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COVID-19: US Developments – Implementation and Oversight of CARES Act – May 29, 2020

The stay-at-home order in the nation’s capital has been lifted, while the debate continues in the United States Congress about the scope, timing and focus of the next major bipartisan federal COVID-19 response legislation. Stymied in their efforts to force quick congressional approval of another massive package, Washington Democrats are keeping busy by passing targeted legislation related to the pandemic and using their oversight powers in the US House of Representatives to raise questions about the effectiveness of federal agencies’ COVID-19 actions under the direction of President Donald Trump.

The House overwhelmingly passed a bipartisan bill Thursday that would provide additional flexibility in the availability of loans for business enterprises under the March 27 CARES Act’s Paycheck Protection Program (PPP), sending the bipartisan measure to the Senate. The chairman of the Senate Committee on Small Business, Sen. Marco Rubio (R-FL), says adjustments are needed in the House-passed bill, signaling that the Senate will counter with a somewhat different approach before a consensus product is adopted and delivered to President Trump to be signed into law. Senate Minority Leader Chuck Schumer (D-NY) indicates he will press for the Senate to take up the House-passed bill immediately and send it to the White House in its present form.

Today’s report includes updates on tax and economic development, health, trade, government oversight and state developments. 

Senior Democrats on the House Committee on Energy and Commerce this week sent a letter to the administrator of the US Food and Drug Administration (FDA) questioning the agency’s efforts to safeguard America’s food supply. The Washington Post reports the chair of the House Committee on Education and Labor Subcommittee on Workforce Protections is accusing the Occupational Safety and Health Administration (OSHA) of having been “invisible” in recent weeks as some US workers have faced serious health threats in the workplace. And the chairman of the House Committee on Homeland Security fired off a letter to the US Department of Homeland Security (DHS) blasting the department for failing to provide Congress with sufficient information about its efforts to ensure the availability of personal protective equipment (PPE) and testing supplies, POLITICO notes. All three agencies are staffed by career professionals but are headed by individuals appointed to their positions by President Trump.

The Senate, out of session this week for a scheduled Memorial Day state work period, will return to Washington next week, at which point Republican senators will resume internal discussions about their party’s priorities for eventual negotiations with Democrats to shape the next significant bipartisan COVID-19 response measure.

Tax and Economic Development Updates

With more than 40 million Americans – or nearly one-quarter of the US workforce – seeking unemployment benefits, Secretary of Labor Eugene Scalia is suggesting that “getting that unemployment number around 10 percent this year is in the realm of what is achievable.” In an interview with Fox Business Network, the Labor Secretary made clear that “[i]f we can get back to work promptly, safely, we have a chance of coming out of this more quickly than in downturns we’ve had in the past.” In order to ensure that jobs are available for people to go back to, the federal government is continuing to implement a number of financial assistance programs to support a wide array of businesses. To that end, yesterday, the Federal Reserve Bank of Boston – which will administer the Main Street Lending Program (MSLP) – released additional information about the program for potential lenders and borrowers, including standard and transaction-specific form loan participation agreements, various lender and borrower certifications and covenants, updated Frequently Asked Questions, and other legal documents. According to the Federal Reserve Bank of Boston, “[a]dditional details, including the launch date for the program, will be announced as they are available.” Notably, we may learn more about both the MSLP and the Municipal Liquidity Facility later today as Federal Reserve Chairman Jerome Powell participates in a Q&A at Princeton University with economist Alan Blinder.

Another critical financial assistance program that continues to receive significant attention – the PPP – appears poised to undergo several changes. As previewed in yesterday’s report, the House yesterday voted 417-1 to pass H.R. 7010, the Paycheck Protection Program Flexibility Act of 2020, which would, among other things: (1) increase the maturity date from two years to five years for PPP loans with a remaining balance; (2) extend the PPP covered period through December 31, 2020; (3) extend from eight weeks to 24-weeks – or through December 31, 2020, if earlier – the length of time that loan recipients have to use their PPP funds; and (4) lower from 75% to 60% the threshold amount of loan proceeds that must be spent on payroll expenses. In terms of next steps, the Senate is expected to consider the House-passed bill next week and will likely seek to make certain changes in doing so. Specifically, Senate Small Business Committee Chairman Rubio has suggested that – unlike current law, which allows partial forgiveness for loan recipients failing to meet the 75% threshold – the language lowering the threshold to 60% appears to disallow any loan forgiveness if a loan recipient does not meet the threshold. Moreover, Chairman Rubio has also expressed concern that the provision providing an exemption based on employer availability for purposes of receiving loan forgiveness to employers that document their inability to rehire employees may actually be a disincentive to rehire employees and thus needs to be examined.

Note, too, the House yesterday failed to pass H.R. 6782, the Small Business Transparency and Reporting for the Underbanked and Taxpayers at Home Act (TRUTH Act), which would require the Small Business Administration (SBA) to issue a report on PPP loan recipients of loans over US$2 million. That said, according to Bloomberg, the US Securities and Exchange Commission (SEC) “has started an inquiry into publicly traded companies that received coronavirus stimulus funds from the federal government, scrutinizing whether representations they made in loan applications were consistent with their disclosures to investors in securities filings.” It appears that the SEC has begun sending letters to various public companies that have received PPP loans requesting additional information about the loans, including copies of their respective PPP loan applications. Per Bloomberg’s analysis, nearly 200 publicly traded companies received PPP loans in excess of US$2 million, totaling more than US$1.1 billion.

