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The BAN Report 3/25/21

The BAN Report: SBA Update / What? Me No Worry, Says Fed on Deficit / Travel Update / Microsoft Re-Opens Offices

SBA Update

With the PPP deadline approaching next Wednesday, the US Senate appears very close to extending the program through May 31, as seven Republicans have signed on to the plan.

Seven Republicans have signed on to a Senate bill that would extend the Paycheck Protection Program for two months, putting Democrats closer to the necessary 60 votes on a measure that Majority Leader Charles E. Schumer said must pass this week.

If the Senate’s 50 Democrats and the seven Republicans support the bill, they would need only three more votes to prevent a potential filibuster. The House passed its bill by a 415-3 vote on March 16. 

We think its nearly a fait-accompli that PPP will get extended.    The SBA also announced that it was expanding the EIDL program, increasing the maximum loan amount.

The U.S. Small Business Administration is increasing the maximum amount small businesses and non-profit organizations can borrow through its COVID-19 Economic Injury Disaster Loan (EIDL) program. Starting the week of April 6, 2021, the SBA is raising the loan limit for the COVID-19 EIDL program from 6-months of economic injury with a maximum loan amount of $150,000 to up to 24-months of economic injury with a maximum loan amount of $500,000.

Businesses that receive a loan subject to the current limits do not need to submit a request for an increase at this time.  SBA will reach out directly via email and provide more details about how businesses can request an increase closer to the April 6 implementation date.  Any new loan applications and any loans in process when the new loan limits are implemented will automatically be considered for loans covering 24 months of economic injury up to a maximum of $500,000.

This new relief builds on SBA’s previous March 12, 2021 announcement that the agency would extend deferment periods for all disaster loans, including COVID-19 EIDLs, until 2022 to offer more time for businesses to build back. In order to shift all EIDL payments to 2022, SBA will extend the first payment due date for disaster loans made in 2020 to 24-months from the date of the note and to 18-months from the date of the note for all loans made in the calendar year 2021.

While they will begin accepting applications for the shuttered venue operators grant program on April 8, details on the implementation of the $28 billion Restaurant Revitalization Fund are a few weeks out.

Patrick Kelley, associate administrator for the SBA’s Office of Capital Access, told committee members that the SBA is working on developing a technology solution capable of deploying hundreds of thousands of grants to restaurants, bars, and other eligible providers of food and drink.

“We are focused like a laser on starting it up as quickly as possible,” he said.

The SBA is aiming to work with the White House Office of Management and Budget (OMB) to build a platform scaled in a way that it can leverage partners such as point-of-sale vendors, which can provide relevant sales data, Kelley said. The new platform could use that information to help automate parts of the application and grant calculation process.

“By drafting off (the point-of-sale vendors) and posting our own web application, we believe we can reach the broadest market segment fast,” Kelley said.

Ideally, he said, the SBA would be able over the next seven to 10 days to begin posting RRF information, such as guidance and required documentation, relevant to potential applicants. The program would then move to a pilot phase, in which the program would begin accepting applications based on prioritization established in the American Rescue Plan Act, which sets aside $5 billion for the smallest applicants ($500,000 or less in 2019 gross receipts) and requires that during the first 21 days of the grants, the SBA will prioritize applications from restaurants owned and operated or controlled by women, veterans, or socially and economically disadvantaged individuals.

The Restaurant Revitalization Fund will be oversubscribed. The restaurant industry did roughly $200 billion less in 2020 versus 2019, so a $28 billion fund will only cover a percentage of the lost revenue in 2020.

What, me worry, says Fed on Deficit

While Federal Debt has doubled since 2011, and is up nearly 20% since 2019, Fed Chair Jerome Powell does believe one should worry about it right now, although it should be addressed in the future.

Federal Reserve Chairman Jerome Powell said that the federal government can manage its debt at current levels but that fiscal-policy makers should seek to slow its growth once the economy is stronger.

