Looking Forward From The CARES Act: Prognosis For Next Wave of Federal Aid

COVID-19 Update

As you know from our frequent updates, Manatt has closely tracked the ongoing federal response to the COVID-19 epidemic. Multiple practice groups, coordinating every day, have published articles explaining what has already enacted through Congress, including substantive analyses of important sections of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). Among other things, Congress and the President have directed more than $2 trillion in relief to individuals, families and businesses affected by the virus.

The CARES Act is the largest relief bill ever passed by Congress, but it is becoming clearer by the day that, for all its size and scope, a great deal more federal action may be needed before the COVID-19 crisis abates. Additionally, with the economy at a standstill in some parts of the country and in some sectors, the Treasury Department, the Small Business Administration and the Federal Reserve are acting with dispatch to fully implement the direct assistance and lending programs in the CARES Act. As such, the question that is on many minds is “What will come next?”

Where We Stand Now and Immediate Questions

In the immediate aftermath of the enactment of the CARES bill, the urgency to administer guidance and implement the legislation is set. Some of that work, for example with regard to the expanded unemployment compensation provisions, will need to be initiated at the state level, but other measures will require the federal government to organize and commence implementation promptly. In the near term, the following federal agencies have work to do.

  • The Small Business Administration (SBA) must finalize guidance on the Section 7(a) lending program that was greatly expanded by the Paycheck Protection Program (PPP) provision of the CARES Act. This program, which saw its budget increase to around $350 billion in the new law, is intended to make low-interest, forgivable loans to businesses, independent contractors, sole proprietorships and certain nonprofits with fewer than 500 employees. Treasury Secretary Steve Mnuchin announced that instructions for small businesses applying for assistance will be announced soon—guidance on underwriting guidelines and related issues is also expected to follow. Secretary Mnuchin also indicated that if demand for these loans exceeded $350 billion, more money would be made available.
  • SBA and the Treasury also need to determine how they can involve “non-traditional lenders” in the program (as stipulated in the bill) and how to guard against fraud.
  • The Treasury must also determine how to distribute $500 billion in business loans to distressed industries. Among the burning questions on this program is how oversight will be implemented. The requirement in the enacted bill of increased congressional oversight of this particular part of the relief provisions was a direct response to the initial Administration proposal that empowered the Treasury Secretary to act essentially alone. This became—and apparently remains—one of the major sticking points in the negotiations between the two branches. While the law now requires strong congressional oversight, including by an independent Inspector General, the President’s signing statement, which indicates that the Administration will restrict the information that the “IG” can share with Congress, sets up a major fight in the months to come.
  • The Federal Reserve, under the CARES Act, is given broad authority to establish programs or facilities for the purpose of providing liquidity to the financial system that supports lending to eligible businesses, states, or municipalities by purchasing obligations and making loans, including loans or other advances secured by collateral. Secretary Mnuchin, working together with the Federal Reserve, expects to issue guidance on lending programs in Title IV of the Act by Friday. Late last week, the Federal Reserve announced that it would set up a “Main Street Business Lending Program” meant to support lending to small-to-midsize borrowers facing temporary financial difficulties. This new program is expected to complement the SBA’s PPP, but details have yet to emerge. Given how extensive its measures have been thus far, the Fed must also consider what, if any, other measures it can deploy if the crisis worsens. With its broad authority, the Federal Reserve will certainly be taking additional measures to fulfill its role and should be monitored closely for these further actions.  

House Leadership Wishlist for Possible Fourth and Fifth Phases

Before the final CARES Act bill was even passed, Speaker of the House Nancy Pelosi predicted that a “phase 4” relief bill would be necessary and that the House would begin drafting it in short order. Pelosi added urgency to the matter, saying in an interview, “this isn’t about how fast we can do it, it’s how fast we must do it.” In this regard, Majority Leader Steny Hoyer told the Democratic caucus that he expects both a fourth and a fifth phase. Assuming that to be true, we know that, among other measures, the leadership’s to-do list for further legislation includes:

  • Expanding Supplemental Nutrition Assistance Program (SNAP)  payments
  • Clarifying the paid leave expansion to address questions raised by business
  • Authorizing more funds for direct payments beyond what is provided in the CARES Act
  • Increasing help for frontline healthcare workers
  • Funding free COVID-19 treatment, not just testing

Other items that may be added to a future stimulus bill include infrastructure investments, pension stabilization and clean energy tax credit extenders.

House Democrats were unsuccessful in their effort to secure a 15 percent increase to SNAP in the final CARES Act. Such a change will surely be a cornerstone of any phase 4 bill coming out of the House. While the CARES Act does provide $15.5 billion to cover the cost of increased SNAP enrollment, plus $450 million to help distribute food through food banks, many are anticipating that this will be insufficient to deal with increased reliance on the primary federal food security program.

Again, the announcement by the President that he does not intend to be bound by the new legal requirements of congressional oversight of the CARES Act implementation sets up as a certainty that Congress will propose further tightening of these requirements in any new legislation. It is likely, of course, that the Administration will continue to resist oversight. This appears to be an issue destined for both further legislative battles and, with regard to the oversight now on the books as law, litigation over implementation.

Other Anticipated Federal Action

We can also expect that the House will push for a federal vote-by-mail mandate to help ensure that the 2020 general election can still take place, even if the COVID-19 epidemic is still disrupting life and gatherings in November. This provision has the potential to be extremely controversial as Republicans have traditionally opposed voting by mail and argue that such a provision is more in the partisan self-interest of Democrats than a direct response to the novel coronavirus. Two senior Democratic senators, Ron Wyden (D-Ore.) and Amy Klobuchar (D-Minn.), introduced the “Natural Disaster and Emergency Ballot Act of 2020,” which would require all states to expand early voting and mail-in voting systems if and when a critical mass of states declare coronavirus-related states of emergency. With multiple states and territories delaying their primaries due to COVID-19, it is not such a far-fetched notion that decisive action will need to be taken to ensure an election on November 3. To some of us, this appears to be an issue that might be the basis for a conflict over the legitimacy of the election result, especially if the popular vote in key states seems very close.

State and local governments will also need additional relief in the coming weeks. While the CARES Act provides additional help covering COVID-19-related expenses and money targeted to airports and transit hit by the heavy decline in travel, numerous states and municipalities are going to be facing budget crises when they come to terms with the precipitous drop in tax revenues. Just in New York, Governor Andrew Cuomo says that state revenues could be $15 billion lower than the original projections for their next fiscal year, which begins in April. Expect other states also to sound the alarm as they approach July 1, when most states’ fiscal years begin.

Finally, there is still an unresolved issue of how Congress will vote on future packages. There was some interest in instituting remote voting procedures in light of multiple members of Congress testing positive for COVID-19 and how difficult travel to and from Washington will be for many members, but Speaker Pelosi has since said that remote voting will not be an option.

Big Picture, Why It All Matters

The federal response to COVID-19 is by no means complete with the enactment of the CARES Act. Even with Congress recessed, work on the next phase or phases of relief efforts is ongoing. Individuals and businesses with urgent concerns that they want heard need to connect with the key policy makers in Congress and the Administration before the next rounds are finalized. Manatt’s federal government affairs team, with decades of substantive experience in the House, Senate and Administration, is well prepared to assist clients in navigating and responding to these ongoing federal developments.

Additional Resources

For more information about and analysis of the CARES Act, please visit https://www.manatt.com/COVID-19.

For information specifically on small businesses, the following resources provide borrowers and lenders with practical advice regarding the provisions of the CARES Act:



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