Washington Weekly: Stimulus 4: the Next Stimulus Bill

The Senate approved various nominations, including a new Director of National Intelligence, and legislation to delist companies from US exchanges that don't comply with certain US audit requirements (see below). The House was out of session.

The Senate will be out of session for the Memorial Day week, while the House will hold votes using its new proxy rules (see below) on a bill to make revisions to the SBA's small business lending program, the Paycheck Protection Program (see below), and a Senate-passed amendment to the Foreign Intelligence Surveillance Act.

Stimulus 4: the Next Stimulus Bill.

While the House approved a $3 trillion stimulus 4 bill late last week, more serious negotiations among House Democratic leaders, Senate Republican leaders and the White House will not begin until next month. The urgency for another bill is notably less intense among Republican lawmakers and the White House than it was for previous stimulus bills, though we believe a new bill will ultimately move forward and be enacted into law. Once negotiations begin, we expect the key negotiators to focus on a handful of issues, including a few we list below.

Small Business Lending.

The Paycheck Protection Program (PPP), the small business lending program that has received $650 billion in two of the previous stimulus bills, could receive additional funds. The program currently has about $120 billion available for loans that may be exhausted by the time a new bill is crafted. Perhaps more important than extra funding are likely changes to the program to provide borrowers with more flexibility. Those modifications include allowing small businesses to use loan proceeds beyond eight weeks (to 24 weeks), permitting companies to use more of the forgivable part of the loan for non-employee expenses, extending the time businesses have to rehire employees (and therefore qualify for loan forgiveness) beyond the existing June 30 deadline, and extending the period that businesses have to repay the non-forgivable parts of the loans beyond the current two-year requirement. Most of these provisions will be included in a standalone bill to be approved by the House next week and could be fast-tracked by the Senate once it is back in session in June. The PPP is probably the most popular and bipartisan component of the various stimulus bills enacted into law thus far, and lawmakers will prioritize its needs in new legislation.

Finding Middle Ground on SLGs.

State and local governments (SLGs) face significantly lower tax revenues on account of the millions of job losses experienced in just the past couple of months. The stimulus 4 bill that the House passed last week would provide nearly $1 trillion to SLGs. The stimulus 3 bill (the "CARES Act") that passed two months ago provided $150 billion to SLGs – much of which has not yet been spent. This has led to skepticism from some Senate Republicans about the need for another round of SLG funding. Nonetheless, SLG funding will be included in a final stimulus 4 bill. It is the highest priority for House and Senate Democrats, and they have sufficient leverage to get some funding for SLGs in the final bill. The question is what level of funding should be included? A bipartisan proposal emerged this week to provide $500 billion to SLGs with conditions on how it is used, including a prohibition on its use for most pre-COVID-19 expenses (including state pension plans). The level of funding and conditions in this bill seem like a reasonable basis for compromise, and we suspect the final bill will contain something along these lines.

Other Challenges Ahead for SLGs.

The current request for more aid comes at a delicate -- but perhaps helpful -- time for SLGs. Hurricane season unofficially begins June 1, while some western states are starting to experience wildfires in what is expected to be a long and challenging fire season. Impending natural disasters may showcase the unexpected costs that many SLGs incur every year to make their budgeting difficult. We're hoping a natural disaster doesn't strike any locality in the next month, but if one does it may help advocacy efforts for more federal funds. Authorities also will have the challenging responsibility of convincing residents to abandon their homes during a disaster when they've been told to stay in them to honor social distancing practices. The ongoing COVID-19 crisis will complicate the already difficult tasks of effectively responding to natural disasters.

Unemployment Insurance.

As the nation's unemployment rate continues to climb, it's not surprising that lawmakers are focusing on the structure of unemployment benefits as a part of the response to the crisis. In the stimulus 3 bill, an extra $600 per week was added to the standard benefit received by individuals under the unemployment insurance program. The standard benefit is a portion of an individual's last wage/salary and is funded by the states through a tax on employers. The new $600 per week extra benefit (through July 31) is paid by the federal government (taxpayers). It is unclear whether the next stimulus bill will extend that benefit beyond July 31. The House-passed bill from last week extends the extra $600 per week through the end of 2020 (and longer in some cases). If there is an extra benefit extended beyond July 31 in any final bill, it will not be $600 per week. Senate Republicans and the White House have argued that some people receiving this extra money will have more in income via unemployment than in their last job, which discourages their re-entry into the workforce. This issue will be a sticking point in which the two parties will need to find some compromise. Making a reduced extra payment contingent on a specified level of higher unemployment beyond July 31 seems like a plausible compromise on this issue.

China Investment Restrictions.

Amidst heightening tensions between the US and China, the Senate this week approved a bill that could result in the delisting of Chinese companies on US exchanges. The Senate bill reflects longstanding concerns about the failure of Chinese companies to comply with US auditing requirements and would require the SEC to delist companies that fail to comply over a three-year period. In a recent letter to Congress, the SEC outlined the steps it was taking to remedy this problem, but expressed concerns about the application of forced de-listings given the potential negative impact on US markets and investors. The SEC will host a roundtable in July to discuss this issue in greater depth. Congressman Brad Sherman (D-CA), who chairs an important Capital Markets subcommittee, has introduced a House companion to the Senate bill. In the current political environment, House passage of such a measure seems increasingly likely, although it remains to be seen when and how that will happen and whether the ultimate bill will be tempered to reflect the concerns raised by the SEC.

First-Time Remote Voting in the House.

Last Friday night, as the House approved its $3 trillion stimulus 4 bill, it also passed a measure to permit the chamber to vote and hold key committee meetings remotely during the COVID-19 crisis period. This will be the first time in the history of the House that it will vote remotely. Under the new remote voting system, members can return to Washington to cast final votes on bills in person or give their vote to another member in the form of a proxy. Concerns have been raised about this process, mostly around whether the proxy voting runs counter to the spirit of having lawmakers gather in person to develop bipartisan compromises and debate policies. Another issue is whether even temporary proxy voting is appropriate. Will voters frown upon their elected member of Congress if he or she gives their vote to another member via a proxy, or will they view it as the responsible decision for public health safety during a pandemic? We think most members will still return to Washington to vote unless health and safety conditions prevent them, but we expect that there will be enough members who avail themselves of the remote voting option for us to evaluate whether this has any political impact in November.

The Most Reliable Voters.

Voters 65 and older have long been the country's most reliable voting bloc in terms of turnout. Since 2000, a strong majority of this group has consistently voted for the Republican presidential candidate, with Al Gore being the last Democratic presidential candidate to win this bloc. In 2016, Donald Trump won the 65+ age demographic by 13%, which was a strong component of the coalition that helped him win crucial states such as Arizona, Florida, Michigan, Pennsylvania and Wisconsin -- all of which have high densities of voters aged 65 and older. President Trump's support from this demographic has remained consistently high until recently, according to public polls. In polls conducted since April 1, his advantage over Joe Biden with voters 65 and older has shrunk to an average of one point. While there has not been enough data to determine why this shift is occurring, the timing would suggest it has to do with the President's response to COVID-19. The preference of voters 65 and over is likely to continue to shift a bit before November, but if older voters continue to move away from the President, he will face a significant headwind in being re-elected.