short years and undone
civil rights protections. They have been pretty clear they are will-
ing to put workers’ lives at risk—to reopen stockyards, or even just
to juice the stock market.
And last night, the President of the United States—think of
that—turned the arm of the State on peaceful protesters, tear-gas-
sing citizens he is supposed to serve and exploiting a house of wor-
ship as he held up a Bible, all to stage a photo op.
5
President Trump and his administration and his sycophants in
Congress believe that millions of Americans are expendable. It is
not a coincidence that many of the people they consider expendable
are black and brown workers.
Since the President is unwilling to protect people, whether that
is protecting their lives or protecting their financial future, it is up
to us, Mr. Chairman, in this Committee and this Senate to fill the
leadership void.
I hope today’s witnesses shed light on what we must do to make
sure the economic recovery is not uneven and unjust, like the last
one.
Mr. Chairman, I will close with this:
Whenever people bring up the ways the system has failed so
many Americans—online, at a hearing, or at a protest march—
there are always the naysayers—always white, usually men, often
pretty well off—who say, ‘‘How can you be so negative? Why do you
want to dwell on all the worst parts of our country’s history? Don’t
you love our country?’’
My response to our country’s naysayers and sunshine patriots is
this: How can you be so pessimistic as to believe this is the best
that America can do? Do you really think that the American peo-
ple, with our ingenuity and optimism and our tenacity, do you real-
ly think we cannot create a fairer economy and a more just Govern-
ment? Do you really truly believe we cannot have a society that
works for everyone—black and white and brown, women and men,
no matter who you are, no matter what kind of work you do?
Protesting, working for change, organizing, speaking out, de-
manding our country do better—those are some of the most patri-
otic things all of us can do.
I love my country, and if you love this country, you fight for the
people who make it work. All of them.
Thank you, Mr. Chairman.
Chairman CRAPO. We will hear from the witnesses in the order
I introduced you. I remind you that we would like you to follow the
5-minute clock as well, and even in your answers, when you are
being asked questions, often what happens is a question will be
lobbed to you just as the 5-minute clock is expiring. When that
happens, I encourage you to respond very quickly so we can move
on. And if it requires a long answer, then offer to provide that an-
swer in writing.
With that, we will go to you, Mr. Quaadman.
STATEMENT OF THOMAS QUAADMAN, EXECUTIVE VICE PRESI-
DENT, CENTER FOR CAPITAL MARKETS COMPETITIVENESS,
U.S. CHAMBER OF COMMERCE
Mr. QUAADMAN. Thank you very much. Chairman Crapo, Rank-
ing Member Brown, and Members of the Committee, thank you for
the opportunity to testify on the implementation of Title IV of the
CARES Act.
By mid-March the United States, because of COVID–19, was
faced with an unprecedented economic shutdown, a sharply declin-
ing stock market, and nonfunctioning credit markets. As you sit
here today, the cost has been significant. Forty million Americans
are unemployed and countless businesses have shuttered, many
6
permanently. Without swift Government intervention, this situa-
tion would have been more severe and painful.
Title IV of the CARES Act has helped to bridge the gap and al-
lowed some green shoots to appear. The PPP has provided relief to
millions of small businesses, allowing them to survive. Through the
actions of Congress, Treasury, and the Federal Reserve, nine 13(3)
credit facilities have been funded or established. Each of these cov-
ers an important segment of the economy or financial markets.
This comprehensive approach has helped to stabilize the financial
markets while collecting the resources necessary to restart the
economy. The Commercial Paper Facility has allowed the commer-
cial paper markets to operate and fill the daily cash management
needs of businesses.
The mere existence of the Primary Dealer Credit Facility, Pri-
mary Market Corporate Credit Facility, and Secondary Corporate
Credit Facility have restarted the corporate debt markets. This has
allowed businesses to raise over $1 trillion of private capital in a
short period of time to fund their operations and manage their way
through the crisis.
The Municipal Liquidity Facility is critical for State and local
governments to tap the bond markets and meet their funding
needs. The Chamber supported the Fed’s expansion of this pro-
gram. The resurrection of TALF has kept the securitization mar-
kets operating. This is critical for consumers to meet their financial
needs. We also believe this program should be expanded to assist
commercial real estate to help avoid potential market disruptions.
These programs have helped businesses small and large. How-
ever, the Chamber has been very concerned that mid-sized busi-
nesses could fall in a chasm where they receive no support. There
are approximately 20,000 mid-sized firms that employ close to 40
million workers. Many of these businesses may be too large for the
PPP and too small to enter the private debt markets. The Main
Street Lending Program will help these firms access the funds nec-
essary to tide them over as the economy slowly reopens. During re-
opening, initial demand may be sluggish, and it may take time for
supply chains to be reactivated. We appreciate the efforts of the
Treasury Department and Federal Reserve to get this financial
support up and running.
This is a new and unique use of 13(3) powers. While we would
have liked this program in operation sooner, it was more important
to get the terms of the facility finalized so that there could be clear
rules of the road. This will give borrowers and lenders the certainty
they need to operate.
More action may be needed as well. We appreciate the attention
that FSOC and FHFA have given to the issue of mortgage service
providers that are extending forbearance to homeowners for mort-
gage payments. Future events may dictate if a 13(3) facility will be
necessary for mortgage service providers. We are also exploring the
potential of a 13(3) facility upon accounts receivable to deal with
other industries such as utilities, which are providing forbearance
for consumers but encountering their own financial difficulties.
These different efforts by Congress, the Administration, and Fed-
eral Reserve have been a necessary use of power to help the econ-
omy and American workers during an unprecedented emergency.
7
These actions should be targeted, tailored, and temporary. The eco-
nomic shutdown and restart cannot be done by the flick of a switch.
Businesses need to know the rules to understand how these pro-
grams work and how they must comply with the law. Strong over-
sight is also needed to ensure accountability for the use of taxpayer
dollars. The Chamber took a similar position with TARP through
the support of the TARP Transparency Act and firmly believe that
those who break the laws should be punished. At the same time,
oversight should not be politicized and used to name and shame
companies. Businesses that have been deemed eligible by Congress
for these programs should not be targeted because they happen to
operate in particular industries. This goes against the intent of the
CARES Act and will force businesses to walk away. This will harm
workers and make the recovery longer and more difficult to
achieve.
Thank you for the time today, and I look forward to your ques-
tions.
Chairman CRAPO. Thank you very much, Mr. Quaadman.
Dr. Holtz-Eakin.
STATEMENT OF DOUGLAS HOLTZ-EAKIN, PRESIDENT,
AMERICAN ACTION FORUM
Mr. HOLTZ-EAKIN. Chairman Crapo, Ranking Member Brown,
and Members of the Committee, thank you for the privilege of
being here today to testify on Title IV of the CARES Act. Let me
make several points briefly, and then I look forward to answering
your questions.
Point number one is this is a historically dramatic downturn. In
the past 2 months, we have seen, for example, 6 million Americans
file claims for unemployment insurance in a single week. That is
ten times larger than the previous high back in the Great Reces-
sion. We have seen 20 million Americans lose their jobs in the
month of April—again, ten times larger than the previous high
back in the demobilization after World War II. We saw the unem-
ployment rate jump by over 10 percentage points in April—again,
ten times higher than the previous single monthly increase. And
the Congressional Budget Office anticipates that in the second
quarter of 2020, the U.S. economy will shrink by 11 percent. In the
worst year of the Great Depression, 1932, the economy shrunk by
12 percent.
Unlike the Great Depression, however, policymakers have acted
quickly and dramatically to offset this downturn. When we saw a
massive liquidity crunch hit financial markets, the Federal Reserve
stepped in quickly, lowering its policy rate to zero percent, pledging
an open-ended, unlimited amount of liquidity, and then reopening
lending facilities for commercial paper, primary dealers, and money
markets to restore the functioning of financial markets quite effec-
tively and to prevent what was a serious Main Street crisis from
turning into a financial crisis. And the Congress passed the CARES
Act, a fiscal policy of unprecedented size, done at remarkable
speed, and I believe Congress is to be congratulated for how quick-
ly it acted and the scale on which it approached the crisis.
My second point is that while much of the CARES Act has sup-
ported the economy, the Title IV lending is essentially missing in
8
action. We have seen the CARES Act provide checks to individuals
and families in the United States. It established the pandemic un-
employment insurance, and those aspects of the CARES Act have
produced a great amount of support. In a report that came out last
week, we saw that personal income in April rose by $2.1 trillion at
an annual rate, and $3 trillion of that was Government social bene-
fits. This is the dramatic impact of the CARES Act on household
finances. It was sufficient that the saving rate went up to 33 per-
cent. Households have money and they are putting it away for the
months to come.
We have seen the PPP, the Paycheck Protection Program, pro-
vide dramatic support for the economy. The PPP has many flaws,
and my understanding is the Senate is about to address some of
that. But despite its flaws, it managed to get over $500 billion out
the door during the month of April, the single worst month in the
history of the U.S. economy.
At the same time, Title IV established all sorts of potential lend-
ing facilities: the Primary Market for Corporate Credit, the Sec-
ondary Market for Corporate Credit, Term Asset Backed Securities;
and, importantly, the Main Street Lending Program for those
smaller and mid-sized companies that may not have direct access
to commercial paper and other borrowing mechanisms; and the
Municipal Liquidity Facility for strapped State and local govern-
ments.
While the CARES Act provided about $500 billion for these ac-
tivities, essentially none of that has gone out the door, the publicly
available data suggests less than 1 percent. It is puzzling to me
that a Federal Reserve that could act so quickly and on such a
large scale in the face of a liquidity crunch and a Treasury which
could combine with the SBA to provide the PPP quickly and on a
large scale could not in 2 months provide any support for these
mid-sized companies. Survey data would suggest that the typical
mid-sized company has about 2 months’ worth of cash, at which
point they will be threatened with closing the doors. We are at that
point now, and I would urge the Treasury and the Congress to urge
the Treasury to get together and provide more support for this part
of the economy. This is, as Dr. Quaadman mentioned, a big em-
ployer, and I am worried that we are losing those mid-sized busi-
nesses because the facilities are not available and the terms at
which they will be offered will be unattractive.
Thank you. I look forward to answering your questions.
Chairman CRAPO. Thank you, Dr. Holtz-Eakin.
Dr. Shierholz.
STATEMENT OF HEIDI SHIERHOLZ, SENIOR ECONOMIST AND
DIRECTOR OF POLICY, ECONOMIC POLICY INSTITUTE
Ms. SHIERHOLZ. Chair Crapo, Ranking Member Brown, and
Members of the Committee, thank you for the opportunity to testify
today.
Many concerns have been raised about Title IV, for example, the
egregious lack of conditions that would link loans to keeping people
on payroll. This should be corrected and accompanied by great lev-
els of transparency and oversight. But, in my view the biggest
problem with these lending programs is that they are loans, not
9
grants. In an economy where nonessential activity has been basi-
cally shut down for an extended period, it is not illiquidity that is
often the threat. It is bankruptcy. Further, households will face
huge challenges just meeting basic needs during this period, and
having a large tranche of aid that does nothing to directly alleviate
their suffering or to keep them from needing to slash their spend-
ing, making the recession worse and the recovery weaker, is a huge
missed opportunity. Most destructively, the $454 billion in Title IV
that is solely for ensuring the Fed against losses in the event bor-
rowers default on their loans and which likely will not even be
spent because the Fed will likely see gains not losses on these
loans, that money may very well have convinced many policy-
makers and the public that substantial aid is being provided, and
this could be a disaster. If people are convinced that the Fed can
handle the emergency response and, as a result, a further massive
fiscal stimulus does not happen, we are virtually guaranteed to
face an extended period of extremely weak growth and high unem-
ployment.
The official unemployment rate was 14.7 percent in mid-April
when the survey was taken. That does not come close to reflecting
all COVID-related job losses. If all workers who are out of work as
a result of the virus had shown up as unemployed in the data, the
unemployment rate would have been 23.5 percent in April instead
of 14.7 percent, and since that survey was taken, another roughly
18 million workers have applied for unemployment benefits.
Typical forecasts that, by the way, bake in additional fiscal aid,
including direct aid to State and local governments, these typical
forecasts predict that the official unemployment rate will be around
25 percent in June, that it will still be in double digits at the end
of 2020, and that it will be around 8 percent at the end of 2021.
And as a reminder, 8 percent is really high, the highest the unem-
ployment rate ever got in either the early 1990s or the early 2000s
recession was 7.8 percent.
The most important provisions to help generate a rapid recovery
is aid to State and local governments which are facing revenue
shortfalls as large as $1 trillion in coming years. Loans they have
to pay back in 3 years are not going to cut it. Because of their bal-
anced budget requirements, if they do not get direct fiscal aid, they
will have no choice but to slash spending and lay workers off, and
we know how bad this will be because we just lived through it. The
lack of sufficient aid to State and local governments in the after-
math of the Great Recession led to State and local austerity that
delayed the recovery from the Great Recession by over 4 years. If
direct Federal relief closes the $1 trillion State and local revenue
shortfall, it will save over 5 million jobs by the end of 2021, and
without that aid those jobs will be lost.
It is also crucial to extend the expansions of unemployment in-
surance that were part of the CARES Act, particularly the $600
per week in UI payments. Importantly, first, it is useful to remem-
ber that regular UI benefits replace a maximum of half of prior
earnings, and a huge share of recipients receive much less than
half given extremely low caps. So as a result, the extra $600 has
been by far the most effective part of our economic policy response
to the corona shock so far. It has meant that workers who earned
10
less than the average worker before the crisis are receiving benefits
that are higher than 100 percent of their prior wage. But, in fact,
for the purposes of generating a rapid macroeconomic recovery, the
more money getting into the pockets of low- and middle-wage work-
ers, the better. These workers are likely to be in households that
will have little choice but to quickly spend any unemployment ben-
efits they get on necessities, boosting the economy.
Further, at the end of July, when the extra $600 per week is set
to expire, the official unemployment rate will likely be well over 20
percent, and the unemployment rate that takes into account every-
one who is out of work as a result of the virus will be even higher.
It would be terrible policy on economic and humanitarian grounds
to use cutbacks to UI benefits that make them too stingy to live
on as a cudgel to try to get people to find a job quickly when the
labor market is that weak.
If the Federal Government provides sufficient direct fiscal aid
during this crisis so that individuals and State and local govern-
ments are not forced to make drastic cuts to their spending, then
confidence and demand will be high when the economy reopens,
and we could get a relatively robust bounce-back. But if the Fed-
eral Government does not provide fiscal relief, the country will face
an extended period of weak growth and high unemployment that
will do sweeping and unrelenting damage to the economy and to
the people and businesses in it.
Thank you.
Chairman CRAPO. Thank you very much.
I will ask my first question to you, Mr. Quaadman. What type
of demand is expected among businesses for loans under the Main
Street Lending Facility?
Mr. QUAADMAN. Thank you very much, Mr. Chairman. From dis-
cussions that we have had with many mid-sized firms, we expect
that there will be much demand for these loans. There has been
some muted enthusiasm for this because of the lack of clear rules,
and, clearly, the Fed has come out with a term sheet, an additional
term sheet in the last week. So as those parameters are becoming
more clear, we do expect that there is going to be more demand for
these loans. And I think it is important to remember as well, while
we have been dealing with this revenue cliff for the past 60 or so
days, we are still going to go through a phased reopening of the
economy so that there is going to be this need for companies to
work their way through this financial situation.
Chairman CRAPO. All right. Thank you very much.
Dr. Holtz-Eakin, do you believe that there are additional im-
provements or is sufficient clarity already provided by the Fed with
regard to the Main Street Facility?
Mr. HOLTZ-EAKIN. I still believe that the Main Street Facility is
too stringent and that when the Congress passed the CARES Act,
it essentially said to the Treasury be prepared to lose half a trillion
dollars on behalf of the private sector and its workers so that we
can support this economy. And while Secretary Mnuchin has testi-
fied that he is willing to take risks and lose money, it looks like
they are still running these facilities to break even. And so I would
take those term sheets and make them more generous. And why
not have fixed interest rates instead of variable interest rates? Why
11
not put $100 billion into Main Street? Congress has put the money
in the Exchange Stabilization Fund. That will have greater lever-
age, get to more mid-sized companies. And why have all the prin-
cipal amortizing in an even fashion? Put it in a balloon at the end
and let the terms be longer. There is no reason not to do any of
those things. So to focus on the budgetary impact at the expense
of the economy is the most fundamental error we could make at
this moment, and I think we are making it.
Chairman CRAPO. All right. Thank you.
Dr. Shierholz, you indicated that you felt that with regard to
State and local government, if I understood you right, really a loan
is not the most effective way to assist them. As you know, Congress
is considering additional support for State and local governments.
You are indicating, am I correct, that that should come in the form
of grants?
Ms. SHIERHOLZ. Absolutely. I think that what State and local
governments are facing now is a huge decline in their tax revenue.
That is still going to be there in years to come. They are not going
to—in order to keep them from becoming a huge drag on the recov-
ery, we need to make sure that those budget shortfalls are filled
in. It is one of the most important things we can do to generate
a robust recovery.
Chairman CRAPO. All right. Thank you.
I am moving around quite a bit here, but I want to get to several
other things in my minute and a half that is left. I will go to Dr.
Holtz-Eakin with regard to the Municipal Liquidity Facility. I have
said many times that the threshold, which has been reduced now
to 250,000, still does not even cover a single county or city in
Idaho. The response to that is that they can access these resources
through the States. Do you believe that the way that the Municipal
Facility is set up will actually facilitate the kind of revenue get-
ting—well, I would say the kind of assets getting to the States, the
smaller cities and counties across the country?
Mr. HOLTZ-EAKIN. Well, I have great confidence the States could
take advantage of this facility, and I hope they do. That has cer-
tainly been the strategy for replacing revenue used in the business
sector, and it will limit the amount that Congress has to do di-
rectly. But I have no confidence that that will remedy the problems
that the smaller municipalities or counties might be having, and in
the absence of a guarantee of that sort, I think you need to be con-
cerned about the facility threshold at this time.
Chairman CRAPO. All right. Thank you. And with regard to—I
will just kind of wrap up with a comment, really. Mr. Holtz-Eakin,
you had indicated you think that really one of the biggest issues
here is that the 13(3) facilities are still not in action.
Mr. HOLTZ-EAKIN. Right.
Chairman CRAPO. And I just want to kind of go over some statis-
tics here. The PPP program, as I understand it, has put out some-
thing in the neighborhood of $530 billion, over 4 million loans. The
Congressional Budget Office put the price tag for the checks to in-
dividuals—which has not all come out yet, but much of it has—at
$293 billion and $268 billion for unemployment insurance. So we
are seeing in those areas that the Government was able to move
12
quickly. And your point primarily is that we need to engage and
get implemented the 13(3) facilities as quickly as possible.
Mr. HOLTZ-EAKIN. Yes. I find it very puzzling that they have not
done this to date. It has been 2 months. I know they say that an-
nouncements have had important impacts on rates, but there is
nothing less interesting than a market rate at which no one trans-
acts.
Chairman CRAPO. Understood.
Mr. HOLTZ-EAKIN. It impacts the people.
Chairman CRAPO. All right. Senator Brown.
Senator BROWN. Thank you, Mr. Chair.
Ms. Shierholz, there is a stark difference in our country, as we
know, between black Americans and white Americans in almost
every aspect of life: police brutality, our justice system, health out-
comes. Black people are dying at a disproportionately higher rate
than white people, before the pandemic, during the pandemic.
Americans are angry about these disparities, and we should be
angry about the senseless killings of George Floyd, of Breonna Tay-
lor, of Ahmaud Arbery, and so many others. We are outraged that
armed white protesters are allowed to storm State capitols while
peaceful black protesters are met with tear gas. I assume all of you
on this panel noticed that, right?
These very different realities extend to jobs and income as well.
Black and Latinx workers face higher unemployment rates than
white workers. Women across the board, including black and brown
women, have higher employment rates than men. We know all
those things.
Dr. Shierholz, how do economic crises like this one affect dif-
ferent racial groups? What do you do to change these outcomes?
Ms. SHIERHOLZ. Thank you for that question, Senator. So reces-
sions hit black and Latinx men and women harder, with higher job
loss and greater income decline. One key reason is that black and
Latinx men and women are concentrated in different jobs than
white men and women, and the reason for that is systemic racism.
It is due in part to discrimination in hiring and promotions, but
that is not the only thing. It is also due to systemic differences in
access to educational experiences and credentials that dictate what
kind of jobs people can get, and those differences in access are root-
ed in structural racism. It is also due to the fact that even aside
from educational differences, we still have a lot of occupational seg-
regation in this country, and that is rooted in structural racism.
And it is due to black and Latinx workers not having access to job-
finding networks that white workers have access to and on and on
and on.
Senator BROWN. Thank you.
Mr. Quaadman and Dr. Holtz-Eakin, following up on that, I
know you see, both of you recognize the disparity between black
and white unemployment. Is it because of structural and systemic
racism? Just give me a yes or no, if you would. Dr. Holtz-Eakin,
you first. Is this disparity between black and white employment be-
cause of structural and systemic racism?
Mr. HOLTZ-EAKIN. It is primarily education. That is the source
of the educational differences, so then your answer is yes.
Senator BROWN. Mr. Quaadman, yes or no?
13
Mr. QUAADMAN. Senator Brown, at the Chamber we recognize
that the inequality and injustice in the African American commu-
nity is real and stand in solidarity against racism and advocate for
diversity and equity and inclusion in our society.
Senator BROWN. Thank you. I am glad you at least acknowledge
the structural barriers African Americans and people of color face.
I think also that statement you just gave notwithstanding, Mr.
Quaadman, I think you need to ask yourselves how your organiza-
tions, the companies you represent, the antiworker policies you pro-
mote are perpetuating systemic racism. And I would go here, Mr.
Quaadman: There is so much corporate America must do to combat
systemic racism. Millions of mostly black and brown workers risk
their safety during this pandemic. We know who most of them—
who many, many of the essential workers are. They are more likely
to be women than men. They are disproportionately people of color.
They are working for companies that did not pay them nearly
enough to begin with. These same companies now, Mr. Quaadman,
are spending millions on ad campaigns to thank workers and as-
sure them that, as they like to say in these ads, ‘‘We are all in this
together.’’ Well, saying ‘‘thank you’’ is not enough. If we are really
all in this together, will the U.S. Chamber take the position that
its member companies must permanently and substantially in-
crease the pay of all workers?
Mr. QUAADMAN. Thank you very much for that question, Senator
Brown. Back in October, the Chamber launched Project Growth
and Opportunity where we wanted to highlight social problems and
how companies are actually trying to solve those social problems on
their own.
