Weekly Legislative Update April 27, 2020

Proposed Recovery Fund Legislation - Side by Side

 
We want to provide you with the latest update on the COVID-19 Recovery Fund. There has been quite a bit of movement on this over the past several days and things are expected to accelerate this week.
 
There are two versions of this proposal circulating Capitol Hill, a House version and a Senate version.  Below you will find a side by side comparison of these along with a current overview. 
 
We continue to ask everyone, when they are speaking to lawmakers, media, community leaders, etc., to encourage the establishment of a Recovery Fund. Additionally, we want to identify businesses that need Recovery Fund assistance to truly be able to restore their business.  
 
As of today, our coalition represents 30 industry sectors and over 57 million jobs!  The pre-COVID-19 total U.S. employment (Private sector) was 127.2 million - Our coalition represents 45% of this amount. This number continues to grow.
Provision
The COVID-19 Recovery Fund [House]
Workplace Recovery Act (WRA) [Senate]
Comments
Purpose/
Findings/
Sense of Congress
The overarching purposes are to enable employers and their employees to financially survive losses caused by the COVID-19 crisis, as well as provide liquidity to enable employers to re-enter the market as rapidly as possible. It is also designed to ensure employers can provide financial support to ill and at-risk employees. 
 
Provides liquidity to businesses in impaired sectors for the purpose of: 
  • Providing resources to stay open or re-open;
  • Retaining and rehiring employees and protecting their income and benefits during the crisis; 
  • Protecting workers who are ill or who have been exposed to COVID-19 and are unable to work; 
  • Supporting small, women- and minority-owned businesses, and those in underserved and rural areas impacted by COVID-19; and
  • Complementing the support provided by the CARES Act.
 
States in the Purpose that funds paid to an applicant shall be used exclusively for the purpose of domestic economic recovery.
"Sense of Congress" that to ensure domestic economic recovery from the COVID-19 pandemic, workplaces in impaired sectors must resume their function as strong engines of the economy and employers. It is the government's responsibility to ensure recovery by:
  • Offsetting operating expenses and supporting retention of employees
  • Providing resources for re-opening workplaces
  • Assisting employees who have contracted or been exposed to COVID-19
  • Supporting small businesses, women and minority-owned businesses, and businesses serving rural and underserved areas
  • Complementing assistance programs under CARES Act

Sense of Congress suggests a prioritization of compensation if necessary (See Prioritization, below).
The House findings and purpose closely track the language of the Senate "Sense of Congress."

House bill limits recoveries for domestic recovery purposes, which is similar in intent to the Senate bill, which explicitly bars use of recovery funds for foreign losses. (See Conditions of payment, below.)
Management
Administered by a Special Administrator appointed by the Secretary of the Treasury and located at the Department of the Treasury.

Regulations to be promulgated by the Secretary setting up administration within 30 days.

Contemplates use of 3rd parties for determining compensation, arranging payments, and performing audits.   Any third-party contracting to provide services shall be compensated on a cost basis pursuant to guidelines established by the Special Administrator in consultation with the Oversight Board. 
Limits liability of 3rd party contractors and those providing assistance to applicants, except in cases of gross negligence, willful misconduct, or fraud; preempts conflicting state law.
Retains privilege and continues application of prior confidentiality agreements.  Special Administrator and 3rd parties prohibited from disclosing non-public information except as required by law or for carrying out provisions of this Act.

Special Administrator must make weekly reports to Congress, providing listing of eligible workplaces receiving compensation, listing of 3rd party contractors, listing of outstanding appeals, and an estimate of total compensation payments.
Administered by a Special Administrator appointed by the Secretary of the Treasury and located at the Department of the Treasury.

Regulations to be promulgated by the Secretary setting up administration within 30 days.
Contemplates use of 3rd parties for determining compensation, arranging payments, and performing audits, regardless of whether 3rd party has previously qualified as a federal contractor.  Any third-party contracting to provide services shall be compensated on a cost basis pursuant to guidelines established by the Special Administrator.

Limits liability of 3rd party contractors and those providing assistance to applicants, except in cases of gross negligence, willful misconduct, or fraud; preempts conflicting state law.

