How the Government Works.By David Helbraun
on May 4, 2020 in Coronavirus
Dear HL Clients,
We always kind of knew how the city government worked but, let’s be honest, we never truly dug in to understand the intricacies because we had no need. Now, with so much at stake, we are much more civic-minded and want to know every step in the process so we can track where the bills are that we support and so we can try to understand the timeline of things. So, I have been talking to lobbyists and political people and here is what I learned in my NYC civics class.
City Council and The Mayor. We are all about Bill 1932 that would prohibit the enforcement of personal liability on leases. It’s humane because losing our business should not also mean losing our shirt. And it also levels the playing field a bit between landlords and tenants. It should be noted, that landlords would not exactly be left hung out to dry if this bill becomes a law. You see, they have on average, four months of security deposit from tenants that they would get to keep if a tenant decided to walk away. A cushion so to speak. So, buck up landlords. It’s not so bad.
Back to the civics lesson. Bill 1932 currently resides in the City Council Small Business Committee. They had a public hearing last week and the members seemed to support it. Now they can amend the bill or not and then vote it out of Committee. Next, it’s sent to the full City Council for a vote and if it passes there, it heads over to City Hall. The Mayor can either sign it into law, veto it or do nothing. If he signs it, we have a law. If he vetoes it, City Council can override the veto with a 2/3 vote. If he does nothing and sits on it, the bill becomes law in thirty days. The Mayor likes to sit on things but that’s thirty days that we just can’t spare. So Mr. Mayor, please do something here or we just may have to ask you to sit on something else.
To date, the Mayor has either passed the majority of the bills sent to him by the City Council or he did nothing and they matured into law. Seems the way it works is that the Mayor and the City Council negotiate while bills are being debated in City Council so by the time it hits the Mayor’s desk, he can either sign it or ignore it into law while not having to spar with the Council.
It stands to reason that the Mayor’s office is well aware of Bill 1932 and that they have been involved in discussions. Or not. We don’t know because the Mayor has not commented on it. How do we put pressure on City Council to move the bill quickly through to City Hall and on the Mayor to sign it into law?
1. Write to your Council Person with the message that we need this billed passed and fast. Here is the link to your Council Member:
2. Write to the Mayor and let him know that we need him to sign the bill into law when it is put on his desk. Here is where you can reach him:
Our Mnain Mnan Mnuchin said today that he was not going to change the PPP rules and that if changes were needed, we should look to Congress. Classic buck passing. So, I looked to Congress and was mildly but pleasantly surprised to hear that some Senators are actually discussing the real issues. For example, Senator Wyden of Oregon is proposing direct cash payments up to 30% of gross receipts. Not bad. Senator Cardin of Maryland who is also the ranking member on the Senate Small Business Committee, is talking about extending the loan forgiveness period past the silly eight-week timetable. Vey helpful. We will be keeping a keen eye on these developments.
For some more PPP developments, here’s Andrew with some updates to the rules.
Oh NOW You Tell Us by Andrew Fine
Another day, another twist on the roller coaster that is PPP loan forgiveness. On Sunday, the U.S. Treasury Department released a new set of FAQs that once again alters the PPP loan forgiveness landscape (this time, rather substantially!). The Treasury responded to a critical question: what if my old employees don’t WANT to come back to work?
This question has been plaguing borrowers for weeks. After all, it hasn’t been easy convincing old employees to come back to work. Between stiff competition from bolstered unemployment benefits, coupled with the risk of COVID-19 exposure accompanying a return to work, rejoining payroll hasn’t been the shiny lure that Congress likely intended. This has been a real headache for borrowers, who have been told by the SBA up until this point that any reductions in employee headcount during the 8 week covered period (relative to pre-COVID measuring periods) will result in deductions to loan forgiveness. In other words, the message so far has been that it doesn’t matter whether your old employees want to come back to work or not; if you don’t rehire the same number of workers that you had previously, there will be penalties in the form of reduced loan forgiveness.
Well, apparently, the federal government heard our complaints, or perhaps realized how nonsensical some of these forgiveness conditions truly are in the current climate. On Sunday (5/3), the Treasury clarified that the SBA intends to issue a new interim final rule stating that there will be no forgiveness reduction for employees who decline an offer to return to work. The Treasury Department’s language on this is as follows:
Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
For many, this guidance comes far too late, as thousands of borrowers have already taken steps to replace old employees with new ones. However, all borrowers should be made aware of a few things:
- THIS IS NOT FINAL YET. The Treasury Department has stated that the SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire from the loan forgiveness reduction calculation. So, we don’t yet know: (a) whether this is a sure thing; or (b) what the specifics will be.
- Borrowers will have the burden of proof. This exemption will only apply if a borrower can prove that they made an offer of rehire (for the same salary/wages and for the same number of hours) and that the employee in question declined that offer. This will require written records of both the offer and the refusal, and a borrower certification that the both the offer of employment, and the employee’s refusal, were genuine. Email records should suffice, though we won’t know exactly what kind of documentation the SBA will require until the final guidance is released.
- The 75% Rule Still Applies. We advise borrowers to be very careful here, because based on the current guidance, borrowers are still required to spend 75% of the forgivable amount on covered payroll costs during the 8-week covered period. If, for example, none of your old employees wish to return to payroll, you’ll still have to employ replacements to ensure that 75% of the forgivable amount is spent on payroll within the 8-week covered period. Remember that individual salaries are capped at $100k on an annualized rate, so you can’t simply stack the salaries of certain employees to make up for the absence of others. In many cases, borrowers may still have to hire new employees in order to satisfy this 75% rule.
- FORGIVENESS GUIDANCE IS FORTHCOMING. Talk about suspense. The SBA has been teasing the release of official guidance on PPP loan forgiveness for a month now, despite the fact that most early PPP applicants have already been funded. Needless to say, this guidance is egregiously late, and is a smack in the face to those who have already begun spending based on guidance available at the time of funding. Still, we’re hopeful that this new guidance will have the effect of increasing everyone’s odds of forgiveness. Stay tuned.
In the mid ’80’s, Billy Joel used to occasionally pop in for a drink at the bar I worked at in Greenport at a restaurant called Claudio’s. He was cool. Just a local Long Island guy who worked his ass off, married a supermodel and made it big without forgetting his roots. He’s always written songs about the working class and I’m sure he would support us in our bid to save the hospitality industry. Maybe he can repurpose some oldies for the cause. Something like, “Scenes from a (closed) Italian Restaurant.” or “Only the Good (bars) Die Young”. Man, sometimes you have to laugh to keep from crying.
To quote the great Ozzie Osbourne song “I Don’t Know” and, as reiterated on loop today by Governor Cuomo in his daily press conference: “
“Don’t look to me for answers. Don’t ask me, I don’t know”
Here’s Ozzy: https://www.youtube.com/watch?v=mSfNvTVEALw
David Helbraun is the Founding Partner and Chairman of the firm. He is a lifelong entrepreneur who has been running successful businesses in New York City for years.