Additionally, in April, in conjunction with Rick Wade, who heads
our diversity programs at the Chamber, we started a dialogue with
our financial services firms to ensure that they were trying—that
they were providing resources to minority businesses during the
pandemic, and we supported the CDFI set-asides as well.
Additionally, with many of the guides——
Senator BROWN. I am sorry to interrupt. I appreciate those ef-
forts. But it is not showing up in paychecks, and you know that.
These workers have always been essential to your companies, not
just now. They are the ones who make you successful. You know
many of these workers are eligible for Medicaid and SNAP benefits,
for housing vouchers, and the earned income tax credit and child
tax credit. And it is fundamentally that your companies simply do
not pay.
A last question. Ms. Shierholz, many of these companies receiv-
ing billions in taxpayer monies to stay afloat, they lay off workers;
they force them to risk their safety at work for too little pay. Again,
we know many of these are black and brown workers. What is the
best way to ensure they stay afloat? From an economics perspec-
tive, does it make sense that some of the most essential workers
are the lowest paid?
Ms. SHIERHOLZ. Right, the essential role played by so many low-
wage workers and so many black and brown workers in grocery
stores, utilities, care work, on and on, often without adequate per-
sonal protective equipment and without a union and voice on the
job is increasingly highlighting the glaring inequalities and ineffi-
14
ciencies in the U.S. labor market. These workers need safe work-
places and protective equipment, premium pay, and the oppor-
tunity to have a union and a voice on the job. And then I think
it is also useful to note that from a public health perspective, we
all benefit if essential workers have access to paid sick leave, safe
workplaces, an ability to point out and correct unsafe conditions
without fear of retaliation.
Senator BROWN. Thank you.
Mr. Chairman, thank you.
Chairman CRAPO. Thank you.
Senator Toomey.
Senator TOOMEY. Thank you, Mr. Chairman.
Just a quick follow-up to this discussion about the disparity in
economic outcomes. Dr. Holtz-Eakin, if I recall correctly, suggested
that the biggest explanation is probably unequal educational oppor-
tunities, which no doubt that is probably the single biggest contrib-
uting factor. Of course, throughout most of our country, if you are
wealthy, you get the luxury of choosing the school that your chil-
dren attend, and so since a good education for kids is so important
to virtually all parents, wealthy and even some upper-middle-in-
come families, they will make that choice, and they will send their
kids to a school that will get a good outcome. But we systematically
deny that freedom to low-income people, and we simply trap them
in the school that corresponds to their zip code without giving them
the opportunity to choose a school that might work better, might
give them more opportunities. So when we discuss the inequity or
the disparity in economic outcomes, I hope we will keep in mind
that there is a mechanism that could create much more oppor-
tunity especially for low-income families.
I also think we ought to keep in mind just how terrific it would
be if we can get through this and get back to the way our economy
was just a few short months ago when we had the strongest econ-
omy of my lifetime—I am 58 years old—but booming economic
growth, record low unemployment, record low unemployment for
minority communities, wage growth accelerating and accelerating
fastest for the lowest-income Americans, income inequality dimin-
ishing. It was really a terrific economy, and then along came this
pandemic and the corresponding shutdowns which did so much
damage. We need to recover from this as quickly as we can and get
back to the tremendous circumstances we had that were improving
rapidly.
I would like to touch on something that has been touched on pe-
ripherally, but I think it is worth underscoring. When we passed
this legislation and authorized these 13(3) facilities, one of the
things we hoped for was that maybe the mere existence of these
programs, the mere authorization for the Fed to stand up facilities
to buy corporate bonds, for instance, maybe that would help to free
up the capital markets and allow capital to flow in the private mar-
kets. And this is so important because, of course, large companies
are huge employers. Across America they employ tens of millions
of people. And we did not want a short liquidity squeeze to cause
them to go under and prevent those jobs from ever coming back.
What I find remarkable is the extent to which the capital mar-
kets responded, and maybe Dr. Holtz-Eakin would comment on
15
this, but my understanding is while we were going through the se-
verest economic retraction since the Great Depression, a full-blown
pandemic, an unprecedented shutdown of our economy, and lit-
erally locking people in their homes, despite all of that, our capital
markets responded with record issuance of corporate debt. And
large companies—and that is who we are talking about here, large
companies—were able to access the capital markets at a rate about
twice, two times, what they did last year, raising over $1 trillion
and enabling themselves to shore up their balance sheets so that
they could get through this time, and if they have, hopefully keep
as many people employed as they possibly can, and to the extent
they could not, bring them back, and all of this with the Fed doing
almost nothing in terms of actual intervention in the market, my
understanding is they have bought about $3 billion worth of cor-
porate bonds through ETFs, and these other facilities have not yet
been fully funded.
Now, the Main Street Lending Program, that is a different cat-
egory, a different size company, a different program. But would you
just comment on the success of restoring confidence in our markets
and what has happened? And it is not just the top credit quality.
My understanding is this is pretty much across the credit quality
spectrum.
Mr. HOLTZ-EAKIN. So as I mentioned briefly in my opening, the
Fed has done an outstanding job of keeping this shutdown of the
real economy from turning into a financial crisis. It moved aggres-
sively with open-ended promises of liquidity. It set up facilities on
its own authorities, which helped enormously. And the corporate
credit facilities, the announcement effect there is a real thing that
has been beneficial, and you are right about the numbers. Private
corporations have accessed credit markets to a remarkable degree
in the midst of this crisis, and the benefit accrues to American
workers who did not get laid off or will have the ability to come
back quickly. I think that is all tremendous.
My point is simply that stopping there and not moving to the
mid-sized companies with the Main Street Program is a mystifying
decision.
Senator TOOMEY. Yeah, so I think that is a really important
point, and I urge the Fed and the Treasury to move as quickly as
they can on the Main Street Lending Program, and I share some
of your concerns that the terms may be so onerous that we might
not get the take-up that we are hoping for. In fairness, I think
starting this program from scratch is a big undertaking, and it
does take a little while to pull this all together. But I think the
next question that is a really important one and I think we will
start to find out very soon is whether the terms are such that bor-
rowers will take up, those borrowers who need the money.
I have exceeded my time limit, so I apologize, Mr. Chairman, but
thank you very much.
Chairman CRAPO. Thank you.
Senator Reed? Have you got your mute button on, Senator Reed?
Senator REED. Can you hear me now?
Chairman CRAPO. Yes.
Senator REED. Thank you, Mr. Chairman. My technological ex-
pertise once again becomes obvious to all.
16
Dr. Holtz-Eakin, thank you for your testimony and for your great
work over time. Dr. Shierholz made a very compelling case for sup-
port for State and local governments, and I have been supportive
of that since the very initial discussions with the CARES Act, and
I also have legislation pending. Twenty million jobs, that is how
many State and local government people are employed. About 8.5
percent of our GDP is State and local government. If we do not pro-
vide them additional grants, would that be a major miscue, a mis-
take in terms of recovery?
Mr. HOLTZ-EAKIN. Is this for me or for——
Senator REED. That is for you, Dr. Holtz-Eakin.
Mr. HOLTZ-EAKIN. I am agnostic. I leave it to Congress to decide
whether they should be grants or loans. But if we do not have a
robust State and local sector, we will not get a robust recovery.
Senator REED. All right. And that I think is a function not only
of simply putting the money and keeping people employed, but so
much of our economic activity depends on things like building in-
spectors being able to inspect construction sites, health workers
being able to do their jobs when they are essentially laid off, fur-
loughed. Oh, by the way, the teachers taking children to school so
that men and women, adults, can go to work, all of that, without
it, would just cause a catastrophe.
Does that make sense to you, Doctor?
Mr. HOLTZ-EAKIN. That is a concern. One of the interesting
things that came out last Friday in the April payroll income and
expenditure report was that we have not seen a big decline in Gov-
ernment payrolls. It has been a private sector recession to date,
and I think the key would be to make sure that it does not develop
into one in the State and local arena.
Senator REED. Well, what is happening—and my State might be
an example—we have a July 1st deadline for our budget. We have
a constitutional amendment it has to be balanced. They are going
to have to make some excruciating decisions, and the impact will
be significant and huge.
Dr. Shierholz, I know you want to comment.
Ms. SHIERHOLZ. I just wanted to say that we have already seen
a loss of nearly 1 million State and local jobs. By mid-April we had
already lost more State and local jobs than were lost in the entire
Great Recession, which actually—I did not actually think that
those losses would come so early, but the fact that they are coming
so early does, you know, underscore how important that is.
Senator REED. Dr. Shierholz, in terms of this local funding, it is
critical to so many other aspects of the economy, as I suggested be-
fore. Without schools, parents will be inhibited to go back to work
because they have no place to care for their children. Without in-
spectors, you cannot get projects done. So there will be a multiplier
effect in terms of the diminishment of State and local payrolls.
Ms. SHIERHOLZ. Yeah, I think that is important to note when you
think of, yes, there will be a ton of State and local government
workers laid off, but you think of all of the services that they pro-
vide, the impact that that will have, and then the fact that those
workers are not getting income anymore means all of the stuff that
they buy, people will not be needed to produce that stuff because
they will not be able to buy it anymore. So we just have this really
17
vicious cycle, and that is why State and local austerity is so dam-
aging to the recovery.
Senator REED. Let me make another point and change the sub-
ject very briefly. Dr. Shierholz, we are looking at these unemploy-
ment compensation benefits that will expire. When they expire, we
are now looking at a situation where people will become desperate,
literally. And no one anticipates a fast, rapid recovery to 5 percent
unemployment or 3 percent, or 3.5 percent unemployment, our
record unemployment. In fact, they are looking at long-term sus-
tained unemployment of significant levels. Without extending un-
employment benefits that are not tied to a deadline, which I think
is wrong, but tied to the actual state of the economy, i.e., a certain
percentage of unemployment, we are going to find ourselves in a
deep, deep hole. Is that accurate?
Ms. SHIERHOLZ. Yes, Senator, I am glad you brought that up.
There is just a huge amount of uncertainty around how the eco-
nomic impact of this will unfold. So assigning arbitrary end dates
to provides to sustain the economy like unemployment insurance
just makes no sense when the process could be handled automati-
cally by having provisions phase out as, for example, the unemploy-
ment rate declines. I think your key point is that automatic stabi-
lizers—using automatic stabilizers would not be any more expen-
sive than the cumulative cost of multiple extensions in the pro-
gram, but it would prevent incredibly destructive lapses in critical
programs while Congress is negotiating extensions, and having
automatic stabilizers would alleviate the terribly corrosive uncer-
tainty by giving businesses and households confidence around
budgeting and planning. It is just good governance.
Senator REED. Thank you very much.
Thank you, Mr. Chairman.
Chairman CRAPO. Thank you.
Senator Cotton? Is Senator Cotton on?
[No response.]
Chairman CRAPO. Senator Tillis, are you on?
[No response.]
Chairman CRAPO. Senator McSally, are you on?
[No response.]
Chairman CRAPO. Senator Moran?
[No response.]
Chairman CRAPO. I am going to go to Senator Menendez. I see
you.
Senator MENENDEZ. Thank you, Mr. Chairman. Thank you to all
the witnesses.
You know, the last jobs report indicated that the State and local
governments shed more jobs in 1 month than the entirety of the
Great Recession. And projections released by Moody’s revealed that
every State in the Nation is already or will soon face historic budg-
et shortfalls. And if Congress does not act soon to help State and
local governments, they are going to have to cut life-saving serv-
ices, lay off or furlough more teachers, public safety, emergency
health personnel. It would be the height of irony that those who
we need the most in the midst of a pandemic would ultimately be
laid off.
18
So, Dr. Shierholz and Dr. Holtz-Eakin, can you tell us, in the last
recession what were the consequences of a drag on the economy by
State and municipal layoffs and what will we be facing again in the
absence of any assistance to State and local governments?
Mr. HOLTZ-EAKIN. Go ahead.
Ms. SHIERHOLZ. Go ahead.
Mr. HOLTZ-EAKIN. No, no. That is fine.
Ms. SHIERHOLZ. I will go quickly and then turn it over. So we do
have good evidence from the aftermath of the Great Recession. The
Federal Government did not provide enough aid, and simple cal-
culations—and I can forward these to you—show that the State
and local austerity in the aftermath of the Great Recession delayed
the recovery by over 4 years. And we will be facing that and more
in the aftermath of this recession because budget shortfalls are so
much more dramatic right now.
Mr. HOLTZ-EAKIN. So I think in this moment there are some
things that are obvious. One, there is an enormous amount of pan-
demic-related expense that the State and local governments have
incurred, and it is appropriate for the taxpayer to pick that up in
whole or in part. It is serving the entire Nation.
I think it is also clear that there are some structural problems
in some State and local budgets that are not a result of the pan-
demic and not really something you should be addressing at the
moment.
And then there is the really hard question, the subject of this
hearing: How much help can be provided quickly through the Mu-
nicipal Liquidity Facility and how much will you have to end up
providing through the appropriations process in the Congress? And
I do not know the answer to that, but I am troubled by the fact
that we do not have what appears to be a live option in the Munic-
ipal Liquidity Facility right now.
Senator MENENDEZ. I agree. Mr. Quaadman, let me stay on this
subject. What is the impact on businesses and communities if
States, cities, and counties have to cut investments in infrastruc-
ture, public health, public safety, or raise sales or income taxes to
pay for essential services?
Mr. QUAADMAN. Senator, thank you for that question. It creates
a tremendous negative impact on businesses, particularly small
businesses that depend on those essential services. Also, the delay
of infrastructure projects, which are usually the first to go, are also
going to be harmful as well to workers and firms also.
Additionally, as you also allude to, if you were to have a large
tax increase in the middle of the recession, as State and local gov-
ernments would be forced to do, that is about the last thing we
need if we are going to try and go on the road to recovery.
Senator MENENDEZ. Thank you.
Dr. Holtz-Eakin, in a podcast last week, you suggested—and I
think you have talked a little bit about that here—that the Fed’s
Municipal Liquidity Facility has not been particularly successful so
far possibly because the terms are too tight. Currently, any loans
under the Municipal Liquidity Facility would have to be paid back
within 3 years. Wouldn’t you agree that just like in the Great Re-
cession, the fiscal pressures on States and localities are probably
going to still be there 3 years from now? Wouldn’t a longer term
19
make more economic sense? Why would you not ultimately offer
the States and localities the same type of conditions you are offer-
ing the private sector?
Mr. HOLTZ-EAKIN. I think the terms on the Main Street Lending
Program and the Municipal Liquidity Facility should have longer
terms. I do not see why they are not 10 years. There is a great op-
portunity here to be helpful, and there is no reason to rush the re-
payment in any way.
Senator MENENDEZ. And at the end of the day, you will make
money. Maybe not a lot, but you will make some money.
Mr. HOLTZ-EAKIN. You know, in this moment I do not think that
is the top consideration. I am afraid they are thinking that way.
Senator MENENDEZ. I agree.
Mr. HOLTZ-EAKIN. And so I worry about the terms from that per-
spective.
Senator MENENDEZ. Do you think that the rates that exist—I am
concerned that the price of credit the Fed is offering to the State
and local governments would be—they are offering more expensive
loans to some investment grade municipalities than it would to
highly indebted private companies through the Main Street Lend-
ing Program. Do you think these rates are going to discourage
State and local governments from using the facility?
Mr. HOLTZ-EAKIN. I think that is a concern, and, you know, in
some cases, if you look at the terms on the Main Street Program,
they are variable rates. That is a kind of uncertainty that we do
not need to incur at this point. They could offer fixed-rate loans to
these individuals, and I think they should.
Senator MENENDEZ. Well, bipartisan legislation I have with Sen-
ator Cassidy and others that I think we need to deal with, $500
billion for States and municipalities divided in ways that ulti-
mately respond to the actual crisis at hand. Thank you very much.
I have some other questions I will submit for the record.
Chairman CRAPO. Thank you.
Senator Cotton.
Senator COTTON. Thank you, Mr. Chairman. Apologies for the
technical difficulties earlier.
The Federal response to the Wuhan coronavirus has obviously
been extraordinarily costly, and I think we all agree that vigorous
oversight of these expenditures that we have undertaken are nec-
essary and proper, and part of that oversight responsibility needs
to be in making sure that money is used exclusively on our eco-
nomic recovery and trying to save as many jobs and as many busi-
nesses as possible.
Mr. Quaadman, in your testimony you warned against politi-
cizing the oversight process, not to push policy preferences that are
unrelated to or distract from our core mission of ensuring a strong
and steady recovery. I hope there is general agreement that every
dollar that we spend should be directed toward reducing jobless-
ness and combating the virus. But of the last two pieces of legisla-
tion that the House of Representatives passed, there is quite a bit
of grab bag policies in there, one banning photo identification for
mail-in ballots. Mr. Quaadman, do you view banning photo identi-
fication for mail-in ballots to be central and vital to the economic
recovery from this coronavirus?
20
Mr. QUAADMAN. Thank you very much, Senator Cotton, for that
question. I think it is important to remember here that this eco-
nomic downturn is a result of Government orders. This is not part
of the business cycle; this is not part of a market failure. So, there-
fore, while I said we agree that there should be strong oversight,
if there are going to be industries that are going to be targeted be-
cause they are not liked, that should not be—if they are eligible as
decided by law. Similarly, we also believe that once it becomes a
game of ‘‘gotcha,’’ companies are actually going to stay away from
these facilities, from these lending programs, and it is actually
going to frustrate the intent of the CARES Act, and it is going to
harm workers and make it longer for the economy to recover.
Senator COTTON. I agree with those points, and I will come to an
example of that in a moment. But it sounds like you do not think
that banning photo identification for mail-in ballots is vital to our
economic recovery.
Mr. QUAADMAN. Not in this context. That should be taken up in
another context.
Senator COTTON. Ms. Shierholz, is banning photo identification
for mail-in ballots vital and essential to economic recovery?
Ms. SHIERHOLZ. What we need to ensure right now is that people
have access to voting, so we need to be extremely open about what
we can do in this very difficult time to make sure that people—that
our democracy is functioning and people are able to vote.
Senator COTTON. OK. I will take that as a no.
Mr. Quaadman, you recommend disfavored industries and using
this crisis to try to push pet policies. One requirement of the House
bill was going to mandate that all domestic passenger flights be
carbon neutral within 5 years. Do you think that is vital to our eco-
nomic recovery, if it is even technologically feasible?
Mr. QUAADMAN. Not at this time, and even airlines that have
talked about going carbon neutral talked about it in a much longer
time length. In fact, what we should be concentrated on is how we
are going to have a viable airline industry and air cargo industry
moving forward and how a smaller airline and cargo industry can
be in place and be able to grow from that point on.
Senator COTTON. Thanks. What about you, Mr. Holtz-Eakin? Is
it essential to our economic recovery from this pandemic that we
mandate all domestic flights be carbon neutral, whatever that even
means?
Mr. HOLTZ-EAKIN. No, but I would encourage the Congress to
keep a close eye on the supply chain and the adequacy of the sup-
ply chain going forward.
Senator COTTON. Of course. That is vital.
And, Ms. Shierholz, is it vital to mandate that all domestic
flights be carbon neutral in the next 5 years?
Ms. SHIERHOLZ. What we need to do in the aftermath of this is
make sure that we are making the investments that will set things
up so that the climate crisis—we are getting a test run—right?—
on what the climate crisis could look like with this crisis we are
facing now. And so putting things in place, whether or not it is
right now or in the longer run, to make sure that we are able, we
are ready to fight future crises is absolutely the right thing.
21
Senator COTTON. Thank you. So I will just conclude by saying I
am pleased that the Senate so far has opposed some of the most
extraneous, unrelated policies proposed by the House of Represent-
atives. As we conduct oversight on the CARES Act and as we con-
sider future legislation, I think it is vital that we continue to focus
on counteracting this virus, getting people back to work, getting
businesses open again, and getting our economy back on its feet.
And, obviously, this pandemic has had a far-reaching impact. I see
Senator Cortez Masto there. We all know what this has done to
Las Vegas and the hospitality industry in all of our States. We
know what it has done to the defense industry and shutting down
small and mid-sized suppliers for our large defense contractors.
The ramifications and the impact of this virus are far-reaching, and
we are still learning some of the economic impact that it has had.
I just hope that we keep our focus on that impact and that we do
not try to pursue unrelated, extraneous policies that we all might
favor in both parties and within our single policies, that we focus
on getting people back to work and businesses open and getting the
economy back on its feet.
Thank you.
Chairman CRAPO. Thank you.
Senator Tester.
Senator TESTER. Thank you, Mr. Chairman. And I apologize for
the lack of video, but that is probably better for you guys.
I just want to start by associating myself with Ranking Member
Brown’s comments at the beginning here. Look, I was 13 years old
when the Kent State shootings went on, and I think we are head-
ing down that road. And I never want to tell my colleagues what
to do, but we need bipartisan pushback about what the President
of the United States has been doing the last few days and, quite
frankly, even longer than that, from telling folks to drink Clorox
to taking IGs out of our ability to have independent inspections to
now threatening military action against civilians. This is ridicu-
lous.
That aside, I want to get to our panelists, and I want to thank
them for being here today. I am worried, as I hear most of you,
quite frankly, that small businesses in Montana and across this
country are not getting what they need to deal with this COVID–
19 crisis, from Treasury in particular.
Would you guys agree with that, number one? And if you do
agree with that, what do you think Congress should do to set
things right for small businesses? Go ahead.
Mr. QUAADMAN. Senator Tester, this is Tom Quaadman with the
U.S. Chamber. First off, I think the Phillips–Roy legislation that
passed the House is now coming over to the Senate provides some
relief—provides some ability to change some of the parameters that
are making it more difficult for small businesses to comply with
some of the forgiveness portions of the loan. The other is that the
PPP program has undergone many different changes where there
have been a continual number of FAQs that have come out that
have shifted the goalposts. So, therefore, we also think that small
businesses should be in compliance at the time when they have got
their loan as well. So I think those are some of the things where
we do need some clarity.
22
Senator TESTER. Do other folks want to comment on that?
Ms. SHIERHOLZ. I can jump in quickly. I just think we cannot
overlook the fact that things like aid to State and local govern-
ments, extending the expansions of unemployment insurance, those
things are incredibly important for small businesses because they
will maintain people’s spending. People will not be able to spend
in small businesses if they do not have their incomes. So that kind
of general stimulus is incredibly important to all businesses.
Senator TESTER. Dr. Holtz-Eakin.
Mr. HOLTZ-EAKIN. I think this is a really important issue. The
crisis was a rolling set of liquidity crunches that went through vast
swaths of the economy, and the small and mid-sized businesses
simply do not have the cash to survive this, often do not have ac-
cess to corporate commercial markets, and this is the lifeline that
will keep them from closing their doors, keep their workers from
being disconnected from their employment. And both of those
things the economic infrastructure make the recovery harder. And
so I think the Treasury should be moving with tremendous speed
to provide access to these funds at very generous terms, and I
would encourage you to call, write, or change the laws to have that
happen.
