Gary Goldberg

The Impact of the Georgia Senate Runoffs on the 2021 Biden Legislative Agenda

Full Democratic Control of Congress Would Expand the 2021 Biden Legislative Agenda While Continued Republican Control of the Senate Would Contract It

Since the 2014 elections that led to Republican Senator Mitch McConnell becoming the Majority Leader, the Senate has been seen by most political commentators as the place where Democratic-sponsored bills passed by the House go to die.  That characterization is well-earned.  As of November 3, 2020, last year’s general election day, a search of the website Congress.gov revealed that, since January 3, 2019 when the current Congress convened, the House has passed 431 bills sponsored by Democrats that the Senate has not taken up. 

Some of these bills, or at least the subjects that they cover, like the annual appropriations bills funding the federal government, the National Defense Authorization Act (NDAA) and funding for additional COVID-19 pandemic relief, were considered “must-pass” items that the Congress passed and sent to the President during the post-election “lame duck” session .  On  December 27 . the President signed into law an omnibus appropriations act funding the federal government’s operations through September 30, 2021.  That omnibus appropriations bill also included a limited, heavily negotiated COVID-19 relief package that will provide some additional relief for those affected by the COVID-19 crisis.  The additional COVID-19 relief provided by this package is expected to be exhausted by March 2021. 

Within days of his January 20th inauguration, at the behest of President Biden, Congressional Democrats are expected to introduce additional COVID-19 legislation intended to address  many issues that were not addressed in the December COVID relief package and that will extend the relief provided by the December package well beyond March 2021 to the extent deemed necessary when this legislation is considered. 

Both the House and the Senate will adjourn sine die on or before  January 3, 2021 at noon, the time when the next Congress will convene.  All of the 431 House Democratic-sponsored bills that the House passed and sent to the Senate that the Senate did not consider will die whenever the current Congress concludes.

Nonetheless, a review of these 431 bills is instructive, especially given the potential changes in the political landscape and public policy that may result depending on the outcome of the two January 5th Georgia runoff elections which will determine whether Republicans or Democrats will control the Senate for the next two years.  Taken together with the policy positions revealed by President-elect Biden in the course of the presidential campaign, these bills provide clear clues about the topics that will comprise much of the new administration’s legislative agenda for 2021 and 2022.

If Republicans win one or both of the Georgia runoff elections, barring something currently completely unforeseen, Leader McConnell will continue as the Majority Leader for the next two years with the power to determine what legislation makes it to the Senate floor for consideration.  In that circumstance, unless President Biden proves to have truly extraordinary powers to promote and achieve bipartisanship, the gridlock that characterized the Senate floor for the last two years can be expected to continue.

If, however, the Democratic candidates win both runoff elections, Senator Charles Schumer will become the new Majority Leader with the power to determine the Senate’s legislative agenda.  Divided government will end as, with two Independents caucusing with the Democrats, the Senate will be split 50-50 between the parties with Vice President Harris as the President of the Senate having the power to break tie votes. 

Obviously, even if the Democrats gain control of the Senate, with such narrow margins of Democratic control in both the Senate and the House, the legislative agenda that President Biden pursues is likely to be far less ambitious than the agenda he would have pursued had the “blue wave” election that Democrats sought and many political handicappers predicted would have actually occurred. 

However, as the House is a majoritarian institution, unlike the Senate, even with a materially smaller Democratic majority in 2021, the House is likely to pass once again most of the key bills that it passed in the prior Congress.  Even if the chances of Senate passage of several of these bills are slim because of such narrow Democratic control of the Senate, several of the bills that the House manages to pass in 2021 are nonetheless likely to be offered in the Senate for messaging purposes.

So, how do we reduce these 431 Democratic sponsored bills that the House passed and the Senate did not consider to a far more manageable number for analysis?  Where do we begin?

