Federal Response & Legislation

New Development: American Rescue Plan

The House Budget Committee is scheduled to meet February 22nd to consider the $1.9 trillion reconciliation package from the other House Committees. Key provisions include $350 billion for state and local governments, an additional $1400 direct payment to eligible individuals, extensions of unemployment programs, a minimum wage increase, Affordable Care Act and Medicaid expansion and expansions of the Earned Income Tax Credit and the Child and Dependent Care Tax Credits.

Current recommendations extend employee retention credits from CARES through the end of the year, allow employers to receive refundable credits against the Medicare payroll tax beginning on July 1st and extend and expand FFCRA paid sick and family leave. The CARES Act Paycheck Protection Program’s lending would be increased by $7.25 billion and allow forgiveness of additional expenses. It clarifies that advance funds acquired from SBA’s EIDL program would be excluded from gross income for tax purposes and provides an additional $15 billion to that program.

It would raise both the federal minimum wage to $15 an hour by 2025 and sub-minimum wages to match the federal minimum wage by 2027. It is unclear if this would get around the Byrd Rule when the Parliamentarian reviews it, though a recent CBO study outlines the budget implications of the provision. There’s also a provision that would eliminate the ability of companies to allocate interest expenses worldwide beginning in 2021.

The package would modify and extend pandemic-related unemployment compensation and provide $2 billion for the Labor Department to audit unemployment benefits. An additional $150 million will be allocated to the Labor Department for worker protection activities with a portion directed to OSHA to support enforcement in high-risk sectors. Over $24 billion in grants is set aside for childcare providers to build capacity and provide tuition relief to families.

HHS is provided $88.5 billion to address COVID-19 with testing, tracing, mitigation and distribution activities. In addition, vaccines would be covered until one year after the end of the pandemic for people on Medicaid and CHIP. It expands the federal medical assistance percentage and Medicaid rebates. The measure expands the Affordable Care Act’s premium tax credits for health insurance purchased through an exchange as well as subsidize COBRA premiums up to 85%. It would provide $10 billion to use the Defense Production Act to purchase, produce and distribute medical supplies and equipment related to COVID-19.

Other provisions include funds for housing programs, agriculture programs & COVID screening, transit aid, education aid, veteran’s health initiatives & job training, FEMA disaster relief, broadband, consumer protection, and EPA programs.

The Association will monitor Monday’s markup and provide an update on any new developments.

Legislation

Supplemental I  – Coronavirus Preparedness and Response Supplemental Appropriations Act  (Enacted March 6)

Supplemental II – Families First Coronavirus Response Act (Enacted March 18)

Supplemental III - Coronavirus Aid, Relief, and Economic Security Act (Enacted March 27)

Supplemental III(.5) - Paycheck Protection Program and Health Care Enhancement Act (Enacted April 24)

Supplemental IV - The Concolodated Appropriations Act of 2021 (Enacted December 27)

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Supplemental I  – Coronavirus Preparedness and Response Supplemental Appropriations Act  (Enacted March 6)

The first supplemental legislation was signed by the President on March 6. This bill provides $8.3 billion in emergency funding for federal agencies to respond to the coronavirus outbreak, including supplemental appropriations for the Food and Drug Administration, the Centers for Diseases Control and Prevention, the National Institutes of Health and other agencies. 

Text is available here, and a summary is available here. 

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Supplemental II - Families First Coronavirus Response Act (Enacted March 18) 

The President signed the second supplemental bill on March 18, after the Senate passed a modified version of the House bill (HR 6201). Text is available here, a factsheet is available here, and a section-by-section is available here. A summary of paid leave provisions, incorporating changes made by technical correction, is here. 

In addition to offering free testing for COVID-19, a few highlights of the legislation:

Mandates Emergency Paid Sick Leave

Employers with less than 500 employees are required to provide two weeks of paid sick leave to an employee that: 

• Has a current diagnosis of COVID–19, or is under quarantine at the instruction of a health care provider, employer, or a local, state or federal official. 
• Is engaged in caregiving for an individual who has a current diagnosis of COVID–19 or is under quarantine. 
• Is engaged in caregiving because of the COVID–19-related closing of a school or other care facility or care program. 
• Businesses with under 50 employees will have an opportunity or request an exemption from the Treasury Department if the requirements “would jeopardize the viability of the business as a going concern.” Treasury has yet to clarify how these exemptions will be made. These provisions would expire at the end of calendar year 2020. 