Senator TESTER. Thank you. I thank all three of you. I have got
about a minute and 40 seconds left. I am going to ask two ques-
tions, and I want you to be very concise, and we can get through
all three of you. It looks like there is going to be another economic
package coming. How big do you think that package should be?
And what are your top three priorities of any package that we are
going to pass? I will start with you, Mr. Quaadman.
Mr. QUAADMAN. Thank you, Senator Tester. We are actually put-
ting together our CARES Act 2.0 letter now. We think that addi-
tional bridge financing is something that should be important, and
other issues, including child care, which are important reopening
issues for companies should be addressed, and we will share that
letter with you in the next several days.
Senator TESTER. Do you have an overall size of a package that
you think will be necessary to help keep this economy, as crippled
as it is, moving forward?
Mr. QUAADMAN. We are still looking at that because the needs
of the business community and the economy today are different
than when the CARES Act passed back in March and April.
Senator TESTER. Correct. Moving forward, I would love to get
your input on that. If you would put that to us, that would be good.
Heidi, would you like to speak to that?
Ms. SHIERHOLZ. Sure. So I think the key, the most important
thing is direct fiscal aid to State and local governments, expansions
of unemployment—or continuation of the unemployment insurance
expansions in the CARES Act, and the key thing is we need all of
those provisions tied to economic conditions so they do not expire
at arbitrary dates. That actually makes it kind of tricky to know
exactly how much it will cost, but I think the size of the House bill
is on the order that we are looking for, but we need to be prepared
to do more if the economy remains weak.
Senator TESTER. Dr. Holtz-Eakin.
23
Mr. HOLTZ-EAKIN. I would encourage you not to think of it in
terms of dollar size but in terms of problems that must be ad-
dressed. And people will reopen this economy; Governments will
not. And they will reopen it when they feel safe. That means work-
ers must be able to work safely in the workplaces, and reconfig-
uring workshop will be expensive. We should focus on helping busi-
nesses do that. Businesses have concerns about liability that are le-
gitimate, and you should be concerned about that. And let us make
the environment one in which people can go to work successfully
and businesses can operate safely. That is the key.
Senator TESTER. Thank you, panelists.
Thank you, Mr. Chairman.
Chairman CRAPO. Thank you.
Senator Tillis.
Senator TILLIS. Thank you, Mr. Chairman. Sorry I was not able
to speak in turn. I am actually on two different committees, Judici-
ary and Banking. Thank you for holding this Committee.
Mr. Quaadman, I have a question actually maybe for you and for
Mr. Holtz-Eakin, which really follows on what Senator Tester was
just talking about. If you look at the CARES Act, can you give me
a really concise stop, start, and continue sort of view of the CARES
Act and what you would like to see in a follow-up package?
Mr. QUAADMAN. Thank you very much, Senator Tillis. As I said
earlier, we do believe that some of the PPP guidelines should be
changed with that. I also agree with Dr. Holtz-Eakin as well that
some of the term sheets or some of the parameters around the
Main Street Lending Program are going to make that more dif-
ficult. And we think that it should also be important for Congress
possibly to set some policy parameters to help with that demand
as well.
Senator TILLIS. Will that be outlined in the letter that you dis-
cussed with Senator Tester? Is that going to be outlined in the let-
ter coming from the Chamber?
Mr. QUAADMAN. Yes, and with other communications as well,
Senator Tillis.
Senator TILLIS. OK. Mr. Holtz-Eakin, your thoughts?
Mr. HOLTZ-EAKIN. I think continuing to provide liquidity to small
and mid-sized businesses, PPP and the Main Street Lending Pro-
gram as reconfigured. I think the biggest decision you face is how
to transform the $600 Federal bonus, which made eminent sense
when you wanted people to stay home and not work out of fear of
transmitting the virus, and now with the desire to have more peo-
ple working, it will be a big impediment to the success there. Our
work says that 63 percent of workers would make more on unem-
ployment insurance than they would going back to their job, so you
need to maintain the purchasing power of households while pro-
viding work incentives, and that is a key decision that you face.
Senator TILLIS. I think the key to that is tailoring it to where we
get it more into what we believe congressional intent was, was to
try and keep the employees whole and not create this disincentive
and potentially a braking factor on economic recovery or job recov-
ery.
I have another question that really relates to other actions that
we may take here. You know, the number of links in the global
24
supply chain that were in China are concerning to us in several
areas. I think that it is right for us to take a look at supply chain
resiliency, identify ways to incent businesses to maybe move some
of that capacity back to the United States, or minimally to a more,
let us say, predictable partner in the global supply chain. But I do
think that if we are not careful, we could impose—instead of pro-
viding incentives or carrots, to take a look at reformulating supply
chains. If we come in with a stick, we may find ourselves creating
artificial deadlines and constraints on reformulating the supply
chains that I think could have a very negative impact on job cre-
ation and prices.
Mr. Quaadman, have you and your members discussed this?
Mr. QUAADMAN. Yeah, thank you, Senator Tillis. In fact, compa-
nies were already reviewing their supply chains and seeing how
they should be reoriented after the tensions with China last year.
Frankly, to some degree the pandemic has actually stunted some
of that because of the business shutdowns. So I think this is some-
thing that the business community is already looking at and agree
with you that this should be done through the condition of market
forces rather than a stick, as you said.
Senator TILLIS. I think it is very important to have your mem-
bers, particularly those who are already looking at supply chain re-
siliency and future strategies, to make sure you are communicating
to Congress the complexities and the kinds of timelines that you
are looking at, because we have to keep in mind that just because
we may be able to manufacture something here, it does not mean
that everything that we use to source it and get it ready to be man-
ufactured can be and will not be in the United States. So we have
to be very mindful of our policy decisions that could impact and po-
tentially disrupt supply chains, make them less reliable. And I
think that that is something that you, manufacturers, and a lot of
other organizations should weigh in on so that we get that right
when we move forward with policy.
Mr. Holtz-Eakin, I see you shaking your head. Do you agree with
that?
Mr. HOLTZ-EAKIN. I do. I am deeply concerned that strong edicts,
for example, just move all capital out of China, will miss the point
that if you face a risk, diversification is one part of the strategy
dealing with it, and that if we want to have dedicated capacity, as,
for example, we have done with national security and defense pro-
duction, we should provide market incentives to produce it. And so
have a richer R&D credit for those who do work in the U.S., pro-
vide greater—make things permanent, all those things make sense
to me.
Senator TILLIS. Thank you. I have got other questions on the def-
icit and a number of other things that I will defer. Thank you, Mr.
Chair.
Chairman CRAPO. Thank you.
Senator Warner? And you need to unmute.
Senator WARNER. I got it. One second.
Chairman CRAPO. You are good.
Senator WARNER. OK, great. Thank you, Mr. Chairman.
Let me get right at it since I lost a couple seconds there. First
of all, I want to go back to some of the comments that Senator
25
Toomey made I tend to agree with around the Main Street Facility.
I want to start with Dr. Holtz-Eakin. My sense is, as well inten-
tioned as CARES was—we were very generous to the airline indus-
try. We created traditional Fed tools, 13(3) for the commercial
paper market for larger enterprises. Even with some of the design
flaws in PPP, we should have clearly had a requirement to show
economic loss. I think we are going to find a lot of companies that
had no economic loss benefiting from that program. But, again,
pretty darn well for small enterprises.
The mid-sized marketplace, though, these 500 to 10,000 employ-
ees, may not be public, we have created this cliff effect. And I share
Senator Toomey’s concerns about how long it is taking for Main
Street to get out. I am very concerned that there is no take-up rate
that will be not an indication of lack of need but potentially design
flaws. We actually put into the legislation—and so far the Fed and
Treasury have not acted on this—a requirement for a below-market
lending facility for this middle area. And I know, you know, the
Fed has appropriate concerns about protecting its resources, but,
Dr. Holtz-Eakin, what would you say if you had to pick one or two
or three design changes in Main Street that you think would help
the program become more effective?
Mr. HOLTZ-EAKIN. So lower the minimum loan size from
$500,000 to half that; extend the term from 4 years to, say, 10; do
the amortization of principal over a longer period, put maybe a bal-
loon at the end. You know, this is about not bleeding cash out of
these firms. It is about providing them cash. And you could have
fixed interest rates, as I mentioned earlier. There are a whole vari-
ety of the terms that I think could be modified to make it more at-
tractive and should be modified. The Congress gave the Treasury
an enormous amount of resources to make sure that the Fed is
whole. I understand the Fed’s concerns about being whole in this.
They have their own obligations. But the resources are there, and
this has to get—this can get done and should get done.
Senator WARNER. And I agree, and I have, you know, some sym-
pathy for Secretary Mnuchin, that, you know, I think we want him
to be able to have some of those Treasury dollars be at risk because
that is going to mean the program is going to be more leaning in
and leaning forward. But I hope—and he said this in testimony,
but I hope we would see even more leaning in.
Dr. Shierholz——
Mr. HOLTZ-EAKIN. Sir, just one more thing quickly.
Senator WARNER. Yeah.
Mr. HOLTZ-EAKIN. You could have those special purpose vehicles
take 100 percent of the loan. Having the banks hold it may slow
all this down. So put the risk in the SPV and let the Treasury
cover it. That could help a lot.
Senator WARNER. Amen, and, again, I hope we can in a bipar-
tisan way work together.
Dr. Shierholz, I want to talk about a couple things in my remain-
ing minute. One, you made a comment about the expansion on un-
employment. I 100 percent agree on that. I know there has been
some controversy about the $600-a-week plus-up. I think it really
has helped a lot of struggling families. But I think the bigger, more
significant change that took place was the expansion to cover, you
26
know, big workers, 1099-ers, independent contractors. I can tell you
in my State only about 30 percent of the working qualifies for tra-
ditional unemployment, and I hope my colleagues on both sides of
the aisle will realize this expansion of the universe covered, we
really need to maintain it. I think we are talking about a different
form of capitalism moving forward, and that is a good expansion
that I hope will continue.
I want to specifically raise an initiative that I have been working
with Senator Jones and others on called the ‘‘Paycheck Security
Act’’, and there are more conservative versions that Senator
Hawley has brought, and Senator Gardner. But this notion of as
we think about next phase and winding down of direct Government
support to those furloughed workers who have lost their jobs,
where we in essence cut out the middleman and in a sense model
what happens in Europe where they have not seen the spike in un-
employment, and, candidly, reconnecting workers with their em-
ployers might also put back in place health insurance. So I would
love for you to comment on that, if you would.
Ms. SHIERHOLZ. Yes, I think that things like the Paycheck Secu-
rity Act is something we should have done from the very beginning,
as you said, like many of our peer countries in Europe did. We
should do it now. This idea to keep people connected to their jobs,
to get money to businesses, to pay their workers, even if those
workers are not working, but to keep that employment relationship
strong, it is just the smartest possible way to ensure a quick
bounce-back once the economy is able to reopen so workers and em-
ployers do not have to go through this scramble to rehire people
that will just delay the recovery and they can get right back to
work. And it also means that as few families as possible face the
real trauma and potentially lasting effects of job loss. So it is some-
thing we should have done from the beginning, but we should abso-
lutely institute it now.
Senator WARNER. Thank you. I know, Mr. Chairman, my time is
up. I would just simply ask that at some future hearing we really
do need to focus on as well the notion—that as well intentioned all
these programs area, there is going to be some percentage—I am
afraid double digit—of jobs that may not come back and how we
rethink in a forward-leaning way worker retraining. I think we are
going to have to break the mold.
Thank you, Mr. Chairman.
Chairman CRAPO. Thank you. Understood.
Senator McSally.
Senator MCSALLY. Thank you, Mr. Chairman, for holding this
hearing, and thanks to the witnesses for sharing your expertise
today.
I want to talk about the Main Street Lending Facility. We have
a number of smaller and medium-size businesses in Arizona we
have been in touch with where, you know, if you have 499 employ-
ees you are able to get access to the PPP. But if you have 510, it
is going to be this Main Street Lending Facility that is going to
help you stay afloat and get through this. But with the under-
writing requirements and the minimum loan amount of 500,000,
that is a barrier for a number of businesses maybe with 500 to 600
employees. And as we put the CARES Act together, with all of
27
these provisions in there, we wanted to ensure that there was sup-
port that was widely available with a maximum amount of flexi-
bility.
So I was wondering, both Mr. Quaadman and Mr. Holtz-Eakin,
if you could share your perspective on what changes you might sug-
gest to the Main Street Lending Facility as far as the minimum
amount or anything else that could help these businesses that are
right there on the cusp to make sure that there is not a barrier for
them to get access to these resources.
Mr. QUAADMAN. Senator McSally, thank you very much for that
question. We share many of your concerns about that the Main
Street Lending Program might be too constrained as it is. Some
areas that we think should be changed, one is the length of the
loan. We think it should be at least 6 years. We also share some
of the concerns also raised by Senator Warner about the penalty
interest rate. There has been some copying of some of the rules
from the PPP, such as affiliation rules, that we do not think work
here because these are more complex firms than in PPP. We think
that this should also be tailored, and also the risk retention rules
for banks create some disincentives on the lender side as well. So
we think that this is where there needs to be maximum flexibility
for both borrowers and lenders.
Mr. HOLTZ-EAKIN. I think that is a tremendous list. I concur en-
tirely. And I have been through some of those before. In addition,
you know, I think the Treasury should—you know, by acknowl-
edging we are going to have riskier borrowers and providing more
generous terms, put more money into the Main Street Facility,
$100 billion instead of $75 billion, and it has the resources, it
should go ahead and do that.
Senator MCSALLY. Great. Thanks. Another niche business that
we have seen really get hurt in Arizona are boutique hotels. They
employ tens of thousands of Arizonans. The tourism industry has
obviously come to a standstill. Part of the criteria is they cannot
obtain credit elsewhere and must be creditworthy. They were cred-
itworthy before all of this. So this, again, could be a barrier for
them because of the pandemic, not because of their previous finan-
cial situation that they were in. So flexibility related to the non-
creditworthy issue for things like boutique hotels would you also
support?
Mr. QUAADMAN. Yes, Senator McSally, we support that. We also
support the expansion of, you know, having other credit rating
agencies as well. And I think you raise a very good point about the
hospitality industry as well, because that is going to be the last in-
dustry that starts to come back.
Mr. HOLTZ-EAKIN. I think you face a very difficult policy design
question. The initial design was to just glut businesses with liquid-
ity. The Fed did its part with financial markets, PPP, and the Title
IV was a way to do that for the nonfinancial businesses. But as we
go forward, the problem will no longer turn out to be liquidity. It
will be the viability of some of these business models in the face
of a world that still has a virus and will have to operate in the face
of that virus. And so how you can support businesses to operate in
the presence of the virus I believe is the key policy question going
forward, not just cash.
28
Senator MCSALLY. Thank you. And then one last question in my
remaining time about nonprofits that have over 500 employees.
There are so many of these. I will give you the example of
Childhelp, which is headquartered in Arizona, which is doing
amazing things to help abused children. Now more than ever they
need to be able to have the support and, as you see, some contribu-
tions are going down, but their services and their need is going up
at this very critical time. But since they are above 500, they are
just in this place where, you know, they are not going to be able
to get access to PPP.
Do you think we need a nonprofit facility to be able to address
entities like Childhelp and others that are in this situation, that
they have higher demand but they have just got some challenges
and they just still need access to be able to provide these services?
Mr. HOLTZ-EAKIN. I think that is certainly an idea you should
think hard about, because, you know, the goal was to keep doors
open and to keep workers attached to their employers. That has
nothing to do with being a for-profit or not-for-profit, so you should
start with the going-in proposition that everyone is eligible and
carve out only those who clearly you do not want to assist.
Mr. QUAADMAN. Senator, we have also supported changes to both
the PPP program and the Main Street Lending Program to include
not-for-profits as well for many of the same reasons that Dr. Holtz-
Eakin raised.
Senator MCSALLY. Wonderful. And I know I am out of time, but,
Ms. Shierholz, do you have anything to share on the nonprofit side?
Ms. SHIERHOLZ. I fully agree with the other witnesses.
Senator MCSALLY. OK. Fantastic. Thank you. Thanks, Mr. Chair-
man.
Chairman CRAPO. Thank you.
Senator Warren.
Senator WARREN. Thank you, Mr. Chairman.
I want to start by thanking Senator Brown, Ranking Member
Brown, for his comments today about what is happening around us.
We cannot come together and just ignore everything that is going
on and the racist violence that has killed George Floyd, Ahmaud
Arbery, Breonna Taylor, and so many others. This has got to be a
moment when we commit ourselves to change and to real account-
ability, and I hope that is where we will all be putting our ener-
gies.
I know that right now we are talking about how to get the econ-
omy open again, so I have got some questions about that for our
witnesses, and let me start with you, Mr. Quaadman. The Chamber
of Commerce has been hosting webinars on reopening of busi-
nesses, and recently at one of those webinars, Chamber President
Suzanne Clark said, and I want to quote her here: ‘‘Public health
officials can say when. Government leaders can lift restrictions.
Business owners can open their doors. But employees have to be
comfortable and consumers have to be comfortable if they are going
to leave their homes.’’
So, Mr. Quaadman, do you agree that employees and consumers
are not going to feel comfortable leaving their homes unless they
know that they are going to be safe when they go to work or con-
duct business?
29
Mr. QUAADMAN. The Chamber has taken a position throughout
this pandemic that decisions need to be driven by data and by pro-
nouncements by public health officials. We have also developed
with our guides with reopening as well as with our webinars dif-
ferent guidelines that we have taken from various different sources
for ways——
Senator WARREN. Let me just stop you there, Mr. Quaadman. I
appreciate your going over all you are doing, but it was really a
pretty simple question. Do you agree that customers and employees
are not coming back until they feel comfortable that they are going
to be safe?
Mr. QUAADMAN. Customers and employees should be safe going
back into stores and into marketplaces.
Senator WARREN. OK. And they are not coming back if they do
not feel safe.
Mr. QUAADMAN. That is what the data seems to show.
Senator WARREN. Good, because I agree with you on that. But
tens of thousands of workers have become sick, many have died,
after being exposed to coronavirus in their workplaces. We do not
have perfect data, but we do know that more than 9,000 health
care workers have fallen ill with COVID–19. We know that grocery
store workers and meatpacking workers have died. And in New
York City alone, we know that more than 80 transportation work-
ers have died from this disease.
Now, the Occupational Safety and Health Administration, which
is part of the Department of Labor, is charged with ensuring that
workers are safe on the job. That is their job. A key way that
OSHA does this is by investigating complaints and taking enforce-
ment actions when businesses put employees at risk.
So, Ms. Shierholz, you have served as Chief Economist at the De-
partment of Labor, and you now study the labor market. Is OSHA
on the case right now to help keep workers safe?
Ms. SHIERHOLZ. They are not at all, and I think their record in
this pandemic speaks for itself. Given the threat of the coronavirus
and the huge number of essential workers who have gotten sick or
died, it is absolutely clear that an emergency temporary standard
to address the increased risk is needed, but DOL under President
Trump has decided not to issue one, and they are receiving thou-
sands of COVID–19-related complaints. But OSHA has basically
abdicated its responsibility for enforcing even the existing stand-
ards. They have issued only one citation related to the coronavirus
so far. OSHA under the Administration is not doing its job, and
front-line workers are paying the price, and we will all pay the
price because it will make it harder to reopen the economy.
Senator WARREN. So the agency that is tasked with enforcing
protection for workers is essentially shrugging their shoulders as
workers get sick and die. And instead of calling on OSHA to do its
job, Republicans in Congress and lots and lots of lobbyists, includ-
ing the Chamber of Commerce, are calling for companies to be
shielded from liability for anyone who gets sick at their businesses,
whether it is workers or customers.
Ms. Shierholz, as you know, companies are not liable simply be-
cause a worker or a customer gets sick. Companies are liable only
if they fail to take reasonable precautions, like if they jam workers
30
together without masks or they fail to clean up common areas that
everyone is touching. So let me ask: Does a liability shield for com-
panies that make workers—does it make workers or customers any
safer, or does it bring in any more customers into the store to help
in an economic recovery?
Ms. SHIERHOLZ. Thank you for that question, Senator. I want to
be really clear about this. Removing legal accountability from busi-
nesses would not make people safer. It would jeopardize the health
and safety of workers and consumers, and it would threaten the
overall economic recovery. There have been a huge number of ex-
amples of companies failing to provide workers with necessary pro-
tection, and that will just proliferate if businesses do not face any
liability. It is important for reopening.
Senator WARREN. Thank you, and I am sorry to run out of time
here, you know, but it is really important to emphasize that giving
companies a pass when it comes to the safety of their workers or
their customers is not only morally bankrupt; it is bad economic
policy. Keeping customers safe, keeping workers safe is the only
way we are going to reopen this economy, and to do that we need
to implement good safety standards that we apply across the board.
Thank you.
Thank you, Mr. Chairman.
Chairman CRAPO. Thank you.
Next is Senator Cortez Masto.
Senator CORTEZ MASTO. Thank you, Mr. Chairman. Thank you,
Ranking Member.
Let me start by also associating myself with the comments of
Ranking Member Brown earlier in the hearing. I have to say it is
to me completely outrageous and just unacceptable. Last night in
Las Vegas during the protests, there were shootings that left one
person dead and a police officer in critical condition. That is unac-
ceptable, it is outrageous. And when I see the President of the
United States doing a photo op with a Bible, without healing this
country and calming people down, taking away the fear, addressing
what we see in this country right now, which is people are afraid
from a health crisis to an economic crisis to a civil rights crisis, and
this President doing nothing but acting like he is on a red carpet,
holding a Bible. Let me suggest he open the Bible and learn from
its teachings and how we treat one another with respect and we
focus on what is necessary in this country right now.
I cannot stress enough what we need to do, and everybody has
a role and a responsibility to play. I thank you all for being here
on this panel. I so appreciate all of the constructive comments that
were made today. The goal here is to ensure that we come out of
this crisis and we stimulate this economy so that everybody comes
out of this together.
Now, I know Nevada and you know this, Las Vegas particularly,
Reno and Las Vegas are so hard-hit because they are hospitality
industries. And I will tell you in Las Vegas during the foreclosure
crisis, it devastated us. The last recession devastated us. It took us
7 years to come out of it. We had one of the highest unemployment
rates in the country; 219,000 people in the State of Nevada lost
their homes. We know the impact. And so to me and the entire del-
31
egation in Nevada, our goal is to make sure we are focused on our
economy so that we can spring back that much quicker.