While House bills usually receive a number in the order in which they are submitted, one of the customs of the House of Representatives is that the first ten bill numbers (HR 1-HR 10) are reserved for use by the Speaker of the House and the next ten bill numbers are reserved for use by the House Minority Leader (HR 11-HR 20).  Thus, any bill that receives a bill number within this range does so because the bill represents a key policy priority of the party that is offering it and that party wants to feature it prominently.  The current House has passed each of the Democratic sponsored bills numbered HR 1 through HR 9.  (Speaker Pelosi has used bills numbers HR1 through HR 9 but has not yet used HR 10.)  Not surprisingly,  the Senate has not considered or passed any of these bills.  So what are these nine bills?

HR 1, the For the People Act of 2019, passed March 8, 2019,is a voting rights bill that addresses voter access, election integrity, election security, political spending, and ethics for the three branches of government.  It expands voter registration and voting access and limits removing voters from voter rolls. The bill provides for states to establish independent, nonpartisan redistricting commissions.  The bill also sets forth provisions related to election security, including sharing intelligence information with state election officials, protecting the security of the voter rolls, supporting states in securing their election systems, developing a national strategy to protect the security and integrity of U.S. democratic institutions, establishing in the legislative branch the National Commission to Protect United States Democratic Institutions, and other provisions to improve the cybersecurity of election systems.

The bill also addresses campaign spending, including by expanding the ban on foreign nationals contributing to or spending on elections; expanding disclosure rules pertaining to organizations spending money during elections, campaign advertisements, and online platforms; and revising disclaimer requirements for political advertising.  It establishes an alternative campaign funding system for certain federal offices. The system involves federal matching of small contributions for qualified candidates.

It sets forth provisions related to ethics in all three branches of government. Specifically, the bill requires a code of ethics for federal judges and justices, prohibits Members of the House from serving on the board of a for-profit entity, expands enforcement of regulations governing foreign agents, and establishes additional conflict-of-interest and ethics provisions for federal employees and the White House.  The bill also requires candidates for President and Vice President to submit 10 years of tax returns.

H.R.2, the INVEST in America Act, passed July 1, 2020, is an environmental and surface transportation infrastructure bill that addresses provisions related to federal-aid highway, transit, highway safety, motor carrier, research, hazardous materials, and rail programs of the Department of Transportation (DOT).  Among other provisions, the bill

  • extends FY2020 enacted levels through FY2021 for federal-aid highway, transit, and safety programs;
  • reauthorizes for FY2022-FY2025 several surface transportation programs, including the federal-aid highway program, transit programs, highway safety, motor carrier safety, and rail programs;
  • addresses climate change, including strategies to reduce the climate change impacts of the surface transportation system and conduct a vulnerability assessment to identify opportunities to enhance the resilience of the surface transportation system and ensure the efficient use of federal resources;
  • revises Buy America procurement requirements for highways, mass transit, and rail;
  • establishes a rebuild rural grant program to improve the safety, state of good repair, and connectivity of transportation infrastructure in rural communities;
  • implements new safety requirements across all transportation modes; and
  • directs DOT to establish a pilot program to demonstrate a national motor vehicle per-mile user fee to restore and maintain the long-term solvency of the Highway Trust Fund and achieve and maintain a state of good repair in the surface transportation system.

H.R.3, the Elijah E. Cummings Lower Drug Costs Now Act, passed December 12, 2019, establishes several programs and requirements relating to the prices of prescription drugs, health care coverage and costs, and public health. 

Among other things, the bill’s provisions are designed to lower prices through fair drug price negotiation, provide Medicare with Parts B and D prescription drug inflation rebates, reduce the annual out-of-pocket spending threshold and eliminate beneficiary cost-sharing above this threshold, increase drug price transparency, include program improvements for Medicare low-income beneficiaries,. establish dental, vision and hearing coverage under Medicare , increase NIH, FDA and Opioids funding, and expand guaranteed issue rights with respect to Medigap policies. 

H.R.4, the Voting Rights Advancement Act of 2019, passed December 6, 2019, establishes new criteria for determining which states and political subdivisions must obtain preclearance before changes to voting practices in these areas may take effect. (Preclearance is the process of receiving preapproval from the Department of Justice or the U.S. District Court for the District of Columbia before making legal changes that would affect voting rights.)

