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COVID-19: PROPOSED AND EXISTING FEDERAL GOVERNMENT FINANCIAL RELIEF OPTIONS FOR BUSINESSES

Updated: Mar 20

By Alex Kosyla & Stefano Rosenberg


Executive Summary


For U.S. residents, March of 2020 marks the beginning of a global pandemic that is likely to persist for months to come. Governments around the world are racing to respond and struggling to contain the virus in order to dampen its effects on the healthcare and financial systems. Below, RKF Global provides a current look at what the executive branch is authorized to do in response to the virus, what economists believe the economic impact may be, and what actions the U.S. federal government is pursuing. As to measures designed to provide relief that may be necessary for individuals and businesses to remain afloat, we are monitoring several actions, including:


  • Taxpayers and businesses will now receive an extension of the time to file until July 15, 2020

  • The announcement of a $500+ billion-dollar stimulus package to uplift the economy. Still in its early phases, the package would likely result in a cash injection larger than the bank bailout of the 2008 recession.

  • House Bill Resolution 6201 providing approximately $104 billion paid leave package for business under 500 people. This Bill was signed into law by President Trump, Wednesday.

  • One of the provisions in the Bill passed on Saturday would appropriate two (2) billion dollars to state unemployment insurance programs while also waiving measures like work search requirements or waiting weeks to those either diagnosed with the coronavirus.

  • A reprieve from the required filing of income taxes for individuals and businesses. Through the Stafford Act, the White House has given the IRS and the US Department of the Treasury significant authority to craft tax relief packages and plans for those impacted by the virus.

  • A new federal emergency paid leave program has been created providing workers with family members affected by coronavirus and those whose children's schools have closed with up to two-thirds of their pay


NOTE: While this article focuses on federal governmental actions, individual states have also begun to unveil their own respective relief plans. RKF Global will provide an in-depth analysis on such plans in upcoming Practice Alerts.


The Impact


The spread of COVID-19 is causing significant consequences for businesses around the world, and many are already feelings its shockwave. On March 11, 2020, the World Health Organization announced that COVID-19 was considered a pandemic, which is defined as “a disease prevalent over a whole country or the world.”


As a direct result from the spread of COVID-19, the United States has progressively shifted from the mindset of business as usual, to one of apprehension, self-quarantine and “social distancing.” The stock market shed nearly 3,000 points in its biggest daily decline in more than 30 years, the global supply of goods has been disrupted on many levels making it harder for U.S. firms to fill orders, and some employers are shedding their workforce to save on expenses. Routine travel to and from home is being progressively limited, and it is inevitable that businesses will feel the effects of these limitations sooner rather than later.


A Brief History of Presidential Emergency Powers


On March 13, 2020, a national emergency was proclaimed throughout the United States due to the spread and threat of COVID-19 (hereinafter the “Proclamation”). The Proclamation states, among other things, that as of March 1, 2020, the COVID-19 outbreak constitutes a national emergency under the United States Constitution, thus invoking the use of Presidential emergency powers.


The Proclamation directs the Secretary of Health and Human Services to exercise its authority under section 1135 of the Social Security Act (“SSA”), as amended (42 U.S.C. 1320b-5). The express purpose of the SSA it to enable the Secretary to:


[E]nsure to the maximum extent feasible, in any emergency area and during an emergency period… (1) that sufficient health care items and services are available to meet the needs of individuals in such area enrolled in the programs under titles XVIII, XIX, and XXI; and (2) that health care providers…that furnish such items and services in good faith, but that are unable to comply with one or more requirements…may be reimbursed for such items and services and exempted from sanctions for such noncompliance, absent any determination of fraud or abuse.


The Supreme Court has interpreted a national emergency to be an emergency in terms of urgency and relative infrequency of occurrence as well as equivalence to a public calamity resulting from fire, flood, or like disaster not reasonably subject to anticipation. Home Building and Loan Association v. Blaisdell, 290 U.S. 398, 440 (1934). Based on this interpretation, it is reasonable to consider COVID-19 a national emergency as pandemics are infrequent, and such a public calamity was reasonably unforeseen.


The President holds certain emergency powers that may be exercised when the United States is threatened by a crisis or emergency circumstances, including but not limited to, war, natural disaster, and currently, COVID-19. These emergency powers are implied or granted expressly by the Constitution or statute, or otherwise assumed by the Chief Executive to be permissible. Emergency powers are used to govern effectively during a time of crisis that existing governmental powers would be unable to properly address, or if there is insufficient time for Congress to amend existing laws. Congress and the judicial branch remain in equal standing with the power of the Executive branch and have the authority to restrain the use of any emergency powers.


Examples of presidents using their emergency powers include Franklin D. Roosevelt’s internment of residents and U.S. citizens of Japanese descent during World War II, George W. Bush’s wiretapping after the September 11, 2001 terrorist attacks, and Abraham Lincoln’s suspension of habeas corpus during the Civil War. Other uses of Presidential emergency powers include, but are not limited to, the seizure of personal property and commodities, organization and control of the means of commercial production, assignment of military forces abroad, imposition of martial law, regulation of private enterprises, seizure of control of transportation and communication, and travel restrictions. Although these examples seem like extreme uses of Presidential power, the judiciary has imposed limits as to the extent of these powers.


In Youngstown Sheet & Tube Company v. Sawyer, a steel company challenged Harry Truman’s executive order directing the government to seize all U.S. steel mills during the Korean War. The steel workers at that time were on the cusp of a worker strike, and Truman issued an executive order to maintain the U.S. steel supply necessary for the war. Id. Although the steel companies acted in compliance with the executive order, they simultaneously filed suit challenging the seizure of the steel mills, arguing the seizure was not authorized by Congress or the Constitution. Id. The court held that the order authorizing the seizure was unconstitutional, and entered an injunction restraining the government’s continued seizure of the steel mills. Id.