So here is my question to all three of the panelists. What I have
not heard yet, and I am curious about your thoughts on this, is as
we go into the next legislative package, how do we talk about work-
force development? I have not heard that yet, and I think—I have
heard that we have a really high unemployment rate right now in
Nevada and across this country. We know that some of that is
going to continue on for the next, I think, year or so. So what
should we be doing with respect to workforce development, particu-
larly as we look to putting together the next package?
Let me open it up to the panel, and, Dr. Shierholz, let me start
with you. Any thoughts on how we should address it and how we
make that investment in workforce development?
Ms. SHIERHOLZ. Yeah, this is a really interesting question. Thank
you for this question. I will take maybe an interesting tack here,
which is right now our most important workforce development
strategy is to bring back aggregate demand because it really will
be going forward for a long time the reason workers are out of jobs
is not because they do not have the right skills; it is because aggre-
gate demand is too low, demand just is not there. And so that loops
back around to getting aid to State and local governments, increas-
ing unemployment insurance benefits, all of the kind of measures
to stimulate the economy are, sort of ironically, the thing to do
right now for developing our workforce.
Senator CORTEZ MASTO. Thank you. Dr. Holtz-Eakin? Or who-
ever. Yeah, please.
Mr. HOLTZ-EAKIN. I would like to politely disagree with that.
This period strikes me as comparable to the period after September
11, 2001, when we had a threat to the U.S. population, and as a
corollary, we had to somehow figure out how to operate the econ-
omy in the presence of that threat. What we saw in that period
was a lot of problems with supply, the need to inspect cargo, you
know, we put up the TSA, and we had bad economic growth. We
had a very unsatisfying performance. And we tried aggregate de-
mand in 2002, 2003, 2005, and 2008, to not great effect. So I think
the focus should be on finding a way to make supply more resilient
in the face of the virus so that we can operate this economy going
forward. I think that should be something—not exclusively but
something that has to be part of your consideration. And over the
long term, you are exactly right. If we are going to have elevated
unemployment over 2 years from now, unemployment insurance is
not the answer to that. That is not a solution. Keeping a $600
bonus in perpetuity will be harmful, not helpful. We need to get
real strategies that give workers skills and allow them to move to
more vibrant parts of the economy if the job that they used to have
does not come back.
Senator CORTEZ MASTO. Thank you.
Mr. Quaadman.
Mr. QUAADMAN. Thank you, Senator. Up-skilling the workforce
we believe is an important priority coming out of this crisis. The
composition of the workforce, the different jobs people are going to
be involved in in the coming years is going to be different. We re-
cently had a group of our—we had an event with our technology
32
group where we had a broad discussion on that. In each phase of
the crisis here, we have formed different task forces to deal with
different issues. We are coming up with a new round of task forces
that are going to start within the next few days, and up-skilling
the workforce is going to be a part of that, and we will be happy
to have a discussion with you on these issues.
Senator CORTEZ MASTO. Thank you. I appreciate that. Thank you
for the conversation. I notice my time is almost up. I will submit
the rest of my questions for the record.
Thank you all for participating with us today.
Chairman CRAPO. Thank you.
Next is Senator Jones, and he will be followed by our final ques-
tioner, Senator Sinema, who will be on the telephone. Senator
Jones.
Senator JONES. Thank you, Chairman Crapo. I really appreciate
this. And thanks to all our panelists for joining.
You know, we have talked so much about what we need to be
doing to open essential—get the essential economy reopening, but
it seems to me that so much of what we have been doing is not just
to save businesses and save livelihoods, but to also save lives. And
I appreciate Senator Brown’s comments because, clearly, while we
had a robust economy before this pandemic, so much of that econ-
omy was not working for so many people in America. In a State
like Alabama, there were so many folks who were working, but yet
did not have health insurance through their employer and were not
eligible for Medicaid because our State did not expand Medicaid.
And there was some reluctance to allow States to use the CARES
money that we had for the expansion of Medicaid, which I do not
fully understand.
But I also want to point out that when we talk about certain
things about rebuilding our economy and rebuilding and getting
things open, you want to rebuild it in a better way so that it can
help all people. And I think that that is what we have to be looking
at, whether it is trying to make sure that people have access to the
ballot box easier, because, you know, not everyone in my State has
a printer like I do. Not everyone in my State has a copier like I
do. They cannot get to someone to notarize their ballots, and they
are afraid to go stand in the ballots, and we do not have early vot-
ing, we have to vote in that 12-hour period. So there are a lot of
things that we have to do as part of our package to both look at
the essential economy, but also to save lives and to save those live-
lihoods.
I want to go back to some comments that I have heard. I know
there has been a fair amount of testimony regarding State and
local governments, and, Mr. Quaadman, I would like to ask you,
you mentioned earlier there is a connection between State and local
government recoveries and these grant monies and those busi-
nesses. Has the Chamber of Commerce taken any kind of formal
position with regard to grants or monies to go to State and local
governments? Because that seems to have been politicized in a way
that everyone agrees that it should not be lately, and I am won-
dering if the Chamber has taken a specific position with regard to
funding for State and local government.
33
Mr. QUAADMAN. Thank you, Senator Jones. We have been very
supportive of the Municipal Liquidity Facility. In fact, in my testi-
mony we have also made a recommendation for a set-aside of 10
percent within a State, that that can go to noneligible Government
entities, so, you know, some of the counties and cities that Chair-
man Crapo was referencing earlier.
We also believe that there should be some form of aid to State
and local governments, and that should be tied directly to revenue
shortfalls so that it is directly tied to the drop-off there. And we
are going to have more to say about that as we are coming to-
gether, as I said earlier, with some of our recommendations for a
CARES Act 2.0.
Senator JONES. Great. And, you know, Dr. Shierholz had talked
about grant monies. Has the Chamber taken a position between
loans that may put folks down the road still in a difficult position
with their balanced budgets versus the grant monies to try to keep
people employed because so much of our workforce in this country
is employed by State and local government?
Mr. QUAADMAN. We are still reviewing that. I do not believe we
have taken a position on that just yet.
Senator JONES. All right. If you do that, I would like to get that
whenever you do, if that is possible.
Mr. QUAADMAN. Will do, Senator.
Senator JONES. I would like to finally ask the panel—and I ap-
preciate Senator Warner’s comments about the Paycheck Security
Program and, Dr. Shierholz, your statements about that. But I
would like to talk a little bit more about minority-owned busi-
nesses. It seems that so many minority-owned businesses these
days are really struggling. They did not get the initial PPP. They
did not get the EIDL loans because their credit suddenly sunk.
What is going to be the long-term impact? And I would like to ask
Dr. Shierholz and if you could, Mr. Quaadman, also chime in about
what the Chamber is going to do to try to specifically help minor-
ity-owned businesses. But what is the long-term impact? What can
we do specifically for minority-owned businesses in this country?
Ms. SHIERHOLZ. Thank you for the question. What we know is
that so far much of the Government support has gone to well-con-
nected companies, which, due to many factors, with structural rac-
ism at the core, disproportionately excludes minority businesses.
But minority businesses, too, as you point out, have seen a huge
drop in their revenues and will have no choice but to declare bank-
ruptcy if they do not receive relief. So it is just extremely important
that we make sure that various forms of aid are getting to minority
businesses, not just the most well connected.
Senator JONES. Mr. Quaadman, is the Chamber going to specifi-
cally look—I mean, frankly, minority businesses have a lot of bar-
riers to begin with. Is the Chamber looking at specific programs to
help minority-owned businesses?
Mr. QUAADMAN. Thank you, Senator Jones, and I can probably
exemplify more in writing, but we have supported CDFI set-asides
with the latest round of PPP funding. And as I said earlier, we are
also working with Rick Wade who heads up our diversity programs.
Starting in April, we have started a conversation with financial
services members to talk about how we can get more resources to
34
minority- and women-owned businesses. So this is a priority of the
Chamber as well.
Senator JONES. Great. Thank you.
Thank you, Mr. Chairman. I will have some more questions for
the record.
Thank you.
Chairman CRAPO. Thank you.
Our final questioner is Senator Sinema.
Senator SINEMA. Thank you, Mr. Chairman. I think I have been
unmuted. Can you hear me?
Chairman CRAPO. Yes, we can hear you.
Senator SINEMA. Wonderful. Thank you. So thank you to all our
witnesses for being here today.
You know, through passage of the CARES Act, Congress made
a commitment to business owners across the country to provide
meaningful relief. In Arizona, the Federal Government has not
kept its promise because small business owners have been forced
to jump through bureaucratic hoops, unemployment has sky-
rocketed, and stimulus payments have been lost in the mail for
weeks. For too many families and small businesses, relief has been
difficult to come by.
So today we have an opportunity to talk about the Federal Re-
serve’s emergency facilities which, if implemented properly, will en-
sure U.S. businesses, cities, counties, and towns can access the fi-
nancing they need to maintain operations, create value, and protect
jobs.
So, Mr. Quaadman, thank you for being here. I appreciate you
urging an adjustment of the Fed’s term sheets so that these loan
programs can provide needed liquidity to businesses to weather
this economic storm. I also appreciate your calls to expand eligi-
bility for the Municipal Lending Facility so smaller cities, towns,
and counties can access this vital financing.
Congress can complement this effort by passing our bipartisan
SMART Act, which is legislation to provide an additional $500 bil-
lion to State, local, and tribal governments. Additional support en-
sures continuity in vital local government services, empowers our
local leaders with the resources they need to fight the coronavirus,
and strengthens our economy as we work to recover.
So, Mr. Quaadman, on April 16th, you provided recommenda-
tions to the Federal Reserve on how to better tailor the Main
Street Program. Doctors and public health experts warn of a second
wave of coronavirus in the fall. How vital is it to get Main Street
lending done correctly right now given the likelihood of a recur-
rence in the fall?
Mr. QUAADMAN. Thank you very much, Senator Sinema, and we
appreciate our past partnership on legislative initiatives such as
the JOBS Act.
Number one, we think it is very important and vital that Main
Street lending get off the ground and get off the ground in an effi-
cient way to deal with the issues that we are trying to deal with
now and to try and work through the summer. We are also ex-
tremely concerned, as you have alluded to, that there could be a
second wave of coronavirus that could have economic implications.
We are actually reviewing a proposal that we have been talking
35
about with some members for some time now about possibly cre-
ating a bridge loan program that could help businesses get through
a second wave, but possibly do so in such a way that could also be
done without necessarily a grant, but also to help minimize some
of the risk to the Federal Treasury as well. So we may have more
to talk about that very soon.
Senator SINEMA. Well, thank you. I appreciate your perspective,
and my hope is to encourage Congress and the Administration to
begin doing some long-term planning for these scenarios so our
economy is resilient and can manage these challenges better as we
move forward.
My next question relates to our path forward. As we have seen,
lending facilities, just like the Paycheck Protection Program, em-
ployee retention tax credits, individual rebate checks, and other as-
pects of the CARES Act, can be vital tools for stabilizing and re-
building the economy. Effective implementation is key, and under-
standing the capabilities and limitations of each policy tool is very
crucial. For example, if a bank is too overwhelmed or the SBA’s IT
system is outdated resulting in a business not getting its PPP loan,
then the program is not working as expected. This experience
should teach Congress that in a crisis the speed and efficiency of
financial relief matters to everyday Arizonans.
So what I am concerned about is the capability of institutions,
both Government and private, to quickly deliver prescribed finan-
cial relief. For example, Dr. Holtz-Eakin, you have spoken on the
Federal Reserve’s limited ability to help. You have also stated the
fastest remedy would be to provide businesses with grants or loans,
which Congress tried to do but, of course, execution was lacking.
We have a number of options for our fourth coronavirus response
package to help businesses and families get back on their feet. We
are considering additional rebate checks, more grants and loans,
leveraging banks, insurance, the Tax Code, or other mechanisms
all to get relief and certainty to people that need it. And that is
a lot to consider, so I want to make sure we get it right.
So my last question is for those who wish to respond, what is the
fastest and most efficient mechanism to provide financial assist-
ance to small and medium-size businesses? And what is the fastest
and most efficient way to provide relief to families?
Chairman CRAPO. And if you could please be brief. We are in a
vote already.
Mr. HOLTZ-EAKIN. I will be happy to respond in writing.
Mr. QUAADMAN. I can do the same, Senator, but I would just say
that our well-capitalized banking system is an important bulwark
to get this done.
Ms. SHIERHOLZ. And I will jump in and say I know we have
talked a lot about the importance of State and local aid which
would support all of that, and we can do that very quickly by hav-
ing the Federal Government take over Medicaid payments as a way
to get money out. We should absolutely be doing that.
Senator SINEMA. Thank you so much.
Mr. Chairman, thank you, and I appreciate all of our witnesses
being here today. I look forward to seeing their responses in writ-
ing as well.
36
Chairman CRAPO. Thank you. That concludes our questions, and
we are in a vote. However, Senator Brown has asked for a brief
concluding remarks, and then we will wrap it up.
Senator BROWN. Thank you, Mr. Chairman. As you know, I like
to do this, but I also respect the way you run this Committee and
keep it short. So thank you.
Thank you very much to the three witnesses for your insight and
the comments you made.
This comes down, Mr. Chairman, to standing up for the people
who make our country work, and we cannot do that until we talk
about what is broken. I am frustrated, as so many of my Demo-
cratic colleagues on this panel clearly are, I am frustrated, espe-
cially given all that is happening right now, that so many of my
colleagues refuse to see the role of systemic racism in this problem.
It is not just about education. Education does not explain the mas-
sive disparity in black people’s incomes even when they have the
same education as their white peers. It does not explain the dif-
ference in maternal mortality rates held constant for education.
If my colleagues were serious about education—and I know my
colleague from Pennsylvania especially talked about it—they would
be talking about investing more in public schools, something they
rarely do. The last crisis was longer, it was deeper because we ig-
nored the people who got hurt the most, especially black and brown
people who suffered most from the foreclosure crisis. You have
heard me in this Committee a number of times say my wife and
I live in zip code 44105 in Cleveland, Ohio. That zip code in 2007
had more foreclosures than any zip code in the United States. I
still see the devastation from that, and those are the people getting
hit hardest by this crisis. Whether it is segregation, whether it is
denying people the ability to vote, whether it is fighting for the
right to organize in the workplace, we have always found ways to
keep Americans from getting ahead. The difference is my col-
leagues and I on my side of the aisle think we actually must do
something about it.
Thank you, Mr. Chairman.
Chairman CRAPO. Thank you, Senator Brown. And that does con-
clude today’s hearing. I again thank our witnesses for your exper-
tise and for giving us the time to be here as a part of this panel.
For Senators who wish to submit questions for the record, those
questions are due on Tuesday, June 9th, and I ask the witnesses
to respond to those questions as quickly as you can.
Again, thanks to each of you for participating in the hearing
today, and this hearing is adjourned.
[Whereupon, at 11:51 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and addi-
tional material supplied for the record follow:]
37
PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
This hearing is another remote hearing via video.
A few videoconferencing reminders: once you start speaking, there will be a slight
delay before you are displayed on screen. To minimize background noise, please
click the mute button until it is your turn to speak or ask questions. If there is a
technology issue, we will move to the next senator until it is resolved. I remind all
senators and the witnesses that the 5-minute clock still applies. You should all have
one box on your screens labeled ‘‘clock’’ that will show how much time is remaining.
At 30 seconds remaining, I will gently tap the gavel to remind senators their time
has almost expired. To simplify the speaking order process, Senator Brown and I
have again agreed to go by seniority for this hearing.
With that, today we welcome to this virtual hearing the following witnesses: Mr.
Thomas Quaadman, Executive Vice President, U.S. Chamber, Center for Capital
Markets Competitiveness; Dr. Douglas Holtz-Eakin, President, American Action
Forum; and Dr. Heidi Shierholz, Senior Economist and Director of Policy, Economic
Policy Institute.
Congress and the Administration have taken extraordinary actions to mitigate the
impact of the COVID–19 pandemic and provide conditions that will lead to a force-
ful economic recovery.
The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, has been
central to that effort.
Today we will focus on Title IV of the CARES Act, which provided a $500 billion
infusion into the Exchange Stabilization Fund, the bulk of which is being used to
support the Federal Reserve’s emergency lending facilities.
This unique lending authority, known as 13(3) authority, is authorized under sec-
tion 13 of the Federal Reserve Act, and plays a critical role in stabilizing markets.
We will receive testimony from each witness on the impact that the 13(3) facilities
have had on the economy, what the policy trade-offs are of expanding or restricting
the term sheets of the 13(3) facilities, how the unused funds from Title IV should
be prioritized or leveraged, and an overall focus on Title IV implementation.
Beginning on March 17, 2020, and before the CARES Act was signed into law,
the Federal Reserve had already announced six 13(3) facilities.
On April 9, 2020, after the passage of the CARES Act, the Federal Reserve Board
and Department of Treasury announced new and expanded lending programs to pro-
vide up to $2.3 trillion in loans. This was a powerful step forward to support the
flow of credit in the economy.
At the Banking Committee hearing with Secretary Mnuchin and Chairman Powell
on May 12, 2020, Secretary Mnuchin noted that the mere announcement of the Cor-
porate Bond Facility, without putting up $1 of taxpayer money, unlocked the entire
primary and secondary market for corporate bonds.
The Federal Reserve’s recent Financial Stability Report highlighted a similar ef-
fect on financial markets resulting from the announcement of other facilities, noting
that ‘‘Indicators of market functioning improved after the announcement of the
CPFF, the MMFL, and the PDCF.’’
Although the announcement of many of these facilities can help move markets to-
ward more normal functioning, becoming operational is key to achieving their full
potential.
With respect to the Federal Reserve’s emergency lending facilities, I look forward
to hearing: how announcing and operationalizing the facilities have impacted the
economy and financial markets so far; how the facilities have provided or stand to
provide necessary credit to households, businesses, States and local governments;
ways that the facilities could be improved; and how existing term sheets could be
further expanded or opportunities to build upon the efforts of existing facilities.
The Main Street Lending Facilities and Municipal Liquidity Facility extend a life-
line to States, local governments, tribes, and businesses by supporting over a trillion
dollars of lending with $110 billion of Title IV funds.
Incorporating widespread restrictions in these facilities could render the facilities
ineffective and leave businesses and their employees without critical resources they
desperately need.
Excessive restrictions not only risk ineffectiveness for the Main Street Lending
Facilities, but also for other facilities, as well.
For example, on May 11, the Fed updated the term sheet for the Municipal Li-
quidity Facility to lower the population thresholds for cities and counties, despite
not being included in the CARES Act at all.
While this was a step in the right direction, it still leaves many smaller and rural
communities without direct access to financial resources, including no cities or coun-
ties in Idaho.
38
Each of these facilities, especially those funded by the CARES Act, provide an op-
portunity to support businesses, employees, States and local governments whose
lives have been suddenly turned upside down by Governments’ effort to stop the
spread of COVID–19.
The work to get these facilities up and running has been of immense importance,
and now it must be ensured that they are structured to achieve the greatest impact
for those in need.
I appreciate each one of you joining us today.
PREPARED STATEMENT OF SENATOR SHERROD BROWN
Thank you, Mr. Chairman for holding this hearing.
The pandemic has been the ‘‘great revealer.’’ It reminds us how vulnerable many
Americans are, and how the economy and Government policy tilt in favor of the
wealthy, powerful, and privileged.
A grocery store worker in Ohio told me recently, ‘‘I don’t feel safe at work and
they don’t pay me much. They tell me I’m essential—but I feel expendable.’’
Long before this pandemic, millions of Americans knew that we have a system
that treats them like they’re expendable. Their hard work isn’t paying off. For some
it feels like the system is broken—and for black and brown workers, it never worked
to begin with.
It’s those black and brown communities across our country who have been hit
hardest by the coronavirus—they are more likely to get sick, they have less access
to health care, they make up the communities hurt by redlining and Jim Crow laws,
and they disproportionately make up our essential workers. It’s not because they
don’t work as hard, it’s not because of individual choices—we ALL work hard, we’re
ALL trying to do something productive for our family and our community, and we
ALL want to build a better country for our daughters and our sons.
No, it’s because of a system that has been making it harder for their work to pay
off, and putting their lives at risk for generations—long before this virus appeared.
It doesn’t matter if they are jogging in their neighborhoods, protesting injustice,
asleep in their beds, or driving to the store. Black men and women know that sys-
temic racism puts their lives and the lives of their children at risk. All the time.
This is their everyday.
When Breonna Taylor was killed by police in Louisville and when George Floyd
was killed by police in Minneapolis, people came to the streets across this country
to peacefully protest. It is an expression of fear, grief, frustration, and anger. It is
the same grief we had in Cleveland when 12-year old Tamir Rice was gunned down
by police in a park.
More black sons and daughters and mothers and fathers killed by police officers,
the very people who are supposed to protect all Americans. More death, when many
are already grieving the loss of family members and friends to the coronavirus and
grappling with the economic stress this pandemic has caused.
Black communities led the Nation in mourning the killings of George Floyd and
Breanna Taylor over the last week—leading calls for justice and long-term changes
to dismantle systems of oppression.
And in the midst of that trauma and grieving, millions of those same Americans
still go to work, day after day, week after week.
Our job is to show victims of systemic racism at the hands of their own Govern-
ment that the same Government will protect them from this pandemic—that we
hear them, that we see them, that we are fighting for them. And that their lives
matter.
Our response to this crisis must be to stand behind the people who make this
country work—all workers, whether you punch a clock or swipe a badge, earn a sal-
ary or make tips; whether you’re raising children or caring for an aging parent.
Whether your hard work isn’t paying off now, or whether it’s never paid off the way
it should.
Not everything is about money. But the work we do on this Committee should
show Americans that the Government is on their side. Our work on this Committee
needs to address wealth inequality and to make sure everyone is treated fairly.
But instead, we are repeating the mistakes of the past and helping the rich and
powerful, and the corporations they run, while leaving most Americans to fend for
themselves. We have committed trillions of dollars to bail out corporations, without
requiring those corporations to take care of their workers.
As Dr. King said—‘‘One day our society will come to respect the sanitation work-
er. For the person who picks up our garbage, in the final analysis, is as significant
39
as the physician, for if he doesn’t do his job, diseases are rampant. All labor has
dignity.’’
It’s black and brown workers who have been robbed of their dignity on the job—
far, far too often.
If we want to be a country where every person has dignity, we need to start by
recognizing that all labor has dignity.
But so far, our response to this crisis is not the response of a Government that
believes that.
Congress can always find trillions of dollars for corporations—for tax cuts, for
bailouts. But when hardworking families need help with rent, or to put food on the
table, this President and this Congress say we can’t afford it.
The President and his administration had already made racial and economic in-
equality worse, and undone civil rights protections. They’ve been pretty clear they’re
willing to put workers’ lives at risk—to reopen stockyards, or just to juice the stock
market.