A state and all of its political subdivisions would be subject to preclearance of voting practice changes for a 10-year period if (1) 15 or more voting rights violations occurred in the state during the previous 25 years; or (2) 10 or more violations occurred during the previous 25 years, at least one of which was committed by the state itself.  A political subdivision as a separate unit would also be subject to preclearance for a 10-year period if three or more voting rights violations occurred there during the previous 25 years.

A state or political subdivision that obtains a declaratory judgment that it has not used a voting practice to deny or abridge the right to vote would be exempt from preclearance.

All jurisdictions would have to preclear changes to requirements for documentation to vote that make the requirements more stringent than federal requirements for voters who register by mail or state law.

The bill specifies practices jurisdictions meeting certain thresholds regarding racial minority groups, language minority groups, or minority groups on Indian land, would have to preclear before implementing. These practices include changes to methods of election, changes to jurisdiction boundaries, redistricting, changes to voting locations and opportunities, and changes to voter registration list maintenance.

The bill expands the circumstances under which (1) a court may retain the authority to preclear voting changes made by a state or political subdivision, or (2) the Department of Justice may assign election observers.

States and political subdivisions would also have to notify the public of changes to voting practices and the bill would revise the circumstances under which a court would have to grant preliminary injunctive relief in a challenge to voting practices.

H.R.5 , theEquality Act, passed May 17, 2019,  prohibits discrimination based on sex, sexual orientation, and gender identity in a wide variety of areas including public accommodations and facilities, education, federal funding, employment, housing, credit, and the jury system. Specifically, the bill defines and includes sex, sexual orientation, and gender identity among the prohibited categories of discrimination or segregation.

The bill expands the definition of public accommodations to include places or establishments that provide (1) exhibitions, recreation, exercise, amusement, gatherings, or displays; (2) goods, services, or programs; and (3) transportation services.

The bill allows the Department of Justice to intervene in equal protection actions in federal court on account of sexual orientation or gender identity.

H.R.6 , theAmerican Dream and Promise Act of 2019, passed June 4, 2019, cancels and prohibits removal proceedings against certain aliens and provides such aliens with a path toward permanent resident status.

The Department of Homeland Security (DHS) or the Department of Justice (DOJ) would cancel removal proceedings against certain aliens who entered the United States as minors and grant such aliens conditional permanent residence status for 10 years. The bill would impose various qualification requirements, such as the alien being continuously physically present in the United States and being enrolled in or having completed certain educational programs. DHS would have to establish streamlined procedures to apply for conditional permanent residence for aliens who received Deferred Action for Childhood Arrivals (DACA) status and were not disqualified for renewal.

DHS would remove the conditional permanent resident status granted to such aliens, if the alien applies and meets certain requirements, such as completing certain programs at an educational institution or serving at least two years in the Uniformed Services and being discharged honorably.

DHS or DOJ would cancel removal proceedings against certain aliens who qualified for temporary protected status or deferred enforced departure status on certain past dates (both statuses temporarily protect covered aliens from removal). For such aliens who apply and pass the required background checks, DHS would grant permanent residence status.

DHS would not be able to use information from applications to adjust status under this bill for immigration enforcement purposes and would have to establish a grant program for nonprofit organizations that assist individuals with certain immigration-related issues.

H.R.7, the Paycheck Fairness Act, passed March 27, 2019, addresses wage discrimination on the basis of sex.  It amends equal pay provisions of the Fair Labor Standards Act of 1938 to (1) restrict the use of the bona fide factor defense to wage discrimination claims, (2) enhance nonretaliation prohibitions, (3) make it unlawful to require an employee to sign a contract or waiver prohibiting the employee from disclosing information about the employee’s wages, and (4) increase civil penalties for violations of equal pay provisions.

The Equal Employment Opportunity Commission (EEOC) and the Office of Federal Contract Compliance Programs would be directed to train EEOC employees and other affected parties on wage discrimination.

The bill also directs the Department of Labor to (1) establish and carry out a grant program for negotiation skills training programs to address pay disparities, including through outreach to women and girls; (2) conduct studies to eliminate pay disparities between men and women; (3) report on the gender pay gap in the teenage labor workforce; and (4) make available information on wage discrimination to assist the public in understanding and addressing such discrimination.

