The first Congressional oversight hearing for the Coronavirus Aid, Relief and Economic Security Act made it quite clear that the $2.3. trillion legislation designed to support an ailing economy is a work in progress.
Much of the $500 billion included in the Act to support businesses and state and local governments hasn’t even been disbursed yet — including $46 billion earmarked for airlines and businesses critical for national security, according to a congressional report released Monday and discussed at Tuesday’s hearing before the Senate Banking Committee.
Of the remaining $454 billion that the U.S. Treasury Department can use to support emergency lending facilities by the Federal Reserve, the Treasury has committed to dispense only $195 billion, said Treasury Secretary Steven Mnuchin, who testified at the hearing with Federal Reserve Board Chairman Jerome Powell.
Plus, only two of multiple lending facilities are operational today, and both are corporate credit facilities. The remaining facilities, roughly six, should be ready to start by May 31 — including the new “Main Street” lending facilities for small and midsize businesses — after which money will start to flow, according to Powell.
The bulk of the funds available through those facilities is “mostly ahead of us,” said Powell, who added that the Fed will make adjustments to those programs “if the uptake is not enough.”
Committee members repeatedly asked both Powell and Mnuchin about the flexibility of programs and about additional support for state and local governments, which are losing revenue as a result of the current economic recession tied to the COVID-19 pandemic.
Powell noted that about 13% of the U.S. workforce is employed by state and local governments, which are facing revenue losses. When asked about what might happen next, he said additional layoffs by state and local governments could impact the economic recovery.
Powell agreed to review a bipartisan bill introduced by Sen. Bob Menendez, D-N.J., to provide $500 billion in direct lending to state and local governments. He also repeated his mantra that the Fed addresses liquidity issues through loans and not via direct spending programs, which is the purview of Congress: “We try to stick to our knitting.”
Risks to States, Communities
Mnuchin noted that the Treasury has expanded flexibility for disbursement of $150 billion in CARES Act funds for state and local governments to include fire, police and other groups of first responders, as well as additional essential workers responding to the health crises — but not for those with jobs in teaching and other local government work.
Those expenditures are dependent on “which taxing authority pays for [them],” he explained.
Sen. Christopher Van Hollen, D-Md., was unhappy with that comment, noting that state and local governments must balance their budget annually, which leaves them little flexibility when revenues are declining.
Sen. John Kennedy, R-La., asked Mnuchin why the Treasury would not allow states to use $150 billion in the CARES Act to address revenue shortfalls — which he and Powell said will be substantial — when most state and local governments are prohibited from borrowing to support their operations. “Why not agree to that today?” Kennedy asked.
Mnuchin said he assumed the Treasury would go along with that proposal if there were bipartisan support for it.
Kennedy has introduced a bill that would allow CARES Act funds for state and local governments to be used for funding operations. He put the odds of another economic relief bill, which would likely include more aid to state and local governments, at less than 50-50.
Throughout the hearing, Mnuchin seemed far more optimistic about the U.S. economy’s outlook than Powell.
Job Losses, Retention
The treasury secretary said he expected the employment picture to improve in the third and fourth quarters, after further job losses in June. He added that the main objective of money in the CARES Act set aside for businesses was to help companies retain jobs.
But in response to a question from Sen. Elizabeth Warren, D-Mass., Mnuchin refused to agree to a requirement that companies receiving CARES Act funds keep people on their payrolls.
Powell repeated his warnings that long-term unemployment for workers and unnecessary failures of small and midsize business could result in lasting damage to the U.S. economy and that fiscal policy designed by Congress is needed to address these risks.
“The precipitous drop in economic activity has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future,” Powell said in his opening remarks.
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