And last night, the President of the United States turned the arm of the State
on peaceful protesters, teargassing the citizens he’s supposed to serve and exploiting
a house of worship, to stage a photo-op.
President Trump and his Administration believe that millions of Americans are
expendable—and it’s not a coincidence that many of the people they consider ex-
pendable are black and brown workers.
Since the President is unwilling to protect people—whether that’s protecting their
lives, or protecting their financial future—we must fill the leadership void.
I hope today’s witnesses can shed light on what we must do to make sure the eco-
nomic recovery isn’t uneven and unjust, like the last one.
I’ll close with this:
Whenever people bring up the ways the system has failed so many Americans—
online, at a hearing, or at a protest march—there are always naysayers—always
white, usually men, often pretty well off—who say, how can you be so negative?
Why do you want to dwell on all the worst parts of history? Don’t you love our coun-
try?
My response to our country’s naysayers and sunshine patriots is this: how can you
be so pessimistic as to believe this is the best we can do? Do you really think that
the American people—with our ingenuity and optimism and tenacity—do you really
think we can’t create a fairer economy and a more just Government? Do you truly
believe we can’t have a society that works for everyone—black and white and brown,
women and men, no matter who you are or what kind of work you do?
Protesting, working for change, organizing, demanding our country do better—
those are some of the most patriotic things all of us can do.
I love my country—and if you love this country, you fight for the people who make
it work. ALL of them.
Thank you, Mr. Chairman.
PREPARED STATEMENT OF THOMAS QUAADMAN
EXECUTIVE VICE PRESIDENT, CENTER FOR CAPITAL MARKETS COMPETITIVENESS,
U.S. CHAMBER OF COMMERCE
JUNE 2, 2020
The U.S. Chamber of Commerce is the world’s largest business federation, rep-
resenting the interests of more than 3 million businesses of all sizes, sectors, and
regions, as well as State and local chambers and industry associations. The Cham-
ber is dedicated to promoting, protecting, and defending America’s free enterprise
system.
More than 96 percent of Chamber member companies have fewer than 100 em-
ployees, and many of the Nation’s largest companies are also active members. We
are therefore cognizant not only of the challenges facing smaller businesses, but also
those facing the business community at large.
Besides representing a cross-section of the American business community with re-
spect to the number of employees, major classifications of American business—e.g.,
manufacturing, retailing, services, construction, wholesalers, and finance—are rep-
resented. The Chamber has membership in all 50 States.
The Chamber’s international reach is substantial as well. We believe that global
interdependence provides opportunities, not threats. In addition to the American
Chambers of Commerce abroad, an increasing number of our members engage in the
export and import of both goods and services and have ongoing investment activi-
40
ties. The Chamber favors strengthened international competitiveness and opposes
artificial U.S. and foreign barriers to international business.
Chairman Crapo, Ranking Member Brown, and Members of the Committee on
Banking, Housing, and Urban Affairs: My name is Tom Quaadman, executive vice
president of the Center for Capital Markets Competitiveness (CCMC) at the U.S.
Chamber of Commerce. Thank you for the opportunity to testify today regarding im-
plementation of Title IV of the Coronavirus Aid, Relief, and Economic Security
(CARES) Act.
The last few months have brought incredible hardship to all Americans. The lives
lost and affected by the coronavirus pandemic are a national tragedy, and many
people remain gravely concerned about the health of their loved ones. But, every
day we hear more stories of Americans doing extraordinary things to help their fam-
ilies or those in their communities and are reminded that even in these difficult
times, America’s spirit of service is alive and well.
The pandemic has also led to the swiftest and most significant economic downturn
the United States has ever faced. In the span of 2 short months, tens of millions
of Americans have lost their jobs, millions of businesses have been ordered to limit
their activities or shut their doors entirely, and households have struggled to pay
their mortgages, rent, utilities, and other regular expenses. Governments at all lev-
els have had to take extraordinary and unprecedented actions to keep our economy
afloat and allow workers to continue to get a paycheck.
Title IV of the CARES Act authorized $454 billion for the Treasury Department’s
Exchange Stabilization Fund to be used for the creation of Federal Reserve credit
facilities under Section 13(3) of the Federal Reserve Act. Since passage of the
CARES Act, the Federal Reserve announced the establishment of several facilities
to support lending to main street businesses, municipalities, and other markets that
are critical to the functioning of our broader economy. These 13(3) facilities—once
fully operational—will eventually support around $3 trillion of lending to the econ-
omy.
The Chamber commends the ongoing work of the Senate Banking Committee and
the recently established Congressional Oversight Commission (COC) to conduct rig-
orous oversight of these lending programs. The ultimate goal of policymakers should
be to ensure that the credit provided under the CARES Act flows to the businesses
and households that most need it, while rooting out any waste, fraud, and abuse
that would undermine or impede economic recovery.
While American businesses have been impacted as never before by the pandemic,
make no mistake that American businesses will be the linchpin in our road to recov-
ery. Whether it is reorienting assembly lines to produce personal protective equip-
ment, taking extraordinary measures to help employees or devastated communities,
or working their hardest to find a vaccine and treatment for the coronavirus, busi-
nesses have stepped up and will continue to do everything in their power to meet
this national challenge.
The Chamber’s views on the current state of our economy and recovery efforts are
discussed in greater detail below.
The Current Economic and Employment Crisis
The economic shock brought on by the pandemic is unprecedented in both its
speed and severity. Since the beginning of March, over 40 million Americans have
lost their jobs and filed for unemployment as business revenues have dried up and
some segments of our economy have come to a complete halt. 1st quarter GDP de-
clined by 5 percent, and some forecasters estimate that 2nd quarter gross domestic
product could decline by over 40 percent. 1
The pain is especially pronounced in certain industries. Based upon April employ-
ment data, the food, travel, and events industry has lost more than 46 percent of
its workforce; retail has lost 14 percent; and the service industry has lost over 17
percent. 2 Many of these workers are hourly earners and can ill-afford a sustained
interruption to their ability to earn a livelihood.
A recent study from the University of Chicago also demonstrates how the crisis
has disproportionately impacted lower-wage workers. The study found that only 37
percent of the U.S. workforce is fully able to ‘‘work from home.’’ 3 This demographic
is largely made up of white collar, technology-oriented jobs that can be done from
1 ‘‘GDP Could Decline by 42 Percent in the Second Quarter, According to the Atlanta Fed’’,
CNBC, May 15th, 2020
2 https://www.uschamber.com/series/above-the-fold/analysis-breaking-down-the-unemploy-
ment-crisis-industry
3 ‘‘How Many Jobs Can Be Done From Home?’’ Jonathan Dingel, Brent Neiman. April 16th,
2020.
41
a laptop. The stay-at-home orders and mandated shutdowns do not affect these
workers as much as they do blue collar or service-oriented positions. While the
CARES Act and Government assistance programs can be an important bridge for
workers that have lost their jobs and are seeking a return to work, they are by no
means a long-term solution.
The current outlook for small and medium-sized businesses has been similarly
grim. In early April, the Chamber, in partnership with MetLife, released the results
of a survey which found that under current conditions, 43 percent of small busi-
nesses believed they had less than 6 months until a permanent closure was inevi-
table. 4 Middle-market businesses—which employ over 40 million workers—have
also been faced with incredibly difficult decisions regarding their future operations
and workforce.
The Chamber has urged Congress and regulators to consider the unique cir-
cumstances that led to the dire economic situation we face. This crisis was not
caused by any type of market or regulatory failure and did not originate as part
of the normal business cycle. Businesses and workers have been harmed through
no fault of their own and the lending programs established over the last 2 months
are, for many businesses, their only viable source of financing.
Importance of Lending Programs for Businesses, Employees, and the
Broader Economy
The Chamber supported the inclusion of several programs in the CARES Act in-
tended to help businesses weather the current storm and retain their employees.
These programs included the Paycheck Protection Program (PPP) administered by
the Small Business Administration (SBA) and which provides for forgivable loans—
with certain conditions—for businesses with no more than 500 employees. As re-
cently reported by the Treasury Department, the PPP has originated more than
$530 billion in loans to over 4 million borrowers, making the program one of the
more critical tools to helping small businesses survive.
The CARES Act also provided $454 billion in funding for Federal Reserve lending
facilities under Section 13(3). As noted by Treasury Secretary Mnuchin to this Com-
mittee recently, since mid-March Treasury has approved the establishment of sev-
eral facilities, including:
• The Commercial Paper Funding Facility
• The Primary Dealer Credit Facility
• The Money Market Mutual Fund Liquidity Facility
• The Term Asset Backed Securities Loan Facility
• The Primary Market Corporate Credit Facility
• The Secondary Market Corporate Credit Facility
• The Main Street Lending Program
• The Municipal Liquidity Facility; and the
• PPP Liquidity Facility
To date, Treasury has committed $195 billion of CARES Act funding to these fa-
cilities, and Secretary Mnuchin has stated Treasury’s intent to the commit the re-
maining $259 billion.
Without these facilities and the provision of credit through the Federal Reserve’s
‘‘lender of last resort’’ function, many otherwise healthy businesses would face the
prospect of permanent closure, critical components of our financial markets would
be severely impaired, and the shock caused by the pandemic would turn into a pro-
longed and severe economic downturn.
Robust Oversight of Lending Programs Is Critical
The Chamber strongly supports efforts by Congress, the Congressional Oversight
Commission, and eventually the Special Inspector General for Pandemic Recovery
to provide oversight for the CARES Act lending programs. Oversight of these pro-
grams is central to the confidence of taxpayers that the funding authorized under
the CARES Act is being deployed responsibly and in a manner that will support eco-
nomic recovery. Accordingly, identifying fraudulent actors and holding them ac-
countable should be the top priority of oversight efforts.
We also believe that oversight is important to ensure that funds are being appro-
priated in a manner that is consistent with Congressional intent, and that bor-
rowers are following the appropriate terms and conditions for eligibility. Such over-
4 ‘‘Special Report on Coronavirus and Small Business’’, U.S. Chamber and L. April 3rd, 2020,
https://www.uschamber.com/report/special-report-coronavirus-and-small-business.
42
sight assists businesses’ understanding of the expectations that policymakers have
set for participation.
The Chamber has consistently supported oversight mechanisms in times of crisis
when taxpayer dollars are used as a lifeline for the economy. For example, in 2009
the Chamber support the Troubled Asset Relief Program (TARP) Accountability Act
which provided a mechanism for Government and the public to easily track and
monitor disbursement of TARP funds in the wake of the 2008 financial crisis. 5 As
we stated then, ‘‘This level of transparency will help avoid the misuse of funds and
develop a level of confidence that is integral to the success of TARP.’’
At the same time, using this crisis and exploiting the CARES Act facilities to pur-
sue unrelated policy goals—or to shame certain companies or industries for availing
themselves of programs they are legally eligible for—should not be confused with
‘‘oversight.’’ Businesses in every sector and of every size are being harmed by the
pandemic, and many will ultimately choose to apply for and receive credit under a
program. Our economy will never fully recover if lending programs become politi-
cized and used as a mechanism to direct policy outcomes that are uncorrelated to
putting Americans back to work and getting the economy growing again.
As we noted in a recent letter to the Treasury and Federal Reserve, the Chamber
also remains concerned over certain corporate governance restrictions for 13(3) fa-
cilities that were included as part of the CARES Act, including a prohibition for cer-
tain borrowers from paying dividends or engaging in share repurchases. 6 Such re-
strictions are based upon the reasonable argument that businesses and shareholders
should not be rewarded with taxpayer support for reckless or irresponsible behavior.
However, the current crisis is inherently unique in that businesses seeking financ-
ing find themselves in such a position through no fault of their own, and in most
cases have been mandated by a Government body to limit or cease operations. More-
over, retirees and other retail investors that rely on the returns generated by divi-
dends and share repurchases would be harmed by a broad prohibition against such
distributions. The Chamber continues to urge the Treasury Department or Federal
Reserve to use extreme prudence if they decide to implement these restrictions au-
thorized under the CARES Act.
Section 13(3) Lending Facilities
While the lending facilities established by the Treasury Department and Federal
Reserve are incredibly expansive, we recognize that given the severity of the eco-
nomic situation they may ultimately not entirely fulfill the credit needs of our di-
verse economy. We urge both the Treasury Department and Federal Reserve to be
flexible in adapting to economic conditions as they evolve. The Chamber and its
members have taken strong interest in the recently established credit facilities. Our
views regarding a number of them are described in greater detail below.
Main Street Lending Program
The Main Street Lending Program was announced by the Federal Reserve in
early April and is expected to be operational in the coming days. The MSLP will
provide up to $600 billion of credit through the Main Street New Loan Facility,
Main Street
Priority Loan Facility, and the Main Street Expanded Loan Facility. The MSLP
will be especially important for middle market businesses that are ineligible for the
PPP but are struggling to finance their operations and payroll.
The Chamber was pleased with several changes made to the eligibility require-
ments of the program by the Federal Reserve in mid-April. These changes included
modifying employment and revenue thresholds to include more businesses, decreas-
ing the permitted minimum loan size by half, allowing for the use of adjusted
EBITDA to determine leverage, including borrowers with nonterm loans, and sub-
stituting the Secured Overnight Financing Rate (SOFR) with the still widely used
London Inter-bank Offered Rate (LIBOR) to price loans.
While these changes should make the program more attractive, as noted above
we believe that restrictions on capital distributions could ultimately be harmful to
both businesses and their shareholders. We also believe eligibility requirements
under the MSLP should be modified to include nonbank lenders, in particular by
expanding the definition of an ‘‘eligible loan’’ to include those made by nonbank
lenders.
5 See testimony of U.S. Chamber to House Financial Services Committee, September 17th,
2009, http://archives-financialservices.house.gov/media/file/hearings/111/quaadman—testi-
mony.pdf.
6 http://www.centerforcapitalmarkets.com/wp-content/uploads/2020/04/4.16.20—CCMC—
MainStreetLoanFacilities—Fed—Treasury.pdf?#
43
Additionally, while the banking system stands ready to assist and serve as con-
duits for main street businesses to access the MSLP, we continue to hear concerns
that some of the other terms of the facility are unduly restrictive for some bor-
rowers. For example, extending loan maturities up to 6 years would provide greater
flexibility for borrowers, and we believe that the Federal Reserve should reexamine
the ‘‘penalty rate’’ provided for under the program which currently may prove to be
a disincentive for many borrowers.
Congress, the Treasury Department, and the Federal Reserve should be cognizant
about the possibility of ‘‘donut holes’’ being created that leave out important sectors
of the economy. The MSLP was intended to complement the PPP by providing credit
to medium and larger businesses that are not eligible for SBA lending. Yet, it ap-
pears key eligibility restrictions for the MSLP were copied from PPP requirements
that were drawn from the SBA’s 7(a) program. The latest FAQ’s for the MSLP (May
27, 2020) cite ineligible businesses as those that include those ‘‘listed in 13 CFR
120.110(b)-(j), (m)-(s), as modified and clarified by STA regulations for purposes of
the PPP . . . ,’’ but do note ‘‘The Federal Reserve may further modify the applica-
tion of these restrictions.’’. This would, for example, exclude passive businesses
owned by developers and landlords that are critical for providing locations for main
street businesses to operate.
The Chamber will continue working with the Treasury Department and Federal
Reserve to ensure that the terms of the MSLP and other relief programs do not cre-
ate any harmful gaps that penalize critical industries.
Term Asset-Backed Securities Loan Facility
The Federal Reserve announced the establishment of the Term Asset-Backed
Loan Facility (TALF) on March 23, 2020, wherein it noted it would lend up to $100
billion on a nonrecourse basis—an amount equal to the market value of the asset-
backed securities (ABS) less a haircut—to holders of certain AAA-rated ABS backed
by newly and recently originated consumer and small business loans. This an-
nouncement noted that eligible securities will include those backed by student loans,
auto loans, credit card loans, loans guaranteed by the SBA, and other certain asset
classes—all of which support critical aspects of our economy. Spreads for eligible
asset classes tightened almost immediately suggesting the market is responding
positively to the program even before it extends credit. TALF’s first subscription
date for loans backed by eligible ABS will be June 17, 2020, and the first loan clos-
ing date will be June 25, 2020.
The commercial real estate industry has faced a number of unexpected yet severe
headwinds in recent months as a result of business disruptions due to COVID–19.
In general, tenants that were otherwise creditworthy before the crisis have been un-
able to pay rent due to disruptions in their business including Government orders
to limit their operations. Many tenants of commercial properties have found they
are ineligible for programs intended to support main street, or are restricted in how
funds are used, causing them to miss rent payments or request forbearance. This
has imposed stress on creditors that support this market that could be mitigated
by TALF.
The Federal Reserve’s May 12th term sheet, while positive, appears to fall short
of ameliorating some major liquidity issues. Importantly, the May 12th term sheet
indicates that TALF-eligible collateral includes the AAA-rated tranches of both out-
standing commercial mortgage-backed securities (CMBS). There is evidence to sug-
gest that the announcement to add AAA legacy CMBS to the program has already
improved liquidity in the sector. The Chamber supports this expansion of TALF,
which we believe would help alleviate the extreme funding pressures in the commer-
cial real estate market during this period of uncertainty. However, it is our under-
standing from tenants and creditors that this support for CMBS is inadequate.
We believe the Federal Reserve should expand TALF. First, it should be noted
that TALF only includes legacy CMBS, it does not include new securitizations. The
liquidity for legacy CMBS is vital but does not adequately address the new issues
facing the commercial real-estate market. There would be great benefit to the com-
mercial real-estate market, including for tenants, if TALF were expanded to new
securitizations. Additionally, the Chamber has noted that legacy Single Asset Single
borrower and conduit legacy securities should be included in TALF.
Finally, TALF should address financing challenges for private residential mort-
gage backed securities (RMBS). This asset class was arguably excluded from TALF
1.0 (i.e., the original iteration of the program created in 2008) due to uncertainty
of credit risk in the market at this time. However, while TALF 1.0 is a helpful
model, it does not fully account for the unique nature of this economic crisis or
changes in market structure. At the request of Congress, underwriting has been
substantially strengthened by lenders for residential mortgages that provides more
44
transparency for credit risk. And, unlike Government guaranteed mortgages, private
mortgage are not supported by any emergency lending programs.
Municipal Liquidity Facility
State and local government budgets have come under enormous pressure in the
wake of the pandemic, as business activity and tax revenues have dried up. Busi-
nesses of all sizes depend on the critical services provided by State and local govern-
ments—maintaining roads, public safety, health care, etc.—to operate their busi-
nesses. The continuity of these critical services is especially important during this
time of uncertainty.
The Chamber accordingly has supported the establishment of the Municipal Li-
quidity Facility (MLF), which will provide a $500 billion backstop for the short-term
funding needs of States and cities across the country. The Chamber was pleased by
changes made by the Federal Reserve to the original terms of the MLF that would
expand eligibility to more counties and cities as opposed to just the largest ones,
but there are outstanding questions about the effectiveness of its structure in terms
of eligibility and the cost of funds.
The primary question the Federal Reserve, and this Committee, should remain fo-
cused on is eligibility to access the MLF and the effectiveness of indirect access for
noneligible issuers. The original term sheet (April 9) permitted access for U.S.
States, counties with a population of at least two million residents, and U.S. cities
with a population of at least one million residents—one estimate determined only
24 local governments (in addition to the States) nationwide would qualify for direct
access. The Chamber was pleased the updated term sheet (May 11) expands eligi-
bility for direct access to a total of 86 local governments, but important parts of the
country and economy remain overlooked. 7 We are sympathetic to the Federal Re-
serve’s apparent desire to limit the number of potential counterparties due to oper-
ational constraints and understand their approach to permit eligible issuers to pro-
vide indirect financing to local governments, but it is an imperfect solution.
However, we do not have confidence that eligible issuers will be an effective mech-
anism for local governments to indirectly access the MLF. Most States and large cit-
ies—the eligible issuers—are facing their own fiscal challenges that will not likely
be completely ameliorated by the MLF; therefore, it is highly unlikely they would
share access to funds with other issuers. History has shown that States actually
tend to push costs down to local governments when encountering fiscal challenges.
It is unclear if States have the operational capacity to provide indirect access to the
MLF, and some may not currently have the legal authority. Finally, it is unclear
if eligible issuers would have to assume credit risk.
The Chamber has recommended to the Fed to provide an exclusive allocation of
funds to be made available to noneligible issuers (e.g., 10 percent MLF borrowing
by States reserved for cities and counties). Another approach may be an incentive
structure that allows a State to increase its total borrowing authority if it provides
financing to noneligible issuers. Finally, it is unclear if eligible issuers would have
to assume credit risk. There will be little incentive to overcome these operational
considerations if the MLF maintains a punitive funding rate.
The Chamber appreciates the Federal Reserve’s role as a ‘‘lender of last resort,’’
but encourages ongoing review of the funding rates in the MLF. Overly punitive
penalty rates (i.e., in excess of market rates) will discourage take up in the program.
The MLF should be cognizant of crowding out private capital, but should not lose
sight of the dire fiscal situations of State and local governments that were otherwise
responsible borrowers with reliable access to financing, before encountering revenue
shortfalls due reasons such as delaying income tax filing or decreased sales tax re-
ceipts from depressed economic activity. MLF pricing remains too high except for
the issuers with the lowest credit ratings. The penalty for AAA/AA/A rated debt is
above the current abnormal spreads. The Federal Reserve should lower the funding
rate, like it has with other 13(3) programs such as the Commercial Paper Funding
Facility (CPFF), if take-up is lower than expected. A more logical target for pricing
would be to set a penalty rate to prevailing spreads from January/February 2020
(before the market uncertainty from COVID–19).
Expanding the term of the loan to 3 years in the most recent term sheet is an
improvement but may not be long enough. Clearly, the term of the loan should re-
flect the expected cashflow of the borrower. It is widely believed that it could take
3 to 4 years for the economy to recover, and for corresponding revenue levels to re-
turn, thus a term length closer to 5 years may be more appropriate.
7 https://www.newyorkfed.org/medialibrary/media/markets/municipal-liquidity-facility-eligi-
ble-issuers
45
Finally, it is important to remember that the Federal Reserve maintains authority
to purchase and sell municipal securities in the open market. The Federal Reserve
has established similar programs that cover every major asset class except for mu-
nicipal securities and Congress recognized these liquidity issues in the CARES Act.
At that time, there were unexplainable price dislocations that signaled issues with
the functioning of the market. These issues have abated, but the market stability
may be caused, at least partly, in the Federal Reserve’s authority to intervene.
Primary Market Corporate Credit Facility and Secondary Market Cor-
porate Credit Facility
The Federal Reserve established two facilities to support credit to large employ-
ers—the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan
issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide
liquidity for outstanding corporate bonds and corporate bond portfolio Exchange
Traded Funds (ETFs). The Chamber supports both the PMCCF and SMCCF as
sources of liquidity to companies navigating business challenges as a result of the
pandemic.