If a financial institution is seeking to be a 3rd party contractor, it must provide notice to its primary regulator of its intent to apply to be a 3rd party contractor.  The regulator may prohibit or limit its participation for good cause.
Retains privilege and continues application of prior confidentiality agreements.  Special Administrator and 3rd parties prohibited from disclosing non-public information except as required by law or for carrying out provisions of this Act.

Special Administrator must make weekly reports to Congress, providing listing of eligible workplaces receiving compensation, listing of 3rd party contractors, listing of outstanding appeals, and an estimate of total compensation payments.
House and Senate bills outline a similar structure.

House bill requires the Special Administrator to consult with the Oversight Board on compensation of 3rd party contractors.  

Senate bill allows use of 3rd party contractors regardless of whether they have previously qualified as federal contractors.

Senate bill requires financial institutions to give notice to its primary regulator of intent to be a contractor.
Application Processing
Application to be simple to file and to audit, provided in English and Spanish, as well as other languages. 

Electronic filing should be provided if practicable. 
Provides interim relief without use of the approved form within 15 days and requires decisions on the full compensation application within 30 days. 
Application to be simple to file and to audit, provided in English and Spanish, as well as other languages.

Special Administrator should consider using commonly utilized internet-based software:
  • Capable of handling high volume
  • Interfaces with government databases
  • Interfaces with fraud detection systems
  • Provides for human review and audit
  • Will not under-prioritize applications based on socio-economic status, sophistication, market position or borrowing relationship of applicant
  • Uses government systems and 3rd parties that can ensure speed of implementation

Proposal specifies information to be disclosed for initial compensation and subsequent recovery compensation.  All known collateral compensation must also be disclosed.

Special Administrator must implement an automated system for review of initial applications and subsequent operating cost submissions.
House bill anticipates a review and determination by the Special Administrator. 

Senate bill envisions a highly automated application process with virtually automatic payments.

Both bills limit applicants to a single application but permit joint applications for related parties.
Geographic Scope
Businesses in US states and territories eligible to participate.
Businesses in US states and territories eligible to participate.
Same scope to include Puerto Rico and territories.
Eligible entities
(See also below)
Allows non-profits, veterans organizations and tribal business concerns to participate. Limits businesses eligible to receive payments to those in "impaired sectors" impacted by COVID-19 as defined by the Special Administrator.

An applicant shall not be determined to be eligible by the Special Administrator unless the applicant-
  • is a business or organization in an impaired sector as defined by the Special Administrator; 
  • is a business or organization that is created or organized in the US or under the laws of the US and has significant operations in, and a majority of its employees based in, the US;
  • is not eligible for loans or loan guarantees under subsections (b)(1), (b)(2), or (b)(3) of section 4003 of the CARES Act; 
  • in the case of an applicant that has received a loan under section 1102 of the CARES Act, has complied with all applicable borrower repayment obligations under such loan; 
  • is not registered with the Securities and Exchange Commission as a Family Office pursuant to section 275.202(a)(11)(G)-1 of title 17 of the  CFR; 
  • to the extent not otherwise eligible, any business utilizing business format franchising as a franchisor or franchisee under part 436 of title 16, CFR or a business concern operating as a franchisor or franchisee that is assigned a franchise identifier code by the SBA; and
  • was in operation on 3/1/20; 
  • was not a debtor in an active case under US Code title 11, commenced prior to 3/1/20; and
  • to the extent the applicant is seeking support for payroll and benefits, had employees on 3/1/20 for whom the applicant paid salaries/wages/payroll taxes.
Allows non-profits (see caps on payments), veterans organizations and tribal business concerns to participate.
An applicant is eligible to participate if it:
  • is a workplace or organization whose net cash expenses exceed net cash revenues subsequent to 3/1/20.
  • is not eligible for loans or loan guarantees under subsections (b)(1), (b)(2), or (b)(3) of s. 4003 of the CARES Act.
  • in the case of an applicant that has received a loan under s. 1102 of the CARES Act, has complied with all applicable borrower repayment obligations under such loan.
  • is not registered with the Securities and Exchange Commission as a Family Office pursuant to s. 275.202(a)(11)(G)-1 of title 17 of the CFR.