“Given the low level of interest rates, there’s no issue about the United States being able to service its debt at this time or in the foreseeable future,” Mr. Powell said Thursday in an interview with National Public Radio. “Nonetheless, there will come a time—and that time will be when the economy is back to full employment, and taxes are rolling in, and we’re in a strong economy again—when it will be appropriate to return to the issue of getting back on a sustainable fiscal path.”

Fed officials voted unanimously at their March 16-17 meeting to maintain overnight interest rates near zero and continue purchasing at least $120 billion a month of Treasury debt and mortgage-backed securities.

In a series of public appearances this week, Mr. Powell and his colleagues have reiterated that they don’t anticipate changing the central bank’s easy-money policies soon.

A more immediate concern for the Fed will be what to do later this year if the economy begins to overheat, and inflation escalates. Adding $1.9 trillion in stimulus (and a proposed $3 trillion infrastructure program) while GDP growth is in the high single-digits could require a swift increase in interest rates.

But, how do we know when the economy is overheating?  The New York Times had an interesting debate amongst economists between the worriers and the Alfred E. Neuman camp.

As the economy reopens and Americans spend their stimulus checks and the money they saved during the pandemic, demand for certain goods and services will outstrip supply, driving up prices. That is now pretty much an inevitability.

The Biden administration and its allies are betting this will be a one-time event: that prices will recalibrate, industries will adjust and unemployment will fall. By next year they expect a booming economy with inflation back at low, stable levels.

The overheating worriers, who include prominent Clinton-era policymakers and many conservatives, believe there is a more substantial chance that one of two more pessimistic scenarios will come true. As vast federal spending keeps coursing through the economy, they fear that high inflation will come to be seen as the new normal and that behavior will adjust accordingly.

If people believe we are entering a more inflationary era — after more than a decade when inflation has been persistently low — they could alter their behavior in self-fulfilling ways. Businesses would be quicker to raise prices and workers to demand raises. The purchasing power of a dollar would fall, and the bond investors who lend to the government would demand higher interest rates, making financing the budget deficit trickier.

“I don’t think anyone will be too surprised to see massive airfare inflation” in the short term, for example, as the economy reopens, said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution. “Instead, I worry if we start to see signs that people, businesses and financial markets are responding to the level of overheating as if it were permanent.”

That situation would leave policymakers, especially at the Federal Reserve, faced with two bad choices: Allow inflation to take off in an upward spiral, or stop it by raising interest rates and quite possibly causing a recession.

The over-heating risk is real, as it could happen later this year. After unprecedented levels of stimulus, the Fed could be forced to raise rates abruptly while many of these stimulus efforts wear off, thus creating a potentially severe shock to the economy. But, does anyone really know anything given the uniqueness of the present?

Travel Update

On Sunday, the total TSA checkpoint number exceeded 1.5MM for the first time since March 15, 2020, representing 69% of the prior period. On most days, TSA is showing about 50-60% of travel compared to 2019. While TSA doesn’t break down business versus consumer travel, we suspect this is mostly leisure travel with a high concentration of young people enjoying spring break. Overly enthusiastic spring breakers have overwhelmed Miami Beach, for example, causing 8 PM curfews. Meanwhile, the cruise industry is worried that this could be another lost summer.

Other countries including Singapore, Italy and the U.K. have authorized cruises or set a clear target date for them to set sail. Almost 400,000 passengers have sailed since some countries first began allowing cruises in July 2020, according to the industry’s trade group.

But to get started in the U.S., the cruise industry needs direction from the Centers for Disease Control and Prevention.

The CDC lifted its no-sail order in October and replaced it with a conditional set of rules; industry officials say the 40 pages of rules are either indecipherable or impractical, such as a measure requiring cruise lines to conduct “simulated voyages” with volunteer passengers.

“I refer to it as the ‘impossible-to-sail order’ because no business could operate profitably,” Capt. John Murray, Port Canaveral’s chief executive officer, said.