Based on the term sheets that were issued for the PMCCF and SMCCF on April
9, 2020, the Chamber asked the Federal Reserve to address a series of comments
and questions regarding the initial terms and conditions surrounding eligible
issuers, pricing and limits per issuer, and the documentation, disclosures, and oper-
ational mechanics required to access the PMCCF and SMCCF. We commend the
Federal Reserve for beginning the process of bringing greater clarity to the terms
through FAQs released on May 4, 2020, and May 26, 2020, and we expect further
clarification as the Federal Reserve works to make both facilities fully operational.
While the Federal Reserve has already begun purchasing ETFs through the
SMCCF, we are still awaiting the PMCCF to become operational and the SMCCF
to begin purchasing eligible corporate bonds.
Among the issues the Federal Reserve has not yet addressed is whether it would
consider amending the ratings eligibility to include additional issuers. Many compa-
nies that are important to the economy do not qualify based on the current min-
imum rating requirement thresholds of BBB-/Baa3 as of March 22, 2020, or BB-/
Ba3 at time of purchase if the issuer has been subsequently downgraded.
Since our original comments to Federal Reserve, it has also been brought to our
attention a deep concern that the facilities will lose their effectiveness through its
reliance on ratings from only the three major nationally recognized statistical rating
organizations (NRSROs): Fitch Ratings, Inc., Moody’s Investors Service, Inc., and
S&P Global Ratings. Given that the PMCCF and SMCCF may be a critical source
of support to larger enterprises that are ineligible for other programs, we encourage
the Federal Reserve to consider including all SEC-registered NRSROs, not just
those rated by major rating agencies.
In its updated FAQs posted May 26, 2020, the Federal Reserve subsequently de-
cided to allow ratings from DBRS, Inc., Kroll Bond Rating Agency, Inc., and A.M.
Best Rating Services, Inc. provided that the issuer seeking support from the PMCCF
and SMCCF also has a rating from one of the three major NRSROs. While this is
a move in the right direction, such policy will continue to exclude those issuers who
require liquidity in these challenging times who do not also have qualifying rating
from the major three major NRSROs. Moreover, the Federal Reserve has not pro-
vided an explanation of why three of the nine NRSROs have been excluded as ac-
ceptable ratings.
Paycheck Protection Program Liquidity Facility
The effectiveness of the Small Business Administration’s Paycheck Protection Pro-
gram (PPP) is a top priority of the Chamber. The PPP is a lifeline for countless
small businesses, and it is therefore appropriate the Federal Reserve would offer li-
quidity to financial institutions issuing these loans. The Paycheck Protection Pro-
gram Liquidity Facility (PPPLF) will free up room on the balance sheet so financial
institutions can do even more support businesses and the economic recovery.
It is worth noting that uptake of the PPPLF has been relatively limited. Over 4
million PPP loans and over $500 billion in total credit, have been approved. How-
ever, according to data available from the Federal Reserve earlier this month, total
advances outstanding under the PPPLF are approximately $29 billion. 8 While addi-
tional updates are forthcoming, further changes regarding the terms of the PPPLF
may be necessary to ensure the facility achieves its intended effect.
8 https://www.federalreserve.gov/publications/files/mlf-msnlf-mself-and-ppplf-5-15-
20.pdf#page=3
46
Conclusion
The lending programs under Title IV of the CARES Act are critical towards help-
ing our economy recover from the sudden shock caused by the coronavirus pan-
demic. We believe that with some of the changes outlined above and with appro-
priate oversight from Congress and other bodies, these programs will reach their
full potential, allow businesses to weather this storm, and help workers keep their
jobs. Thank you again for the opportunity to testify—I would be happy to answer
any questions you have.
STATEMENT OF DOUGLAS HOLTZ-EAKIN
PRESIDENT, AMERICAN ACTION FORUM
JUNE 2, 2020
Chairman Crapo, Ranking Member Brown, and Members of the Committee, thank
you for the privilege of appearing today to share my views on the implementation
of Title IV of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. I
wish to make three main points:
• A generous interpretation of publicly available data indicates that Treasury and
the Federal Reserve have disbursed less than 1 percent of the $500 billion in
emergency relief made available by Title IV of the CARES Act in the 2 months
since passage of the Act.
• Treasury has provided no loans or loan guarantees under the powers granted
it by Title IV to the intended recipients: airlines and businesses critical to na-
tional security. Although Title IV funding in theory backs five Federal Reserve
emergency lending facilities, to date only one facility is operational that has
purchased at maximum $1.8 billion in securities from capital markets.
• This slow pace stands in sharp contrast to lending made possible by other sec-
tions of the CARES Act and the other emergency lending facilities at the Fed-
eral Reserve. I can only speculate as to why, but it also suggests that there is
considerable untapped economic support remaining from the CARES Act.
Let me discuss these in turn.
Title IV of the Coronavirus Aid, Relief, and Economic Security (CARES) Act,
signed into law on March 27, 2020, provides for $500 billion in financial assistance
to eligible businesses, States, municipalities, and tribes as emergency relief for
losses related to the ongoing coronavirus pandemic. 1
The Title subdivides this $500 billion into three categories:
• $29 billion in loans or loan guarantees to passenger and cargo air carriers, and
associated industries, of which $0 appears to have been spent;
• $17 billion in loans or loan guarantees for businesses critical to maintaining na-
tional security, of which $0 appears to have been spent; and
• $454 billion (including any amounts unused from the above) for loans, loan
guarantees, and other investments in support of Fed emergency lending facili-
ties, of which $195 billion can be considered ‘‘committed’’ to backing these facili-
ties, but only $1.8 billion appears to have been spent.
The first two categories empower Treasury directly to make loans or loan guaran-
tees to eligible parties in accordance with additional terms and conditions set out
by the CARES Act, including restrictions on share buybacks and executive com-
pensation. 2 The third category provides a potential source of funding for the Federal
Reserve’s emergency lending facilities, with similar conditions applied.
A combined $1.8 billion of the $500 billion authorized by Congress in Title IV of
the CARES Act has been spent as of the date of this testimony, 2 months after the
CARES Act passed into law. This stands in comparison to the $513 billion in loan
assistance 3 to small businesses administered by the Small Business Administration
(SBA) in the form of Paycheck Protection Program (PPP) loans, as provided for by
Title I of the CARES Act.
The remainder of this testimony will consider each category of Title IV relief in
turn, followed by a comparative consideration of other Fed emergency lending and
liquidity programs and the PPP for an overview of emergency relief as a result of
1 https://www.banking.senate.gov/newsroom/press/cares-act-title-iv-summary
2 https://www.americanactionforum.org/insight/financial-services-provisions-in-the-
coronavirus-aid-relief-andeconomic-security-cares-act-final-version/
3 https://www.americanactionforum.org/research/tracker-paycheck-protection-program-loans/
47
the CARES Act as a whole and other efforts. In considering the implementation of
Title IV, this testimony will cite at multiple points the findings of the first report 4
(the first Oversight Commission Report) of the Congressional Oversight Commission
established by the CARES Act, published May 18, 2020.
Relief for Passenger and Cargo Air Carriers
The situation facing the airline industry today is unprecedented. The downturn
in demand for commercial air transportation has been swift and dramatic. The
International Air Transport Association predicts an almost 20 percent loss in world-
wide passenger revenues, an astounding decline that would amount to more than
$110 billion.
Internationally and domestically, airlines have already cut routes, reduced jobs,
and even shut down operations.
But things are tough everywhere. Hotels and restaurants are empty, Broadway
has been shuttered, and the entire private sector is faced with a sharp liquidity cri-
sis. In contrast to those industries, however, airlines are a key part of the supply
chain. Even passenger flights are not just for passengers—they are the backbone of
the cargo industry. Roughly a quarter of all cargo is transported on those same pas-
senger flights that are rapidly being grounded. The health of the transportation sec-
tor—airlines in particular—is inextricably linked to the health of our Nation’s econ-
omy as a whole.
A disruption of airline service would ripple through the supply chain, creating fur-
ther economic harm beyond the recent drop in demand. Businesses—and vital busi-
nesses in particular—still need to receive goods that they can then sell to the public.
Airlines help ensure they receive those goods.
To be sure, intervening in a market economy is fraught. But this is no ‘‘bailout’’
of bad behavior. The airlines were in good financial shape: They had been raising
compensation for employees and investing in their business models. This isn’t bail-
ing out bad behavior—and the moral hazard that engenders. It is throwing a lifeline
of bridge finance to get past the pandemic and back to business, while continuing
to support the broader economy.
Although Treasury has not released a detailed breakdown of funds disbursed di-
rectly to eligible airlines, the first Oversight Commission Report found that Treas-
ury had not disbursed any of the $29 billion in funds available under this part of
Title IV. As of the date of this testimony, there are no public data to suggest that
this has changed. Airlines had a deadline of April 17 to apply for loans. The first
Oversight Commission Report notes that Treasury did receive and is evaluating ap-
plications; it is frustrating that in the 6 weeks since no emergency loans or loan
guarantees have been granted.
Relief for Businesses Critical to National Security
In addition to emergency relief directly for passenger and cargo airlines, all drafts
of the CARES Act 5 included a carve-out specific to businesses critical to national
security. Despite the fact that this clause was not a late addition to the CARES Act,
the Act did not define this crucial term. It would be nearly 2 weeks before Treasury
provided a definition setting out the intended beneficiaries of this relief in a set of
questions and answers released on April 10. 6 Treasury required that applicants for
this relief operate top secret military facilities or have the highest-rated priority
contracts with the Department of Defense. This guidance has not been updated
since.
Further, it was not until April 27, a month after the enactment of the CARES
Act, that Treasury opened the online application system for businesses critical to
national security to apply for relief under this section of CARES, and eligible busi-
nesses were only provided with 5 days during which to apply. Despite this, April
30 remarks by Undersecretary of Defense Ellen Lord indicate that 20 companies
had applied to Treasury for relief as a business critical to national security. 7
As with airline relief, the first Oversight Commission Report found that Treasury
had not disbursed any of the $17 billion in funds available under this part of Title
IV. As of the date of this testimony, there are no public data to suggest that this
has changed; as above, it does not seem likely that this position would have changed
given that the window for application closed on May 1. Why has Treasury not grant-
4 https://www.toomey.senate.gov/files/documents/COC%201st%20Reportl05.18.2020.pdf
5 https://www.americanactionforum.org/insight/financial-services-provisions-in-the-
coronavirus-aid-relief-andeconomic-security-cares-act-final-version/
6 https://home.treasury.gov/system/files/136/CARES-Airline-Loan-Support-Q-and-A-na-
tional-security.pdf
7 https://www.defense.gov/Newsroom/Transcripts/Transcript/Article/2172171/undersecre-
tary-of-defense-asellen-lord-holds-a-press-briefing-on-covid-19-resp/
48
ed relief as a result of any of these applications given that Treasury has at this
point had a month to evaluate any applications?
Support for the Federal Reserve’s Emergency Lending Facilities
Since the onset of the coronavirus pandemic, the Federal Reserve has moved more
decisively and more quickly in a matter of weeks than in the previous century of
its operation. 8 In addition to cutting its key interest rate to zero percent and em-
barking upon a considerable round of quantitative easing, the Federal Reserve has
introduced or reintroduced nine emergency lending facilities—some de novo and
some created by the Federal Reserve in the 2007–2008 financial crisis under the
emergency 13(3) powers created by the 1913 Federal Reserve Act. 9 Of these nine
facilities, five have or will benefit from equity investments by Treasury using the
$454 billion appropriated by the CARES Act. The status of these facilities is pro-
vided below.
A total of $195 billion as authorized by Title IV of the CARES Act has been com-
mitted by Treasury and the Federal Reserve to support five emergency lending pro-
grams. Before even considering the success of these five programs, however, it is im-
mediately obvious that the residual $259 billion ($305 billion if the available funds
to airlines and businesses critical to national security are also considered) remains
unallocated. Two months after the passage of the CARES Act over half of the funds
appropriated by Congress are not even committed, or available, to a Fed emergency
program, even theoretically; this is funding that could support trillions of dollars of
liquidity.
Of the five emergency programs nominally backed by CARES funding, only one
program is operational as of the date of this testimony, the Secondary Market Cor-
porate Credit Facility (SMCCF), which alongside the Primary Market Corporate
Credit Facility (PMCCF) is designed to support the credit markets by providing li-
quidity for outstanding corporate bonds. The SCMMF in particular will only pur-
chase exchange-traded funds (ETFs) with an investment-grade rating prior to the
pandemic whose rating has since fallen to ‘‘junk’’ (at least BB-/Ba3). The number
of firms to whom this applies is extremely small, with one analysis suggesting that
only $50 billion in eligible high-yield bonds are available for purchase. 10
8 https://www.americanactionforum.org/insight/timeline-the-federal-reserve-responds-to-the-
threat-of-coronavirus/
9 https://www.federalreserve.gov/aboutthefed/fract.htm
10 https://www.advisorperspectives.com/commentaries/2020/05/26/the-feds-corporate-bond-
buying-programsfaqs?topic=covid-19-coronavirus-coverage
49
The most recent Fed report to Congress on the status of the SMCCF was made
before the SMCCF was functioning and as a result has no transaction data to re-
port. 11 Although the first Oversight Commission Report notes that ‘‘on May 12 the
[special purchase vehicle] began to make purchases of ETFs,’’ as of the date of this
testimony the Federal Reserve has not made available to the public data specific
to the volume of purchases by the SMCCF. In its weekly statistical release (H.4.1,
Factors Affecting Reserve Balances), however, the Federal Reserve reported as of
May 21, 2020, a $1.8 billion balance held by the Corporate Credit Facility special
purchase vehicle through which the SMCCF and the PMCCF operate and will oper-
ate. 12 This $1.8 billion, it can be reasonably assumed, represents the balance sheet
of the special purchase vehicle and therefore it can be deduced that the SMCCF has
about $1.8 billion in ETFs, with funding presumably backed by Treasury.
Until the next report specific to the SMCCF is released by the Federal Reserve,
the max that the $454 billion appropriated by Title IV appears to have disbursed
appears to be $1.8 billion. Under the three sections in total of Title IV that appro-
priate $500 billion in emergency relief, at a generous interpretation, $1.8 billion, or
less than 1 percent, appears to have been disbursed.
Going forward, this position will of course change. The proposed Main Street
Lending Program will facilitate bank lending as much as $600 billion to businesses
with under 15,000 employees or with 2019 annual revenues of up to $5 billion. Like-
wise, the Municipal Liquidity Facility will support as much as $500 billion in lend-
ing to State and local governments. Both programs, due to be operational very
shortly, will in addition to the other Fed programs support trillions of dollars of li-
quidity. Both programs, however, designed to be key elements of the Federal Re-
serve’s emergency lending, will have at best only begun to operate 2 months after
the enactment of the CARES Act.
Non-Title IV Lending and Relief
The focus of this hearing is Title IV of the CARES Act. It is interesting to note,
however, the sharp difference between execution under Title IV and the Paycheck
Protection Program (PPP) as administered by the Small Business Administration
with the assistance of Treasury. The SBA has supported over $500 billion in lending
to small businesses impacted by the pandemic. The PPP has proven so enormously
popular and necessary as to require available funding to be increased after the
CARES Act was signed into law. The program has justifiably come under some criti-
cism, and in particular many questions remain outstanding as to the format and
nature of loan forgiveness. Despite these flaws I have stated that the PPP is the
best part of the CARES Act. 13 The SBA has facilitated the largest single support
for the economy for the month of April. That such enormous sums were distributed
to businesses in need at all, let alone so quickly, remains extraordinary. This is not
even the only relevant section of the CARES Act. Other sections provide the same
industry-specific assistance specifically to the airline sector as seen in Title IV; the
most recent figures show that Treasury has disbursed at least $12.4 billion 14 to 93
air carriers via the Payroll Support Program set up elsewhere in CARES.
Similarly, the Federal Reserve has acted with outstanding haste to attempt to bal-
ance negative forces in the economy. In addition to lowering the Fed Funds rate to
zero percent and its quantitative easing efforts, the Federal Reserve acted with
great speed to loosen capital restrictions on banks, making more capital available
to businesses and individuals in need. 15 All of the Federal Reserve’s emergency
lending facilities that are not backed in some way by Title IV are operational, and
as of April 24 the Federal Reserve had provided $85 billion in funding to the mar-
ket. 16
Conclusions
It is clear that Treasury and the Federal Reserve are capable of decisive action
both in the provision of direct loan support and by injecting capital into distressed
markets. This makes the slow pace of execution under Title IV so striking.
The most charitable conclusion is that the Treasury and Federal Reserve are mov-
ing slowly to implement powers newly available to both. Broadly speaking, the Fed-
eral Reserve emergency lending facilities that are currently operational either are
11 https://www.federalreserve.gov/monetarypolicy/files/pmccf-smccf-talf-4-28-20.pdf#page=3
12 https://www.federalreserve.gov/releases/h41/current/
13 https://www.americanactionforum.org/daily-dish/in-defense-of-the-ppp/
14 https://home.treasury.gov/news/press-releases/treasury-implementing-cares-act-programs-
for-aviation-and-national-security-industries
15 https://www.americanactionforum.org/insight/timeline-the-federal-reserve-responds-to-the-
threat-ofcoronavirus/
16 https://www.federalreserve.gov/publications/reports-to-congress-in-response-to-covid-19.htm
50
or have much in common with the emergency lending facilities employed during the
previous financial crisis. The Federal Reserve has moved much more slowly on new
facilities, most particularly the Main Street Lending Program, that represent such
a significant departure from the ordinary business of the Federal Reserve.
It must be assumed that Treasury and the Federal Reserve have determined that
the safest course for Title IV is to neither move fast nor break anything in such
substantially new territory. At any rate, that such a significant portion of the
CARES Act remains unused seems to suggest that the CARES Act can provide con-
siderable additional support to the economy and that this unused authority should
enter into the calculus governing any new pandemic-related legislation.
Thank you, and I look forward to your questions.
STATEMENT OF HEIDI SHIERHOLZ
SENIOR ECONOMIST AND DIRECTOR OF POLICY, ECONOMIC POLICY INSTITUTE
JUNE 2, 2020
Chairman Crapo, Ranking Member Brown, and Members of the Committee, thank
you for the opportunity to testify today. My name is Heidi Shierholz and I am a
senior economist and the director of policy at the Economic Policy Institute (EPI)
in Washington, D.C. EPI is a nonprofit, nonpartisan think tank created in 1986 to
include the needs of low- and middle-wage workers in economic policy discussions.
EPI conducts research and analysis on the economic status of working America, pro-
poses public policies that protect and improve the economic conditions of low- and
middle-wage workers, and assesses policies with respect to how well they further
those goals. Prior to joining EPI in 2017, I was the Chief Economist at the U.S. De-
partment of Labor.
Title IV of the CARES Act provides $500 billion in emergency relief in order to
support liquidity for eligible businesses, States, and municipalities affected by
COVID–19. This assistance has been referred to as ‘‘bailouts.’’
While numerous concerns have been raised about the lending programs in Title
IV, the biggest problem with them has arguably not received enough attention: Title
IV primarily takes the form of loans, not grants. In an economy where nonessential
activity has been largely shut down for an extended period—by a widespread, jus-
tifiable fear of contracting a potentially lethal virus and by official lockdown meas-
ures—it is not illiquidity that is often the primary problem. Many businesses,
States, and municipalities are seeing their revenues drop to such an extent that the
real threat they face is not illiquidity, it is bankruptcy. Further, households are fac-
ing huge challenges just meeting basic needs in the wake of the shutdown, and hav-
ing a large tranche of aid that does nothing to directly alleviate their suffering—
or to keep them from needing to slash their spending, making the recession worse
and the recovery weaker—is a huge missed opportunity.
Relatedly, the $454 billion in this Title that is designated for supporting facilities
established by the Federal Reserve to provide liquidity is money that is solely for
insuring the Federal Reserve against losses in the event borrowers default on their
loans. This is not solving any meaningful economic problem. It is likely that in the
end, this money won’t even be ‘‘spent.’’ It is more likely that the Fed will see gains,
not losses, on these loans. This was the conclusion of the Congressional Budget Of-
fice in determining that there was no deficit impact from the $454 billion appropria-
tion. 1 However, the implication of no losses on this lending is also that the lending
will provide very limited concrete economic stimulus, and instead will simply act as
insurance policy to backstop the normal functioning of credit markets through the
pandemic. While this provides some benefit, it means that this $454 billion is not
actually going toward boosting incomes and stimulating the economy during this re-
cession. Most destructively, the high ‘‘cost’’ associated with this Title could well have
convinced policymakers and the public that substantial aid is being provided and,
as a result, reduced their sense of urgency in providing more direct aid.
Any displacement of direct aid caused by the allocation of the $454 billion in this
Title would have horrifying consequences for working families. Further, it signifies
the continuation of a very damaging theme in policymaking over the past decade
or more: Congress outsourcing responsibility for fighting recessions to the Federal
Reserve. The tools the Federal Reserve has for fighting recessions have become ex-
tremely weak—not just because what is primarily needed now are grants, not loans,
but also because the Federal Reserve’s main tool, lowering interest rates, doesn’t go
very far when interest rates are already near zero. The need for major fiscal policy
1 https://www.cbo.gov/system/files/2020-04/hr748.pdf
51
in fighting this recession could not be more urgent. But if policymakers and the pub-
lic are convinced that the Federal Reserve can handle the emergency response and,
as a result, a further, massive fiscal response is not forthcoming, we are virtually
guaranteed to face an extended depression.
One example of Federal Reserve assistance that is well-intentioned and could po-
tentially support benefits for the broad public but is fundamentally less effective
than its fiscal counterpart is the Municipal Liquidity Facility (MLF) established by
the Federal Reserve under Title IV to help State and local governments better man-
age cash flow pressures. State and local governments are currently forecast to be
facing revenue shortfalls as large as $1 trillion in coming years. 2 These shortfalls
demand fiscal aid to State and local governments, and the MLF cannot be viewed
as any kind of substitute for grant aid to States and localities. The aid State and
local governments need is not loans, but direct fiscal grants that will allow them
to close their massive budget shortfalls—shortfalls that will otherwise force them
to lay people off and enact deep budget cuts, given their balanced-budget require-
ments. It would be deeply misguided to argue that the existence of this lending fa-
cility means that States don’t need direct aid because they can now borrow from
the Federal Reserve—as has unfortunately been done by Administration officials. 3
With that said, credit from the Municipal Lending Facility could be of use to
States and localities in buying time to manage the fiscal impacts of the pandemic.
However, the current restrictive MLF rules will limit its use even for this purpose.
