PPP Loan Flexibility Passes House; Disclosure Falls Short

By Andrew Kragie
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Law360 (May 28, 2020, 9:48 PM EDT) -- A nearly unanimous House on Thursday approved a bill that would give more time and flexibility to businesses that receive forgivable loans through the Paycheck Protection Program, but Republicans defeated a proposal for public disclosure of all loans over $2 million.

The PPP Flexibility Act, which passed 417-1, would give employers 24 weeks to spend the money and have the loans forgiven, tripling the current covered period of eight weeks. While a previous version of the bill would have eliminated any requirement about how much companies must spend on payroll, the final text instead lowers the threshold from 75% to 60%. The measure could become law as soon as next week.

Lawmakers did not advance the Small Business Truth Act, which would set up a searchable public database with details about PPP loans over $2 million. That measure failed to advance because the 269-147 vote narrowly missed the two-thirds majority required under special procedural rules. All Democrats supported the bill along with 38 Republicans.

Rep. Dean Phillips, a freshman Democrat from a competitive Minnesota district, got the chamber's Democratic leaders to schedule votes on the two bills when he agreed to support the $3 trillion Heroes Act earlier this month in response to the coronavirus pandemic.

He cheered House approval of the flexibility bill, which he sponsored along with Rep. Chip Roy, R-Texas. In addition to the longer covered period and lower payroll requirement, their proposal would give employers more time to rehire laid-off workers, eliminate a two-year repayment schedule for future borrowers and ensure that PPP recipients can also benefit from a special payroll tax deferment.

"Our small business owners, the institutions of our main streets and the glue of our communities, are asking us to take actions to solve problems and engage in some good old fashioned teamwork," Phillips said on the House floor Thursday. "This bill will help people in the ways that they need, and we haven't a moment to lose."

He said the major change between introduction and passage was on the payroll requirement. To get loans forgiven, employers as it is must spend 75% on payroll, with the rest available for certain expenses like commercial rent and utilities. Some businesses said the threshold was too high, especially for industries like retail that are not labor-intensive.

The original plan would have eliminated any payroll requirement but, Phillips told reporters, "labor was concerned that it would reduce the amount of money that would go to employees."

The bill's sole opponent was Rep. Thomas Massie, R-Ky., a skeptic of government spending.

Both sponsors predicted that their changes could spur more demand for PPP loans and eventually exhaust the program's $660 billion in funding.

"It'd be a good problem to have," Roy said, "if we're looking at businesses that believe that this will give them the flexibility to survive, open up and start hiring people."

They forecast an easy path to Senate passage.

"We believe what we've compromised on here, in this chamber, will be sufficient to pass the Senate," Phillips said. "If it doesn't, I can't quite understand why."

"This bill is in a really good spot, they ought to pick it up and move it," said Roy, a former aide to Sen. Ted Cruz, R-Texas. "This is a bill to provide immediate flexibility and it's needed, and if the Senate sits there and messes around ... then we're stuck."

Last week the Senate began to consider a proposal with a 16-week covered period, rather than the 24 weeks in the House bill. Sen. Marco Rubio, R-Fla., who chairs the Senate Small Business Committee, said that was a minor distinction.

"I don't think the differences between the House and Senate on this issue are insurmountable," Rubio told reporters last week. "I think they're semantic and maybe a couple of weeks here or there, but that wouldn't be the reason why this doesn't get done."

House Majority Leader Steny Hoyer, D-Md., told reporters Tuesday that the House measure was blessed by Sen. Ben Cardin of Maryland, the top Democrat on Rubio's committee.

On Thursday, Kansas GOP Sen. Pat Roberts told reporters that he expected a Senate vote early next week.

The Senate proposal also would allow forgiveness for funds that employers spend on personal protective equipment such as masks and gloves. Phillips and Roy said that while their bill does not include that provision, they hope the Small Business Administration will address the issue on its own.

After the nearly unanimous vote for the flexibility proposal, Phillips told reporters that he was disappointed his disclosure bill failed to garner the necessary supermajority, even after changing the measure to require disclosure only for loans over $2 million. Less than 1% of the 4.4 million loans approved through Saturday are that large, according to federal data. Nearly two-thirds are for $50,000 or less.

"For some reason, some are objecting to transparency," he said, suggesting opposition from the White House.

Roy said he voted for the disclosure bill and would work with Phillips to "make some improvements and then get the transparency that I think is appropriate."

Many GOP legislators opposed more paperwork for small-business recipients and opening them up to possible public shaming, according to Rep. Steve Chabot of Ohio, the top Republican on the Small Business Committee.

"Philosophically, it's exceptionally difficult for me and others on this side of the aisle to accept the bill in its entirety," he said on the House floor Thursday. "These businesses, at least the ones that acted in good faith, they followed the law and the guidelines. ... I do not believe that those businesses should be put on public display for potential shaming. If they didn't follow the rules, we have remedies," such as audits, investigations and even prosecution.

Phillips vowed to keep pushing for disclosure.

"It's not to shame, it's to be transparent," he told reporters. "I'm not going to rest until we ensure that Americans know where their money went."

--Editing by Haylee Pearl.

For a reprint of this article, please contact reprints@law360.com.

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