The $2 trillion coronavirus rescue package that the Senate passed on Wednesday will fundamentally transform the U.S. government by placing thousands of businesses and millions of workers on federally funded life support.
The government will pay the wages of some workers who remain on their companies’ payrolls. It will sustain other workers who have lost their jobs with checks that are as large as — or even larger than — what they were earning before they were laid off. And it will cushion some of the country’s largest corporations from bankruptcy, with taxpayers taking shares in those companies as collateral.
Rarely before has the government involved itself so deeply in the business of business. Amid a historic drop-off in economic activity, the bill temporarily transfers financial responsibility from private industry to the federal government, allowing the United States to control the levers of capitalism and potentially decide who wins and who loses. The level of intervention this week far outstrips the financial scope and breadth of recovery efforts during the 2008 financial crisis.
That is a controversial proposition in normal times but one lawmakers deemed necessary now, as companies large and small, from airlines and big banks to nail salons and brew pubs, face unprecedented hardship. The ripple effects have already sent millions of Americans into unemployment.
“We went to bed as America and woke up the next morning looking like social democratic Europe,” Erik Gordon, professor at the Ross School of Business at the University of Michigan, said. “We’ve made fun of Europe propping up their failing steel companies and car companies, and when push comes to shove we’re going to outdo them.”
The government’s intervention will come in a variety of ways, including direct payments to individuals and businesses, generous loans in which the government agrees to backstop losses and equity stakes in companies. But there are strings attached, such as limits on executive pay and provisions that require companies receiving assistance to maintain employment levels at 90 percent of what they were.
Midsize companies, or those with between 500 and 10,000 employees, get to borrow at an interest rate that is not higher than 2 percent annually, and don’t have to repay principal or interest for six months. The midsize companies cannot “outsource or offshore” jobs from the start of the loan until two years after it has been repaid.
Businesses with 500 or fewer employees will get loans directly from banks to cover more than two months of payrolls and some other operating expenses, with the government paying off the balance so long as the companies either do not lay off workers or rehire ones they’ve already let go.
The government will inject more than $60 billion into the airline industry, including $25 billion in grants to pay employees of passenger airlines and $4 billion for those who work at cargo airlines. About $17 billion has been set aside largely for Boeing, which, because of two deadly crashes, was troubled before the virus brought many commercial flights to a standstill.
Not all businesses will be eligible for help, and not every eligible company will agree to the government’s terms. And some industries, including cruise lines and energy companies, were left on the sidelines.
The major cruise companies appear not to qualify for loans because they are domiciled outside the United States and their employees are spread across the world.
“We didn’t seek or expect a cash bailout, and it doesn’t appear anyway that we would qualify under the terms,” said Roger Frizzell, a spokesman for Carnival Corporation. “We have a significant employee presence in the U.S., but a majority of our employees are on ships, not in any location, certainly not based in the U.S.”
The legislation also does not include $3 billion that the Trump administration requested to buy crude oil for the Strategic Petroleum Reserve. Such a purchase could have helped lift demand for oil, and thus its price, which in the United States has tumbled to less than $25 a barrel in recent weeks. Solar and wind businesses were upset that lawmakers did not make it easier for them to benefit from tax credits for renewable energy.
The epicenter of the intervention will be the Treasury Department, where Secretary Steven Mnuchin will oversee nearly a third of the $2 trillion in economic relief funds that Congress is approving.
The money will be held in two pots: $350 billion will be devoted to loans and loan guarantees for small businesses. And $500 billion will be divided among airlines and companies that are critical to national security, including Boeing, and will prop up the Federal Reserve’s new emergency lending facilities, which are intended to inject nearly $4 trillion into the economy.
Mr. Mnuchin said on Thursday that the distribution of the money would be fully transparent. “When we do take actions, either through our direct program or throughout programs with the Fed, there will be disclosures to the American public much faster than they would normally occur,” he said on CNBC.
Businesses will also have to cede some control to the federal government in exchange for lifelines. Companies that borrow money are forbidden to repurchase their stock or pay dividends during the loan and for a year after it is repaid. They must not cut staffing by more than 10 percent through the end of September.
Loans to small businesses, with 500 employees or fewer, are limited to $10 million. Loans to cover salaries of over $100,000 wouldn’t qualify for forgiveness, and businesses must demonstrate that they had not recently laid off employees, or a smaller amount of the loan would be subject to forgiveness.
Businesses would not have to repay loans covering up to eight weeks’ worth of payroll expenses. That means that once businesses receive their loans, a new clock will begin to tick: They’ll have to use the money within two months to avoid repaying it; they also can’t pay any employee more than $10,000 in those two months if they want that amount to be forgiven.
Lawmakers also placed restrictions on compensation and pay increases for executives, moves intended to address one of the criticisms about bailouts during the 2008 crisis. But pay limits will not necessarily do away with multimillion-dollar paydays for corporate bosses.
Executives who made more than $3 million in 2019 could be awarded $3 million, plus half of any sum in excess of $3 million. As a result, a chief executive who earned $20 million in 2019 would be allowed compensation of $11.5 million. The restrictions would apply from the time the federal support began to one year after it ended.
Even as the government takes on an outsize role in overseeing companies, Mr. Mnuchin maintained that it should not be in the business of dictating what private companies did.
“We don’t believe in mandating and regulating certain big businesses,” he said.
And big business, despite its need for help, has seemed unwilling to cede too much control to the government. On Tuesday, Boeing’s chief executive, David Calhoun, suggested that he wasn’t interested in the government’s taking an equity stake in the company, despite the beleaguered state of the aerospace giant.
“I don’t have a need for an equity stake,” Mr. Calhoun said in an interview on Fox Business Network. “If they forced it, we’d just look at all the other options, and we have got plenty.”
Boeing, which had lobbied for government aid, was not specifically named in the bill. It nonetheless signaled its approval of the stimulus package on Wednesday night. “The bill’s access to public and private liquidity, including loans and loan guarantees, is critical for airlines, airports, suppliers and manufacturers to bridge to recovery,” Boeing said in a statement.
The House is now expected to take up the legislation, and President Trump has signaled that he would sign it quickly into law.
Many of the provisions are intended to offer lifelines to companies and workers over the coming months, as the country struggles to contain the pandemic and braces for a recession. But the long-term consequences of a $2 trillion bailout of the American economy are unknown.
“This is going to be hard to unravel,” said Mr. Gordon, the University of Michigan professor. “Industries that are propped up stay propped up for a long time.”
Reporting was contributed by Niraj Chokshi, Jesse Drucker, Emily Flitter, Clifford Krauss and Ivan Penn.