The 3-year term of MLF loans is much too short. It is extremely likely that States
will still be facing fiscal gaps in 3 years, making them reluctant to use credit that
is due at that time. Despite the fact that State and local governments are far more
likely to repay loans than private businesses, the 3-year MLF loan term is shorter
than the 4 year loan term granted to highly leveraged companies using the Main
Street Lending Facilities, or the 5 year loan granted to airlines. Another barrier is
the fact that MLF loans can only be taken out through the end of 2020. Because
of the level of State budget shortfalls, various State legal restrictions and the me-
chanics of State budget cycles, many States will still need to use the facility during
2021. Finally, MLF credit is expensive. It is comparable in expense to what is being
offered to private businesses through the Main Street Lending Facility, despite the
fact that municipal credits are far safer than private credits and municipal credit
finances key public services. Without changes in these rules, such as those proposed
in the HEROES Act, the MLF will be even more severely limited in what usefulness
it can provide to States and municipalities navigating the coronavirus crisis.
The public benefits of the private sector facilities in Title IV are also significantly
limited by the notable lack of requirements or conditions that would link loans to
the creation of social benefit, the maintenance of employment, or response to the
Coronavirus pandemic. For example, the corporate credit facilities have apparently
no requirements for borrowers to maintain employment or payroll or limit executive
compensation. This means that companies could sell bonds to the Federal Reserve
and use the proceeds for share buybacks or other increases in executive compensa-
tion while laying off their lower-paid workers. Conditions on the Main Street Lend-
ing Facilities are also deeply inadequate—for example, companies do not even need
to attest that they will make an effort to keep workers, there is simply a toothless
statement that companies ‘‘should’’ make ‘‘commercially reasonable’’ efforts to main-
tain employment. 4 Further, since there are no limits on the types of entities that
could use these facilities, it is likely that highly aggressive and sophisticated entities
such as large private equity firms will seek out opportunities to channel funding to
reward capital owners instead of supporting workers and the response to the pan-
demic. Such uses of the facilities could effectively loot money from taxpayers. For
example, a private equity fund could have a portfolio company borrow money from
the Federal Reserve, transfer that money up to the private equity parent in the
form of monitoring fees or other payments rather than using it to support employ-
ment, and then the private equity fund would not be responsible for repaying funds
to taxpayers if the portfolio company went bankrupt. Given the lack of requirements
or conditions that would link loans to the maintenance of employment, disclosure
and transparency are profoundly important. Making transaction-level information
on the identity of borrowers and the details of specific loans public is a crucial way
2 Josh Bivens, ‘‘A Prolonged Depression Is Guaranteed Without Significant Federal Aid to
State and Local Governments’’, Working Economics Blog (Economic Policy Institute), May 19,
2020.
3 C–SPAN, ‘‘Secretary Mnuchin Remarks to Reporters’’, published on April 20, 2020.
4 Specifically, ‘‘an Eligible Borrower should undertake good-faith efforts to maintain payroll
and retain employees, in light of its capacities, the economic environment, its available re-
sources, and the business need for labor.’’ See p. 27 of https://www.bostonfed.org/mslp-faqs.
52
to help ensure that borrowers use the funds to genuinely support the economy rath-
er than simply seek profits for capital owners. Public transparency will help limit
the extent to which companies can misuse funds. The Federal Reserve has an-
nounced that it will publish the names and details of participants in its facilities
set up in the CARES Act. This effort should be monitored to ensure that the disclo-
sures include detailed transaction-level information such as the identity of bor-
rowers (including beneficial owners of legal entities), the terms of the loans, copies
of the underlying deal documents, and the intended use of the proceeds.
The CARES Act also imposed some basic oversight of these programs, but given
that President Trump immediately began undermining these provisions, 5 Congress
should pass stronger oversight provisions.
The major exception in Title IV to the key concern that the Title primarily takes
the form of loans, not grants—and also to the concern that the Title places virtually
no conditions on the use of the funds—is with the aid directed toward industries
related to passenger air travel and cargo air carriers (this is referred to as the ‘‘air-
line bailout’’). This aid was largely comprised of direct grants, and it included prohi-
bitions on layoffs, involuntary furloughs, stock buybacks, and limits on executive
compensation. The conditions could have been even stronger—for example, many
airlines are attempting to skirt the conditions by reducing hours and therefore
pay—but the conditions have undoubtedly saved many jobs. Unfortunately, the air-
line bailout was a limited exception to the general approach employed in Title IV
of unrestricted loans.
It is also important to note that the outsourcing of rescue policy to the Federal
Reserve has tended to channel Government assistance toward the wealthiest in our
society. The monetary policy tools used by the Federal Reserve work indirectly
through support for capital markets, not directly through fiscal assistance to those
who need it the most. We have seen this pattern during the response to the COVID–
19 crisis, where Title IV of the CARES Act provided enormous support to investors
and capital owners. Given that the richest 10 percent of households control 84 per-
cent of the total value of stocks, 6 the most direct effect of this support primarily
benefited the wealthy. Policymakers must keep this fact at the forefront of their
minds in the current negotiations on additional fiscal relief. The Federal Govern-
ment must step up to minimize the suffering of low- and middle-income households
as a result of the pandemic, as it has stepped up to minimize the negative effect
of the coronavirus recession on the wealthy.
Further, if Congress doesn’t step in with substantial additional fiscal relief, the
country will almost surely face an extended depression. The official unemployment
rate was 14.7 percent in mid-April, up from 3.5 percent in February. And even
though that is the highest unemployment rate since the Great Depression, it is not
actually reflecting all coronavirus-related job losses. In fact, as of mid-April, only
about half of people who were out of work as a result of the virus were showing
up as unemployed. About a quarter were being misclassified—they had been fur-
loughed and should be counted as unemployed and on temporary layoff, but were
instead being counted as ‘‘employed but not at work.’’ Another quarter were being
counted as having dropped out of the labor force altogether, rather than unem-
ployed. This is because jobless people who have not been furloughed are only count-
ed as unemployed if they are actively seeking work, which is currently impossible
for many. If all workers who are out of work as a result of the virus had shown
up as unemployed, the unemployment rate would have been 23.5 percent in mid-
April instead of 14.7 percent. And since mid-April, another nearly 18 million work-
ers have applied for unemployment benefits. Typical forecasts predict that the offi-
cial unemployment rate will be around 25 percent in June, that it will still be in
double digits at the end of 2020, and that it will be around 8 percent at the end
of 2021. As a reminder, the highest the unemployment rate ever got in the early
1990s downturn or the early 2000s downturn was 7.8 percent.
Job loss is occurring across virtually the entire economy, but it is hitting low-wage
sectors particularly hard (think restaurants, bars, hotels, personal services, and
brick and mortar retail). Because of disparate access to education, occupational seg-
regation, discrimination, and other labor market disparities, black and Latinx work-
ers and women of all races are more concentrated in these jobs. As a result, they
are facing greater job loss. Further, many people who have managed to hang on to
their jobs have seen their hours cut (think of restaurant workers whose place of
work is now only doing takeout). The number of people who want full-time hours
5 The White House, ‘‘Statement by the President’’, March 27, 2020.
6 Edward N. Wolff, ‘‘Household Wealth Trends in the United States, 1962 to 2016: Has Middle
Class Wealth Recovered?’’ National Bureau of Economic Research Working Paper no. 24085, No-
vember 2017.
53
but are working part-time because their employer didn’t have enough work for them
has more than tripled since the coronavirus crisis began.
The one bright spot in the available jobs numbers is the fact that as of mid-April,
about three-quarters of the officially unemployed—and about two-thirds of all work-
ers who are out of work as a result of the virus—report that they expect to be called
back to the jobs they had before the coronavirus shock.
Whether they will actually be called back or whether those furloughs will turn
into layoffs is the fork in the road we are standing in as a Nation right now.
If effective public health measures are enacted—widespread testing, contact trac-
ing, self-isolation of those who have been exposed, and mask-wearing—nonessential
sectors of the economy that have been shut down will be able to successfully reopen
in phases, making it possible for the country to start climbing out of this recession.
Simply lifting the lockdowns without these public health measures will not lead to
a successful reopening because most people will remain afraid of contracting a po-
tentially lethal virus and will understandably be unwilling to fully reengage in the
economic activity that is a prerequisite for recovery.
But that alone will not be enough. If the Federal Government does not provide
sufficient direct aid, then as the economy begins to reopen, confidence and demand
will be not be high enough for businesses to actually need to call furloughed workers
back, and those furloughs will turn into permanent layoffs.
The most important provision to help generate a rapid recovery is substantial aid
to State and local governments. As mentioned above, State and local governments
are currently forecast to be facing revenue shortfalls as large as $1 trillion in com-
ing years. 7 Further, due to balanced budget requirements, these Governments are
tightly constrained from taking on large amounts of debt to maintain spending in
the face of this downward shock to their revenues. The result is intense pressure
for large cutbacks in public spending by State and local governments in coming
years. Such cutbacks would be devastating to the cause of restarting the economy,
even if the virus has completely abated. We know how devastating these cutbacks
would be because we have lived through the mistake of allowing them to drag on
growth in the recent past. The lack of sufficient aid to State and local governments
in the aftermath of the Great Recession led to State and local spending austerity
that delayed the recovery from the Great Recession by over 4 years. 8 As of mid-
April, State and local governments had already lost more jobs than they did during
the entire Great Recession. In this crisis, if Federal aid is passed that is sufficient
to close the enormous revenue shortfalls the economic crisis will cause for State and
local governments, it will save 5–6 million net jobs in the public and private sector
by the end of 2021. Without this aid, those jobs will be lost.
It is also crucial to extend the expansions of unemployment insurance that were
part of the CARES Act well past their current expiration dates. The modifications
the CARES Act made to the Nation’s unemployment insurance (UI) system are a
crucial lifeline for tens of millions of American workers. Aside from temporarily ex-
panding the eligibility criteria for who qualifies for unemployment benefits through
the end of the year and providing an additional 13 weeks of State UI benefits, the
CARES Act also provided an extra $600 per week in UI payments through the end
of July.
This $600 top-up has been fiercely criticized by some since the Act passed, but
the criticism is either ill-informed or in bad faith. The extra $600 has been by far
the most effective part our economic policy response to the coronavirus shock. It is
perhaps worth noting that my preference would have been for a 100 percent replace-
ment rate up to a quite generous maximum benefit, instead of a flat-rate increase.
But decades of disinvestment in the administrative capacity of State UI offices left
them incapable of flexibly calculating each new applicant’s benefit amount with a
100 percent replacement rate. (Case in point: most offices are still using the 1970s-
era programming language COBOL to run their computers 9). State offices are capa-
ble of administering a flat-rate increase, however. So, policymakers in Congress ap-
propriately chose the second-best solution of picking a flat-rate increase in benefits
that would leave the average worker (and most workers overall) with 100 percent
of their precrisis earnings.
But the necessity of the one-size-fits-all approach means that workers who earned
less than the average worker before the crisis will receive benefits that are some-
7 Josh Bivens, ‘‘A Prolonged Depression Is Guaranteed Without Significant Federal Aid to
State and Local Governments’’, Working Economics Blog (Economic Policy Institute), May 19,
2020.
8 Id.
9 Alicia Lee, ‘‘Wanted Urgently: People Who Know a Half Century-Old Computer Language
So States Can Process Unemployment Claims’’, CNN, April 8, 2020.
54
what higher than 100 percent of their previous wage. Many conservatives claim this
is somehow an economic disaster, but in fact, for the purpose of generating a rapid
macroeconomic recovery from this shock, the more money getting into the pockets
of low- and middle-wage workers, the better. 10 These workers are likely to be in
households that will have little choice but to quickly spend any unemployment bene-
fits on necessities, boosting the economic recovery. Dropping the additional top-up
would mean unemployed workers would have to survive on a maximum of half of
their prior earnings—and many on much less than half, given the extremely low
caps on regular State UI benefits. Without the top-up, unemployed workers and
their families would have to severely cut back on their spending, hampering the re-
covery.
The primary complaint against the extra $600 is that it will impede the otherwise
efficient functioning of low-wage labor markets. But of course, the labor market is
not ‘‘efficient,’’ instead it has been rigged against low- and moderate-wage workers
for decades, and precrisis earnings for these workers were far too low, on both moral
and efficiency grounds. 11 Further, the official unemployment rate will likely be well
over 20 percent at the end of July—and the unemployment rate that takes into ac-
count everyone who is out of work as a result of the virus will be even higher. Even
without the epidemic, it would be terrible policy on humanitarian and economic
grounds to use cutbacks to UI benefits that make them too stingy to live on as a
cudgel to demand people attempt to find a job quickly when the labor market is that
weak.
Some have pointed to stories of low-wage businesses trying to reopen reporting
they can’t find workers because potential employees can make more on unemploy-
ment benefits and not expose themselves to health risks on the job. Policymakers
could easily solve this potential ‘‘incentives’’ problem by allowing laid-off workers
keep their extra $600 weekly payment (or at least some increment of it) even after
they find a new job, strengthening health and safety standards so workers know
their workplaces are required to be as safe as possible, and offering premium pay
to frontline workers who face risk on the job.
It is also important that none of these provisions (for example, emergency unem-
ployment compensation provisions and aid to State and local governments) are al-
lowed to expire at arbitrary end dates, and instead that automatic triggers for their
expiration are enacted. There is an enormous amount of uncertainty around how the
economic impact of the coronavirus will unfold. Assigning arbitrary end dates to pro-
visions to sustain the economy makes little sense when the process could be handled
automatically, by having provisions phase out as the unemployment rate or the em-
ployment-to-population ratio decline. Using automatic stabilizers would not be any
more expensive than the cumulative cost of multiple extensions of the programs in
the bill—but it would prevent destructive lapses in critical programs while Congress
negotiates extensions, and it would alleviate corrosive uncertainty by giving busi-
nesses, States, and households crucial confidence around budgeting and planning.
If the Federal Government provides sufficient aid during this crisis so that peo-
ple’s incomes don’t drop dramatically (even if they have been unable to work), so
that businesses stay afloat (even if they have been totally or significantly shuttered),
and so that State and local governments whose tax revenues are plummeting are
not forced to make drastic cuts that will hamstring the economy, then today’s fur-
loughed workers could get back to their prior jobs and the recovery could be rapid
because confidence and demand would be relatively high. But if the Federal Govern-
ment doesn’t act, then those furloughs will turn into permanent layoffs and the
country will face an extended period of high unemployment that will do sweeping
and unrelenting damage to the economy and the people and businesses in it. Fed-
eral lawmakers get to choose which path we take.
10 Josh Bivens, ‘‘What Should We Know About the Next Recession?’’, Economic Policy Insti-
tute, April 2019.
11 Josh Bivens and Heidi Shierholz, ‘‘What Labor Market Changes Have Generated Inequality
and Wage Suppression?’’, Economic Policy Institute, December, 2018.
55
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM THOMAS QUAADMAN
Q.1. Last year, many CEOs of the companies you represent pledged
that they would start to consider that their companies exist not
only to serve shareholders, but also their customers, suppliers, and
workers. Right now, some of the CEOs who endorsed this state-
ment have furloughed workers during the pandemic, but continued
to issue dividends to their shareholders. Will the U.S. Chamber
take the position that companies should halt all dividends and cap-
ital distributions until they increase pay for their employees? Yes
or no?
A.1. As stated in my written testimony for the hearing, the eco-
nomic crisis caused by the pandemic is not the fault of businesses
that have been ordered to shut down or severely limit their oper-
ations. The primary, and appropriate, consideration of Congress
when it passed the CARES Act was speed—getting money into the
economy quickly so that millions of businesses don’t collapse, and
employees are left without a paycheck. The CARES Act is not per-
fect, but by and large it served its core purpose. The Chamber has
urged the Treasury Department and Federal Reserve to be ex-
tremely cautious when applying the corporate governance and
shareholder distribution prohibitions included in the CARES Act.
Using this crisis as a reason to shoehorn certain policy objectives
will only make it less likely that struggling businesses access many
of these programs.
Further, the argument in favor of a blanket restriction on divi-
dends ignores those who depend on dividends for income, including
retail investors and beneficiaries of retirement plans. Taking into
account the needs of other constituencies does not mean that busi-
nesses should harm their own shareholders at every opportunity.
This economic downturn is unprecedented in its swiftness and se-
verity—Congress and regulators should not make it worse.
Q.2. Will the U.S. Chamber take the position that all of its member
companies must publicly disclose whether they have received loans
through any Federal Reserve lending facility or other funding from
the CARES Act and the amount of such funding? Yes or no?
A.2. As stated in my written testimony, robust oversight of the
CARES Act programs is critical to instilling public confidence in re-
lief efforts, and to identifying and holding accountable those who
fraudulently attempt to access the facilities. But ‘‘shaming’’ a busi-
ness teetering on the brink because that businesses happens to op-
erate in a particular industry is not an appropriate role for policy-
makers and will only disincentivize companies from accessing relief
facilities. We have no objection to public disclosure of borrowers
from CARES Act facilities so that the public is informed. The
Chamber has consistently supported oversight mechanisms in
times of crisis when taxpayer dollars are used as a lifeline for the
economy. For example, in 2009 the Chamber support the Troubled
Asset Relief Program (TARP) Accountability Act which provided a
mechanism for Government and the public to easily track and mon-
itor disbursement of TARP funds in the wake of the 2008 financial
crisis. As we stated then, ‘‘This level of transparency will help
avoid the misuse of funds and develop a level of confidence that is
56
integral to the success of TARP.’’ We believe the same should apply
to oversight of the CARES Act.
Q.3. During the hearing, I asked you about companies spending
millions of dollars on ad campaigns to thank essential workers and
assure them that ‘‘We are all in this together.’’ Saying ‘‘thank you’’
is not enough. Most of these workers earn relatively low wages,
and many companies who provided small temporary wage increases
are now pulling them back. If we are really all in this together, will
the U.S. Chamber take the position that its member companies
must permanently and substantially increase the pay of all work-
ers? If not, why not?
A.3. The most important thing for American workers over the last
few months has been to preserve their paychecks, and we believe
that the CARES Act facilities—particularly the Paycheck Protec-
tion Program—have done an effective job at that. While the Cham-
ber is more than willing to engage in discussions with lawmakers
regarding a national minimum wage, we strongly oppose efforts to
tie such a discussion to businesses (many of which are struggling
to survive) that availed themselves of programs passed almost
unanimously by Congress. Moreover, as the Chamber pointed out
in a letter last year to the House, the Congressional Budget Office
has estimated that an increase to $15/hour would result in as
many as 3.7 million workers losing their jobs. An increase to $10,
on the other hand, would raise the wages for approximately 3.5
million workers with minimal job losses. We are happy to continue
working with policymakers to ensure that American workers re-
ceive fair wages and to avert any national mandate that would cost
millions of jobs.
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM THOMAS QUAADMAN
Q.1. Should we have used the Defense Production Act to rebuild
our strategic national stockpile of medical supplies?
A.1. The Chamber believes the Defense Production Act (DPA) offers
tools that can be useful to address specific industrial bottlenecks
and other problems such as price gouging that can arise during a
pandemic, including this one. The Chamber has supported the tar-
geted use of the DPA, but also recognizes it is not a complete pan-
acea. For example, the DPA is not a substitute for a close public–
private partnership focused on dramatically boosting production of
medical goods and ensuring their swift and efficient delivery to
where they are most needed.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
FROM THOMAS QUAADMAN
Q.1. The Paycheck Security Program would cover the wages and
benefits of furloughed or laid off employees of affected businesses
and nonprofits that have experienced a drop in revenues of at least
20 percent. Grants will cover salaries and wages up to $90,000 for
each furloughed or laid off employee, plus benefits, as well as up
to an additional 20 percent of revenues to cover fixed operating
costs such as rent, utilities, insurance policies, and maintenance.
57
Companies receiving these grants must commit to a number of
restrictions including maintaining pay and benefits of rank-and-file
workers and offering to bring back workers laid off since February
1st the opportunity to go back to participate in the program at
prior level of compensation. Additionally, the bill would decrease
the burdens on financial institutions that are overwhelmed by SBA
loan programs.
Can you share your thoughts on the Paycheck Security Act? Do
you believe this will provide business owners who missed out on
the Paycheck Protection Program (PPP) security?
A.1. The Chamber appreciates all the various proposals to provide
additional assistance to small businesses whose revenue has been
constrained by stay-at-home orders, and social distancing require-
ments. Recently the Chamber communicated its recommendations
for a Phase IV bill to the Congress, below is what the Chamber rec-
ommended to help support small and midsize employers. We would
be happy to discuss with you how the Paycheck Security Program
might achieve these goals.
Excerpts from July 16, 2020, letter to the President and Mem-
bers of Congress available at: https://www.uschamber.com/letters-
congress/us-chamber-letter-the-phase-4-coronavirus-relief-legislation
Employers across the country continue to struggle with the
economic fallout caused by the coronavirus. The impact,
however, is not the same across industries. As of June,
some sectors of the economy have essentially restored all
the jobs lost since February. Other sectors—particularly
those most impacted by closures and social distancing re-
quirements where remote work is not possible—have faced
catastrophic revenue and job loss. As part of the CARES
Act, Congress appropriately provided broad-based support
for employers through the Paycheck Protection Program
(PPP), the Economic Injury Disaster Loan (EIDL) program,
the Main Street Lending Facilities, the Employee Reten-
tion Tax Credit, and other tax provisions.
At this time, it is appropriate for Congress to take a more
targeted approach: closing the gaps that existed in the
CARES Act programs and providing additional relief for
those businesses that cannot return to more normal oper-
ations as a result of the social distancing requirements
necessary to prevent the spread of COVID–19.
Specifically, the Chamber urges Congress to consider the
following proposals:
Closing the CARES Act Gaps:
• While the PPP was intended to assist all small business em-
ployers, including nonprofits, nonprofits who are not organized
as 501(c)(3) organizations have been excluded from the pro-
gram.
• Congress should extend the deadline for applying for PPP
funds through the end of the year and make all nonprofit em-
ployers eligible to apply for a loan.
58
• Congress should also make the PPP loan forgiveness process
easier for the smallest small businesses by automatically for-
giving loans under $150,000 or $250,000.
• The CARES Act prohibited an employer from receiving both a
PPP loan and an employee retention tax credit. While no em-
ployer should be able to receive a PPP loan and a tax credit
for the same expense, allowing PPP borrowers to access em-
ployee retention tax credits after exhausting their PPP loans
will help small businesses who continue to face constrained
revenue.
• In too many cases, small businesses in low-income and rural
areas, as well as those without traditional banking relation-
ships—including minority-owned businesses had difficulty ac-
cessing the PPP. The bipartisan Recharge and Empower Local
Innovation and Entrepreneurs Fund (RELIEF) for Main Street
Act would provide $50 billion to seed and scale locally relief
programs for small employers. The Chamber urges Congress to
pass this initiative.