Applicant must also satisfy the following requirements:
  • In operation on 3/1/20 and have a taxpayer ID;
  • Was not a Chapter 7 debtor on 3/1/20; and
  • If seeking payroll support, had employees on March 1 for whom applicant paid salaries/wages/payroll taxes.
House bill affirmatively requires an applicant to have a majority of its employees in the U.S.

House bill bars participation by firms in bankruptcy.  Senate bill limits participation by firms slated for liquidation.

The Senate provision prohibiting SEC-registered "family office" firms from participating may be considered in the House bill.
Sole proprietor and self-employed
applicants
"Business" defined to include those who operate under a sole proprietorship or as an independent contractor, and eligible self-employed individuals.
"Workplace" defined to include individuals who operate under a sole proprietorship or as an independent contractor, and eligible self-employed individuals
Both bills broadly define eligible entities and individuals.
Seasonal entities
Seasonal entities have special rules for compensation.
Silent, but formula contemplates payment based on seasonality.
Both bills allow participation by seasonal businesses.
Payment Structure
Two tranches of payments, interim and full compensation.

Applicants may apply for an interim payment, to be processed within 15 days, with percentage limits on interim compensation between 25% and 75% based on business size. The amount of the interim payment would be subtracted from the full compensation payment (to be processed within 30 days). 

 

Initial payment and then subsequent monthly payments or as an application is received. 

Initial payment: compensation for eligible revenue starting on first day of month not before 3/1/2020 through the last day of the month that immediately succeeds the month in which the application is filed, subtracted from eligible operating expensesfor the same period.  Compensation to be disbursed no later than 15 days after application date.

Subsequent monthly payments: projected eligible operating expenses for subsequent period, minus projected eligible revenue for the same period, less excess payments from the prior month.

During the Covered Period for which a workplace receives grants, the advanced grant funds are cumulative, and any workplace may terminate coverage at any point, including retroactively, provided any grants received for periods subsequent to the Covered Period are repaid upon termination.

"Final netting" by the workplace shall occur within 6 months of the final payment.
House bill pays compensation in two tranches for average monthly revenue over four months that does not include net profits during the 18-month period before the date on which the application for recovery compensation is submitted.   Specifies permissible uses of the compensation.

Senate bill pays compensation for up to a year based on an initial payment and subsequent prospective monthly payments based on estimated operating expenses less revenue and excess from the prior month.  Allows a participant to retroactively cancel participation.

A provision like the Senate bill's "final netting" may be considered for the House bill.
Prioritization of Payments
Payments may be prioritized by the Administrator based upon:
  • business's level of impairment as a result of COVID-19
  • whether it operates in a rural or low-to-moderate income community
  • whether it is woman or minority-owned
  • whether it is a small business
Expresses a Sense of Congress suggesting prioritized compensation based on:
  • Level of impairment experienced by the workplace
  • Workplace operates in rural or low-to-moderate income community
  • Workplace is women-owned business or minority-owned business
  • Workplace is a small business, including restaurants and independently owned franchises
Senate bill relies on a highly automated structure that is designed to eliminate the need for prioritization.  Sense of Congress is designed to backstop this system.
Compensation/ Payments
Compensation payment to a business is based upon the amount needed to continue operations with respect to lost revenue and paying expenses and payroll, limited to lesser of:
  • average total monthly expense payments for 4 months 
  • $100 million

Amount of recovery compensation is adjusted monthly to take into account increases or decreases in applicant's revenue over prior month. 

To the extent that the Special Administrator is making recovery available based on lost revenue:  average monthly revenue that does not include net profits for the applicant during the 18-month period before the date on which the application for recovery compensation is submitted.

Specifies the permissible uses of the recovery compensation (Expenses Eligible for Compensation, below).

Special Administrator may also take collateral source income into account in determining the amount of compensation. (Collateral Source Offsets, below)
Initial funding determination:
Expenses eligible for compensation (defined below) since beginning of Covered Period - Revenue (defined below) since beginning of Covered Period + Projected Operating Expenses for following month - Projected Revenue for following month - unreturned funding from EIDL and PPP.

