How the CARES Act Missed the Mark
(Greed is raping the US Treasury!)

by T. Spike Terwilliger, Ed.D.

The CARES Act was rushed through Congress. The reasonable person would say that was necessary. The problem is that the CARES Act doesn’t seem to care too much about the consequences. Sure, there is a reasonable expectation that when legislation is rushed through Congress in a crisis that we should act now and adjust later. Usually true — this is a $2.7 trillion dollar bill (compensating for the plus up signed by President Trump on April 24). Considering that the current national debt is over $23 trillion — this is almost a 12% plus up that someone has to pay. The purpose of this piece is to urge Congress to take the CARES Act consequences into consideration in what is sure to be at least two future blasts of debt to our great-great-great grandchildren to pay.

What was good. There was a lot of good in the CARES Act. To be sure, the Paycheck Protection Program (PPP) designed to bring employees off unemployment and tied to their employers for the eventual reopening of the economy. The allowance to withdraw from IRAs without penalty will further benefit individuals and families. The assurance to the public that regardless of your socio-economic status, you will not come out of the crisis on the other side with a medical bill that will crush your family. The so-called grant/loans for the airline industry, and other actions like suspension of Federal loan interest payments and more. The intent of Congress seems, on the surface, to be to help those who are affected by COVID19. As of this date, at least 23 million Americans applied for unemployment, thousands of small businesses are affected, and the US and global economies are being crushed. Something had to be done. The concern is that the action by both the Administration and the Congress was more political than citizen-focused, The reality is that the actions in the CARES Act has major problems. The cost and waste in the program cannot be understated and we’re already seeing that and barely a month has passed.

There are five big challenges with CARES.

The biggest challenge with the CARES Act is that this isn’t the United States of New York. It’s true that New York and the greater New York City area has been hit hard. We cannot ignore that and we cannot brush away the horrors of people dying without a family member at their bedside or at their funerals. Even as you look in hindsight at New York/New Jersey, it remains about 40% of all the cases. New York was led through this pandemic with a political vantage point versus other states like Washington and California that seemed to rely far further on the science. Without New York, the rest of the entire United States is about double the cases in the very hard hit country of Spain; a nation that started to re-open it’s economy and is 13% of the total US population. The CARES Act was immediate because of the high numbers of cases and the high numbers of employees who were laid off largely, initially, in part because of the swath of devastation in the greater New York City area. However, that population represents about 2.4% of the entire population. Did we pass a $2.7 trillion dollar bill because, as a close example, when devastation from one of the largest hurricanes in our history hit Louisiana/SE Texas which combined 70% of the population of New York City metro? No. Targeted legislation would be far more appropriate. Okay, the pandemic has hit all of our states and territories — but not all equal due to the construct of our diversity across the land. Not even all larger cities were hit the same. This is perhaps the anchor to the rest of the challenges that I’ll discuss regarding the CARES Act.

The next challenge with the CARES Act is the “helicopter” payments of $1200 per person and $500 per child (income means based) is that it was sent to people who were not affected by COVID19. Many people should not have received these payment from the start. Postal workers, Federal and most State employees, military members, and employees who did not lose their jobs are being both paid and receive their full medical entitlements. Considering we’re at about 23 million unemployed (not all from COVID19) the payments to so many more than that was a waste of money. It’s not free money. When headlines say that people said they plan to use the money for guns and savings — that says that the money for some wasn’t a based need on the situation caused by COVID19.

There was a solution. We know who were affected by COVID19. They applied for unemployment. More focus should have been to make that more quickly available to those who lost their employment due to this crisis. That brings us to the next action that has and will have unintended consequences. The CARES Act allowed for payments of $600 above unemployment benefits. This means that a number of employees across the country are receiving more from unemployment with this plus-up than working. There are at least three problems.

The first problem is that the employees laid off versus the ones still working have an immediate concern. The employee still working is making their established rate of pay; while their laid off colleague is making more by being laid off.

The second problem is that some employees won’t want employers to take PPP because they would be making more staying at home than being reemployed under those provisions. Headlines are already evident like the spa owner in Washington State. We saw those same headline after the financial crisis. Unemployed citizens were applying for positions but asking for start dates after their extended unemployment ran out. We will see this again with this add-on on the bill.