H.R.8, the Bipartisan Background Checks Act of 2019, establishes new background check requirements for firearm transfers between private parties (i.e., unlicensed individuals).

Specifically, it prohibits a firearm transfer between private parties unless a licensed gun dealer, manufacturer, or importer first takes possession of the firearm to conduct a background check.  The bill’s prohibition does not apply to certain firearm transfers, such as a gift between spouses in good faith.

H.R.9, the Climate Action Now Act, passed May 2, 2019, requires the President to develop and update annually a plan for the United States to meet its nationally determined contribution under the Paris Agreement on climate change.

(Sec. 3) In addition, the bill prohibits federal funds from being used to withdraw from the agreement.

(Sec. 4) The bill outlines what must be included in the plan, including descriptions of steps to (1) cut greenhouse gas emissions by 26%-28% below 2005 levels by 2025, and (2) confirm that other parties to the agreement with major economies are fulfilling their announced contributions. The President would have to seek and publish comments from the public when submitting and updating the plan.

(Sec. 5) Within six months, the President would also have to report on the effect of the Paris Agreement on clean energy job development in rural communities.

(Sec. 6) Within six months, the President would contract with the National Academy of Sciences to report on the potential impacts of a withdrawal by the United States from the agreement on the global economic competitiveness of the U.S. economy and on U.S. workers.

(Sec. 8) Within one year, the Government Accountability Office would also have to study and report on the impact of the plan on U.S. territories.

Which of These Bills May Come First in the Next Congress?

The pace and the order in which President Biden and the new Congress turn to these nine bills will be determined in large part by the extent to which the prior Congress was able to clear the decks through passing legislation in its lame duck session on such issues as funding the federal government and providing additional COVID-19 relief.  While passage of an omnibus takes funding the federal government off the table as an issue in the near term, given the scope and duration of the COVID-19 crisis. legislation to implement the Biden COVID-19 plan is likely to be the new President’s first priority even recognizing that many Congressional Republican are likely to oppose additional COVID-19 relief.

Because infrastructure legislation usually can attract at least some, and many times significant, bipartisan support, we would expect that a massive infrastructure proposal, along the lines of the Invest in America Act, could be the first key bill up after the Biden COVID-19 reiief plan, unless by then the Supreme Court has issued an opinion striking down all or much of the Affordable Care Act. 

If Supreme Court were to strike down the ACA, we would expect an early legislative response from President Biden and the Democratic Congress, one that would probably be accompanied by a bill along the lines of the Elijah E. Cummings Lower Drug Costs Now Act. 

As this election cycle identified many shortcomings in the way that federal elections are conducted and Democrats have many concerns about the issues of voter suppression, voting rights bills, like the For The People Act and the Voting Rights Advancement Act, are likely to  receive early attention, at least for messaging purposes if not for enactment into law, even recognizing that bills of this sort are passionately opposed by many Republicans.  Although gun control is seen by many politicians on both sides of the aisle as a toxic issue politically, because background checks are widely popular in the United States, even among NRA members, a control bill like the Bipartisan Background Checks Act could also be a candidate for early consideration.

Given President Biden’s history of being among the first and most prominent politicians supporting gay marriage, he can be expected to push hard for the Equality Act.  Moreover, in light of Biden’s pledge to return the United States to the Paris Climate Change Agreement on day one of his term, the Climate Action Now Act as modified by the Biden climate change plan would also be a candidate for early action. 

Given the overwhelming support that President Biden received from women in this year’s election, he will surely want to demonstrate his appreciation for their votes by pushing the Congress to send the Paycheck Fairness Act to his desk promptly for his signature. 

Finally, while immigration legislation is an even more divisive issue than most of the other bills discussed above, in addition to his personal commitment with respect to these issues, the new President will be under great pressure from Progressives and the immigrant community to ensure that the Dreamers are protected and given a path to citizenship and that all available steps are taken to reunite families where children were separated from their parents.  President Biden has promised to introduce a bill protecting the Dreamers from deportation and establishing a path to citizenship within the first 100 days of his administration.

