As we continue to navigate these unprecedented times, KCBS Radio is getting the answers to your questions about the coronavirus pandemic. Every morning at 9:20 a.m. Monday-Friday we're doing an "Ask An Expert" segment. Each day we'll focus on a different aspect of this situation.
Today we’re focusing on the financial stimulus plans meant to give relief to small businesses, workers and individuals impacted by the virus with economist Betsey Stevenson, professor of public policy and economics at the University of Michigan and former chief economist with the U.S. Department of Labor.
Q: What’s the status of the Economic Injury Disaster Loan - the EIDL from the Small Business Administration - and the $10,000 advance? That grant was supposed to be deposited within three days of application but it seems few, if any small business have received that even within 14 days.
Yes, so I think what we’ve seen with that program is that the SBA is just overwhelmed. I don’t have any updates on that I’ve seen what your listeners probably have seen, which is that they are running behind in getting that out. But more importantly the idea there is also supposed to be that there was a reasonable amount of money that businesses could borrow - it would eventually have to be paid back - but Congress didn’t allocate very much money for that program. And with a program like that, even though they tell you you’re eligible for this amount, once the money is gone the money is gone. So I think the real issue there is gonna be how quickly they can get the $10,000 out, but also how quickly they run out and whether Congress chooses to allocate more money for the program.
I think that that program is a little bit struggling under the weight of applications right now. The question was about the $10,000 - there’s a lot of businesses that are also trying to get bigger loans. And I think what we’re seeing is the loans are getting capped based on the amount of money. And even the $10,000 - some states are saying that’s the max and not everybody will get the full thing.
Q: I’m a technical contractor here in the Bay Area. Some of my contracts are 1099’s, some are W-2’s. I’ve never had a business checking account. I work out of my home office even for W-2 contracts typically through managed service providers for big companies. Is there any way for me to qualify for one of these programs.
I think this is one of those ones where you’re going to need to talk to your accountant to see what you’re eligible for and also, what would be the best thing for you. One of the things that’s happened with the unemployment insurance program is typically, your 1099 workers wouldn’t be eligible but they may indeed be eligible under the current federal expansion. You may find that a lot of your workers would be better off receiving checks through the unemployment insurance system.
And then the other programs to consider are the Paycheck Protection Act, and what that’s going to require is that you bring everybody back to not quite full levels of pay, but pretty close to full levels of pay by June 30th. That allows people to borrow up to two and half months of payroll that will be forgiven if they meet that requirement of maintaining payroll. I think that that’s an option that’s particularly good for businesses that expect to see their business and something close to their full revenue returning by July.
Q: The Treasury Department’s guidance on the Paycheck Protection Program contradicts the language in the CARES Act itself. Namely, the legislation explicitly includes payments to independent contractors in the calculation of payroll costs while the Treasury guidance excludes those payments. Obviously this will make a difference so, which is it and can that be ignored in an application for payroll protection money?
I’m not aware of this conflict. If there’s a conflict between the Treasury guidance and legislation then that creates an ambiguity and I’m not sure how banks are going to respond to that.
To speak in much bigger generalities, what we’re seeing is banks are very nervous - they don’t want to make a loan that ends up not qualifying under the program because then they’re the ones bearing the risk. So we’re seeing a reasonably high level of risk aversion on the parts of banks. Whenever there’s ambiguity my guess is that banks are going to choose the more conservative interpretation.
Q: Parenthetically, I had a conversation with a friend in commercial banking and one of the big issues for them of course is people are trying to shop for these loans because maybe they feel their application isn’t getting moved along fast enough. But the banks are doing business with their own customers, and if you didn’t have a pre-existing relationship with the bank you’re unlikely to find much traction because the banks are concerned about fraud.
Exactly. The whole idea of this is supposed to be that banks are basically just the middlemen, they’re doing some legwork but they are not going to be the ones on the hook for loans that don’t get paid back.
The problem is banks feel like, well I could easily be on the hook if there’s fraud. I think the banks don’t want to see themselves being dragged in to some Senate hearing where, for instance, Elizabeth Warren is challenging them on what might end up having been inappropriate behavior in hindsight, but wasn’t inappropriate behavior in foresight. And that’s creating some risk aversion on the part of banks that is slowing things down.
Q: I’m a small business sole proprietor who works part time to supplement my income. What help is available for folks like me? Semi-retired, getting a small Social Security benefit and also earning part-time income.
I think it’s worth checking into whether you’re eligible for unemployment insurance. Again that federal expansion really did try to bring in a lot of people who are part-time workers or who were independent contractors. So there’s a lot of space in the unemployment insurance program to support people.
As many people are experiencing it’s hard to get through right now, the websites are going down and you can barely get through on the phone. And the states themselves are just now really adapting to try to take these new claims. Some states are just opening up to those new claims today. So I think it’s worth checking on your own situation and seeing if you’re covered under the new expansion.
Q: I was temporarily laid off due to the Bay Area’s shelter in place order. I filed for unemployment, I’ll be returning to my job once the shelter in place order ends. Am I required to search for a new job even though I’ll be returning to my previous employer?
It was up to the states to decide whether to waive those. I’m not in the Bay Area so I don’t know the answer for you. In the state of Michigan you’re not required to search. It’s worth checking your own state to see whether you’re required.
My sense is that there are very few states that have the actual capacity of to even check on whether people are searching even if they haven’t formally waived the requirement to search. In general, in every state when you’ve been temporarily laid off, as long as there’s a plan for recall you don’t have to search for work. But again each state’s handling that different. Here in Michigan they asked each employer to fill out a forms that said that was the reason you are unemployed, and when you are filing for unemployment you need to select that as the reason.