The third problem is that it’s fiscally irresponsible. Why would we pay anyone more than they were making before COVID19? This isn’t a time to waste money.

The next issue is the so called airline bailout or grant/loan program. There were more pluses than not for this program. The airline industry is perhaps one of the most necessary industries for an industrialized nation. Further, many don’t realize that the airline city pairs program is a critical national defense program that cannot be put on hold during a crisis. The challenge with this program is that the program should have also addressed the millions of dollars in established reservations by private citizens. The family of four with tickets to their annual vacation is now held up by the airlines when they could use that money during this critical time. Airlines that take the best care of their customers will see those customers come back much faster after the crisis. The other unintended consequence of this aspect of the CARES Act is that everyone thinks they should greedily seek taxpayer money whether it’s the movie industry, the hotel industry, casinos, pot companies, start ups, etc.

The PPP program is popular according to both the administration and the Congress. Of course it is. It’s free (loan into grant) money although — sorry, .it’s not free. This program was made popular to the general population because it was to help small business. The idea is that by paying their employees with these grants, it takes people off the unemployment rolls. This makes sense. The problem laid out above with regard to public companies is just crazy. What the Congress should have done is to limit the program to its intent of small businesses. Nearly every citizen would agree — public companies are not small businesses. I can’t think of one public company that would categorize themselves (before COVID19) as a small business! By some estimates, as much as $875 million was taken by public and large businesses, essentially taking from the Mom and Pop’s that it was intended for.

It’s accurate to say that some of the companies have paid that money back and some of those companies have used terms like, “not accepting” the PPP funds. Those terms are not really accurate. They applied for, and were approved for PPP with every intention of taking those funds depriving true small businesses from those critical dollars. Companies like Shake Shack, Auto Nation, and Ruths’ Chris Steak House took these funds, and while they have or are giving the money back — it was wrong to apply in the first place. Who would consider Auto Nation, one of the largest retail car sales companies in the US as a small business; or Shake Shack worth nearly a half billion dollars? Companies like Nikola Motor run by a billionaire, Digimarc, Polarity TE, and Kura Sushi are all public companies that have a number of options to raise capital to pay their employees. That’s the whole point. Public companies costs and losses first transition to the shareholder, not the taxpayer. They can issue stock, borrow against assets, and float bonds — all things that Mom and Pops cannot do which is why the PPP was created. To even allow them to apply for the money in the first place was just plain wrong. The Congress should pass legislation that mandates or authorizes the Secretary of the Treasury to act to do the following for public companies that applied for and received PPP. First, a stake in the company must be made as we did for the airlines. Second, the salaries of the CEO, its directors, and officers must be held at 2018 levels. Lastly, the money must be modified to a grant/loan as we did for the airlines. It’s only fair.

There is one further challenge to the PPP. Just this weekend, Mr Moynihan, CEO of Bank of America called for Congress to approve unlimited money for PPP. This shows that even the financial institutions, that had up to now been called “lifesavers” of the crisis because they were well capitalized as a result in part of Dodd-Frank, are showing their evil side. The PPP loans are guaranteed by the US through the Federal Reserve. The issuing financial institution gets a 1% “fee” (first $350 million) to handle the transaction and then it’s sold to the Federal Reserve. Rather, in addition to PPP, these same institutions should take part of their commission and make regular business loans with fractional interest to small businesses. Everyone in the PPP process needs skin in the game. Why the banks think PPP is the only avenue for small businesses to keep their businesses afloat shows that certainly, at least Bank of America is less interested in helping their customers and more interested in making money. The PPP is about $650 billion — meaning the financial institutions will make $6.5 billion in profit off the program with almost no skin in the game!