In short, one could easily envision a scenario starting in late January, 2021,where the Democratic Senate , acting in conjunction with the Democratic House, would eventually seek to pass in substance all nine of these bills and then spend the better part of the next two years taking up, passing and sending to the President several of the other House Democratic-sponsored bills that the Senate in the current Congress refused even to consider.

Other Democratic Bills Passed By the House In the Current Congress That May Be Considered As Part of the 2021-22  Biden Legislative Agenda

Obviously, it’s not possible to cover herein all of the 422 other Democratic-sponsored bills that the House passed but the Senate never considered, and many of these bills do not warrant such attention in any event.  Nonetheless. here are an additional 51 key Democratic bills passed by the current House but ignored by the Senate that could well receive Congressional attention in some form during the next two years.  With a few notable exceptions, bills that passed the House by voice vote or under suspension of the rules are not included in this list.  For ease of reference, these House bills are listed in ascending order by bill number from the current Congress:

  • H.R.35, the Emmett Till Antilynching Act (passed February 26, 2020)
  • H.R.36, the Combating Sexual Harassment in Science Act  (passed July 23, 2019)
  • H.R.51, the Washington, D.C. Admission Act  (passed June 26, 2020
  • H.R.397, the Rehabilitation for Multiemployer Pensions Act (passed July 24, 2019)
  • H.R.582, the Raise the Wage Act (passed July 18, 2019)
  • H.R.624, the Promoting Transparent Standards for Corporate Insiders Act (passed January 28, 2019)
  • H.R.1044, the Fairness for High-Skilled Immigrants Act (passed July 10, 2019
  • H.R.1112, the Enhanced Background Checks Act (passed February 28, 2019)
  • H.R.1230, the Protecting Older Workers Against Discrimination Act (passed January 15, 2020
  • H.R.1423. the Forced Arbitration Injustice Repeal Act (passed September 20, 2019)
  • H.R.1425 , thePatient Protection and Affordable Care Enhancement Act (passed June 29, 2020)
  • H.R.1500, the Consumers First Act (passed May 22, 2019)
  • H.R.1582, the Electronic Message Preservation Act (passed March 12, 2019)
  • H.R.1585, the Violence Against Women Reauthorization Act (passed April 4, 2019)
  • H.R.1595, the Secure And Fair Enforcement Banking Act (passed September 25, 2019)
  • H.R.1815, the SEC Disclosure Effectiveness Testing Act (passed October 17, 2019)
  • H.R.1941, the Coastal and Marine Economies Protection Act (passed September 11, 2019)
  • H.R.2203, the Homeland Security Improvement Act (passed September 25, 2019)
  • H.R.2339 , the Protecting American Lungs and Reversing the Youth Tobacco Epidemic Act (passed February 28, 2020)
  • H.R.2382, the USPS Fairness Act (passed February 5, 2020)
  • H.R.2474, theProtecting the Right to Organize Act (passed February 6, 2020)
  • H.R.2513, the Corporate Transparency Act (passed October 22, 2019)
  • H.R.2534, the Insider Trading Prohibition Act (passed December 5, 2019)
  • H.R.2574, the Equity and Inclusion Enforcement Act (passed September 16, 2020)
  • H.R.2639, the Strength in Diversity Act (passed September 15, 2020)
  • H.R.2722, the Securing America’s Federal Election Act (SAFE Act) (passed June 27, 2019)
  • H.R.3239, the Humanitarian Standards for Individuals in Customs and Border Protection Custody Act (passed July 24, 2019)
  • H.R.3299, the Promoting Respect for Individuals’ Dignity and Equality Act (passed July 24, 2019)
  • H.R.3621, the Comprehensive CREDIT Act (passed January 29, 2020)
  • H.R.3624, the Outsourcing Accountability Act (passed October 18, 2019)
  • H.R.3670, the Short-Term Detention Standards Act (passed July 25, 2019)
  • H.R.3702, the Reforming Disaster Recovery Act (passed November 18, 2019)
  • H.R.4335, the 8-K Trading Gap Act (passed January 13, 2020)
  • H.R.4344, the Investor Protection and Capital Markets Fairness Act (passed November 18, 2019)
  • H.R.4432, the Protecting Critical Infrastructure Against Drones and Emerging Threats Act (passed February 10, 2020)
  • H.R.4447, the Clean Economy Jobs and Innovation Act (passed September 24, 2020)
  • H.R.4617, the  Stopping Harmful Interference in Elections for a Lasting Democracy Act– (SHIELD Act)  (passed October 23, 2019)
  • H.R.5003, the Fair Debt Collection Practices for Servicemembers Act (passed March 2, 2020)
  • H.R.5065, the Prison to Proprietorship for Formerly Incarcerated Act (passed January 8, 2020)
  • H.R.5078, the Prison to Proprietorship Act (passed January 9, 2020)
  • H.R.5084, the Improving Corporate Governance Through Diversity Act (passed November 19, 2019)
  • H.R.5322, the Ensuring Diversity in Community Banking Act (passed September 21, 2020)
  • H.R.5332, the Protecting Your Credit Score Act (passed June 29, 2020)
  • H.R.5377, the Restoring Tax Fairness for States and Localities Act (passed December 19, 2019)
  • H.R.5602, the Domestic Terrorism Prevention Act (passed September 21, 2020)
  • H.R.7120, the George Floyd Justice in Policing Act (passed June 25, 2020)
  • H.R.7301, the Emergency Housing Protections and Relief Act (passed June 29, 2020)
  • H.R.7327, the Child Care for Economic Recovery Act (passed July 29, 2020)
  • H.R.7909, the Ensuring Children and Child Care Workers Are Safe Act (passed September 16, 2020)
  • H.R.8015, the Delivering for America Act (passed August 22, 2020)
  • H.R.8134, the Consumer Product Safety Inspection Enhancement Act (passed September 29, 2020)

