PPP loans don’t mean the end of COVID-19 layoffs

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After eight years working as a housekeeper and mini-bar inspector, Rosalia Rodriguez was fired in March from the DoubleTree hotel in downtown Los Angeles, one of millions of people laid off by a pandemic which particularly hit the hotel industry.The 52-year-old single mom who was making $ 19 an hour is now trying to make ends meet on unemployment checks and wonders how she can afford health insurance and help her daughter start college in Cal State LA this year.

She is also frustrated that the owner of the DoubleTree hotel has accepted a loan from the Federal Paycheck Protection Program in the amount of between $ 1 million and $ 2 million, with the stated intention of keeping 176 jobs.

Months after the owner accepted the loan, the hotel doesn’t appear to have nearly 176 employees. And Rodriguez – along with dozens of his colleagues – is still waiting to be recalled.

“I really want to go back,” Rodriguez said. “I put too much time and effort into it.”

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 have not returned 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 loans-remittances without having to hold or recall 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 forgivable – but turns into a low interest loan that is much cheaper than loans offered by traditional lenders.
“He failed, and structural issues were reported within the first few weeks of his 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 larger $ 2 trillion stimulus package, was launched in April with $ 349 billion to be issued in forgivable loans. Congress added $ 320 billion to the program later that month. The program ended on August 8 with more than $ 100 billion unused.

Experts blame the program – not loan recipients – for creating a situation in which employers could benefit from federal assistance and leave many of their workers unemployed.

An initial analysis of the program by S&P Global concluded that “more than 150 companies that have received hundreds of millions in PPP loans have announced their intention to lay off thousands of employees, which is in line with government program rules.”

A report released Aug. 31 by the American Hotel and Lodging Assn. said 4 in 10 hospitality 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 began.

“The flaw with this program is that if companies do not intend to request cancellation of their loan, 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 beneficiaries 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 recipient doesn’t 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 vary 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 businesses to wait until December 31 to recall their workforce and still qualify for a loan forgiveness.

Asked about 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 fail to comply the requirements will not be able to get the loan canceled.

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.

The Mr. C Beverly Hills hotel in Los Angeles received a loan of $ 1 million to $ 2 million from the federal paycheck protection program, according to federal data.

(M. C Beverly Hills)

After six years working at the upscale Mr. C Beverly Hills hotel in Los Angeles’ Pico-Robertson neighborhood, Omar Marquez, 42, was fired from his room as inspector in March when the pandemic drove hotel demand. at record levels.

The hotel remained open, and its owner, Morning View Hotels, accepted a PPP loan of between $ 1 million and $ 2 million in May in an attempt to keep 127 jobs, according to federal data.

Marquez, who is married with two daughters, said he was not recalled and was struggling to make ends meet on unemployment benefits. He looked for work but said the job market was “a bit dead”.

“I’m in survival mode,” he says. “Everything stops when you are fired. All of your plans for your future goals come to an end. ”

Bob Ghassemieh, a representative for Morning View, declined to comment on the PPP loan his company accepted, except to say that the money was “used 100% within authorized program guidelines.”

It’s cold comfort for Marquez. “I know they’re just taking advantage of these programs,” he said.

At the DoubleTree Hotel, the owner applied for the federal loan on the grounds 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 just 36 people, the union said. Because unionized workers tend to make up about 90% of hotel employees, 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 banks expedited larger loans to their favorite customers because banks were charging fees on a sliding scale, ranging from 1% to 5% of the total amount.

Pasadena cyclists participate in a CicLAvia event ahead of the pandemic. The non-profit association CicLAvia attempted to obtain a
Paycheck Protection Program, or PPP, loan from a large bank, was unsuccessful, so he turned to a community organization for a PPP loan.

(Katie Falkenberg / Los Angeles Times)

Applications for smaller loans from mom and pop firms have either been ignored or thrown down the line, critics say.

“Right off the bat, the biggest problem was that small businesses didn’t have access to it,” said Torres of the Center for Responsible Lending.

Several of the country’s biggest banks have defended their role in the program, telling Forbes they donated fees they earned from the program to charity.

Alexandra Merlino, chief financial officer of CicLAvia, the Los Angeles-based nonprofit that hosts cycling events to promote healthy transportation options, said her group tried but couldn’t get a PPP loan through a large bank, which she declined 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 issuing the money have given clients relationships with first access,” she said.

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 says, the money helped rehire laid-off workers.

Still, Shulman acknowledges that the program had some shortcomings.

“You don’t expect perfection the first time around,” he says.

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