The CDC said guidance is coming soon. “Future orders and technical instructions will address additional activities to help cruise lines prepare for and return to passenger operations in a manner that mitigates Covid-19 risk among passengers, crew members,” spokesman Jason McDonald said in a statement, declining to comment further.

Until the CDC provides its updated guidance, the cruise industry is basically on hold. It would seem that with rapid testing, limited to no disembarkment, and vaccines increasingly available, cruise ships could operate safely. While the cruise industry employs 178K people, they have not received federal support, but all three major carriers have been able to raise sufficient debt and equity to survive. The airline industry has been the biggest beneficiary of federal support, receiving $50 billion in grants. Andrew Ross Sorkin argues that the airline bailouts were not necessary.

The good news is that the rescue money likely saved as many as 75,000 jobs, most remaining at full pay. And that money also kept the airlines from filing for bankruptcy, and in a position to ferry passengers all over the country to jump start economic growth as the health crisis subsides.

The bad news is that it is also likely that taxpayers massively overpaid: The original grant of $25 billion in April meant that each of the 75,000 jobs saved cost the equivalent of more than $300,000. And with each additional round of bailout money, that price has grown.

Sorkin makes a compelling argument.    Does anyone seriously believe that the US airline industry, which has effectively used the US bankruptcy system in the past to restructure, was at risk of being completely shuttered? Nevertheless, business travel has been anemic since the pandemic. Business travel represents about 30% of all travel spending, but 75% of the profits for the airline industry.

Along with the durability of the remote work phenomenon, the recovery of business travel has broad implications for major cities, downtowns, and the businesses that support. The good news is that business travel is starting to come back.   We asked our friends at Bank Director, who switched their largest event in January to online-only, about their next in-person event, and they are scheduling one in mid-September. We expect to see some conferences do a combination of in-person and online in order to accommodate their clients preferences.

We are interested in your attitudes towards business travel today and in the future. Please fill out this 5-minute survey and we will share the results next week.

Microsoft Re-Opens Offices

Microsoft is welcoming its employees back to the office next week, as it embraces a hybrid-work model.

Microsoft’s Redmond, Wash., headquarters and nearby campuses will start shifting to a hybrid-work approach on March 29, with some employees returning to office desks while others work from home, the company said Monday.

“Our goal is to give employees further flexibility, allowing people to work where they feel most productive and comfortable, while also encouraging employees to work from home as the virus and related variants remain concerning,” Microsoft said in a blog post.

The software company’s office locations spanning 21 countries will be ready to accommodate additional workers in compliance with guidance from local authorities, the company said. The initial guidance affects roughly 20% of Microsoft’s more than 160,000 employees, the company said.

Microsoft said it doesn’t expect to recall all employees soon. Once the pandemic is no longer a significant threat to communities, Microsoft said, the company expects a partial work-from-home schedule to be routine for many of its jobs. The company previously has said it would allow some workers to work remotely on a permanent basis with their manager’s approval.

Microsoft’s blog gives some additional color on its evolving hybrid philosophy.    It seems as people are getting tired of zoom calls! Citigroup banned them on Friday’s.

Citigroup CEO Jane Fraser told staff that she is banning internal video calls on Fridays, encouraging staff to set boundaries for a healthier work-life balance and instituting a firmwide holiday called Citi Reset Day as Covid pandemic fatigue takes a toll on employees.

Fraser, who took over for predecessor Mike Corbat this month, told staff of the changes in a memo sent Monday afternoon to her 210,000 employees around the world, according to a person with knowledge of the matter.

The blurring of lines between home and work and the relentlessness of the pandemic workday have taken a toll on our well-being,” Fraser said in the memo. “It’s simply not sustainable. Since a return to any kind of new normal is still a few months away for many of us, we need to reset some of our working practices.”

How companies handle the delicate issues of returning to their offices, allowing some or all workers to work remotely, and the degree to which they induce inoculation are some of the biggest HR challenges in decades.

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