Expands Family and Medical Leave Act (FMLA)

The Family and Medical Leave Act (FMLA) is expanded to include leave needed to care for an employee’s child whose school or care provider is closed due to COVID-19. This leave can be used by employees who have been employed by their current employer for at least 30 days. This applies to any private sector employer with less than 500 employees. 

• The first 10 days of FMLA leave may be unpaid, but beyond that time employers must compensate employees for the remainder of FMLA-leave taken (up to 10 work weeks) at 2/3 of their regular rate of pay. 
• FMLA paid leave is capped at $200 per day and $10,000 per employee total. 

Business Tax Credits for Emergency Leave

The bill creats a refundable tax credit equal to 100 percent of paid family or medical leave wages paid by the small business each quarter. The credit can be used against the employer’s social security taxes and applies to amounts paid to employees who are sick or quarantined. A smaller credit applies to amounts paid to employees caring for a family member or for a child whose school or place of care has been closed. 

Emergency Unemployment Stabilization 

Emergency grants totalling $1 billion available to states for activities related to processing and paying unemployment insurance benefits. 

• $500 million would be used to provide immediate additional funding to all states for staffing, technology, systems, and other administrative costs, so long as they met basic requirements about ensuring access to earned benefits for eligible workers. 
• $500 million would be reserved for emergency grants to states which experienced at least a 10 percent increase in unemployment. 
• States that experience an increase of 10 percent or more in their unemployment rate (over the previous year) and comply with all the beneficiary access provisions will qualify for 100 percent funding for Extended Benefits. 
• Extended benefits are triggered when unemployment is high in a state and provide up to an additional 26 weeks after regular unemployment insurance benefits exhausted. This section also suspends the financial penalty for states that waive the usual one-week waiting period for benefits. 

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Supplemental III - Coronavirus Aid, Relief, and Economic Security Act (Enacted March 27). 

The Senate passed an amended version of the CARES Act by a vote of 96-0 on March 25. Text available here (Democratic summary here, Republican section-by-section here). The House passed the CARES Act by voice vote on March 27. The president signed the legistlation later that same day. A few highlights from the legislation:

Small Business Loans (Title I) – Committee section-by-section here and one pager here (minority one pager here).

$350 billion for new Paycheck Protection Program, which would provide small businesses eight weeks of cashflow assistance. The portion of the loan used for payroll support (employee salaries, paid sick or medical leave, and other overhead like mortgage interest, rent, and utility payments) would be forgiven if employees (and salaries) are retained.

• Defines eligibility as businesses, nonprofits, veterans’ organizations, and Tribal businesses up to 500 employees and includes self-employed, independent contractors, sole proprietors.
• $17 billion for SBA to cover six months of payments for small businesses with existing SBA loans.

Business Tax Relief (Title II) – Summary here

• Delays OASDI payroll taxes, payable over two years with half due by 12/31/21 and the remainder due by 12/31/22;
• Provides refundable payroll tac credit for 50% of wages paid to employees during the COVID-19 crisis (no double-dipping allowed with the COVID-II FMLA and emergency leave payroll tax credits);
• Relaxes limitations on net operating losses;
• Increases the amount of interest expense businesses are allowed to deduct (Increases limitation threshold increased from 30% to 50% of EBITDA for tax years beginning in 2019 and 2020);
• Treats corporate AMT credits as refundable for 2018 onward; and
• TCJA technical correction on QIP (confirms repairs and improvements are eligible for a 15-year class life and eligible for bonus depreciation/full expensing)

Economic Stabilization (Title IV) – Summary here

The Treasury Department will create a Federal Reserve lending program to provide liquidity for industry in the form of loans, loan guarantees, and other investments. Procedures and regulations due no more than 10 days after enactment.

$500 billion in Treasury-administered loans:

• $25 billion for passenger air carriers,
• $4 billion for cargo air carriers, and
• $17 billion for businesses “critical to maintaining national security,” and
• $454 billion available for all other businesses.

