On the evening of Dec. 21, Congress passed a $900 billion stimulus package. The bill’s various fiscal relief programs expiring in March 2021 include unemployment insurance, Paycheck Protection Program (PPP) loans, and layoff/furlough protections for airline workers supported by federal funds. This will put pressure on Congress to pass another package in the spring, and the focus will move toward recovery measures such as infrastructure spending.
The scope and size of any package in 2021 will be a significant political battle, and odds heavily depend on the outcome of the Georgia Senate races. Monday’s bill includes continued relief for banks, including an extended Current Expected Credit Losses (CECL) delay and Troubled Debt Restructuring (TDR) exemption.
See below a rundown of additional details gathered from the release of the text of the relief and government funding bills.
- Pandemic unemployment assistance (PUA) is extended through March 14, 2021, and maximum eligibility is increased from 39 to 50 weeks.
- PUA payments retroactive to December 1.
- Federal Pandemic Unemployment Compensation (FPUC) restored at $300/week, expiring March 14, 2021.
- Unemployed workers permitted an additional 11 weeks of federal unemployment benefits once traditional state benefits are exhausted via the Pandemic Emergency Unemployment Compensation (PUEC) program.
- $600 stimulus payments per qualified individual and additional $600 per child. Income phase out at $75,000 reducing by $5 per every $100 over phase out threshold.
- Eviction moratorium extended through Jan. 31, 2021.
- Payroll tax deferral repayment period extended to Dec. 31, 2021 from April 31, 2021.
- Full deduction of business meals through Jan. 1, 2023.
- No further retirement plan tax adjustments are included.
Small business lending and SBA loans
- Second draw Paycheck Protection Program (PPP) loans are eligible for expanded forgivable uses related to operations, property damage, suppliers and worker protection costs.
- Operations: cost of software and other human resources and accounting needs
- Property damage: damage sustained due to public disturbances during 2020 otherwise not covered by insurance
- Supplier costs: costs to suppliers essential to recipient operations
- Worker protection: personal protective equipment, physical barriers, adjustments for outdoor seating, etc.
- Guaranteed funding: $35 billion for first-time borrowers
- Simplified forgiveness process for loans <$150,000
- Clarifies that forgiven PPP funds, Economic Injury Disaster Loan (EIDL) grants, and other loan repayment assistance provided by the CARES Act are not included in overall gross income for tax purposes. Deductions are allowed for otherwise deductible expenses paid with applicable funds.
- Second draw loans targeted at smaller and harder-hit businesses with maximum $2 million loan:
- 300 employee cap
- Demonstrates at least 25% revenue reduction compared to the same period in 2019
- Loan amount is 2.5x average monthly payroll, max. $2 million. Raised to 3.5x for NAICS code 72 (accommodation and food services) borrowers.
- 60/40 allocation of payroll and non-payroll costs continue to apply for full forgiveness.
- Publicly traded companies excluded from PPP eligibility.
- PPP loans available through March 31, 2021.
- SBA’s covered payments on the principal and interest of existing SBA 7(a) loans under Section 1112 of the CARES Act is extended by six months.
- $15 billion in grants for live venue operators or promoters. Phased in eligibility in order of 90% revenue loss, 70% revenue loss, then all others. Funds allowed toward payroll, rent, utilities, PPE. Securities-exchange-listed operators are excluded.
- $15 billion provided for airline payrolls with requirement to recall involuntarily furloughed employees with back pay. Further involuntary layoffs and furloughs/pay reduction is restricted through March 31, 2021. Buybacks/dividends restricted through March 31, 2022.
Relief for banks
- Certification that lenders will be held harmless and no enforcement action will be taken if they rely on borrower documentation and certification for PPP loans.
- PPP loan fees for borrowers and lenders waived on second draw loans.
- CECL adoption delay extended until the earlier of: the first day of the fiscal year of the institution that begins after the termination of the national emergency declaration; or Jan. 1, 2022.
- TDR loan modification requirements under GAAP suspended until the earlier of: 60 days after the national emergency termination date; or Jan. 1, 2022.
Fed lending authority language potentially more restrictive than signaled
We expect the political battle over the Federal Reserve’s (Fed’s) CARES Act-supported lending authority to continue in 2021 should incoming Treasury Secretary Janet Yellen and Fed Chair Jerome Powell wish to restart the expiring programs. The Fed’s corporate bond buying program (PMCCF/SMCCF), Main Street Lending Program, and Municipal Lending Facility are discontinued by this week’s Coronavirus Response and Relief Supplemental Appropriations Act.
Additionally, the language of the bill stipulates that the Fed and Treasury “shall not modify the terms and conditions of any program or facility” established under Section 13(3) authority supported by the CARES Act “including by authorizing transfer of such funds to a new program or facility.”
The bill further stipulates that funds from the Treasury’s Exchange Stabilization Fund (ESF) “shall not be available for any program or facility established under section 13(3)… that is the same as any such program or facility” supported by the CARES Act, except the Term Asset-Backed Securities Loan Facility (TALF).
This language is fairly restrictive, by our reading, and is likely to be the subject of a political battle should Treasury and the Fed seek legal avenues to restart these programs.