August 10, 2020: COVID-19 Legislative Update

Hello all,

In lieu of a lengthy report, today we want to follow-up with everyone regarding the executive actions we discussed in last Friday’s report.  As you likely saw, over the weekend the President issued three memorandums and one executive order covering a range of issues.  They are summarized below, and some insights from Liam Donovan wrap up this report.

As we mentioned last week, these actions raise a variety of legal and practical questions. However, they are best understood as the next stage in the negotiation process over a larger COVID-19 relief bill rather than conclusive policy action. In fact, outside of the text of the actions themselves, there is very little known about how the government will implement these actions, or how the private sector is likely to respond to them.

Most of the significant policy debates surrounding COVID-19 relief (such as issues surrounding liability protection and state/local aid) remain unresolved, and Democrats have reacted to the executive actions by demanding comprehensive legislation.  Accordingly, we expect that the legislative debate will occupy much of the next several week.

The executive actions:

• Federal Eviction Moratorium: The eviction moratorium put in place for tenants by the CARES Act expired July 25, but due to the 30-day notice requirement, the moratorium actually ends August 24. In June, Housing and Urban Development (HUD) already extended the moratorium on foreclosures and evictions for homeowners. The new executive order does not explicitly renew the moratorium, but instead instructs the relevant agencies (HUD, HHS, CDC) to consider measures and identify funds that would provide relief and spare renters and homeowners from eviction or foreclosure.
•  Payroll Tax Deferral: This memorandum instructs the IRS to stop collecting the 6.2 percent employee side payroll tax for those making $104,000 or less. The delay is retroactive to July 1. It is unclear whether employers will pass on savings to employees, as the White House can only suspend collection without an act of Congress, and failure to withhold could eventually result in a $150 billion tax bill. For his part, President Trump has promised to ensure these payments are forgiven if re-elected.
• Enhanced Unemployment Benefits: This is the most complex, and legally questionable aspect of this weekend’s package of executive actions. In an effort to replicate the lapsed Federal Pandemic Unemployment Compensation (FPUC), this memorandum instructs relevant agencies to create an "assistance program for lost wages" by tapping $44 billion in unspent disaster relief funds. The weekly benefit would be structured as a $300 federal match to $100 provided by participating states.  The memo calls on states to use Coronavirus Relief Fund (CRF) proceeds provided by the CARES Act to trigger the federal match, pointing out that $80 billion remained unspent at the end of June. However, a survey by the National Association of Budget Officers found that while much of the money was unspent, three quarters of the $150 billion had already been committed for specific purposes. Implementation and state participation in this program remain open questions. The memo calls for it to run through the first week in December, or until the Disaster Relief Fund is drawn down to $25 billion--the nonpartisan Committee for a Responsible Federal Budget estimates that the funding will last for five weeks.
• Defer Student Loan Payments: The CARES Act suspended payments, interest, and collections on federal student loans for six months. These protections were slated to expire September 30, right before the presidential elections. This memorandum extends the existing student loan payment suspension and interest freeze through the end of the year.

What does it mean?

There is little evidence that the actions taken by the President have changed the near-term outlook for a bipartisan deal. Democratic leaders have not spoken with White House negotiators since Friday, and their public reaction has been frosty. While Secretary Mnuchin extended something of an olive branch, indicating in a CNBC interview that they are prepared to put more money on the table, the President weighed in on Twitter with characteristic tact to razz Pelosi and Schumer by name. With the news cycle on the verge of being consumed by the announcement of Joe Biden’s running mate, and next week dominated by the virtual Democratic convention, there is vanishingly little time to get to an agreement, let alone vote on one.

While the legal picture surrounding the executive actions remains murky, the immediate questions are more practical than constitutional. Indeed, the Democratic response has coalesced around the President’s actions being insufficient to address the crisis rather than criticizing him for going too far.

In this regard, the most important element remains the enhanced unemployment regime. Depending on the pace of implementation, which remains unclear, and the level of state participation, which itself presents a political minefield, funding for the federal assistance may only last for a matter of weeks. Thus, it is probably best viewed as a bridge to September, when these issues will be folded into broader talks over government funding (almost certainly a short term continuing resolution) and surface transportation reauthorization (similarly likely to be a short-term punt). If anything, by lending the Presidential imprimatur to a $400 a week unemployment supplement, the Trump memo nudges the ultimate resolution of the FPUC extension in the direction we have expected all along. This leaves additional state and local funding (and its conditions) as the most significant hurdle to an eventual deal. Republicans and Democrats remain roughly $800 billion dollars apart, a chasm that doubles as a significant driver of the topline disagreement, which will ultimately have to fall below $2 trillion to find purchase within the GOP.

Efficacy aside, the President has succeeded, at least momentarily, in pushing out the horizon for legislative action. At best, these measures provide the near-term policy and political stopgap needed to keep Americans afloat while giving congressional leaders more time to arrive at a compromise. At worst, President Trump will say he did everything in his power and lay the blame for any fallout squarely at the feet of Congress. Whatever the normative cost, congressional Republicans breathe a momentary sigh of relief and live to fight another day.

 

Best,

Your Update Team