While we do know that the bill numbers for all of these bills will change when and if they are offered in the next Congress, we also know that the text and even the substance of some of these bills could change to reflect more recent developments and to incorporate more of the new President’s policy proposals. 

Moreover, if the White House and the Congress end up being controlled by the same party for the next two years, some of these bills may not even be offered in the next Congress or be dialed back somewhat in their scope because the Biden White House believes that the goals of some of these bills can now be achieved instead through administrative or regulatory action rather than legislation. The prospects for several of these bills also could depend on what, if anything, the Senate elects to do with respect to the current filibuster rules.     

If the Democrats win both Georgia runoffs, the end of divided government between the White House and the Congress , at least for the next two years, will have a profound impact on when and how the legislative process moves forward  and on which bills are viable candidates to become law or at least receive Senate consideration for messaging purposes.  That said, the bills discussed above should provide a clear window and overview into how the new Biden administration is likely to proceed legislatively. 

Recent polling indicates that both Georgia runoffs currently are very close.  Thus, control of the Senate for the next two years remains very much in doubt.  Given the enormous potential impact of these runoffs on the Biden legislative agenda, we will continue to monitor these races  closely and report on all material developments in this space as we learn and can evaluate the election results.  If you would like a more particularized analysis of what the outcome of the Georgia runoffs may mean for your business and your policy priorities, please contact us. 

PRESIDENTIAL PREVIEW: The Battle for 1600 Pennsylvania Ave

With a weekend to go before election day, the Dentons Public Policy team looks at the political climate, the polling, the battlegrounds and how and when the nation could learn the winner in our presidential preview, “The Battle for 1600 Pennsylvania Ave Report.” We believe the outcome of the presidential election will depend, to a significant degree, on whether voters view the race as a choice between two alternatives, each with positive and negative factors, or as a referendum on the President’s leadership. Pre-pandemic, President Trump was prepared to run hard on his record. But the pandemic robbed him of his strongest argument for re-election—a booming economy—leaving him no choice but to focus on Joe Biden’s flaws. 

Whether the American people are buying this line of attack remains to be seen, but recent polls suggest it is not working.

