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March 26, 2020

COVID-19 UPDATE: Phase III Economic Relief Package Update


Last night, the U.S. Senate passed the Coronavirus, Aid, Relief, and Economic Security Act (the “CARES Act”) to provide emergency assistance and health care response for individuals, families, and businesses. At around $2 trillion, this is the largest economic rescue package in American history. The House is expected to vote on it tomorrow, and send it to the President, who has indicated that he will sign it into law. As such, the information we are providing today is subject to change before the final bill is enacted into law. We will update you with any changes in the final version of the bill.

The CARES Act amends a number of existing statutes and covers a wide range of areas. We are analyzing the legislation in depth and will provide summaries in the coming days. However, there are key provisions in the legislation that may have a more immediate applicability to your business, and we would like to bring them to your attention now.

Small Business Paycheck Protection Program

Paycheck Protection Loans. These loans may be extremely useful to businesses. Loans are available to businesses with not more than 500 employees or such greater number designated under its NAICS industry code. Companies may borrow up to 2.5 times their average monthly payroll over a 12-month historical measuring period, subject to a $10 million limit. Compensation for any employee that is in excess of $100,000 per annum is excluded from this calculation. Traditional banking (i.e. approved SBA lenders) will be the primary vehicle for obtaining these loans. Some key points:

  • No Traditional Underwriting Requirements. The loans do not require any personal guarantee or security. There is no requirement that the borrower is not able to obtain funds from other sources; and the underwriting criteria appear to be far less stringent than for traditional SBA loans.
  • Eligible Uses. Payroll Protection Loans must be used for employee compensation (including group health care, certain other permitted employee benefits, and certain tax expense), rent, utilities, and interest on certain other debt obligations, including mortgage interest. Loan payments will be deferred for between 6 and 12 months. The amount of a Paycheck Protection Loan that is used, prior to June 30, 2020, to pay payroll costs, interest on mortgage debt, rent, or utilities will be forgiven.
  • Debt Forgiveness. The portion of the loan that is subject to forgiveness will be reduced if during the period before forgiveness, the business reduces its workforce. The amount of reduction will be roughly proportionate to the percentage of workforce reduction. If the business rehires employees and restores their wages to prior levels before June 30, 2020, those employees will be included in the forgiveness calculation, thereby increasing the amount of loan forgiveness.
  • Interest. The amount of the Paycheck Protection Loan that is not forgiven will bear interest at no more than 4% and the loan will have a maturity of not more than 10 years. No fees or prepayment penalties are imposed on Paycheck Protection Loans.

See additional guidance for small businesses just issued by the SBA HERE. Also, see SBA-approved lenders in Illinois HERE.

Over $500 Billion in Relief for Severely Distressed Sectors

The Senate bill provides that the Secretary of Treasury may make – through direct support or through financial institutions coordinating with the Federal Reserve – up to $500 billion in loans, loan guarantees or other investments for losses incurred by severely distressed sectors of the U.S. economy due to COVID-19, including:

  • Up to $25 billion for passenger air carriers and FAA certified air service businesses
  • Up to $4 billion for cargo air carriers
  • Up to $17 billion for businesses critical to maintaining national security
  • Up to $454 billion in additional loans, loan guarantees and other investments to states and municipalities and other businesses.

States, Municipalities and Businesses with 500+ Employees. The $454 billion will be disbursed through programs or facilities to be established by the Federal Reserve to provide liquidity to the financial system for states, municipalities and other businesses not otherwise eligible for other assistance under the CARES Act (e.g. those with over 500 employees). The relief will be in the form of loans or direct purchases of obligations or interests in the primary or secondary markets.

There are restrictions in the bill for businesses receiving assistance, including on executive compensation, stock buy-backs and dividends. The bill requires businesses receiving assistance to maintain their employment levels to at least 90 percent of those that existed before the COVID-19 crisis. Also, the emergency lending will be overseen by a Congressional Oversight Commission and a Special Inspector General.

Airports. We understand that $10 billion will be earmarked for airports, and that all commercial airports will be eligible. The requirements are being fleshed out with the FAA, including factors based on enplanements and outstanding debt ratios. Around $100 million will be allocated to general aviation airports.