Related to the public companies, there are private companies that did not hire one employee back and that should be clawed back because it appears that they applied for these loans with less than honorable purposes. As was reported on CNBC, here are just two examples. The first is Junior’s Cheesecake in NYC. The CEO, after being challenged twice, reinforced that he is not and will not hire back one employee with the $5.5M from PPP. His company wasn’t on stable ground by his own statements ahead of COVID19 and that brings us to another huge issue. If you walked the streets in Chelsea, and The Village — scores of vacant storefronts were appearing over the past year before COVID19. Rents are too high and just not enough business. The same was true in my own locale. Is it the taxpayer’s responsibility to bail out these businesses? It just doesn’t seem fair when there are swaths of places like barber shops, restaurants, pet care, etc places that saw an immediate halt to business. There is a difference to be sure. An other example is the private island in Florida. Fisher Island Community Association took $2M from PPP, did not lay off one employee and no apparent financial impact from the COVID19. After all, this community is primarily millionaires and billionaires living in a community that could easily afford to pay into their support organization just as others around the country do — they raise homeowner fees to adjust to varying economic conditions. This organization is home to a very wealthy community in the United States and this while millions of citizens who make less than $30,000 are without a job. It’s outrageous! The example for others would be for homeowners associations, condominium associations, and co-op associations to bid for PPP grants so their homeowners (and they are homeowners) don’t have to pay to support associations that enrich their lives.

Congress must stop playing politics. We all fully expect that politics will determine the path of the next phases of public money being allocated by Congress. There is, after all, a presidential election in months. Everyone will likely also agree that they should set politics aside along with the Administration… but they won’t. The comments of Majority Leader McConnell don’t help. The comments of Speaker Pelosi don’t help. The comments of Representative Ocasio-Cortez don’t help. The comments of Senator Schumer don’t help. Rather, we want all legislators to act for and in the interest of America and not in the interest of postering. Most importantly, the next actions of the Administration and the Congress must only focus on COVID19 — not pet projects, not catering to their respective bases; yet we all know that answer to whether this will come to fruition. This brings us to the last issue associated with the next CARES Act; the helicopter money to states and territories and the suspension of employment taxes.

The idea of suspending payments of FICA on the employee and employer side should not come to fruition. The Social Security fund is already on weak footing; and suspending these payments will send one more part of the Federal budget into arrears. This doesn’t seem like the best approach on any measure. Essentially, the result of this wrong-sighted idea will mean future seniors won’t get the full entitlement because of a decision made in 2020. Does that seem fair? No. Think of someone you know and love that is currently 40 or 50 — they will pay for this decision!

We’re going to see a fight here and there doesn’t need to be one. Throughout this crisis, the states claim states rights under the Tenth Amendment. Oh, unless they want to use the Federal treasury as a piggy bank. Each state has had different issues with the pandemic. Some hit harder than others and certainly, there are reasons this was the case. Some governors are clamoring for billions of dollars from the Treasury and that’s categorically wrong. States will reopen on differing paths due to the testing and confirmation that their state is moving in the right direction. Those states will start filling their state coffers faster than others. States can issue bonds to pay the bills so that the residents of the individual states will bear the costs of the decisions by their governments. That seems fair. Because of the structure of the Congress, there will be payments to jurisdictions and states at the expense of all citizens. Why would Alaska bear a heavy cost to subsidize the NYC metro area? At the end of the day, of course, larger states and smaller states aren’t intended to get “more or less” from the Federal government for anything else like highways, military bases, and the list goes on. What CARES 3 or CARES 4 should do is provide a balanced support base to the nation through infrastructure which will support all communities in all states. What the next bill should be is support for inner cities housing and improved community clinics. Again, this will help many who were hardest hit while not just writing blank checks to states. Let the next bill be to provide swaths of projects that support citizens and their lives and not just to fill the coffers of states that will be used for ridiculous needs. Sending states billions of dollars and so far between just New York, Maryland, and Colorado, the bill is close to another $1.5 billion — the money will be accounted for. OUR money will be accounted for. The treasury isn’t a piggy bank for mayors and governors — it’s the money generated by taxes — taxes we all pay and for COVID19 bills so far, taxes that we will pay well beyond the next major global crisis considering we haven’t paid for the impact of the financial crisis yet.

T. Spike Terwilliger spent 30 years in the military and senior Federal positions and is a former professor of leadership, communications, associate professor as well as visiting professor of national security



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T Spike! Terwilliger

T Spike! Terwilliger

Thought leader, Author, Veteran, Educator and Patriot. Dr Terwilliger served 28 years in the military and 7 years as a Federal senior executive.