On Wednesday morning, November 4, our Public Policy team will be issuing a detailed report on the election results that are then available. We will be updating this report later in the day, and on succeeding days as necessary, to provide not only the presidential results but a comprehensive picture of what the next US House and Senate will look like. 

Whatever the outcome of the elections, once it becomes clear who will be taking the oath of office on January 20, 2021, and who will control the Congress, we also will be releasing additional reports that profile many of the people who are expected to play key roles in the next administration and that explore the central elements of, and prospects for, the legislative agenda of the winning presidential candidate.   

US HOUSE AND SENATE ELECTIONS PREVIEW – The Battle For Control Of Congress

Dentons’ Public Policy team has developed a US House and Senate Elections Preview to provide the latest developments as we approach the November elections.

SECTION BY SECTION REVIEW OF COVID RELIEF BILL

Last night, the US Senate passed what is being dubbed as the Phase 3 COVID-19 Emergency Economic Relief Package. It provides over $2.2 trillion in financial assistance to public and private entities. The Senate has now adjourned until April 20 and the House is scheduled to take up the bill and pass it by a voice vote tomorrow. The President is expected to sign the bill tomorrow evening. Click here to view the bill.

Dentons has assembled a section by section summary of the bill. 

Updates from Washington, D.C. on the Federal Stimulus Package

Dentons Senior Policy Director Gary Goldberg discusses the pending stimulus legislation.

Senate Approves US$350 billion for Small Business Grants

The Senate has passed a bill that will provide up to US$350 billion in forgivable loans to small business concerns, non-profit and veterans organizations and self-employed individuals to cover their expenses during the COVID-19 crisis.

Select Updates

  • Size test is the greater of (a) 500 employees or (b) the size standard by industry sector (NAICS code) established by the SBA
  • Employees defined to include individuals employed full-time, part-time or other basis (includes gig economy workers)
  • Small businesses that were not in business during 2019 can calculate monthly payroll costs using average from January 1, 2020 and February 29, 2020
  • SBA regulations may require affiliated companies’ employees (and their portfolio companies) to be combined for purposes of eligibility.  Implications to VC/PE backed companies.
  • Maximum loan amount remains 250% of monthly payroll costs (including commissions) plus any amount outstanding on an Economic Injury Disaster Loan (EIDL) originated during the period from January 31, 2020 until the date of origination of the new loan
  • Use of proceeds that are permitted now include interest payments on mortgages and/or other debts but not principal payments
  • Previously originated EIDL loans may be refinanced into forgivable loans
  • Eligibility considerations no longer include whether the applicant has been substantially impacted by public health restrictions related to the Coronavirus

Small Business Loan/Grant Support working its way through Congress

Negotiations ongoing for currently proposed US$350 Billion in loans as part of the Third Economic Relief Bill

  • Who – US small businesses and certain other organizations who employ no more than 500 employees. Also independent contractors and self-employed individuals.
  • What – Forgivable loans up to 2.5 times monthly payroll expenses, capped at $10 million
  • When – Bill signing expected before March 27, 2020 with funds available TBD in April
  • Where – Anywhere in the United States
  • Why – To support small businesses, non-profits, veterans organizations, independent contractors and self-employed individuals through the COVID-19 crisis.
  • For What – Funds to be used to retain workers, maintain payrolls and/or make mortgage, lease and utility payments.
  • Loan Forgiveness – Up to 100% of the loaned amount may be forgiven under certain circumstances if workers are retained through June 30, 2020

Executive Summary

The coronavirus outbreak and resulting quarantine measures have led to widespread business disruptions in the United States. As part of the federal response, the Congress is expected to approve this week a bill that would provide relief of up to $350 billion in forgivable loans to small business concerns, non-profit and veterans organizations and self-employed individuals to cover their expenses during the crisis.

This alert is based on draft legislative language as of March 22, 2020 and remains subject to revisions during the legislative process. There will most certainly be changes and revisions to the current proposal, as negotiations are ongoing with respect to, among other things, size and scope, before the Congress considers and passes the third economic relief bill.

Stay tuned for further developments.  We will be hosting a briefing call
Thursday, March 26, 2020 at 2 p.m. EST. Please RSVP here.

