When Congress enacted the Paycheck Protection Program in March, Sen. Marco Rubio, R-Fla., heralded the PPP as a crucial lifeline — one that would provide "certainty to businesses that they can keep their employees" through the crisis.
But the pandemic has persisted, and the PPP funds have proven insufficient for many. An S&P Global Market Intelligence analysis found that more than 150 businesses that received hundreds of millions in PPP loans have announced plans to lay off thousands of employees, which is within the rules of the government program.
Researchers say the findings underscore the need for a second round of PPP funding, which Democrats and Republicans have both included in their bills for another round of pandemic relief spending.
"A few months of funds is not what a pandemic calls for," said Martha Gimbel, senior manager of economic research at Schmidt Futures. "We are in for a long struggle, and the sooner the government passes a package that matches the scale of the problem the better."
The analysis identified 157 companies with plans to lay off or furlough 15,814 employees from May 1 to July 17. Those companies, in aggregate, received PPP funding between $286.6 million and $637.5 million. The data includes roughly 20 companies, representing about 2,000 layoffs, in which an affiliated entity received the PPP funding or issued the layoff notice.
Layoff data was not readily available from six states: Arkansas, Hawaii, New Hampshire, Pennsylvania, Tennessee and Wyoming. The analysis relied on matching business names on the PPP loan and the layoff notice, so companies that used different entities to apply for the PPP loan or spelled the name differently were not included in the layoff totals.
The layoffs might pale in comparison to the number of jobs saved. The Small Business Administration estimates the program saved more than 51 million jobs. S&P Global Ratings' chief U.S. economist, Beth Ann Bovino, estimates the program saved 13.6 million jobs. But some academic research paints a less rosy picture. Two papers published by the National Bureau of Economic Research suggest the program might not have saved any jobs. One paper found that companies "appear to use first round funds to build up savings" or pay loans, and the other found the program "had little impact on employment at small businesses."
A survey from the small-business lobbying group National Federation of Independent Business suggests layoffs by PPP loan recipients could increase. On July 10, the industry group released a survey indicating about 22% of PPP loan borrowers have or anticipate having to lay off one or more employees after using their loan, up from 14% a month earlier, according to the NFIB survey.
"We hear from small-business owners all the time that the recovery hasn't matched their ability to continue supporting payroll and their existing employees as the PPP loan had," said Holly Wade, director of research and policy analysis at the NFIB Research Center, in a July 17 interview. "They're having to adjust."
Taking a PPP loan imparts no obligation that small businesses retain their employees, lawyers said. Rather, the PPP loan balance is forgiven if a business doesn't reduce its employee count and uses at least 60% of the funds for payroll purposes, among other requirements. Small businesses can lay off employees and use the program as a source of low-cost funding since the loans carry a 1% interest rate.
And it is possible that some PPP borrowers could still have their loans forgiven even if they laid off employees. A large chunk of the PPP funds was issued in April, meaning many small businesses could have used the PPP funds for payroll and then later needed to lay off their employees considering much of the country continues to report significant numbers of new COVID-19 cases.
"It was well-intentioned," said Rick Giovannelli, a partner in K&L Gates LLP's Charlotte office. "Unfortunately, I think the crisis is proving to be much longer than the PPP program was intended to address. The reality is that businesses are struggling well beyond the period that the PPP program was designed to help them with."
Music venues have been especially hard hit by the pandemic. Even in many areas that have allowed restaurants to reopen, large gatherings remain prohibited. Carnegie Hall, the famed theater in New York City, sent layoff or furlough notices to 316 full-time, part-time and temporary employees, making it one of the 10 largest layoffs among PPP recipients identified in S&P Global's analysis.
The theater received a PPP loan of $5.5 million but still had to furlough staff after deciding the venue would need to remain closed until at least Jan. 7, 2021, wrote Synneve Carlino, head of communications, in an email. Carlino wrote that the music venue continues to employ roughly 220 employees working remotely.
"The performing arts are expected to be one of the last industry sectors to recover from this crisis, and the financial impact continues to be very significant," Carlino wrote.
Damien Specht, a partner in Morrison & Foerster LLP's government contracts and public procurement's practice, said the federal guidance allows businesses to receive full forgiveness on their PPP loans and then lay off their employees without having to return any of the funds.
City Winery, a music venue in Atlanta, received a loan of between $350,000 and $1 million but still laid off or furloughed 130 employees.
"We have actively been using our PPP funds within the regulatory guidelines to keep staff employed and re-employ laid-off staff wherever possible," David Miller, COO of City Winery, said in a July 17 email. Miller declined to comment further.
Some hard-hit companies might have an opportunity to access additional PPP funds even if they have already taken part in the program. Rubio and Sen. Susan Collins, R-Maine, on July 27 introduced legislation that would allow a second round of PPP loans for businesses with fewer than 300 employees that had experienced at least a 50% decline in revenue. Analysts say the layoffs by PPP recipients emphasize the need for more government spending to soften the pandemic's damage to the economy.
"There are certainly flaws with PPP," said Gimbel from Schmidt Futures. "However, the biggest issue in general we have right now is the government not spending enough money to keep workers, businesses and the economy afloat."