Subsequent funding determinations: 
Projected Expenses - Projected Revenue for following month - Excess compensation from prior submissions.

 

House bill compensates for expenses needed to continue operations over four months.  Specifies the business expenses which compensation may be used for (below).

Senate bill compensates for net operating expenses, carving out those expenses which are ineligible as operating costs (below).
Expenses Eligible for Compensation
Expenses eligible for compensation:
...Applicant's average total monthly expense payments shall be the average monthly payments by the applicant during the 1 year prior to the date on which an application is made for:
(i) payroll costs;
(ii) costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave;
(iii) any insurance premiums;
(iv) employee salaries, commissions, or similar compensations, except that recovery compensation may not be used for the compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the relevant compensation period;
(v) payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);
(vi) rent (including rent under a lease agreement);
(vii) utilities; 
(viii) loan repayment obligations incurred pursuant to s. 1102 of the CARES Act, (PL 116-136); 
(ix) loan repayment obligations incurred pursuant to a disaster loan authorized under s. 7(b) of the Small Business Act (15 U.S.C. 636(b)); 
(x) interest on any other debt obligations that were incurred before 3/1/20; and
(xi) state and local tax obligations.

In developing the application form, the Administrator may include:

  • The average total monthly payments by the applicant for payroll, payroll support (including paid sick, medical, or family leave, and costs related to the continuation of group health care benefits during those periods of leave) during the 18-month period before 3/13/20,except that, in the case of a seasonal employer, as determined by the Special Administrator, the average total monthly payments for payroll and payroll support shall be for the period beginning 3/1/19 and ending 6/30/19.
  • The average total monthly payments by the applicant for mortgage payments, rent payments, utilities, insurance payments, and payments on any debt obligations, including lost initial franchise fees or royalties paid by a franchisee to a franchisor, and lost expenses on initial franchise fees or royalties paid by a franchisee to a franchisor, incurred prior to 3/1/20, during the 18-month period before March 13, 2020.
Operating costs eligible for compensation:
In General--The term "eligible operating costs" means, with respect to an applicant, all cash expenses of the workplace necessary to maintain its operational viability during the covered period, but shall not include--
  • Capital expenditures that are not deductible under s. 263 of the Internal Revenue Code of 1986 (26 U.S.C. 263);
  • Payment of principal on debt obligations, except payments made under an amortization schedule written prior to 3/15/20;
  • Payment of dividends or other capital distributions with respect to the common stock of the applicant, except to the extent the applicant is a real estate investment trust with income subject to s. 857(a) of the Internal Revenue Code of 1986;
  • Payments to purchase an equity security of the applicant or any parent company of the applicant that is listed on a national securities exchange, except to the extent required under a contractual obligation that is in effect as of the date of enactment of this title;
  • Non-cash compensation including stock options, employee perquisites;
  • Non-cash expenses related to long-term assets, including depreciation and amortization; 
  • Wages to the extent they exceed the average wage rates for the comparable period of 2019, other than rates adjusted according to contracts in effect prior to 3/1/20;
  • Payments of periodic employment bonuses during the covered period, except those made to non-executives, non-owner employees, unaffiliated contractors, and positions compensated primarily through tips or commissions prior to 3/1/20; 