As soon as the bill becomes law, we can work with you to identify SBA-approved lenders and assist in the preparation and submission of a business interruption loan application. It is critical to leverage our experienced public policy experts in D.C. to best position applications for success, including guiding them through the approval process, given the expected intense competition for limited resources, as well as working with you to sort through the interplay with business interruption insurance, existing credit arrangements and other related complexities. We will keep you posted as the bill moves through the Senate, the House and then as it is signed into law, and provide further details so you may access the program, if you are eligible.

Details

Eligibility

Any small business concern, non-profit organization or veterans organization1 is eligible provided that it employs no more than 500 employees and was in operation on February 15, 2020.2 In addition, any applicant that meets certain size standards established by the SBA may be eligible. All prospective borrowers are presumed to have been adversely impacted by COVID-19.

Self-employed individuals, sole proprietors and independent contractors are also eligible if they have documented payroll tax filings with the IRS. In addition, business concerns with more than one (1) physical location are eligible if they employ not more than 500 employees per physical location and they operate in the hotel, restaurant and/or bar sectors.3

Maximum Amount

The maximum loan amount to be guaranteed is an amount equal to two and a half (2.5) times the borrower’s total monthly payments for payroll (calculated as an average per month over the 12 months prior to the date of the applicable loan)4, capped at $10,000,000.00 per borrower. The SBA will waive all fees or reduce fees to the maximum extent possible.

Payroll costs are defined as the sum of all payments for compensation, including salary, wage, cash tips, paid time off (vacation, parental, sick leave), severance, health care benefits, state or local taxes. For sole proprietors or independent contractors, payroll costs are defined as the sum of all compensation payments including wages, commissions or similar compensation capped at $100,000 per year. Payroll costs shall not include compensation of any individual employee in excess of $100,000, any compensation of an employee whose principal place of residence is outside the United States, or any sick leave or family leave covered under the Families First Coronavirus Response Act.

Use of Proceeds

The loan proceeds can be used to provide payroll support, including paid sick leave, group health care benefits, employee salaries, mortgage payments, rents, utilities and payments on other debt obligations. The SBA will require lenders to provide complete payment deferment relief for a period of not more than 1 year.5 The program covers the period from February 15, 2020 through June 30, 2020.

Other Matters

The proposed bill provides other details, including with respect to loan forgiveness, an increase in SBA guarantee to 100% until January 1, 2021 and eligibility details.

In order to qualify for full loan forgiveness, a borrower must maintain, during a period beginning on February 15, 2020 and ending on June 30, 2020 an average monthly number of employees that is not less than the average monthly number of employees for the same period in 2019.

The bill is still under negotiation and this summary does not describe all of the details that may be applicable to any specific borrower. Please reach out to your Dentons contact for information specific to your circumstances.

Illustrative Example

By way of illustration, a company applies for a loan with fewer than 500 employees, $200,000 in monthly payroll and $100,000 in monthly rent and utilities. Its total loan may be for 2.5 times the company’s payroll, or in this instance, $500,000. If workers are retained, lender will be required to forgive an amount determined pursuant to a formula that takes into account the number of employees retained, equal to up to eight weeks of the companies expenses, including payroll, rent, mortgage and/or utilities (approximately $600,000). By retaining employees, the company would not have to repay the loan and the lender will be covered by the SBA’s guarantee.


1 As defined in Section 501(c)(19) of the Internal Revenue Code.

2 A small business is ineligible under this program if it already receives assistance under section 7(b)(2) of the Small Business Act relating to COVID-19. A non-profit organization is ineligible if it qualifies under Medicaid for payments for certain items and services furnished under a State plan.

3 Business concerns are eligible if they are assigned a North American Industry Classification System code beginning with 72 at the time of disbursal. https://www.bls.gov/iag/tgs/iag72.htm

4 Seasonal employers will average payroll expenses by month over the period from February 15, 2019 or March 1, 2019 through June 30, 2019.

5 Subject to guidance from the SBA to be drafted no later than 30 days after passage of this legislation.