Terms and Conditions on loan recipients include:

• Worker protections (see here for summary) and limits on executive compensation, stock buybacks, dividends, furloughs, and worker pay cuts.
• The Secretary can make loans to businesses that are “created or organized in the United States or under the laws of the United States and that have significant operations in and a majority of its employees based in the United States.” We understand that this is intended to apply at the level of the legal entity, not the overall group/parent company.
• Entities are prohibited from applying for any stabilization loan or grant relief if a covered person owns, directly, or indirectly, a controlling interest in such applying entity. Covered persons include POTUS, VPOTUS, Cabinet officials, Members of Congress, and their direct family members.

The Congressional Oversight Commission is established to oversee the economic stabilization loan and grant programs.

Coronavirus Relief Fund (Sec. 5001): $150 billion reserved for payments to state governments, local governments, and tribes, at least $3 billion of which is reserved for DC and $8 billion of which is reserved for tribal governments.

Air Carrier Worker Support: $32 billion in grants to be used for employee wages, salaries, and benefits.

Unemployment Insurance (Title II, Subtitle A): Several expansions to UI, including but not limited to:

• Emergency eligibility expansion (Sec. 2102): Expansion during 2020 for UI to cover individuals not otherwise covered by UI under a variety of conditions, including:
  • COVID-19 diagnosis of the individual or a family member, family care obligations and school closures, or self-quarantine advice from a health provider;
  • Notably, eligibility includes individuals who are unable or unavailable to work (but not actually laid off or unemployed) because their place of employment is closed “as a direct result of the COVID-19 public health emergency”;
  • Does not include employees who can telework with pay or who are receiving paid leave benefits.
• Emergency increase (Sec. 2104): For both regularly eligible individuals and those covered by the expansion, weekly UI payments are increased by $600 per week through July 31, 2020 (often described as a “four month” expansion);
• No new obligations for employers as a result of these expansions and increases.

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Supplemental III(.5) - Paycheck Protection Program and Health Care Enhancemenmt Act (Enacted April 24)

Paycheck Protection Program (PPP): Appropriates an additional $321 billion in funding for SBA’s Paycheck Protection Program.

Disaster Loans Program: Appropriates an additional $50 billion for the Disaster Loans Program and an additional $10 billion for Emergency Economic Injury Disaster Loan (EIDL) Grants.

HHS Hospital and Provider Grants: Provides an additional $75 billion to support the need for COVID-19 related expenses and lost revenue due to coronavirus.

Testing: Provides $25 billion for the HHS Public Health and Social Services Emergency Fund for necessary expenses to research, develop, validate, manufacture, purchase, administer and expand capacity for COVID-19 tests. Requires the Administration to create a national strategy to provide assistance to states for testing and increasing testing capacity.

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Supplemental IV - The Concolodated Appropriations Act of 2021 (Enacted December 27, 2020)

The House and Senate approved the Consolidated Appropriations Act of 2021 (text here) as an amendment to H.R. 133. The $1.4 trillion omnibus spending bill contained all 12 FY21 appropriations bills, paired with over $900 Billion in COVID-19 relief and additional authorizations. A division-by-division summary of the appropriations provisions is here. A division-by-division summary of the coronavirus relief provisions is here. A division-by-division summary of the authorizing matters is here. Below is a summary of major COVID-19 provisions that affect our industry.

PPP Deductibility for Loan Forgiveness: Clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a Paycheck Protection Program (PPP) loan. This provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. The provision is effective as of the date of enactment of the CARES Act.

PPP Second Draw & Eligible Expense: Creates a second loan from the Paycheck Protection Program, called a “PPP second draw” loan for smaller and harder-hit businesses, with a maximum amount of $2 million. To apply for the second draw a business must:

• Employ 300 employees or less (strict cap).
• Have used or will use the whole amount of their first PPP
• Demonstrate at least a 25 percent reduction in gross receipts in the first, second or third quarter of 2020 relative to the same 2019 quarter

Loans may be made up to 2.5 times the average monthly payroll costs in the one year prior to the loan, but not more than $2 million. Loans may be forgiven equal to the sum of their payroll costs, as well as covered mortgage, rent, and utility payments, covered operations expenditures, covered property damage costs, covered supplier costs and covered worker protection expenditures incurred during the covered period. The 60/40 cost allocation between payroll and non-payroll costs in order to receive full forgiveness will continue to apply.