  • Payments to acquire land, real property, or property, plant, and equipment; and
  • Payments to related parties or affiliates; except those historically made in the normal course of business.
The House states the permissible uses for compensation and the Senate bill expansively defines permissible uses with certain exclusions.
Allowed uses of compensation
Allowable uses of compensation:
In General--An eligible applicant may use recovery compensation proceeds only for-
(A) payroll costs;
(B) costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave;
(C) insurance premiums;
(D) employee salaries, commissions, or similar compensations, except that recovery compensation may not be used for the compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the relevant compensation period;
(E) payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation);
(F) rent (including rent under a lease agreement);
(G) utilities; 
(H) loan repayment obligations incurred by the applicant pursuant to s. 1102 of the CARES Act; 
(I) loan repayment obligations incurred pursuant to a disaster loan authorized under s. 7(b) of the Small Business Act (15 U.S.C. 636(b)); 
(J) interest on any other debt obligations that were incurred before 3/1/20; and
(K) state and local tax obligations. 
Allowable uses of compensation:
In General--An eligible applicant may use recovery compensation proceeds only to pay cash operating expenses included in an application or subsequent submission, which may include -
  • payroll costs;
  • costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave;
  • insurance premiums;
  • employee salaries, commissions, or similar compensations, except that recovery compensation may not be used for the compensation of an individual employee in excess of an annual salary of $150,000, as prorated for the relevant compensation period;
  • payments of interest and scheduled principal payment on any term mortgage obligation (which shall not include any prepayment of principal on such mortgage obligation);
  • rent (including rent under a lease agreement);
  • utilities; 
  • loan repayment obligations incurred  pursuant to s. 1102 of the CARES Act; 
  • loan repayment obligations incurred pursuant to a disaster loan authorized under s. 7(b) of the Small Business Act (15 U.S.C. 636(b)); 
  • interest on any other debt obligations that were incurred before 3/1/20; 
  • state and local tax obligations; and 
  • Such other cash operating expenses as may be necessary to maintain its operational viability during the covered period, as described under s. X02(6).
The Senate allows compensation for cash operating expenses and indicates the submission may include the list in this section.  The House bill prescribes the uses of the compensation.

Senate uses a higher cap on compensated employee salaries.
Revenue deducted from operating costs 
Special Administer shall calculate the average monthly revenue, including unpaid accounts receivable, that does not include net profits for the applicant during the 18-month period before the date on which the application for recovery compensation is submitted.
"Eligible revenue" means all cash revenue derived from normal workplace activities, including any debt forgiven pursuant to s. 1106 of the CARES Act (PL 116-136), but shall not include--
  • Proceeds from the sale of long-term assets;
  • Debt proceeds, including any unforgiven portion of proceeds from a loan issued pursuant to s. 1102 of the CARES Act; and
  • Proceeds from the issuance of equity or equity-like instruments.
House bill is not highly explicit about the revenue to be deducted from the compensation calculation, delegating the calculation to the Administrator.

Senate bill allows all cash revenue from normal activities, with certain proceeds excluded.
Collateral source offsets
Collateral source offsets are defined as all compensation received  as a result of the losses for which the applicant is seeking compensation under this title, including payments by Federal, State, or local governments, related to losses arising from the pandemic.

Special Administrator allowed to consider collateral sources in the compensation award.
Collateral source offsets are defined as all compensation received  as a result of the losses for which the applicant is seeking compensation under this title, including payments by Federal, State, or local governments, related to losses arising from the pandemic.

Special Administrator allowed to consider collateral sources in the compensation award.
House and Senate provisions are similar.
Caps on payment
Average monthly expenses for four months or $100,000,000.
Individual workplaces are capped at 90% of lost revenue on a month over month basis. ("Historical Average Revenue"). 

"Historical average revenue" means-
  • in the case of an applicant that was in operation prior to 3/1/19, the applicant's total eligible revenue for the period that occurred one year prior to the covered period;
  • in the case of an applicant that began operation after 3/1/19, amount is prorated to correspond to the duration of the covered period, based on the sum of--
  • the eligible revenue period occurring prior to the covered period where the applicant was operational; and
  • unless already included in clause (i), the eligible revenue during the three weeks preceding 3/1/20;

In the case of non-profit applicant, "historical average revenue" does not include donations received during the relevant historical period.
Senate bill does not have an overall cap on compensation.

House bill does not have an historical average revenue cap for each business.
Conditions of Payment
Businesses may only receive compensation if they compensate or provide relief to workers directly impacted (ill or exposed) by COVID-19. 

Businesses must agree to retain 90% of their workforce at the time of application and to rehire 75% of its workforce within 4 months of the termination of the national emergency.

Applicant must agree not to repurchase its own stock or pay dividends for a 12-month period, except REITs as required by the IRC. 
Applicant should endeavor to rehire as much of the workforce that existed on 3/1/20 as practicable.

