“Diversion into the sewers,” Matt Brown

July 27, 2020; Washington Post

There is a lot that has been written on the Paycheck Protection Program (PPP). As NPQ readers know well, despite manifest design flaws, the PPP has been a critical lifeline for many nonprofits, which is why NPQ just hosted another PPP webinar, this one on how to obtain loan forgiveness.

Justifiably, the PPP has also been subjected to considerable criticism. Still, often the criticism, like this article, has focused more on businesses that skirted the rules to get PPP loans/forgivable grants rather than on the program as a whole.

But the larger scandal is that the PPP has mostly failed to protect paychecks, its stated purpose. It wasn’t a complete failure, but the best estimate suggests, as detailed by a group of Massachusetts Institute of Technology (MIT) and Federal Reserve economists in a paper published last week, that PPP “increased aggregate US employment by 1.4 million to 3.2 million jobs through the first week of June 2020, with a preferred central tendency estimate of about 2.3 million workers.”

For argument’s sake, let’s say the high end of the range (3.2 million jobs) is correct. The PPP program to date has cost $517 billion. So, if you divide $517 billion by 3.2 million, then the cost per job preserved comes to…$161,562.50.

That is, to say the least, a high cost per job.

Of course, as NPQ noted in May, “Part of the challenge with the design of the PPP was that it sought to achieve two, often contradictory, purposes at once: preserve employment, and preserve nonprofits and for-profit businesses.”

Was there an alternative? Consider what Canada did. A Department of Canada Finance press release in early April details the initial response north of the 49th parallel—and, since there hasn’t been much US coverage of that, we’ll share it here:

  • “The Canada Emergency Wage Subsidy would apply at a rate of 75 per cent of the first $58,700 normally earned by employees—representing a benefit of up to $847 per week. The program would be in place for a 12-week period, from March 15 to June 6, 2020 [since extended to the end of 2020].”
  • “Eligible employers who suffer a drop in gross revenues of at least 30 per cent in March, April or May, when compared to the same month in 2019, would be able to access the subsidy.”
  • “Eligible employers would include employers of all sizes and across all sectors of the economy, with the exception of public sector entities.”

Notice that the benefits hold whether you’re a large corporation or a nonprofit or a small business. Basically, the government pays 75 percent of wages and the employer covers the rest. While Canada has seen a comparable increase in unemployment to the US, its direct wage subsidy program has kept about three million employed, been extended through December 2020, and is expected to cost CAN $83.2 billion ($61.2 billion US) for all of 2020. The cost is far less per job, and no loans are required. It also is a continuing program—unlike PPP which covers up to eight weeks’ payroll once.

The Canadian program surely has its own challenges, and no policy is 100 percent efficient, but by directing all government funds to payroll it certainly avoids events like the ones that Peter Whoriskey reveals in the Washington Post. In brief, Whoriskey details the following:

  1. Hotels and restaurants were hard hit, so large chains lobbied, successfully, for eligibility provided individual locations had fewer than 500 employees. But they were still bound by the requirement that 75 percent of funds received had to cover employee payroll.
  2. Then came the PPP Flexibility Bill, which, as NPQ covered, extended the period for which the money could be used from eight to 24 weeks and reduced the requirement for covering payroll to 60 percent, meaning, as Whoriskey writes, “that employers could bring back fewer workers and still win loan forgiveness.”

The result? Hotel chains have been able to receive forgivable loans while downsizing employment. Some not only furloughed workers but stopped paying for health insurance of their employees, even as they accepted federal support.

Christopher Cook, 47, who worked 22 years at the Omni Providence, mostly in the purchasing department, tells Whoriskey the company stopped paying his health insurance on June 1st. “If they received that [government] money—that’s mind-blowing to me.”

Eventually, Whoriskey notes, some chains might rehire staff. And, if enough staff are rehired before December 31st, they might even qualify for full forgiveness. If not, they will be required to pay the money back to the government in what amounts to a one-percent interest loan.—Steve Dubb