The CAA expands eligible expenses covered by PPP to include payment for any software, cloud computing and other human resource or accounting needs; costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance; expenditures to a supplier pursuant to a contract, purchase order or order for goods in effect prior to taking out the loan that was essential to the recipient’s operations at the time at which the expenditure was made; and PPE or other investments purchased to comply with federal or state guideline between March 1, 2020, and the end of the national emergency declaration.

Employee Retention Tax Credit (ERTC) Extended: The ERTC has been extended through July 1, 2021. CCA increases the refundable payroll tax credit from a maximum of $5,000 to $14,000 by changing the calculation from 50 percent of wages paid up to $10,000 to 70 percent of wages paid up to $10,000 for any quarter. The bill clarifies that businesses will now be able to take the Employee Retention Tax Credit AND participate in the PPP.

EIDL Deductibility for Loan Forgiveness: Gross income does not include forgiveness of certain loans, emergency EIDL grants and certain loan repayment assistance, each as provided by the CARES Act. Deductions are now allowed for otherwise deductible expenses paid with the amounts not included in income by this section and that tax basis and other attributes will not be reduced as a result of those amounts being excluded from gross income. The provision is effective for tax years ending after the date of enactment of the CARES Act. The provision provides similar treatment for Targeted EIDL advances and Grants for Shuttered Venue Operators, effective for tax years ending after the date of enactment of the provision.

Extension of Certain Deferred Payroll Taxes: Extends the repayment period for the deferred payroll taxes from President Trump's August 8th EO through December 31, 2021. Penalties and interest on deferred unpaid tax liability will not begin to accrue until January 1, 2022.

Extension of Credits for Paid Sick and Family Leave: Extends the refundable payroll tax credits for paid sick and family leave, enacted in the Families First Coronavirus Response Act, through the end of March 2021. It also modifies the tax credits so that they apply as if the corresponding employer mandates were extended through the end of March 2021. This provision is effective as if included in FFCRA.

Other COVID-19 Relief: Provides $600 direct payment checks for every adult and child earning up to $75,000. Individuals earning between $75,000 and $99,000 would get smaller checks, and the benefit cuts out entirely for individuals earning over $99,000. A $300 per week unemployment bonus will be extended until mid-March. SNAP and rental assistance are also augmented by CAA. The CAA appropriates funds for vaccine dissemination, increased broadband access, aid to schools and universities, transportation aid and aid to farmers. The Child Tax Credit and the Earned Income Tax Credit have been made more flexible. There are new requirements on cost estimates for medical billing and a provision that re-institutes meal deductions for businesses in an effort to aid the ailing restaurant industry.

The Association will be further examining the 5,593 page bill in the coming days for additional insight into the COVID relief programs.

Defense Production Act

President Trump signed on March 18 an Executive Order to invoke the Defense Production Act (DPA). As background, the law permits the federal government to impose some control over private-sector industry to ensure the production of material that is deemed necessary for national defense, and it was reauthorized last year through 2025. Under DPA, the government canalter the order in which companies fulfill their contractual obligations by telling them to prioritize some existing contracts ahead of others (but it seems unclear if the government could use the law to force a company to accept a new contract for a product that it does not already make). More context for the DPA here.

On March 27, President Trump signed an Executive Order on Delegating Additional Authority Under the DPA with Respect to Health and Medical Resources (HERE) and a Memorandum on Order Under the Defense Production Act Regarding General Motors Company (Text, Statement).

On April 10, using authority from the Defense Production Act, FEMA plans to issue a temporary final rule to require that five types of personal protective equipment only be used domestically. In other words, under the rule, all exports of specified PPE will require explicit approval by FEMA. The rule instructs that exports of such PPE will be detained by Customs and Border Protection (CBP) for FEMA inspection. FEMA will determine whether to return the PPE to domestic use, issue a prioritized order for the goods or allow the shipment to move forward. The rule includes an exemption for U.S. manufacturers with contracts in place before Jan. 1, 2020, if 80% of their domestic production was distributed within the United States in the preceding 12 months. The FEMA administrator will consider additional exemptions as necessary.