Applicant must agree not to repurchase its own stock, to pay dividends for a 12-month period, or pay any expense to a foreign affiliate, except for REITs and pass-through entities, where a distribution is required by the IRC.

No funds received by the applicant may be used for payment of an expense to a foreign person which is a related party of the applicant to which a deduction is allowable under chapter 1 of the Internal Revenue Code of 1986
House bill requires retaining and rehiring of set percentages of workers and compensation for injured workers as a condition of participation.

The Senate bill allows participation by pass-through entities engaging in mandated distributions.

Senate bill explicitly bars monies from being used for foreign activities.  The House may consider this language for inclusion.
Duration
No application for compensation may be filed with respect to losses accrued after the end of the national emergency proclaimed on March 13, 2020.
"Covered Period" runs through March 1, 2021.  "Covered Period" refers to any consecutive set of months that runs between 3/1/20 (or later date, as selected by applicant), but not past 2/28/21, unless the Secretary determines that conditions warrant. (See Duration, Termination, below).
House bill ties compensation to the national emergency.  The Senate bill runs through 2/28/21.
Special rule for rehired employees
Silent
Notwithstanding any other provision of law, any employee who is rehired by an eligible applicant that receives recovery compensation under this title shall remain eligible to receive federal unemployment benefits under title II of the CARES Act (PL 116-136) through July 31, 2020.
Senate bill encourages workers receiving unemployment compensation to be rehired.
Confidentiality
The Special Administrator, and any 3rd party which obtains an applicant's nonpublic data or information, is prohibited from sharing it except as required by law.  The Special Administrator or third-party may share information as necessary to meet obligations under this title, so long as the third party agrees to maintain the confidentiality of the information.
Confidential Business Information-To the extent the information in the application is non-public information, the contents shall be deemed Confidential Business Information not subject to disclosure. 
Both bills have strong confidentiality provisions to protect business information.
Determination of Appeals
Broadly outlines an appeal process managed by the Special Administrator, including review by U.S. Court of Federal Claims, which would have exclusive jurisdiction over appeals.
Attorney representation provided; compensation is limited to 10% of the difference between initial determination and the final amount after any appeal.
Broadly outlines an appeal process managed by the Special Administrator, including review by U.S. Court of Federal Claims, which would have exclusive jurisdiction over appeals.
Attorney representation provided; compensation is limited to 10% of the difference between initial determination and the final amount after any appeal.
Similar
Fraud/Audits
Authorizes access by the Secretary and Special Inspector General to the records and other pertinent documents of the Special Administrator, as well as designated third parties and applicants, including with respect to collateral source records and documents. Requires audits and quarterly reports by the Special Inspector General.

Program subject to review by five-member Congressional Oversight Board.
Secretary and Special Inspector General may audit records/documents of the Special Administrator and 3rd party contractors and any applicant, including collateral source records/documents.  

An applicant receiving payments under this program must maintain records for at least three years after the covered period.

Program subject to review by five-member Congressional Oversight Board.
Similar

Senate requires three years of record retention by an applicant.
 Funding
Act would constitute budget authority in advance of appropriations Acts and represent an obligation of the federal government. 

Authorizes appropriation of such sums as may be necessary to pay the administrative and support costs for the Special Administrator in carrying out the program.

Separate appropriations authorized for the Special Inspector General and the Congressional Oversight Board.

 

Act would constitute budget authority in advance of appropriations Acts and represent an obligation of the federal government.

Authorizes appropriation of such sums as may be necessary to pay the administrative and support costs for the Special Administrator in carrying out the program.

Separate appropriations authorized for the Special Inspector General and the Congressional Oversight Board.
Similar
Termination
Program tied to the presidential emergency declaration, with opportunity for extension or revival if the Secretary determines there has been a resurgence of the COVID-19 threat.
Provides for closure of the program by September 1, 2021, with notice to Congress soon after 2/28/21. Secretary can extend, but no longer than 3/1/22.
House program tied to the national emergency.  Senate program runs at least through February 2021.