On September 14, 1976, Congress passed the National Emergencies Act (the “Act”) (50 U.S.C. 1601 et seq.) in part so Congress could provide certain checks and balances on the emergency powers of the President, as well as to place an expiration date on any existing or future emergency powers. If a national emergency is not renewed annually, it will automatically expire as provided by the Act. The Act provides that any emergency powers declared by the President shall remain in effect until Congress terminates the emergency by concurrent resolution, or the President terminates the emergency. Sec 202(a)(1)-(2). The Act further provides that Congress shall meet at least every six (6) months to consider a vote on a joint resolution to determine whether that emergency shall be terminated.


At the time the Act was passed, there was in effect legislation passed by Congress imparting a multitude of dormant statutory powers on the President to be used during a national emergency, as well as four (4) prior national emergencies that had not been terminated. For example, a national emergency declared by Truman in 1950 was still in effect and was being used to facilitate the Vietnam War. The Act reigned in these emergency powers by providing for their automatic expiration, absent any renewal by Congress or the President.


Recovery Scenarios


While it is still too early to accurately determine the long-term impact on supply chain operations, manufacturing and the American economy, economic experts have begun to speculate what scenarios could play out by year’s end. Their findings generally show two scenarios: a relatively quick recovery, and in the worst-case scenario a global recession.


Quick Recovery Scenario


Under a quick recovery scenario, aid packages and eased monetary policies such as lower interest rates initially limit the economic impact of COVID-19 in Q1. Modest fiscal responses prove largely insufficient to overcome economic damage in Q2, but COVID-19 shows a reduced ability to spread and infect during the warmer summer months resulting in consumer spending resuming at rates that keep the economy afloat. Still, it would not be until Q3 and Q4 that European and US economies see a definite recovery. In this scenario a global recession would have been largely avoided.


Slow Recovery Scenario


Under a slow recovery scenario, larger-scale quarantines, additional travel restrictions, and social-distancing measures drive a sharp fall in consumer and business spending until the end of Q2. Although the outbreak becomes largely under control in most parts of the world by late Q2, the self-reinforcing dynamics of a recession would extend the decline until the end of Q3. Business investment contracts, and corporate bankruptcies soar, which in turn would place substantial pressure on the banking and financial system.


Predictions aside, one thing is certain-- the speed at which economic and prevention policies are executed by governments around the world will drastically alter the progression of COVID-19, and thus its economic effect.


The Response


Governments around the world are beginning to act quickly, and from a federal standpoint, the U.S. Government has already begun to unveil its relief packages to be passed and approved. On Wednesday, March 18, 2020, The Senate voted 90 - 8 to pass H.R. 6201, dubbed the Families First Coronavirus Response Act(hereinafter the “Bill”). Signed into law by President Trump the same day, the Bill marks the second such aid package in the last several weeks. In this round, the bill provides paid sick and family leave for U.S. workers across the private sector impacted by the virus along with several other measures curbing the impact of the virus. More specifically the Bill includes:


Emergency paid sick days:


The Bill reimburses small private businesses with 500 or fewer employees the cost of the 14 additional days of sick leave for workers infected with the virus. Under the revised bill, however, those payments would be capped at $511 a day.


Emergency paid leave:


A new federal emergency paid leave program has been created providing workers with family members affected by coronavirus and those whose children's schools have closed with up to two-thirds of their pay. Although it is worth noting that said benefits would now be limited to $200 a day. At the moment there is no reliable information on the application process to receive these benefits, but it is expected that the payment system will be further detailed in the upcoming days.


Expanded unemployment insurance:


One of the provisions in the Bill passed on Saturday would appropriate two (2) billion dollars to state unemployment insurance programs while also waiving measures like work search requirements or waiting weeks to those either diagnosed with the coronavirus.


The executive branch has also jumped into action and several financial support initiatives have been announced, such as:


New stimulus package:


The White House and Congress are currently working out the details of a massive new stimulus package. The proposal includes the authorization of two $250 billion rounds of direct payments to individual taxpayers, with the first payment issued beginning on April 6 and the second on May 18. In terms of total costs, the White House was originally seeking to pass this measure with over $1 trillion in spending. It is likely that a measure like this would be executed in a similar fashion to the Economic Stimulus Act of 2008, which provided payments averaging $600 a person directly deposited into bank accounts by the IRS.


Tax break:


As part of its coronavirus response, the federal government has decided to provide taxpayers with a three-month reprieve to pay any income taxes owed for 2019 of up to $1 million. Corporate filers would get the same length of time to pay amounts due on up to $10 million in taxes owed. Neither individuals nor businesses will be charged any interest or penalties if they defer their payment. It is important to note the following changes: taxpayers and businesses will now receive an extension of the time to file until July 15, 2020.


Individual states are also beginning to unveil relief plans of their own. At the moment it is unclear how the federal packages will interact with state level financial aid. In upcoming articles RKF Global will be taking a deeper look at the landscape of relief on a state level.


Conclusion


It is expected that Congress will continue to draft relief legislation to combat the economic losses caused by COVID-19 within the coming weeks, which should provide further relief to business owners and their employees. Reports have circulated that the current administration is discussing a relief measure that would purportedly provide each person in the United States with $1,000 as part of a stimulus relief package. Business owners and employees should be aware of the relief legislation being passed, and should continue to monitor RKF Global PLLC’s website and social media pages for any updates.





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Written by:





Alex Kosyla - Senior Associate

Alex.kosyla@rkfglobal.com















Stefano Rosenberg - Associate

Stefano.rosenberg@rkfglobal.com

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