In December 2020 the Senate voted 84-13 in favor of the $731.6 billion National Defense Authorization Act (NDAA) conference report, following approval in the House. The conference report adopted the Aluminum Association’s recommendations to include a provision and drop a new domestic sourcing requirement that we were concerned about. Specifically, the bill will require the Department of Defense to add a section to its national technology and industrial base report on “how authorities under the Defense Production Act of 1950 could be used to provide incentives to increase activities relating to refining aluminum and the development of processing and manufacturing capabilities for aluminum; and (2) whether a new initiative would further the development of such processing and manufacturing capabilities for aluminum.” The Aluminum Association is pleased the House and Senate Armed Services Committees adopted these recommendations, and we are grateful to Sen. Maria Cantwell (D-WA) and Rep. Suzan DelBene (D-WA) for their support of the new provision. President Trump has promised to veto the bill but has not yet followed through. It is expected that the bill will be enacted even if there is a veto.

IRS Clarifies Payroll Tax Deferral Implementation

On August 8, 2020, the President of the United States issued an executive order directing the Secretary of the Treasury to defer the withholding, deposit, and payment of certain payroll tax obligations. By August 28, 2020, the IRS issued Notice 2020-65 concerning the implementation of this order.

• Participating employers can allow employees making under $4,000 biweekly to defer payroll taxes collected by the employer from September 1 through December 31, 2020.
• Participating employees will effectively have a bigger paycheck during that period and a smaller paycheck from January through April 2021 unless the payroll tax is forgiven by an act of Congress.
  • An issue that remains unclarified is how are employers to collect deferred payroll taxes from employees who have departed, but guidance suggest employers make arrangements to otherwise collect the total applicable taxes from the employee.
• Participating in this order is not mandatory for employers.

President Trump issued four executive orders on payroll tax defferal, student loan relief, consideration of an eviction moratorium, and a redirection of funds to state unemployment insurance programs.

• Payroll Tax Deferral: The Treasury will not collect taxes from Sept. 1 through Dec. 31 for workers who earn less that $4,000 every two weeks. The taxes will be due at a later date.
• Student Loan Relief: Pauses all student loan payments and cancels interest payments on loans held by the federal government until the end of the 2020.
• Eviction Moratorium: Directs HHS Secretary Azar and CDC Director Redfield to consider an eviction moratorium.
• Unemployment Insurance: Additional unemployment supplement of $300 per person with a a call on States to pay an additional $100. The Federal portion of funds will be reallocated from FEMA's Disaster Relief Fund.

Main Street Lending: Eligibility for the Main Street Lending Program is not restricted based on credit rating (as the recent Primary and Secondary Market Corporate Credit Facilities were). The Association had previously sought this flexibility, sending a letter to Secretary Mnuchin and Chairman Powell and enlisting members of the Aluminum Caucus to weigh in on the issue with the Administration. A few key points about the Main Street Lending Program:

• The Fed will offer five-year loans through banks, with principal and interest deferred for up to one year.
• Eligible businesses are those with 15,000 or fewer employees OR revenues of less than $5 billion. The business must have been  created or organized in the United States (or under the laws of the United States) with significant operations in and a majority of its employees based in the United States.
• Firms that have received SBA/PPP loans will be eligible to seek these loans as well, but borrowers may not also participate in the Primary Market Corporate Credit Facility.
• Companies are subject to stock buyback, dividend, and compensation restrictions but not (yet) to workforce retention requirements (but the Fed’s press release specifically states that “firms seeking Main Street loans must commit to make commercially reasonable efforts to maintain payroll and retain workers.”)
• The Fed released three separate term sheets under the program:
  • Main Street New Loan Facility (MSNLF): Minimum loan of $250k. Maximum loan of up to lesser of (i) $35m or (ii) 4x 2019 EBITDA.
  • Main Street Priority Loan Facility (MSPLF): Minimum loan of $250k. Maximum loan of up to lesser of (i) $50m or (ii) 6x 2019 adjusted EBITDA.
  • Main Street Expanded Loan Facility (MSELF): Minimum loan of $10m. Maximum loan up to lesser of (i) $300m, or (ii) 6x 2019 EBITDA.
• On July 17, the Fed released two new term sheets for a Nonprofit Organization New Loan Facility and a Nonprofit Organization Expanded Loan Facility.

The June 8 press release states the Federal Reserve will be retaining more of the risk on these loans after complaints from the banking industry. As of July 6, the Main Street Lending Program, is fully operational with the Federal Reserve Bank of Boston purchasing loans made to buisnesses from local lenders. You can find a list of lenders by state here.