• Replenish the SBA’s Economic Injury Disaster Loan (EIDL)
program and require SBA to remove the $150,000 loan cap for
the program that is authorized to provide loans up to $2 mil-
lion.
Providing Additional Relief for Employers:
• Congress can build on the aid provided in the CARES Act to
help employers address urgent liquidity needs, including by al-
lowing the monetization of additional tax attributes like gen-
eral business credits. This would provide businesses timely ac-
cess to tax benefits existing on their books. In addition, Con-
gress should provide tax relief for losses due to the
Coronavirus pandemic; and modify international tax provisions
to maximize the benefits of CARES Act tax relief.
• The CARES Act created an Employee Retention Tax Credit
(ERTC) that provided an effective $5,000 refundable tax credit
to employers negatively impacted by the economic fallout from
the pandemic. Congress should increase the size of the credit,
make the credit more flexible by allowing small and midsize
employers to claim the credit irrespective of whether the em-
ployee is ‘‘providing services,’’ and expanding the universe of
eligible employers by reducing the reduction in gross receipts
required to access the credit. Congress can simultaneously
make the expanded credit more targeted by reducing the ben-
efit for employers who are experiencing less of a revenue loss.
• While the CARES Act mostly focused on aiding small busi-
nesses with their payroll costs, for many, their fixed expenses,
like rent, are a significant burden. At the same time, revenue
is constrained as a result of social distancing requirements.
Congress should consider a modest addition to the ERTC for
ERTC eligible employers to cover a limited amount of fixed
costs.
• As part of the CARES Act, numerous tax provisions were en-
acted on a temporary basis to help businesses address liquidity
issues. Given the expected time required to return to the
59
prepandemic economy, a further extension of these tax provi-
sions is warranted.
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM DOUGLAS HOLTZ-EAKIN
Q.1. Why is it important that Congress provide funds for local gov-
ernments hard hit by health and economic crises?
A.1. Local governments have been deeply affected on both sides of
their budgets. Due to the demands of meeting the public health
mission, local expenditures for first responders, frontline health
personnel and health care costs, in general, spending has risen.
These expenditures are in the national interest and it is appro-
priate that the Federal taxpayer carry this burden (at least in
part). At the same time, revenues have fallen sharply as the econ-
omy has contracted. The major issue facing Congress is whether to
provide compensatory funds directly through the appropriations
process or to have localities rely on the Municipal Liquidity Facil-
ity.
Q.2. How can the Federal Reserve provide loans and buy municipal
bonds from communities with smaller populations?
A.2. The Federal Reserve possesses wide latitude in the creation
and disposition of emergency lending programs under its Section
13(3) powers. The Fed could either create a new facility under this
authority providing loan support specifically targeting these small-
er populations, or amend the Municipal Liquidity Facility to permit
access to the program to these communities, an action it has al-
ready performed twice.
Q.3. How can the Fed make a determination of credit quality from
local governments that may not have rated bonds?
A.3. I do not believe that it can. Further, I do not believe that it
should, nor does it in fact at this point need to. The Municipal Li-
quidity Facility is not currently designed to be accessible to States
and municipalities without an investment grade rating (although
allowance is made for entities who had, but have lost this status
since the onset of the pandemic). Local governments that are not
investment grade, or are unrated, are not covered by the Fed’s
emergency lending programs.
Q.4. Nevada currently has the highest unemployment rate in the
Nation—30 percent. What long term impacts do you see on Nevada
and other States that rely on tourism and may have a higher sus-
tained unemployment rate?
A.4. The outlook depends almost entirely on the pace of develop-
ment of therapeutics and vaccines, and thus the capacity to restore
the confidence of the public in using the hospitality and leisure sec-
tor services. Barring restored confidence, it seems unlikely that
this sector will be restored to its former scale and Nevadans will
be forced to diversify their economy to employ residents or suffer
an out-migration of their population.
60
RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
FROM DOUGLAS HOLTZ-EAKIN
Q.1. The Paycheck Security Program would cover the wages and
benefits of furloughed or laid off employees of affected businesses
and nonprofits that have experienced a drop in revenues of at least
20 percent. Grants will cover salaries and wages up to $90,000 for
each furloughed or laid off employee, plus benefits, as well as up
to an additional 20 percent of revenues to cover fixed operating
costs such as rent, utilities, insurance policies, and maintenance.
Companies receiving these grants must commit to a number of
restrictions including maintaining pay and benefits of rank-and-file
workers and offering to bring back workers laid off since February
1st the opportunity to go back to participate in the program at
prior level of compensation. Additionally, the bill would decrease
the burdens on financial institutions that are overwhelmed by SBA
loan programs.
Can you share your thoughts on the Paycheck Security Act? Do
you believe this will provide business owners who missed out on
the Paycheck Protection Program (PPP) security?
A.1. I have seen no evidence that financial institutions are over-
whelmed by PPP applications. Nor do I see the need to create an
additional program with the desired aim of providing relief in a
very similar if not identical manner to the PPP to the same popu-
lation of businesses. The PPP is not perfect, and there is room for
Congress to improve the program (most particularly in clarifying
the rules relating to forgiveness). But I do not see the value in du-
plicating the efforts of the PPP, doubly so when the PPP program
still has at least 20 percent of funding available.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
FROM DOUGLAS HOLTZ-EAKIN
Q.1. What is the fastest and most efficient mechanism to provide
financial assistance to small and medium-size businesses? And
what is the fastest and most efficient way to provide relief to fami-
lies?’’
A.1. In a very practical sense, mass disbursement of financial as-
sistance to small and medium-sized businesses has already been
achieved. The Paycheck Protection Program (PPP) has been the
single most effective aspect of the CARES legislative package, and
as noted in my testimony singlehandedly was the largest support
for the economy for the month of April. Getting over $500 billion
to businesses in need in a matter of weeks is an enormous credit
to Congress, Treasury, the Small Business Administration (SBA)
and our Nation’s banking system. Of course, the program is not
without flaw, but by any objective standard it has proven to be a
lifeline to thousands of Main Street businesses; the program is an
unqualified success if measured solely against the metrics of speed
and efficiency.
If by your question you envisaged a scenario where further bil-
lions in financial aid are to be disbursed, the most efficient mecha-
nism appears to me to be to continue funding the PPP and make
both required and beneficial programmatic changes, including, for
example, potentially allowing a second loan to be taken out. Al-
61
though the system is not perfect, it has demonstrably proved itself
to be effective, and any potential future efforts should use not just
the key learnings from this process but also take advantage of the
infrastructure and network of lenders the SBA has so hastily ac-
quired. Any other effort, even efforts more preferable in theory to
myself or critics of the PPP, would be unlikely to be as fast or as
efficient as the PPP at this point due to the unique experience the
SBA has gained.
Congress enacted three new laws in response to the COVID–19
pandemic that provide myriad means of assistance for individuals
and families. Some provisions provided for cash transfers, while
others offer forbearance for missing payments or limit penalties for
withdrawing money from existing accounts. The effect is to ensure
that individuals have access to more cash, receive adequate nutri-
tion, and that they can receive testing for COVID–19. AAF has
catalogued those programs here. Tailoring assistance to specific
needs—household liquidity, unemployment, and other challenges—
provided more effective assistance than any single individual pro-
gram.
Going forward, as the public health and economic situations
change, so too will the needs of individuals. Congress’ ability to
again respond quickly and specifically to those needs will be impor-
tant. In preparation, Congress should start working to assess what
those needs will be in the future, and how current needs might
change. For example, as treatments and vaccines are developed, in-
dividuals will need to be able to access and afford them. Some busi-
nesses and perhaps even entire industries may never return, or at
least not in any manner that closely approximates their existence
before the pandemic; as such, many individuals will need to find
different jobs requiring different skills and may need training to do
so. Children may be required to continue learning from home next
year; many will need additional resources to be successful and it
may require taking action now in order to be prepared. To the ex-
tent that Congress can anticipate needs and get ahead of coming
crises, the consequences will be much less severe.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM HEIDI SHIERHOLZ
Q.1. Even before this pandemic, many Americans were barely mak-
ing ends meet. Corporations were not paying people a living wage,
while their executive and shareholder compensation has continued
to increase. How will this persistent wealth gap between corporate
executives and workers, and black and white workers, affect our
economy if we continue down this path?
A.1. The persistent gaps between corporate executives and their
workers, and between black and white workers is not just a moral
issue, it is bad for the economy as well. Growing evidence finds
that for many, economic outcomes are tied to who their parents are
and what neighborhood they live in, not how talented they are and
how hard they work. High inequality means those at the top are
able to hoard opportunity, obstructing the ability of many to con-
tribute to the economy and society to their fullest potential, and
this hurts productivity and growth. Growing evidence also finds
62
that rising inequality bestows its beneficiaries with economic power
and political influence that allows them to subvert the institutions
that support a fair and well-functioning economy and manipulate
economic growth in their favor, from minimizing the taxes they
face to regulatory changes that protect their interests. This under-
mines a fair balance of power in the economy and, as a result,
leads to inefficiencies that lower productivity and drag on growth
and stability. Growing evidence also finds that rising economic in-
equality affects how much money in the economy is used for con-
suming versus saving. In particular, rising inequality has trans-
lated into consumption that is lower than it otherwise would have
been, since gains in the last four decades have gone largely to those
at the top of the income distribution, who are less likely to spend
extra money. However, greater aggregate savings has not led to in-
vestment-led growth either, because firms know there is an in-
creasing share of consumers who don’t have money to spend. This
drags down and distorts growth.
Q.2. The number of unemployment claims in just the past two
months has far exceeded the total jobless claims during the Great
Recession. Could you discuss the severity of the unemployment,
labor market, and economy today versus the Great Recession? How
should these differences inform our policy responses to the eco-
nomic crisis resulting from the coronavirus pandemic?
A.2. I am writing this response in September of 2020, six months
into the COVID crisis in the U.S. labor market. Though the labor
market has added a substantial number of jobs in each of the last
4 months (May–August), we lost so many jobs in March and April
that we are still 11.5 million jobs below where we were in Feb-
ruary. This is far more than the total jobs lost in the Great Reces-
sion, 8.7 million. Of profound concern now is that the pace of job
growth is slowing. In August, we added fewer jobs than in July,
and far fewer than in June. Slowing job growth when there is a
jobs deficit of more than 11 million is a disaster for the working
families of this country. It is imperative that Congress act in at an
unprecedented scale to provide the fiscal aid that will create and
save jobs, in particular, aid to State and Local governments, and
extending the unemployment insurance provisions in the CARES
Act.
Q.3. The Great Recession also lasted longer for black and brown
workers than white workers. Could you please explain how the
2007–2008 financial crisis and economic downturn had a dispropor-
tionate impact on black and brown households? How does the re-
covery from the Great Recession exacerbate the effects of the eco-
nomic crisis related to the coronavirus pandemic for black and
brown families?
A.3. It wasn’t until 2019 that the median income of black house-
holds finally surpassed its pre-Great-Recession peak—12 years
after the start of that recession. Black households were the last ra-
cial group to meet this benchmark, and black wealth has yet to re-
cover. This is due to a wide variety of factors rooted in systemic
racism, from occupational segregation by race to discrimination in
mortgage lending to other disparities in opportunity rooted in
white supremacy. And now the recovery has been cut short, with
63
black and brown workers experiencing much more job loss in the
current recession than white workers, while having less wealth to
fall back on. The current recession will exacerbate profound racial
inequalities. Congress must act.
Q.4. We’ve seen how State and local governments, who keep our
communities clean and safe and employ thousands of workers, are
struggling financially under the weight of this pandemic, like in my
home State of Ohio. Although the Federal Reserve is working on
a facility to help lend money to some municipalities, this may not
be enough. What are the economic consequences if we fail to pro-
vide more direct Federal aid to State and local governments?
A.4. Without additional Federal aid, State and local governments
are currently forecast to be facing revenue shortfalls as large as $1
trillion in coming years. Further, due to balanced budget require-
ments, State and local governments are tightly constrained from
taking on large amounts of debt to maintain spending in the face
of this downward shock to their revenues. The result is intense
pressure for large cutbacks in public spending by State and local
governments in coming years. Such cutbacks would be devastating
to the cause of restarting the economy, even if the virus has com-
pletely abated. We know how devastating these cutbacks would be
because we have lived through the mistake of allowing them to
drag on growth in the recent past. The lack of sufficient aid to
State and local governments in the aftermath of the Great Reces-
sion led to State and local spending austerity that delayed the re-
covery from the Great Recession by over 4 years. As of mid-April,
State and local governments had already lost more jobs than they
did during the entire Great Recession. In this crisis, if Federal aid
is passed that is sufficient to close the enormous revenue shortfalls
the economic crisis will cause for State and local governments, it
will save 5–6 million net jobs in the public and private sectors by
the end of 2021. Without this aid, those jobs will be lost.
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM HEIDI SHIERHOLZ
Q.1. Federal Reserve’s Interventions Impact on Workers—Do you
think the Federal Reserve’s interventions will reduce unemploy-
ment? If so, what should the Fed do to promote employment? How
should they ensure their interventions protect jobs for workers?
A.1. Yes, the Fed’s actions will reduce unemployment relative to a
scenario where they did nothing. Mass bankruptcies are bad for the
labor market, and the interest rate structure appropriate for Feb-
ruary 2020, with 3.5 percent unemployment, was obviously not ap-
propriate for March and April of 2020 when properly measured un-
employment quintupled. The most valuable thing the Fed can do
is what they’ve already done: reassure fiscal policymakers that pol-
icy interest rates will remain low so long as the economy remains
weak. Fiscal policymakers need to recognize this signal and provide
much greater aid to households and State and local governments.
Q.2. Should the Federal Reserve prioritize investments in busi-
nesses that support strong unions that provide living wages?
64
A.2. Unions are deeply important for our economy and the workers
in it. Unions provide workers livable wages, strong benefits, and
safe working conditions. And unions don’t just help union work-
ers—they help all of us. When union density is high, nonunion
workers benefit, because unions effectively set broader standards—
including higher wages that nonunion employers must meet in
order to attract and retain the workers they need. The combination
of the direct effect of unions on union members and this ‘‘spillover’’
effect to nonunion workers means unions are crucial in raising
wages for working people and reducing income inequality. How-
ever, prioritizing investments in businesses that support unions is
not the Fed’s job. Congress and the President must pass laws that
make it possible for all willing workers to form unions and bargain
collectively. The Fed does not have the administrative capacity—
particularly in the throes of a horrific economic crisis—to make
these decisions.
Q.3. Do you think the Fed’s interventions will result in more or
less corporate consolidation? Should antitrust concerns be a focus
of the Justice Department and Congress?
A.3. The effects of the Fed’s post-COVID interventions could either
increase or decrease consolidation. The potential for the Fed’s inter-
ventions to increase consolidation has gotten substantial attention,
but it’s important to note that given that large firms are arguably
much more able to raise funds in distressed financial markets than
small firms, the Fed’s actions could well be leveling the playing
field. Antitrust should be a concern of both the Justice Department
and Congress.
Q.4. Some criticize the Federal Reserve’s actions to provide a back-
stop for businesses that now have junk bond status. They argue
that such interventions protect wealthy investors. Do you think the
dramatic interventions by the Federal Reserve will contribute to
greater income and wealth inequality?
A.4. I believe the Fed’s actions will unambiguously reduce income
inequality, if modestly. Almost nothing in the past 5 decades has
been as destructive of equality in the U.S. economy as labor mar-
kets that remain weak for extended periods. The Fed’s actions will
modestly help the labor market recovery. The Fed’s initial purchase
of financial assets (Treasuries and corporate bonds, in particular)
will boost their prices, which will increase reported wealth inequal-
ity (as these assets are concentrated—like all wealth—in portfolios
of richer households). But if they unwind these purchases at any
point in the future, this will reduce their prices and reduce inequal-
ity. Further, the largest effects of past Fed support of the financial
system was on home prices. Given that home equity is the most
democratically held form of wealth, this equalized wealth holdings
between, for example, the median family and the top 1 percent.
Q.5. What public investments should policymakers consider to pro-
vide jobs to the 40 million Americans who have become unem-
ployed and whose jobs may not return any time soon?
A.5. Policymakers should make major investments to address na-
tional priorities such as public health, the care economy, infrastruc-
ture, public education, and climate crisis mitigation.
65
These investments would both meet national needs and create
millions of good jobs.
Q.6. Do you think the employee retention provisions in the Main
Street Lending Program are adequate?
A.6. No, the conditions on the Main Street Lending Facilities are
deeply inadequate. For example, companies do not even need to at-
test that they will make an effort to keep workers; there is simply
a toothless statement that companies ‘‘should’’ make ‘‘commercially
reasonable’’ efforts to maintain employment. Further, since there
are no limits on the types of entities that could use these facilities,
it is likely that highly aggressive and sophisticated entities such as
large private equity firms will seek out opportunities to channel
funding to reward capital owners instead of supporting workers
and the response to the pandemic. Such uses of the facilities could
effectively loot money from taxpayers. For example, a private eq-
uity fund could have a portfolio company borrow money from the
Federal Reserve, transfer that money up to the private equity par-
ent in the form of monitoring fees or other payments rather than
using it to support employment, and then the private equity fund
would not be responsible for repaying funds to taxpayers if the
portfolio company went bankrupt.
Q.7. Do you think the Federal Reserve has structured its programs
to support maximum employment?
A.7. Given inaction by the Congress and President, the Fed should
make the Municipal Liquidity Facility (MLF) more attractive to
State and local governments, reducing interest rates, extending
terms, extending the borrowing period and opening it up to a wider
range of Governments. In future recessions, the Fed could be given
the necessary tools to more directly support maximum employment
than these, but they do not currently have them.
Q.8. The CARES Act restricts Fed financing to ‘‘businesses that are
created or organized in the United States or under the laws of the
United States and that have significant operations in and a major-
ity of its employees based in the United States.’’
Are you concerned that companies that have undergone a tax in-
version or a U.S. subsidiary of a foreign company will receive as-
sistance? If so, how should the Federal Reserve structure the loan
to preserve jobs while requiring the corporation repay the tax-
payers who financed the loan?
A.8. Generally, I’m not concerned that too many businesses will re-
ceive help from the Fed—I think the much bigger problem is insuf-
ficient aid being given across-the-board to households, Govern-
ments and businesses in the recovery. Any firm operating in the
U.S. that employs U.S. workers strikes me as a good target for aid
at a time like this, even if they are foreign-owned. If these firms
have inverted purely for tax gains, the IRS should be the agency
that assesses this and provides the appropriate remedies.
66
RESPONSES TO WRITTEN QUESTIONS OF SENATOR JONES
FROM HEIDI SHIERHOLZ
Q.1. According to the Pew Research Center, 60 percent of Hispanic
adults say that someone in their household has lost their job or ex-
perienced decreased pay due to the coronavirus outbreaks and
about 44 percent of African Americans have reported the same.
The Federal Reserve has regularly reported, in healthy economic
times, that almost 40 percent of individuals do not have the funds
to cover a $400 emergency. The Pew Research Center reports that
53 percent of white adults have rainy day funds compared to 29
percent of Hispanics, and 27 percent of African Americans.
After the Great Recession, communities of color lost more than
a $1 trillion of wealth. Will the coronavirus pandemic exacerbate
the existing gap of wealth between African Americans and His-
panics with their white counterparts? What policy steps should
Congress take to close the gap after the pandemic?
A.1. Yes, the coronavirus pandemic will exacerbate the existing
wealth gap between black and Hispanic workers with their white
peers, because evidence to date suggests that black and Hispanic
workers face much more economic and health insecurity from
COVID–19 than white workers. Black and Hispanic workers have
experienced greater job losses during the pandemic, are less likely
to have the ability to work from home, less likely to have paid sick
days, and are more likely to be uninsured compared to their white
peers. These disproportionate impacts of the coronavirus on black
and Hispanic workers will only widen existing wealth gaps unless
policymakers address long-standing underlying racial disparities in
economic and health outcomes.
Steps policymakers should take to close the racial wealth gap
after the pandemic include:
• Fiscal policy that prioritizes investments that create jobs in
high-unemployment and high-poverty communities.
• Strengthen the rights of workers to organize, join unions, and
collectively bargain, as directed in the PRO Act, passed by the
House of Representatives in February 2020.
• Strengthen enforcement of antidiscrimination laws and policies
through banning the use of forced arbitration agreements as a
condition of employment, prohibiting employers from asking
potential employees about pay history, and requiring employ-
ers to provide greater pay transparency.
• Update existing labor standards so that they continue to pro-
vide a robust floor for job quality, including increases to the
minimum wage, as provided in the Raise the Wage Act of 2019,
preventing further erosion of the Federal overtime salary
threshold, and elimination of exclusions to basic labor stand-
ards that are historically rooted in racial exclusion and dis-
crimination.
Q.2. The Paycheck Security Program would cover the wages and
benefits of furloughed or laid off employees of affected businesses
and nonprofits that have experienced a drop in revenues of at least
20 percent. Grants will cover salaries and wages up to $90,000 for
each furloughed or laid off employee, plus benefits, as well as up
67
to an additional 20 percent of revenues to cover fixed operating
costs such as rent, utilities, insurance policies, and maintenance.
Companies receiving these grants must commit to a number of
restrictions including maintaining pay and benefits of rank-and-file
workers and offering to bring back workers laid off since February
1st the opportunity to go back to participate in the program at
prior level of compensation. Additionally, the bill would decrease
the burdens on financial institutions that are overwhelmed by SBA
loan programs.
Can you share your thoughts on the Paycheck Security Act? Do
you believe this will provide business owners who missed out on
the Paycheck Protection Program (PPP) security?
A.2. The Paycheck Security Act would avert mass layoffs and pre-
vent irreversible business losses, it would prevent millions from
losing their health insurance, and it would provide resources for
firms to rehire furloughed workers and restore their health care
benefits. We entered the current crisis with a weak social insur-
ance system and public safety net, and workers and their families
are paying the price. Given this preexisting weakness, fast and
transformative responses to this economic crisis are crucial, and
the Paycheck Security Act is a bold solution to provide needed re-
lief during the extended lockdown (or partial lockdown) period of
the crisis, and to put us in much better position to mount a rapid
recovery once the public health all-clear is sounded.
68
ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD
LETTER SUBMITTED BY CUNA
69
70
LETTER SUBMITTED BY NUFCA
71
72
File and source
- File
- CHRG_CHRG-116shrg42248_CHRG-116shrg42248.pdf
- Size
- 2,913,800 bytes
- SHA-256
- cf17b19cd1d8296fc97309d512e6d7f49966c2a6c6b827dd71f93cc1d7feec7c
- Original
- www.govinfo.gov