Covington COVID-19 Task Force
This afternoon Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act—the third wave of coronavirus relief legislation known by many as “Coronavirus 3.0.” President Trump is expected to quickly sign the bill into law. This alert provides analyses of some of the key provisions. Each linked section contains key contacts for that topic, and our COVID-19 Task Force is available to provide further information and guidance.
The bill is estimated to cost $2.2 trillion—the largest in U.S. history, and what Senate Majority Leader Mitch McConnell (R-KY) called “a wartime level of investment into our nation.”
At a high level and among many other things, the bill:
- Pumps $150 billion into the healthcare system;
- Designates hundreds of billions of dollars for certain categories of industry, including severely distressed businesses, the aviation industry, and small businesses;
- Delivers direct and indirect assistance to workers and displaced workers, including $260 billion in unemployment insurance for which self-employed and gig-economy workers may qualify; and
- Provides $150 billion in assistance to state and local governments and tribes.
The CARES Act also establishes some restrictions and oversight for the use of funds.
As the largest-ever relief and stimulus bill, the CARES Act builds off of the first two waves of relief legislation, “Coronavirus 1.0”—the Coronavirus Preparedness and Response Supplemental Appropriations Act—and “Coronavirus 2.0”— the Families First Coronavirus Response Act. Coronavirus 1.0 was a supplemental appropriations bill and Coronavirus 2.0 included targeted relief for individuals and families, including paid family leave.
Policymakers are quickly turning to implementing the CARES Act and beginning work on a “Coronavirus 4.0.” We anticipate that there will be renewed efforts to address the needs of state and local governments, stimulate the economy (perhaps in the form of an infrastructure package), and provide additional relief for unemployed workers and distressed industries (including those distressed before the pandemic began). Barring another drastic market downturn or other new emergency, the timing of Coronavirus 4.0 could range from the latter part of April, when the Senate is scheduled to return to Washington, to sometime in May. We will closely monitor these next steps and provide additional updates.
Economic Stabilization Loan & Other Financial Support Provisions
The CARES Act includes $500 billion to stabilize the economy and provide relief to severely distressed businesses. Of the $500 billion, $46 billion has been set aside for industry-specific support, while $454 billion is available to assist distressed companies in any industry. The industry-specific provisions comprise $25 billion for passenger air carriers, certified repair stations, and ticket agents, $4 billion for cargo air carriers and $17 billion for businesses critical to national security. The $454 billion, plus any leftover money from the industry-specific support funds, will be used to finance programs established by the Federal Reserve Board to support eligible businesses, states, and municipalities. Businesses that access funds through any these programs will face significant restrictions on their activities, including on executive compensation, dividends, share repurchases, and employment matters. The key financing provisions of the CARES Act and the restrictions they trigger are summarized in detail at the link below.
Small Business Loans
The CARES Act opens up new Small Business Administration (SBA) loan opportunities to support many companies and nonprofit organizations with 500 or fewer employees. The details of these programs will need to be clarified by guidance that is expected from the Small Business Administration in the coming days and weeks. Particular industries, such as the accommodations and food industries, have new eligibility provisions that provide additional opportunities to apply for loans. However, in some cases it is potentially unclear how Congress intended for affiliates to be considered when evaluating loan eligibility. Nonetheless, companies and nonprofit organizations that may be eligible for these loans can take steps now to ensure they receive much needed support for operating costs and ultimately benefit from forgiveness and advance provisions that are associated with these loans.
The CARES Act includes multiple provisions that impact the employee benefits and executive compensation arrangements employers maintain for their U.S. workforces, and that also alter the rules governing employment and unemployment that apply to those workforces. The following provides a brief summary of the most salient of those provisions including, among others, more liberal access to tax-qualified retirement savings, suspension of required minimum distributions from tax-qualified retirement accounts, funding relief for private sector single-employer defined benefit plans, an employee retention tax credit, expanded health plan coverage for COVID-19 testing and prevention, and expanded unemployment assistance.
Healthcare & Life Sciences
The CARES Act includes a number of provisions of interest to Covington’s Life Sciences sector clients, including provisions related to the medical product supply chain, drug and device shortages and reporting to FDA, the Strategic National Stockpile, prioritizations of drug applications, expansion of telehealth, health tax extenders, and OTC drug reform. Although there are other healthcare and corporate relief provisions likely of interest to Life Sciences clients, we have highlighted some of the key Life Sciences provisions at a high level at the link below. Additional detailed alerts for our Life Sciences clients are forthcoming, including more detailed summaries of provisions in the CARES Act that warrant their own analysis (e.g., OTC drug reform).
National Security & Defense
The CARES Act contains a number of provisions important to the Department of Defense and companies who do business in the national security sector. Among others, these key provisions include emergency appropriations of $10.5 billion to support defense needs and $1 billion to fund Defense Production Act (DPA) purchases to increase access to materials necessary for national security. Companies who work in the national security area should also monitor the provisions governing loans and loan guarantees, which are briefly described in the link below and summarized in more detail here.
The CARES Act contains a number of provisions intended to provide federal tax relief to individuals and businesses affected by the crisis. The legislation provides an employee retention credit equal to 50 percent of qualified wages that can be used by eligible private employers against the employer portion of social security taxes. It also allows employers to defer payment of payroll taxes. The bill temporarily relaxes limitations imposed by the 2017 tax reform legislation on carrying forward and carrying back net operating losses and fixes a technical error in that legislation that unintentionally applied an unfavorable tax depreciation schedule to certain real estate improvements.
Additional Considerations for Clients
Lessons from TARP & Past Measures
Financial assistance programs are not without precedent and, like other aspects of the government response, are likely to raise issues that have much in common with those related to the federal government’s efforts to allocate and disburse funds on a broad and rapid scale during the financial crisis in 2008. The centerpiece of that response was the Emergency Economic Stabilization Act, under which the U.S. Secretary of the Treasury purchased preferred stock in over 700 banking organizations in order to recapitalize the U.S. banking industry. Although the recipients of government assistance in the COVID-19 stimulus legislation will not be limited to financial institutions, the financial crisis and the experience of financial institutions that sought and received assistance under EESA may nonetheless be instructive for companies as they consider seeking funding under the programs currently being considered by Congress. The following summarizes key considerations for companies that are interested in requesting funds under the CARES Act, reflecting lessons learned from the financial crisis in 2008.
Interacting with the Government During the Pandemic: Compliance Blind Spots for Corporations & Executives
Since the COVID-19 crisis began, many companies, some of which had very little interaction with the government previously, have been in frequent communication with federal, state, and local policymakers. These communications can trigger registration and reporting obligations under federal, state, and local lobbying laws. Additional restrictions and requirements may apply to government contractors and foreign companies and their subsidiaries. Covington’s Election and Political Law practice group has prepared a brief compliance checklist for interacting with the government during the crisis.
For more information regarding federal relief legislation or other COVID-19 related questions, please reach out to Covington’s COVID-19 Task Force.
This information is not intended as legal advice. Readers should seek specific legal advice before acting with regard to the subjects mentioned herein.
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