October 12, 2022
The Paycheck Protection Program (PPP), was inevitably going to face problems. It was designed in a huge rush, as Congress sought to keep businesses and workers whole through an indeterminate period of mandated shutdowns. The idea was that if businesses kept workers on the payroll, the government would pick up most of the tab.
It was obviously not going to be easy to police a new program being put in place in the middle of a pandemic. The verification relied to a substantial extent on self-reporting. The key issue was that in order to get a loan forgiven, 75 percent of the funds had to be used for payroll related expenses, specifically pay and employee benefits.
This was already a lax standard for a program designed to keep workers getting paychecks. It might have been reasonable to require 80 or even 90 percent of the money in a “paycheck protection program” to actually be used to cover paychecks.
Unfortunately, Congress went the other way, instead of tightening the rules, it decided to loosen them. It reduced the portion of the loans that had to go to wages and benefits, in order to be forgiven, to just 60 percent.
This seems like an incredibly foolish decision for anyone concerned about whether the government money would be well-used, as NPR noted in a segment this evening. It turned to experts to find out why the rules were so lax.
A Little History
If NPR wanted a fuller answer to this question, it might have reviewed its own coverage of the PPP at the time. For example, on May 4, 2020, it ran a piece telling listeners about the problems with the PPP.
“Some small businesses say the loans have too many strings
“Business owners lucky enough to get the funding have said the money kept their businesses afloat. However, some owners also said PPP rules are not allowing them to use the money in the ways they see as best.
“Among their biggest complaints: 75% of the forgiven amount on the loans must be spent on payroll. The rest can only be spent on a few categories: rent, mortgage interest or utilities.
“But with many businesses unable to reopen, owners wonder how to spend that much on payroll when they have little or no work for their employees to do.
“’I understand in principle it’s encouraging us to get people back to work,’ said Christian Piatt, the co-owner of Brew Drinkery in Granbury, Texas. ‘But in practice, when you have a retail storefront that is not being allowed by local authorities to operate in the way that we had before, there should be some consideration to make it to account for that.’”
This was not the only time NPR made a pitch for loosening the rules on PPP loans. Later that month it has another piece on troubles with the PPP. At one point it told listeners:
“Some businesses fear PPP consequences
“Some business owners like Kern-Desjarlais have decided that the PPP just doesn’t work with their finances. The restrictions surrounding how the money must be spent — for example, that it must be spent in eight weeks, with 75% spent on payroll in order to be forgiven — have frustrated some business owners.”
In short, if NPR wants to do an honest piece on why the PPP rules were so lax and allowed so much room for abuse, it really needs to look at media coverage, including its own, which was effectively a lobbying campaign for loosening standards. It would have been fine to present views of business owners wanting looser rules (surprise, surprise), but the media should have also presented the views of virtually every policy expert who could have explained why loosening rules would have opened the door to abuse.
The voices of these policy experts were largely absent from NPR and other major news outlets when business groups were pushing for relaxing standards. In short, if NPR wants to know why there was so much corruption in the PPP, it should start by looking in the mirror.