Health Updates

Lawmakers are considering what preparations are needed for the upcoming flu season. Senator Ted Cruz (R-TX) wrote to Department of Health and Human Services (HHS) Secretary Alex Azar, urging HHS, the Centers for Disease Control and Prevention (CDC) and the FDA to work with vaccine manufacturers and healthcare providers to prepare for the potential increased demand for flu vaccines this year. As we previously reported, a group of 15 Democratic senators wrote to Vice President Michael Pence, inquiring about the White House Coronavirus Task Force’s plans to address the COVID-19 pandemic during the flu season. CDC Director Robert Redfield has warned that it may be more difficult to address coronavirus transmissions if they coincide with seasonal flu outbreaks.

Long-term care facilities continue to be a focus for lawmakers, with residents and staff of these facilities at great risk for contracting the virus. A group of eight Democratic senators wrote to Centers for Medicare & Medicaid Services (CMS) Administrator Seema Verma and CDC Director Redfield, requesting “that the CDC issue guidance that provides clear, measurable benchmarks that . . . [long-term care] facilities must meet to safely reopen their doors to visitors, and steps that visitors must take to ensure the safety and residents and family members when in-person visitation resumes.” The senators explained that nursing homes, residential care communities, intermediate care facilities and hospice care facilities have faced difficult challenges in responding to the coronavirus. While these facilities had to establish restrictions in order to protect residents from the spread of COVID-19, the senators state that certain restrictions – including those prohibiting in-person contact with friends and family – may negatively affect residents’ mental and emotional health. The lawmakers acknowledged both CDC and CMS have issued guidance documents addressing nursing homes, but they advocated for more actionable information and implementation guidelines for residents, families of residents and facilities looking to reopen to visitors. Separately, a group of 250 national, state and local organizations wrote to Senate Majority Leader Mitch McConnell (R-KY) and Senate Minority Leader Schumer yesterday, strongly opposing granting immunity to nursing homes during the pandemic. The groups – which include the American Civil Liberties Union, Medicare Rights Center, National Organization for Women and Service Employees International Union – state “[s]tripping residents of their right to hold nursing homes accountable for substandard care will put more residents at risk and inevitably result in increased resident deaths.” They also explain, “Due to lockdowns, residents are living and dying in nursing homes isolated from their families and absent outside oversight.” The groups suggest visitor restrictions have been one factor that led to an overall reduction of “necessary protections [to ensure the facilities] are operating sufficiently [for] . . . resident safety.” During an Axios digital event, Senator Bill Cassidy, MD (R-LA) recommendednursing home workers be tested for COVID-19 twice weekly, which he believes would reduce infection rates at these facilities.

The Federation of American Hospitals (FAH) outlined its current coronavirus-related legislative priorities in a letter to Senate leaders. The organization asked lawmakers to refine the Medicare Accelerated and Advance Payments Program by resuming the program, increasing the number of months of funds that can be advanced to hospitals, extending the time periods before repayment is required and before interest rates accrue, reducing the amount of the per-claim repayment percentage, waiving or capping the interest rate and allocating funds from general revenues. FAH also requested a changed methodology for the Provider Relief Fund, stating that a combination of lost revenue and COVID-19 costs is “the most appropriate metric for determining payments.” The group stated that Congress should mandate the distribution formula, and it urged Congress to press the administration to disburse the remaining funds. Additionally, FAH underscored the importance of ensuring and maintaining health coverage for unemployed Americans, reinforcing and protecting the Medicaid safety net and providing liability protections for healthcare providers.

Trade Updates

Later today, President Trump is expected to hold a press conference where he will speak on US-China relations. Tensions have been on the rise since the COVID-19 pandemic began, and have continued as the Government of China advanced new national security legislation related to Hong Kong. The president may announce new sanctions or visa restrictions in response to the developments in Hong Kong. While possible, more severe responses – such as revoking Hong Kong’s special status under various US laws or terminating the Phase One trade agreement signed by the US and China in January 2020 and reinstating higher List 4 sanctions – are unlikely at this time.

Oversight Updates

Senator Elizabeth Warren (D-MA) has submitted questions for the record to Secretary Mnuchin regarding the Treasury Department’s lack of enforcement action or guidance in relation to airlines’ cutting employee hours after receiving financial assistance under the CARES Act. Published on the senator’s website yesterday, the questions were posed on May 19, following Secretary Mnuchin’s testimony before the Senate Committee on Banking, Housing and Urban Affairs last week and before Senator Warren and twelve other Democratic Senators sent letters to JetBlue and Delta blasting their decision to cut employee hours after receiving financial assistance under the CARES Act. In her questions for the record, Senator Warren asked Secretary Mnuchin to explain, among other things: (1) why Treasury has taken no action against companies that accepted payroll assistance and then cut worker hours, and (2) whether Treasury plans to issue guidance regarding whether cutting employee hours violates the CARES Act.

