Recover Improperly Disbursed PPP Funds
New Report Outlines Lessons from Key Pandemic Relief Program
WASHINGTON, D.C. – The Paycheck Protection Program, a critical pillar of the CARES Act pandemic relief legislation, failed to equitably distribute money despite an avowed goal of focusing on small businesses, according to a new report from seven public interest organizations and labor unions.
In addition to adopting other reforms for future relief programs, the U.S. Small Business Administration should use its statutory power to claw back improperly issued or misused loans. Those cases might include PPP loan recipients who failed to spend at least 60% of their loan proceeds on employee wages, and cases where recipients used the money to issue stockholder dividends, buy back stock, or award executive bonuses.
“Robust government relief programs can be critical drivers in reducing the structural and racial inequities holding communities in economic precarity – if they are properly administered,” said Aliya Sabharwal, campaign manager at Americans for Financial Reform. “But too much PPP money went to large corporations with wealthy parent corporations or Wall Street backers. Many truly small businesses that were owned and operated in communities facing disproportionate impacts from COVID-19 outbreaks, illness, and death, were left behind.”
The full report is here.
“PPP spent $800 billion to save small businesses shut down during the pandemic and help their employees survive the worst,” said Lisa Gilbert, executive vice president, Public Citizen. “While many living on the edge did get help, too many taxpayer dollars went to large corporations that didn’t need the money and didn’t spend it on their workers. Worse, due to poor controls and oversight, a lot of the money went to fraudsters.”
“PPP was designed as an innovative emergency lending program that not only would help small businesses but also ensure taxpayer dollars went to the workers most in need of support,” said Kurt Petersen, co-president of UNITE HERE Local 11. “Sadly, the program didn’t live up to its promise, and wealthy hotels like the luxury Chateau Marmont in Hollywood received millions while failing to rehire most of their workers. Now is the time to figure out why and take steps to ensure the next emergency lending program doesn’t repeat the same mistakes.”
Combining insights from a diverse set of organizations, including government accountability and policy advocacy groups, labor unions, research experts, and financial reform advocates, the 27-page report highlights multiple systemic problems with the PPP. Together, they prevented critical funds from reaching small businesses in need and sent them instead to corporations that did not use the money to retain workers and keep them afloat.
Americans For Financial Reform Education Fund, Good Jobs First, Project on Government Oversight, Public Citizen, the Fight for $15 and a Union, UNITE HERE Local 11, and United Steelworkers developed the program assessment as well as four case studies illustrating PPP’s problems.
The case studies involve large hotel chains like the Westmont Hospitality Group, which received millions of taxpayer dollars but fired workers anyway; a Giti Tire manufacturing plant in South Carolina that obtained PPP funds despite having a wealthy foreign parent corporation; McDonald’s franchises in California that together received $240 million in PPP loans but exposed their workers to illness while denying them sick days and personal protective equipment; and multiple corporations backed by private equity firms flush with cash.
The report offered six recommendations to improve PPP outcomes and ensure the improved operation of any future emergency lending program:
–Imposing more robust loan guardrails upfront to screen borrowers more carefully;
–Improving the selection of lenders to ensure a more equitable distribution of loans;
–Conducting better loan audits to prevent waste, fraud, and abuse;
–Establishing stricter standards for loan forgiveness, particularly over $150,000;
–Increasing public loan data to enable more program transparency; and
–Including more funding to conduct needed loan oversight.
“The Paycheck Protection Program was supposed to help workers during an incredibly difficult period, not enrich large companies and their shareholders,” said Dan Flippo, District 9 director for the United Steelworkers, whose district includes South Carolina and six other southern states. “Workers at Giti Tire, like so many workers across the country, were counting on PPP to preserve their jobs and help them work safely. This report is an important first step in holding greedy companies that took advantage of this program accountable.”
“Billions of taxpayer dollars have subsidized McDonald’s and other fast-food corporations for years — the Paycheck Protection Program is just the latest example,” said Vidaly Jimenez, a McDonald’s worker from Oakland, Calif., and a leader in the Fight for $15 and a Union. “As fast-food cooks and cashiers, we risked our safety to serve our communities while fast-food CEOs and shareholders made record profits. Despite being classified as essential and our bosses receiving huge sums of aid, many of us were denied essential protections like paid sick days, proper safety protocols and adequate PPE. The PPP prioritized fast-food giants over fast-food workers — companies like McDonald’s, Burger King, Jack in the Box, and others must be held accountable.”
“It’s inexcusable that so many families faced the loss of their homes, worried about getting food on the table and went to work without proper safety protections, even as some corporations and shareholders raked it in,” said Katie Furtado, research analyst for Good Jobs First. “The good news is that it isn’t too late to go after the companies that misused these funds and make sure this situation never happens again.”
“The urgency of the need that the COVID crisis created does not excuse the poor design and management of the Paycheck Protection Program,” said Sean Moulton, senior policy analyst for Project On Government Oversight. “Too much of the program’s funds were lost to waste and fraud, leaving many businesses without sufficient support. These and other examples prove that while speed in a crisis is important, if you ignore oversight entirely you risk the effectiveness of the program.”