PPP loans do not mean the end of COVID-19 layoffs
For memory :
4:36 p.m. Sep 5, 2020An earlier version of this story said that Rosalia Rodriguez was fired from a DoubleTree hotel. She was fired from the Mr. C Beverly Hills hotel.
After 12 years working as a housekeeper, Olga Castillo was fired in March from the DoubleTree hotel in downtown Los Angeles, one of millions of people laid off by a pandemic that has hit the industry particularly hard. hotelier.
The 55-year-old mother who made $ 20.90 an hour at the hotel is now worried about how she will pay medical bills if she, her teenage daughter or her husband, a gardener, is infected with the coronavirus . The family has no health insurance.
“I pray to God to get rid of this virus,” she said in Spanish.
After being fired, the owner of the DoubleTree hotel accepted a $ 1 million to $ 2 million loan from the Federal Paycheck Protection Program, with the stated intention of keeping 176 jobs. But months after receiving the money, the hotel doesn’t appear to have nearly 176 employees. And Castillo – along with dozens of his colleagues – is still waiting to be recalled.
The DoubleTree is owned by a subsidiary of Han’s Holding Group, a Chinese company with more than $ 4 billion in commercial and residential assets. The subsidiary, Han’s Hospitality at 120 Downtown LA, received the PPP loan on May 7. The hotel is operated by Aimbridge Hospitality, whose representatives did not respond to several emails and phone calls seeking comment. Han’s Hospitality could not be reached for comment either.
While President Trump has promoted the PPP as a tool to keep workers in employment, experts, academics and union leaders say the program’s shortcomings and loopholes allow companies to accept millions of dollars in forgivable loans without withholding or recalling most of their workers.
The program requires loan recipients to use at least 60% of the money on payroll and allows employers to wait until December to spend that money on payroll. If the recipient does not follow the guidelines, the loan is no longer repayable, but turns into a low interest loan much cheaper than loans offered by traditional lenders.
“It failed and structural issues were reported within the first few weeks of signing,” said Marisabel Torres, California policy director for the Center for Responsible Lending, a nonprofit research and advocacy group.
The PPP, which was part of the largest $ 2 trillion stimulus package, launched in April with $ 349 billion to issue in forgivable loans. Congress added $ 320 billion to the program later in the month. The program ended on August 8 with more than $ 100 billion unused.
Experts accuse the program – not loan recipients – of creating a situation in which employers could take federal aid and leave many of their workers unemployed.
A early program analysis of S&P Global found that “more than 150 companies that have received hundreds of millions of PPP loans have announced their intention to lay off thousands of employees, which is in line with government program rules.”
A report released on August 31 by the American Hotel and Lodging Assn. said 4 in 10 hotel workers are still out of work and the leisure and hospitality industries have lost 4.3 million jobs since February. The study found that 36% of hotels were unable to bring back workers on leave or laid off.
In Southern California and Arizona, 25 hotels have accepted between $ 28.9 million and $ 67.4 million in PPP loans, according to a study by Unite Here Local 11, a union that represents hotel workers. (Federal data does not disclose the exact amount of each loan, but rather gives a range of the approved amount.)
The union study found that loan applications filed by the 25 hotels were aimed at preserving 3,431 jobs, but as of June 20, hotels employed only 620 union workers, up from 2,835 before the pandemic.
“The flaw with this program is that if companies do not intend to request a loan forgiveness, we believe they can spend the entire loan on non-wage costs, despite the intention of lawmakers to use those funds for payroll, ”said Kurt Petersen, an organizer at Unite Here.
Among the problems noted by Petersen and other critics is the fact that PPP loans could be canceled if recipients used at least 60% of the money on the payroll. An earlier version of the program required 75% to be spent on payroll; this rate was reduced in June at the request of business groups.
If the beneficiary does not use at least 60% of the money on the payroll, the money becomes a loan with an interest rate of only 1% – much cheaper than a traditional Small Business Administration loan, whose interest rate can range from 5.5% to 8%. Depending on when the money was disbursed, the company has two to five years to repay the PPP loan.
