President Signs PHASE 3.5 of COVID-19 Response Package Into Law

The President signed into law the Paycheck Protection Program and Health Care Enhancement Act (H.R. 266), another $484 billion COVID-19 legislative response package (dubbed Phase 3.5) primarily to provide $310 billion in additional funding to replenish the Small Business Administration’s Paycheck Protection Program (PPP). The package will also provide additional support for small businesses with $50 billion in emergency disaster lending and another $10 billion in emergency disaster grants. In addition, the legislation will provide another $75 billion in funding to hospitals and providers, and $25 billion for COVID-19 testing.

Providing Additional Support for Small Businesses

Paycheck Protection Program

Phase 3.5 of the COVID-19 legislative response package – an interim measure to restart the PPP as lawmakers discuss a potential Phase 4 – will provide another $310 billion to the PPP, which ran out of the $349 billion in funding from the Coronavirus Aid, Relief, and Economic Security Act (CARES Act, or Phase 3) within two weeks amid higher-than-expected demand for the forgivable loans aimed at keeping employees on the payroll while businesses are closed due to the pandemic.

The loan program requires small businesses with under 500 employees to:

• Retain workers or rehire laid off employees for up to eight weeks — with the loans to be forgiven and not paid back if used to keep workers on the payroll and for certain other business costs, such as rent and utilities.
• Use at least 75 percent of the loan for payroll costs in order for the loan to be forgiven.

According to the SBA, launched on Friday, April 3, the PPP program:

• Has approved more than 1.6 million loans across almost 5,000 lenders.
• Has processed more than 14 years’ worth of loans in less than 14 days.
• Will provide a total funding of $659 billion – or more than 20 times the SBA’s 7(a) small business loan program lending limit for FY 2020 set by Congress late last year.

Of the loans issued to date under the PPP, 74 percent of the loans were for $150,000 or less – representing 17 percent of the total dollar value of loans approved; and 4 percent of the loans were for more than $1 million each, or 45 percent of the total dollar value.

Of the $310 billion in additional funding, a total of $60 billion of the new PPP funding will be set aside for smaller lenders including state and federal credit unions and those serving communities where relationships with more established financial institutions that dominate the SBA program are scarce, of which:

• $30 billion in loans will be issued by insured depository institutions or credit unions with $10 billion to $50 billion in consolidated assets.
• $30 billion will be issued by insured depository institutions or credit unions with less than $10 billion in assets, or community lenders such as community development financial institutions and minority depository institutions.

The new funding for the PPP could run out as quickly as the previously approved funding, which could set up a deadline for Congress to act on another sweeping aid package.

Economic Injury Disaster Loan (EIDL)

In addition, the Phase 3.5 legislative package will provide $50 billion for SBA’s Economic Injury Disaster Loan (EIDL) program, which will allow the agency to make more than $350 billion in direct, low-interest, long-term disaster loans of up to $2 million to small businesses. Phase 1 of the COVID-19 response package enacted by Congress in early March authorized small businesses affected by the pandemic to access the EIDL program, and then the Phase 3 response package (the CARES Act) expanded the program by creating an emergency grant component in which businesses that apply for an EIDL can receive a loan advance (EIDL Advances) of up to $10,000 to cover revenue shortfalls that does not have to be repaid.

The most recent bill passed by Congress will provide an additional $10 billion for grants under the EIDL Advances program – increasing the program's authorized grant level to a total of $20 billion that disaster loan recipients can obtain. Finally, the bill will allocate $2.1 billion for the administrative costs of running the EIDL program.

The EIDL program covers businesses, cooperatives, employee stock ownership plans, and tribal businesses with 500 or fewer employees, as well as sole proprietors and independent contractors. The most recent legislative package will allow for small farming operations with no more than 500 employees to also be eligible to participate in the EIDL program.

Providing Additional Support for Hospitals

As part of the Phase 3.5 legislative package, the Public Health and Social Services Emergency Fund will receive an additional $75 billion for hospitals and providers for coronavirus-related expenses and lost revenue – on top of the $100 billion already allocated under the CARES Act (Phase 3). Funds will be distributed under the same terms as the third package for public entities, providers enrolled in Medicare and Medicaid, and other for-profit and nonprofit entities that provide diagnoses, testing, or care for individuals with COVID-19.

The additional $75 billion in funding can be used for medical supplies and equipment, including personal protective equipment and testing supplies, and for other activities such as funding emergency operations centers, retrofitting facilities, and building temporary structures to handle surge capacity.

Hospitals and health care providers that receive funding will be required to maintain documentation and submit reports to the Department of Health and Human Services (HHS).

