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Households, businesses fall into financial holes as COVID aid dries up

Households, businesses fall into financial holes as COVID aid dries up
© Greg Nash

Americans feeling the economic weight of the coronavirus are about to enter their third month without crucial government aid that helped keep millions of households afloat during the recession.

Two months have passed since Congress and the White House allowed emergency COVID-19 protections and safety net programs to expire. Those provisions, enacted in late March under the CARES Act, were credited with preventing an even worse economic downturn.

Now, families are struggling to get by without supplemental unemployment funding, and many small businesses are reaching the end of financial lifelines that were extended by the federal government in the spring and summer.

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The lapse of emergency measures is expected to create lasting damage to the economy, making it even harder to return to pre-pandemic levels of growth and unemployment.

“The damage on these families can scar for years,” said Andrew Stettner, an unemployment expert at the left-leaning Century Foundation.

One of the biggest losses is the $600 in additional weekly benefits that Congress approved in the CARES Act. Economists across the political spectrum credit that provision with keeping consumer spending from cratering during one of the sharpest and most destructive downturns in the nation’s history.

That benefit expired at the end of July, leaving some 30 million recipients with only state-level benefits, which on average cover about a third of pre-unemployment income.

Despite broad bipartisan support for the CARES Act, Republicans have argued that the federal benefit was too high, pointing to some studies that showed 68 percent of recipients were earning more with the benefit than they did while working. GOP lawmakers said that discrepancy was a disincentive for people to go back to work, further slowing the recovery.

Democrats countered with a slew of studies showing the benefit was having no tangible effect on the labor market at a time when unemployment was at historic highs.

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After negotiations between the Trump administration and congressional Democrats stalled in August, President TrumpDonald John TrumpJudge rules to not release Russia probe documents over Trump tweets Trump and advisers considering firing FBI director after election: WaPo Obama to campaign for Biden in Florida MORE issued an executive order for $300 in additional weekly benefits that would be provided through the Federal Emergency Management Agency (FEMA). But it took weeks for most states to get those new payments out the door, and about half have already depleted their funds.

Meanwhile, household bills are piling up for the hardest hit members of the labor force.

“We're already in a situation where people have been forced to deplete savings, go into their 401(k), and so on. That’s damage you can’t undo,” said Stettner.

Polls have indicated that the percentage of families able to make ends meet with unemployment insurance fell from 80 percent early on in the pandemic to about 50 percent more recently.

Some provisions in the CARE Act remain in place, including more time for people to collect unemployment and a broadening of eligibility requirements to include self-employed and gig workers.

But another key provision that expired at the end of July was the Paycheck Protection Program (PPP), which offered forgivable loans to small businesses to cover wages and other fixed expenses during the pandemic.

“The longer Congress takes to pass and allow for a second PPP program, the more likely it will be that small business owners will have to make the tough decision of closing their doors. And that’s what we’re trying to avoid,” said Holly Wade, who directs research for the National Federation of Independent Business, a right-leaning group.

Wade said any update to the program should be more targeted, given that large chunks of the economy have reopened since the lockdowns in March and April.

But entire industries, she added, are expected to remain in limbo until a vaccine is widely distributed.

“We’re seeing that about a fifth of small businesses now are really still struggling to get through this pandemic, and are really in need of financial assistance. And these are businesses that would be healthy otherwise,” she said.

Travel and tourism, along with restaurants and retail stores, are among the hardest hit.

“Those industries that rely on consumer spending from the public, anything where you’d go inside a shop or businesses are still struggling,” she said.

John Arensmeyer, CEO of the left-leaning Small Business Majority, said a new round of PPP would need to ensure loans can easily get out the door to companies that don't have strong existing relationships with banks, an issue early on in the emergency lending program.

Surveys by SBM have found that a quarter of small business owners said they did not expect to survive three months, while another 20 percent didn't expect to last half a year.

“We really need for these small businesses to continue to exist. It’s much easier to rebuild with something that still exists than starting over again,” Arensmeyer said.

With just days left before Congress is set to recess until after the November elections, Treasury Secretary Steven MnuchinSteven Terner MnuchinTrump and advisers considering firing FBI director after election: WaPo Trump casts doubt on hopes for quick stimulus deal after aides expressed optimism Power players play chess match on COVID-19 aid MORE and Speaker Nancy PelosiNancy PelosiTrump and advisers considering firing FBI director after election: WaPo On The Money: Power players play chess match on COVID-19 aid | Pelosi bullish, Trump tempers optimism | Analysis: Nearly 1M have run out of jobless benefits Overnight Health Care: CDC expands definition of 'close contact' after COVID-19 report | GOP coronavirus bill blocked in Senate | OxyContin maker agrees to B settlement with Trump administration MORE (D-Calif.) indicated they were prepared to reopen negotiations on another COVID-19 relief bill.

Pelosi, feeling pressure from vulnerable Democrats, has called for a scaled-back version of the $3.4 trillion HEROES Act the House passed in May. The package is still expected to be in the $2 trillion range, well above the $1 trillion the White House wanted and the $600 billion that Senate Republicans agreed on, lowering the odds that the bill finds its way to President Trump’s desk.

Much of the difference in their positions comes down to how much money should go to state and local governments, though a handful of other difficult issues remain as well.

Arensmeyer said passing an imperfect program is still preferable to no action.

“Quite frankly we’ll take any of it rather than the nothing that has passed for months,” he said.