The program also allows companies to wait until December 31, 2020 to recall their workforce and still benefit from a loan discount.
Asked to comment on criticism of the PPP, a spokesperson for the US Treasury said in an email that the program was designed to “provide vital capital for small businesses to get Americans back to work” and that businesses that don’t. not comply with the requirements will not be eligible for cancellation of the loan.
Critics of the program say the rules have made it too easy for companies to take out loans and leave their workers unemployed for months or permanently.
After eight years working at the upscale Mr. C Beverly Hills hotel in Los Angeles’ Pico-Robertson neighborhood, Rosalia Rodriguez was fired from her work as a minibar inspector in March when the pandemic drove demand for hotels. at record levels.
The 52-year-old single mom who was making $ 19 an hour is now trying to make ends meet with unemployment checks and wonders how she can afford health insurance and help her daughter enter college at Cal State LA this year.
“I really want to go back,” Rodriguez said. “I put too much time and effort into it.”
The hotel remained open and its owner, Morning View Hotels, accepted a $ 1 million to $ 2 million PPP loan in May with plans to keep 127 jobs, according to federal data.
Omar Marquez, 42, who was fired in March as a room inspector at Mr C, said he was also not recalled and struggled to make ends meet with unemployment benefits. The married father of two looked for work but said the job market was “a bit dead”.
“I’m in survival mode,” he said. “Everything stops when you are made redundant. All of your plans for your future goals come to an end.
Bob Ghassemieh, a representative for Morning View, declined Comment on the PPP loan his company accepted, except to say that the money was “100% used within authorized program guidelines.”
It’s a cold comfort for Marquez. “I know they just take advantage of these programs,” he said.
At the DoubleTree Hotel, the owner applied for the federal loan on the assumption that it would be used to keep 176 jobs. But union leaders say it doesn’t look like the money has been used to keep so many jobs yet.
Before the pandemic hit, the hotel employed more than 140 unionized workers, according to Unite Here Local 11, which represented them. Today, it employs only 36, the union said. Because unionized workers tend to make up about 90% of hotel workers, union organizers say DoubleTree is unlikely to have 176 workers on its payroll.
The program would have been more effective in keeping people employed if the money had been given directly to workers, as has been done in response to the pandemic in several European countries, said Eileen Appelbaum, co-director of the Center for Economic and Policy Research. . think tank in Washington, DC
“It’s not a well-designed program,” she says. “There are better ways to do it.”
One of the most cited issues with PPP was that the money was distributed by the SBA through SBA approved lenders.
Critics said they believed the banks had accelerated the largest loans to their favorite customers because the banks were charging fees on a sliding scale, ranging from 1% to 5% of the total amount.
Applications for smaller loans from family businesses have been either ignored or postponed, critics say.
“Right from the start, the biggest problem was that small businesses didn’t have access,” said Torres of the Center for Responsible Lending.
Several of the country’s largest banks have defended their role in the program, saying Forbes that they donated the fees they earned from the program to charitable causes.
Alexandra Merlino, chief financial officer of CicLAvia, the Los Angeles nonprofit that organizes cycling events to promote healthy transportation options, said her group tried but couldn’t get a PPP loan through a large bank, which she refused to name.
Merlino said the group wanted a loan to cover the salaries of nine employees for six weeks.
CicLAvia eventually secured a PPP loan through a community development organization known to provide loans to low-income residents for home repairs and down payments.
“I think the program was set up for small groups like us, but the banks that were responsible for issuing the money gave the customers they have relationships with a first access,” he said. she declared.
The program has a few supporters, including David Shulman, senior economist at UCLA Anderson School of Management. He said he helped his synagogue’s preschool and his daughter’s farm-to-table restaurant apply for PPP loans. In both cases, he said, the money helped rehire laid-off workers.
Still, Shulman acknowledges that the program had some flaws.
“You don’t expect perfection the first time around,” he said.