The department will be required to submit a report to Congress on how the funds were obligated within 60 days of enactment, and every 60 days thereafter until all funding is expended.

Providing Additional Support for Testing

Finally, Phase 3.5 of the relief package will provide $25 billion for necessary expenses to research, develop, validate, manufacture, purchase, administer, and expand capacity for COVID-19 tests. Specifically, of the $25 billion:

• $11 billion will be for states, localities, territories, and tribes to develop, purchase, administer, process, and analyze COVID-19 tests, scale-up laboratory capacity, trace contacts, and support employer testing. Funds are also made available to employers for testing.
• $2 billion will be provided to states consistent with the Public Health Emergency Preparedness grant formula, ensuring every state receives funding.
• $4.25 billion will be for areas based on relative number of COVID-19 cases.
• $750 million will be provided to tribes, tribal organizations, and urban Indian health organizations in coordination with Indian Health Service.
• $1 billion will be provided to Centers for Disease Control and Prevention (CDC) for surveillance, epidemiology, laboratory capacity expansion, contact tracing, public health data surveillance and analytics infrastructure modernization.
• $1.8 billion will be for the National Institutes of Health (NIH):
  • To develop, validate, improve, and implement testing and associated technologies.
  • To accelerate research, development, and implementation of point-of-care and other rapid testing.
  • For partnerships with governmental and non-governmental entities to research, develop, and implement the activities.
• $1 billion will be for the Biomedical Advanced Research and Development Authority (BARDA) for advanced research, development, manufacturing, production, and purchase of diagnostic, serologic, or other COVID-19 tests or related supplies.
• $22 million will be for the Food and Drug Administration (FDA) to support activities associated with diagnostic, serological, antigen, and other tests, and related administrative activities.
• $825 million will be for Community Health Centers (CHCs) and rural health clinics.
• $6 million will be for HHS Office of Inspector General for oversight activities.

In addition, as much as $1 billion of the $25 billion can be used to cover tests for the uninsured.

The legislation requires plans from states, localities, territories, and tribes on how resources will be used for testing and easing COVID-19 community mitigation policies. Specifically, states and localities must submit plans to HHS within 30 days of enactment on how the money will be used for testing, and how test results will guide the easing of community mitigation policies such as social distancing and business closures. Plans must describe goals for the remainder of 2020 on a month-by-month basis, including the number of diagnostic, serological and other tests needed, as well as estimates of laboratory and testing capacity, including workforce, equipment, supplies and available tests.

HHS will have to issue reports on testing, diagnoses, hospitalizations, and deaths that include data on demographic characteristics of those affected. HHS will also have to submit a strategic testing plan to Congress, including how it will increase domestic testing capacity and address disparities in communities.

Looking Ahead

Congressional Democrats have already begun discussions on a Phase 4 COVID-19 legislative relief package. House Speaker Nancy Pelosi (D-CA) and Senate Minority Leader Chuck Schumer (D-NY) issued a statement indicating that the Administration has agreed to improvements in the next legislative package (which the Democratic leaders dubbed “CARES 2), including significantly lowering the interest rate on advance payments, lengthening the repayment schedule and distributing payments from general revenues, rather than through the Hospital Insurance Fund.

According to Rep. Pelosi and Sen. Schumer, the Administration also agreed to a national strategic testing policy that will focus on increasing domestic testing capacity including testing supplies, as well as additional funding for state, tribal, and local governments to pay essential workers on the front lines of the pandemic. 

Other items on the Democratic “wish list” include money for infrastructure, housing, election security, a “heroes fund” for frontline workers and first responders, a postal service rescue and “robust” state and local aid, as well as extension of enhanced unemployment insurance benefits and another round of tax rebate checks.

Senate Majority Leader Mitch McConnell (R-KY), weary of losing support from conservative Republicans, has called for a go-slow approach while the recently enacted legislative packages are implemented. At the very least, Sen. McConnell said he wants the next bill to be handled differently – with Congress back in regular session, and the full participation of lawmakers.

Both houses of Congress are tentatively scheduled to reconvene May 4.

The President himself called this week for the next bill to provide aid to state and local governments, infrastructure spending, a payroll tax cut and tax breaks for restaurants, sports and entertainment interests.

As Congress and the Administration move forward in negotiating additional potential COVID-19 legislative relief packages, the Buchanan Ingersoll & Rooney Federal Government Relations Team will continue to monitor the legislative process and provide the most in-depth, up-to-date analysis – while also guiding you through the rulemaking process as the Administration continues to implement the various relief programs at an unprecedented pace.