PPP AT SIX MONTHS: A Flawed Program That Came Up Short Executive Summary The Trump Administration’s Paycheck Protection Program (PPP) has been rife with problems and confusion since day one. • The program has regularly faced criticism over transparency. Through April and May, the Treasury department released only topline information on distributed loans – and on June 11, Treasury Secretary Mnuchin said the Trump administration would not disclose PPP loan information, describing it as “proprietary” and “confidential.” But following bipartisan pushback, the Trump administration shifted course and agreed to disclose the names of borrowers for PPP loans in the amount of $150,000 or more, which was described as a compromise. (Additional background: The PPP utilized the existing framework of the SBA’s 7(a) loan program. 7(a) loans were subject to disclosure under public records laws: of loan recipients, loan amounts, officer names, loan terms, etc.) A compromise release of the data, providing all loan amounts but only information on borrowers above $150,000, only provided 14- percent of borrower information, and accounted for only 75-percent of funds. The Pandemic Response Accountability Committee has since called for providing company information on PPP loans above $25,000. • The program includes loopholes designed to help the restaurant and hotel industries. The CARES Act included language, described as a “special-interest provision” by the New York Times, to allow chain restaurants and hotels to file for small business grants despite exceeding employment figures. The language was fought for by the National Restaurant Association. Chain restaurants have subsequently taken tens of millions in PPP funds. • The program has undergone a large number of changes, issuing at least 21 administrative “interim final rules” on aspects of the program as loans were disbursed. And actual small businesses have struggled to keep up with, apply for, understand, and meet the terms of it. • The Government Accountability Office wrote that the “complexity of [the] loan forgiveness process creates [a] burden.” The program’s design was not only confusing, it led to wealthy, publicly traded companies cashing in on relief dollars while truly small businesses were left to fend for themselves. • The PPP depleted its initial funding of $349 billion on April 15, just twelve days into the program. (The fund was replenished with $310 billion on April 24.) • In mid-April, large, publicly-traded companies like Potbelly and Ruth’s Chris came under scrutiny for taking advantage of the program. Potbelly initially returned the loan – but subsequently reapplied, receiving $10 million on the penultimate day of the program. • On May 11, seven members of the Select Subcommittee on the Coronavirus Crisis wrote to 5 companies that had received large loans, asking for them to return the funds. As of September 2020, only one has done so. • As of mid-September 2020, nearly 10,000 publicly traded companies – many of whom would go on to report strong earnings for Q2 2020 and even pay out millions to Wall Street investors in dividends and share buybacks – had taken in at least $1.6 billion in PPP funds. • Startups tied to Jared Kushner’s brother Josh got at least $2.8 million in PPP funds. • Foreign-owned firms also gained access to PPP funding, including at least one firm that specifically specializes in outsourcing work to foreign countries. 2 • Despite handing out billions of dollars, the program isn’t necessarily prioritizing workers. After the Paycheck Protection Program Flexibility Act (PPFA) was signed into law on June 5, 2020, the legislation received some pushback from labor groups, saying business bottom lines were being prioritized over workers. The legislation: o Dropped the percentage of PPP funds required to be put into payroll, to 60-percent from 75- percent. o Extended the amount of time for PPP loans to be spent, to 24 weeks from 8 weeks. o Extended the minimum maturity term of a PPP loan, to five years from two years. The program’s design also left communities of color and less wealthy areas behind. • Up to 90-percent of businesses owned by people of color or women were likely shut out of the Paycheck Protection Program. • “Of all small businesses, businesses without employees were the most likely to face challenges accessing PPP funds in the initial round. […] Businesses owned by people of color are even more likely to have no employees, putting them at a disadvantage to larger businesses that could garner higher fees. […] Nearly 95% of Black-owned firms were non-employers, and 91% of Latino-owned firms were non-employers. In comparison, 78%, of white firms are non-employer businesses.” • One study indicated that only 12-percent of black and Latino business owners who applied for SBA relief have received what they asked for and 26% said they “received only a fraction of what they had requested.” • Accountable.US found that the ten Congressional districts with the highest percentage of black residents got nearly $12 billion less in PPP funding than the ten districts with the least number of black residents, a difference of over 64,000 fewer loans. • The poorest Congressional districts received $13 billion less in PPP funds than the nation’s wealthiest districts. The program was rife with fraud and millions went to businesses that didn’t exist or that inflated their employee counts. • As of September 17, 2020, the Department of Justice and United States District Attorneys had announced charges against 87 people for PPP fraud amounting to at least $88 million. • Treasury Secretary Mnuchin responded to outcry by calling for audits and investigations of large companies, but subsequently walked that back. • The fraud and misuse of the PPP followed governmental and experts criticisms about a lack of oversight, as well as warnings from business owners on how the program’s design could be exploited. We still are without answers to basic questions like… • As the number of cases of fraudulently received PPP loans increases across the country, how exactly were loans through the PPP approved? • Are audits of loans occurring, and if so, how and when are they being conducted? Who’s conducting the audits? • Which loans will now be approved for forgiveness and how is forgiveness being decided? 3 Table of Contents PPP At Six Months: A Flawed Program That Came Up Short .......................................................................... 1 Paycheck Protection Program: Background And Basics ................................................................................. 7 FACT SHEET: Basic PPP Info .....................................................................................................................................8 TIMELINE: Paycheck Protection Program Legislative And Administrative Changes .................................................. 10 The Paycheck Protection Program Was A Small Business Relief Program Initially Funded Out Of The CARES Act, Designed To Provide Small Business Relief During COVID-19 Via Forgivable Loans ................................................. 14 POOR DESIGN AND IMPLEMENTATION: The Paycheck Protection Program’s Scattershot Implementation, Mismanagement, And Lack Of Transparency Left It Vulnerable To Fraud And Misuse.................................. 17 PPP’s Scattershot Implementation Led To Confusion And Delays, Harming Businesses ........................................... 18 Despite Assurances From The Administration, Large And Public Corporations Benefitted From The PPP ................. 21 The Trump Administration Faced Criticism Over Lack Of Transparency In The Program – Resulting In A Compromise Release Of Data That Only Displayed 14-Percent Of Borrowers In The Program...................................................... 23 The PPP Was Inefficient And Failed To Support Workers…Each Job Saved Cost Taxpayers $228K+ .......................... 26 BENEFITTED THOSE AT THE TOP: Intended As A Life-Line For Small Businesses, The PPP Benefitted The Wealthy And Well-Connected .................................................................................................................... 27 The Trump Administration Said The PPP Was Intended To Help Small Businesses Amidst The COVID-19 Pandemic . 28 Studies Of The Paycheck Protection Program Found It Was Most Beneficial Towards Larger Firms And Firms Which Could Quickly Reopen .......................................................................................................................................... 28 After Lobbying For Access To PPP Funding, Large Chain Restaurants (With High Employee Counts And Higher Executive Pay) Took Tens Of Millions In PPP Funds ................................................................................................ 29 Potbelly Corporation Received National Attention As A Firm Receiving PPP Funds Despite Being A Large Corporation – The Firm Returned The Loan Following Outcry, But Has Since Reapplied And Received $10 Million ...................... 36 Upscale Restaurant And Real Estate Firms Benefitted From The PPP ...................................................................... 38 A.US ANALYSIS: Earnings Reports Revealed That The Trump Administration Continued Giving PPP Aid To Public Companies Despite Good Financial Standings And Payouts To Shareholders .......................................................... 39 Companies Connected To Major Republican Financiers Took As Much As $45 Million In PPP Funds. ......................