Early Wednesday morning, Senators Mitch McConnell and Chuck Schumer announced a massive $2 trillion stimulus deal set to be the largest economic stimulus package in modern American history.
“This is a wartime level of investment into our nation,” McConnell said.
The deal is set to include a range of far-reaching provisions. Everything from $1,200 government checks for individuals to hundreds of billions of dollars to fight the crisis are included.
But the most contentious part of the negotiations were clearly provisions to send over half a trillion dollars directly to impacted businesses.
The initial proposal from Senate Majority Leader Mitch McConnell was repeatedly slammed as a “$500 billion slush fund” by Democrats who held up the bill until changes were made. Treasury Secretary Steven Mnuchin and fellow Republicans ultimately agreed to a range of oversight measures for how companies will be able to spend the money.
“Like all compromises, this bill is far from perfect, but we believe the legislation has improved significantly,” Senate Minority Leader Schumer said after the deal was announced.
Both the Republican and Democratic leaders predict the bill will be passed quickly in the Senate.
As of early Wednesday, parts of the final bill were still being written; but here’s a rundown of what we know what’s in the deal aimed specifically at the businesses community.
For the airlines a ‘special provision’
“We’re going to back the airlines 100%,” President Trump said last week about one of the industries hit hardest by the ongoing crisis.
The deal reportedly includes $50 billion specifically for passenger airlines, $8 billion for cargo airlines, and $17 billion “for firms that are deemed important to national security.”
Airline CEOs recently promised to stop stock buybacks and paying dividends in exchange for help from the federal government.
On Tuesday, Reuters reported that the final negotiations on a package included a mix of grants and loans to these companies while Trump signaled Tuesday evening that the money would come in the form of loans.
“We’ll be helping Boeing, we’ll be helping the airlines,” he said. “We’ll be doing a lot of things and the money will all come back to us, and it will come back to us in a very strong form.”
Either way, the airlines were singled out for special treatment because “airlines do provide significant resources and national security issues,” Mnuchin said Monday, adding “I believe that’s something that’s very important to Americans.”
Billions more for businesses
Other impacted industries, from the cruise industry to hotels to restaurants, have a range of ways to get government cash.
Previous stimulus efforts put $50 billion aside for the Small Business Administration. That “money’s already starting to be approved,” an SBA official told Yahoo Finance last Friday.
This deal ramps things up aggressively with hundreds of billions of dollars in loans now expected to be available in the coming weeks and months.
Sen. Marco Rubio (R-Fl.), Chairman of the Senate Committee on Small Business and Entrepreneurship, was one of the leaders pushing the small business provisions.
“This is not a program where you are going to the SBA, you are not going to a tent somewhere in a disaster area or some government office or some government website,” he said on the Senate floor over the weekend. “You are going to a bank, to a financial institution.”
The banks will then, according to the plan, be able to process cash assistance quickly, either through the SBA or through a new program that will be set up specifically to administer some of this money. The deal reportedly includes a $367 billion for the small business loan program as well as the $500 billion fund for a new lending agency.
What’s still a bit of a mystery is exactly how this new lending agency will work. Sen. Pat Toomey (R.-PA) has been a central negotiator on this portion of the package and gave some insight into how this “big credit facility” will work on Sunday on NBC.
He said the facility will have two components: One will be administered by the Treasury Secretary with direct loans for a short list of “seriously distressed and absolutely essential companies,” likely including airlines.
The second component will be much bigger and be “a broad-based credit facility that will be available across categories, across sectors and industries.” Toomey said this program will give loans that will have to be repaid. “None of this is grant money,” he said.
Businesses of all sizes, many of which are facing the prospect of bankruptcy, will be able to participate in the different programs.
This idea of a separate lending program – outside of the SBA – was also championed by Sen. Mark Warner (D-Va.). In a recent Yahoo Finance interview, he noted that a second loan authority would allow more businesses to participate. In the past, he says, “there were all these well-intentioned programs but there was so much funding bureaucracy and underwriting that there was no take-up rate.”
There is also expected to be a crucial change in how at least some of these loans will work. Some of these loans appear set to eventually be forgiven and effectively become grants.
“They are going to be able to take an SBA loan that will give them two months of payroll and some overhead,” Mnuchin said on Fox Business on Monday. “And if they hire the workers back or they keep their workers hired, the government will forgive that loan.”
Provisions to ban stock buybacks
A lot of that cash, especially from the new lending facility, will find its way into a range of publicly-traded companies. The deal includes provisions to stop these companies from using that cash for stock buybacks or executive bonuses.
“Every loan document will be public and made available to Congress very quickly so we can see where the money is going,” Schumer said Wednesday on the Senate floor. A condition for receiving a government loan will be that a company cannot make stock buybacks for a year.
The oversight provisions include a new inspector general position focused on oversight of these funds along with a five-person congressional panel. The structure is similar to what was done for the Troubled Asset Relief Program of a decade ago.
Neil Barofsky, who was the special inspector general for TARP, noted in a Yahoo Finance interview Tuesday that “putting the entity in place, is a first step,” he said, adding “but then there has to actually be real oversight, real transparency.”
Schumer’s office said the deal will “prohibit businesses controlled by the President, Vice President, Members of Congress, and heads of Executive Departments from receiving loans or investments from Treasury programs.”
Other stimulative measures
Hundreds of billions more dollars in the deal will also indirectly flow to businesses. First and foremost, lawmakers hope that the $1,200 checks will be spent across a range of industries.
The deal also includes a massive expansion of unemployment insurance. Schumer called the agreement “unemployment compensation on steroids,” and said the maximum unemployment benefit will be increased by $600 per week to ensure “that laid-off workers, on average, will receive their full pay for four months.”
The plan also includes a massive infusion of cash into the health-care industry. Health care providers, community health centers, and hospitals are set to receive over $130 billion dollars to fight the virus while states and localities are set to receive another $150 billion.
Overall, Washington is hoping that the deal will set the stage for a robust economic recovery. “If we get this package, we’ll be setting the stage for a good rebound in the second half of the year,” Larry Kudlow, the White House’s top economic adviser, told reporters Tuesday before the deal was finalized. “That’s our thinking.”