Yesterday, Senator Warren and five other senators wrote to the Department of Labor’s (DOL) Office of Inspector General requesting an audit of OSHA’s handling of inspections and citations during the pandemic and DOL’s failure to issue an OSHA Emergency Temporary Standard (ETS) to address the heightened risks for frontline workers. The senators pointed out that during the pandemic, the number of OSHA-issued citations dropped by nearly 70%, and the inspection rate has decreased dramatically. Indeed, not a single citation related to COVID-19 has been issued. The senators also questioned whether DOL’s failure to issue an ETS is in compliance with the law.

Representatives Carolyn Maloney (D-NY), the chair of the House Committee on Oversight and Reform; James Clyburn (D-SC), chairman of the House Select Subcommittee on the Coronavirus Crisis; and three other lawmakers sent a letter to Secretary of State Michael Pompeo requesting information about President Trump’s decision in early April to purchase ventilators from Russia that the lawmakers claim were unsafe for use in the United States and were manufactured by a subsidiary of a Russian company under US sanctions. This request follows the lawmakers’ letter to President Trump last Friday, criticizing his recent decision to send hundreds of ventilators to Russia at a time when the United States continues to urgently need them.

Senator Tom Udall (D-NM) and several other lawmakers sent a letter to the Director of the Indian Health Service requesting answers from the agency following reports that it purchased US$3 million worth of potentially substandard respirator masks from a company founded by a former White House deputy chief of staff and then distributed those masks without proper quality screening to Navajo Nation hospitals in New Mexico and Arizona. The letter follows Representative Gerry Connolly’s (D-VA) call for a probe into the deal, which he made during the testimony of Christi Grimm, the HHS Principal Deputy Inspector General, before the House Oversight and Reform Committee on Tuesday. Grimm said that her office will look into the issue.

Bloomberg reports that the Securities and Exchange Commission has started an inquiry into publicly traded companies that received CARES Act funds, scrutinizing whether representations they made in loan applications were consistent with their disclosures to investors in securities filings. Two weeks ago, Reuters reported that the SEC had sent “voluntary” requests for information to public companies that received PPP loans to show that they qualified for the relief and made consistent representations to investors about their need for the aid.

Additionally:

  • Senator Warren and 14 other senators sent a letter to the Secretary of Defense requesting additional information about the Defense Department’s efforts to prevent the spread of COVID-19 among detainees in the Guantanamo Bay prison, as well as its efforts to protect servicemembers responsible for detention operations and all other military personnel at the base.

  • A Georgia man has been charged with attempting to sell 50 million non-existent N95 masks to a foreign government for US$317 million. The negotiated price for these masks was more than 500% higher than the previous normal market value. The foreign government wired the funds to complete the purchase, but the payment was intercepted by the US Secret Service.

  • The US Attorney’s Office for the District of Montana warnedthe public about an emerging COVID-19-related nationwide scam, whereby scammers call and text people requesting their personal information, purportedly for purposes of contact tracing.

State Updates

Earlier this month a bi-partisan group of attorneys general, led by Tim Fox (R) of Montana, (also currently running for Governor), wrote the federal government complaining about the meat packing industry. The letter highlighted price fixing concerns during the COVID-19 crisis. Yesterday, those same attorneys general participated in a conference call with Agriculture Secretary Sonny Perdue continuing to express their concerns about the “impact of the meat packer oligopolies on cattle prices and retail boxed beef prices, and other food distribution challenges”.

Wisconsin Governor Tony Evers (D) announced the launch of the “Routes to Recovery: Local Government Aid Grants” program, a US$200 million effort aimed at assisting local leaders in addressing COVID-19 recovery needs. Routes to Recovery grants will be allocated to every Wisconsin county, city, village, town and federally-recognized tribe. The effort is supported by CARES Act funds and will provide reimbursements for unbudgeted expenditures incurred this year because of the pandemic including: emergency operations activities, purchases of PPE, cleaning supplies, temporary isolation housing for infected or at-risk individuals and testing and contact tracing costs above those covered by existing state programs.

Idaho Governor Brad Little (R) announced yesterday the state has entered into Stage 3 of its four Stages of the Idaho Rebounds plan to safely and responsibly reopen the state’s economy. The governor decided to move up the opening of movie theatres and bars by two weeks – from Stage 4 to Stage 3 beginning this Saturday – as long as state protocols are being followed.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 150

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About this Author

David Stewart Public Policy Attorney Squire Patton Boggs Law Firm
Principal

David Stewart is a principal in our Public Policy Practice, who provides strategic advice to clients on a wide range of policy matters, with an emphasis on tax, international trade and other economic matters.

Most recently, he served as the Majority Staff Director for the Committee on Ways and Means, which has exclusive jurisdiction over taxation and international trade in the US House of Representatives. David played a crucial role in the passage of major US tax reform legislation in 2017.

Previously, he served as the...

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