Additional Relief to Workers in Aviation Industry. The bill provides additional financial assistance (on top of the $500 billion described above) to be used exclusively for payment of employee wages, salaries and benefits to passenger air carriers (up to $25 billion) and cargo air carriers (up to $4 billion), as well assistance to certain third-party contractors that provide air carrier support services (up to $3 billion). Third-party contractors eligible to receive assistance under this provision include those that provide airline catering services and those that provide on-airport support services to air carriers, including, but not limited to loading/unloading of property, assistance to passengers, security, ticketing and check-in, aircraft ground handling, and aircraft cleaning, sanitization and waste removal. The assistance available under this subsection of the bill ends on September 30, 2020, and is subject to various restrictions on executive compensation.

Expanded Unemployment Benefits

The current Senate bill includes a sizable expansion of both the length and amount of unemployment insurance (“UI”) available to American workers.

Notably, UI has been expanded to cover gig workers, independent contractors and individuals who are self-employed. Furloughed employees will also be eligible for UI. This means that furloughed employees could still receive benefits through their employers, like health insurance, while also receiving benefits under UI. Workers who have the ability to telework and be paid will not be eligible for UI.

Individuals that qualify for UI will see an increase in the benefits they receive. In addition to state unemployment benefits, individuals will receive $600 per week for up to four months from the federal government. The federal government has also added an additional 13 weeks of UI for qualifying individuals. This means qualifying individuals could see up to 39 weeks of UI. In Illinois the maximum weekly UI payment is $471 and the maximum length of UI is 26 weeks. The Senate bill would further allow states to expand eligibility for UI benefits to workers who have not been terminated or furloughed but have had their hours significantly reduced.

Some states already have relaxed their own requirements for UI eligibility. In Illinois, an individual who has been “temporarily laid off” because his/her employer has temporarily closed is eligible for UI as long as he/she is ready to return to work when his/her employer reopens. Illinois has also left open the possibility that workers who leave work to care for children during the COVID-19 outbreak could be eligible for UI. For more information on expansion of UI eligibility by the state click HERE.

All of these benefits will be in addition to the benefits under the Families First Coronavirus Response Act (Phase II) which expanded paid sick leave and added paid leave under the Family Medical Leave Act (“FMLA”) for a small subset of workers. Workers that are receiving either paid sick leave or paid FMLA leave, however, will not be eligible for UI.

Direct Payments to Taxpayers

Under the bill passed by the Senate, many individuals will receive one-time direct payments from the federal government. The maximum payment will be $1,200 for individual taxpayers with an adjusted gross income (“AGI”) of $75,000 or less and $2,400 for joint filers with an AGI of $150,000 or less. An additional $500 will be added for each dependent child under the age of 17. As an individual’s or joint filers’ AGI increases, the direct payment amount they will receive decreases. The upper AGI limit for receiving any payment is $99,000 for individuals and $198,000 for joint filers. Income will be determined based on 2019 tax returns or, if an individual or joint filer has not filed a 2019 tax return, 2018 tax returns. This includes individuals receiving Social Security, disability or unemployment payments. In addition, those receiving Social Security benefits, disability or certain other retirement benefits but who did not file a tax return or pay taxes will also receive a payment based on their identification through Social Security benefit statements.

These payments are not taxable. The only catch is that technically a person’s 2020 income is what is qualifies them for the payment. Since no one knows their total 2020 income yet, the government is using tax returns from 2019 and 2018 to figure out who qualifies for a check. It is possible, though unlikely, that someone may have to pay back some of the money if his or her income this year turns out to be significantly more than it was in 2019 or 2018.

Qualified individuals do not need to take any action to receive their direct payment. Qualified individuals who have authorized the IRS to electronically deposit refunds to their bank account will receive their direct payment electronically. Others should receive checks by mail. While the payments will be made as rapidly as possible, it is unlikely that any payments will be made for several weeks.


Department of Labor Guidance

The Department of Labor (“DOL”) has issued a model notice poster for employers explaining the effects of Families First Coronavirus Response Act (“FFCRA”) to employees. To view the model notice click HERE. DOL has clarified that the FFCRA takes effect on April 1, 2020.

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