Editor's note: The California EDD says as long as applicants meet the other requirements, you will not be penalized for responding that you are not searching for work.
Q: This one’s about the expanded unemployment benefits: the extra $600 a week and extension to state unemployment benefits through July 31st. Can I still receive the stimulus package even though I started receiving my unemployment benefits before March 15th?
Yes, you’ll be eligible from the date in which your state signed its letter of agreement with the Department of Labor. In fact, the Department of Labor’s guidance says quite clearly you are eligible either at the date of unemployment - so it says “as states begin providing this payment, eligible individuals will receive retroactive payment back to their date of eligibility or the signing of the state agreement, whichever came later.” So probably the relevant date, in this case, would be the date the state signed their agreement. And as of March 28th, all states have executed the agreement but you’ll have to check on the date in your state.
Editor's note: The California EDD says, "The first week the additional payments can be made is for the week ending April 4, not before. Separate retroactive payments will be automatically issued soon to those who had an active claim that week, and the $600 extra payments can continue to those who remain impacted and otherwise eligible for benefits through the week ending July 31, 2020."
Q: I’m an out of work contractor consulting services to schools. Am I eligible for both unemployment benefits and a small business loan? I don’t have employees.
Certainly not under the Paycheck Protection Act and I don’t know whether they’d be under the EIDL.
Q: I was wondering if you could tell us when people can expect to receive the individual $1200 or scaled down payment from the package?
My understanding is those have already started to go out.
Q: Are those direct payments taxable, federal or state?
I don’t know the answer to that and I think the answer is no, but I'm not certain - we’re not all the way through 2020. So we’ve got some things to do to get through this pandemic and some of the rules may need to change.
One of the things they did with that $1200 was they tried to keep it only to the bottom 80% of the income distribution so that they wouldn’t have to tax it back. They may make the decision that if it was poorly targeted - it’s ultimately based on your 2020 income. They’re handing it out to people based on their previous income but if you were earning a lot more in 2020 than your 2018 and 2019 tax returns show then you may not be eligible, in which case they would take it back.
Q: We are a small business S-Corp. Our only employee is the owner who does receive a salary. The business makes monthly form 941 payments as well as quarterly payments. We applied for the program, the bank is asking us to submit tax form 940 or 1040-C but we don’t file those. Is this the right program for us and what should we send in? This gets down in the weeds a little bit and there are a lot of questions like this.
Yeah that’s really in the weeds. For these kinds of questions you’d need to consult the bank or your accountant.
Q: I was employed at a successful small business that has been open since the 80's in San Francisco. They closed on March 17th, will likely not open their doors when the SIP is lifted and if they do open again it may be weeks before they need to rehire anybody. Are they supposed to put me back on payroll even though the store is closed - and may be permanently - in order to receive federal funds to pay the rent while nobody is allowed to go outside?
So I think this question doesn’t fully understand the programs available. The Paycheck Protection Act does not do much to cover the rent because it’s really aimed at covering payroll. The EIDL program that we started this call talking about - SBA program - does not require that you have people on payroll, it’s loan system - there’s the $10,000 grant but after that it’s loans.
So the real question embedded here is rent, and I know the rent in San Francisco is high and that is something we’re seeing all over the country. What I can tell you is what's happening with a lot of businesses is, they’re not paying the rent. I was recently talking with the CEO of a major retail chain and was told that they hadn’t paid rent on any of their stores through April 1st. Now, will they ultimately come to some sort of agreement with the landlords where they pay some portion? Maybe. But landlords are not going to get 100% of their rent.
So the question will be, how do businesses negotiate with their landlords and how much rent will they end up paying?
You can say ‘I’m not paying the rent because the store is closed’. And then the landlord, maybe they have mortgage on it and then they go to the bank and have to extend that mortgage out into the future. That’s the optimal thing for the banks to do. If they extend the mortgage out into the future then it’s essentially as if the two months, three months that everybody is sheltering in place doesn’t exist. The business doesn’t pay rent, the landlord doesn’t get the rent but at the same time they’re not paying the mortgage. So they’re not getting a return on their fixed capital for these three months so they’re hurting a little, the store's also not getting a return and that’s the way we’re seeing this play out throughout much of the country. That’s not so much a federal program as it is a negotiation with banks, although you can’t do foreclosures right now so in some sense that’s the reason people aren’t paying any rent because there’s nothing any landlord can do if you’re not paying the rent right now.
Q: Has Bank of America changed its policy and aligned with other banks to allow people to tack on the mortgage payments at the end of the contract as you were just talking about?I don’t know where specific banks are but that is where a lot of banks have gone, and that does seem like the right policy. I think trying to ask people to catch up on those is going to lead to a wave of defaults which no bank really wants.
Q: I’m qualified for a stimulus check and I’m also receiving unemployment insurance. Would I need to report that federal stimulus money when I certify for the week it arrives?
No.
Q: My wife and I have filed jointly for 2018, not yet filed for 2019. Our AGI for 2018 was just under $195K, the issue is that our AGI for 2019 would be over $200k and there would be no money at all. If they go by 2018, we’d get a check for about $1200.
So I think this questioner is asking when they should file their 2019 taxes. If they hold off, would their check be based on the 2018 filing instead of 2019?
Yes, but ultimately what they get would be based on the 2020 filing.
Q: I see what you’re saying, they’d ultimately call the money back. One last one: I file my taxes every year but do not get refunds. I’ve heard there’s a way to get the stimulus checks direct deposited even though I’ve never had a tax refund. I do receive Social Security checks by direct deposit, do I need to fill out any other paperwork?I don’t know. It’s obviously a lot faster if they have your direct deposit information but if they don’t already have it on file through the IRS, I don’t know the method to correct that.
