Five things you should know today
1) SBA funding crunch could hurt small businesses and NGOs
Analysis by Rosanna Torres, Director of CNE’s Office in Washington, D.C.
According to a report from the Small Business Administration (SBA), as of April 13, the federal agency has processed over one million loans under its Paycheck Protection Program, totaling $247.5 billion, from over 4,600 lenders, with an average loan size of $239,152. This represents over 70% of the $349 billion in available funds. The main industries benefitting from these loans are: construction; professional services; manufacturing; health care and social assistance; and accommodation and food services, totaling nearly 59% of total approved dollars. In Puerto Rico, only 1,001 loans, valued at $319,308,946, have been approved. These numbers suggest more funding for the program will be necessary. Reports are coming out this morning that funds are already depleted.
Negotiations on this issue have been underway since late last week, after Senate Majority Leader Mitch McConnell introduced a bill to provide another $250 billion in interim funding for the agency. Democrats pushed back, arguing a portion of the funds should be earmarked for rural and underserved communities. They have also called for increased funding to expand national testing capacity. In what begins to appear as an end to gridlock, congressional leaders were expected to meet yesterday with U.S. Treasury officials to reach consensus.
Certainly, the program needs some legislative fixes. Many potential beneficiaries have denounced the deficiencies in the program, arguing that existing SBA infrastructure favored sophisticated businesses and large banks. In Puerto Rico, for example, local credit unions have not been able to gain access to the SBA’s system, a necessary first step to begin processing loans. Financial tech companies, such as Paypal, Intuit, and Square, also had to wait for authorization from the SBA, though they have recently started processing loans.
The Paycheck Protection Program is intended to apply to sectors of the economy that are typically forgotten, but Congress needs to do much more.
2) Good news for homeowners, but renters are still waiting
Analysis by Raúl Santiago-Bartolomei, PhD, Research Associate, Center for a New Economy
Yesterday, media outlets reported that the governor of Puerto Rico, Wanda Vázquez, signed into law the Senate Joint Resolution number 489, authored by senator Miguel Romero. This law orders all banking and financial institutions authorized to do business in Puerto Rico to establish a voluntary moratorium on “personal loans, auto loans, mortgage loans and/or credit card payments for the months of March, April, and May of 2020” and to “prohibit the imposition of interest, late fees and/or penalties to a client or a debtor that has opted[-in] to the referred moratorium.”
Although an automatic moratorium, with an opt-out option for each client or debtor, would have a greater reach, this measure is a positive step, since it reduces economic and housing distress for many families that have been unable to earn enough income to make to make their payments—more than 40% of households with mortgages in Puerto Rico spend more than a third of their income on housing expenditures. This law would also facilitate what should be the next step, a moratorium on rental payments, since many landlords would be able to opt for a mortgage moratorium. Such a rental moratorium should be accompanied by direct rental assistance to renters or landlords.
3) Impact of COVID-19 on the Puerto Rico energy system
Analysis by Malu Blázquez, Executive Director of ReImagina Puerto Rico
On April 14, José Ortiz, CEO of the Puerto Rico Electric Power Authority (PREPA), provided an update on how the COVID-19 pandemic is affecting PREPA’s ongoing transformation. Since March 15, 2020, and until shelter-in-place and Executive Order restrictions are lifted, PREPA employees are focused only on operating the generation plants and performing repairs to critical infrastructure to maintain essential power services. PREPA is not working on interconnecting new renewable energy clients, although they continue negotiations with 18 utility scale entities with contracts.
He also confirmed that PREPA just received 15 proposals in response to an RFP published prior to COVID-19 for Temporary Generation Units to meet an expected increase in demand during the summer. Now it appears they will not need these temporary generation units. The COVID-19 pandemic has caused a temporary 10% decrease in overall energy demand (approx. 300 MW) due to reduced commercial operations. Ortiz doesn’t expect full recovery of demand (with gradual increase) until approximately January 2021. Consumers should see lower energy bills as of June due to the current reduced cost of fuel.
Finally, PREPA is expected to amend its Fiscal Plan and most likely renegotiate its most recent Restructuring Support Agreement (RSA) with bondholders by the end of 2020 or early 2021. According to Ortiz, the pandemic has provided PREPA with an opportunity to do “a correct renegotiation” of the RSA. Time will tell.
4) CDC and FEMA are working on a plan to reopen the economy
The Washington Post reports that a team of officials from the Centers for Disease Control and the Federal Emergency Management Agency, are working on a document to provide “guidance to state and local governments on how they can ease mitigation efforts” and lift stay-at-home orders “in a phased way to support a safe reopening.” According to the executive summary obtained by the Post, the plan lays out a three-phase strategy for reopening the economy:
- First, inform the people through a national communication campaign and conduct a community readiness assessment;
- Second, ramp up the manufacturing of testing kits and personal protective equipment; and
- Third, begin staged re-openings, based on local conditions.
According to the executive summary, “the first priority is to reopen community settings where children are cared for, including K-12 schools, daycares, and locally attended summer camps, to allow the workforce to return to work. Other community settings will follow with careful monitoring for increased transmission that exceeds the public health and health care systems.”
5) Prepare for the long(ish) fight
As Ed Yong writes in this piece for The Atlantic, the “fight against the coronavirus won’t be over when the U.S. reopens.” Social distancing, wearing masks in public, large-scale testing, isolation of the newly infected, and contact tracing will all be necessary to avoid another surge in infections until a safe and effective vaccine is widely available—a process that could take between 18 and 24 months. That means people should be preparing for a two year, not a two month, fight.
Keeping that mind, Yong writes that “stay-at-home orders might lift first, allowing friends and family to reunite. Small businesses could reopen with limitations: Offices might run on shifts and still rely heavily on teleworking, while restaurants and bars could create more space between tables. Schools could restart once researchers determine if children actually spread the virus.” None of the experts he consulted, however, felt comfortable with allowing large gatherings. That means concerts, conferences, summer camps, political rallies, large weddings and major sporting events may have to be suspended at least for a year, maybe more. We should all start preparing now, because it appears the new normal will not look that normal, at least for a while.
Quote of the Day
“Out, damned spot! out, I say!–One: two: why,
then, ’tis time to do’t. —Hell is murky!—”
—William Shakespeare, Macbeth, Act V, Scene 1
Note from the editor
It has become common in certain circles, among people who like sound tough, that we “can’t allow the cure to be worse than disease” when referring to the reopening of the economy in the middle of this pandemic. This reasoning appears to be based on some sort of crude utilitarian calculus, somehow weighing the value of human lives against lost profits. This analysis, though, misses a key point: if we reopen the economy prematurely, the damage to society and the economy could be even worse both in terms of lives and money. Consider what is happening now in various food processing plants across the United States.
That is why it is important to get the reopening right. This entails the following:
- First, accepting that economic activity will not return to “normal” until a safe and effective vaccine is widely available;
- Second, following from that premise, it will be necessary to have the required public health infrastructure in place before reopening the economy, that means having enough testing kits, personal protective equipment, and trained personnel to carry out massive testing and contact tracing;
- Third, we will have to get used to wear, and seeing other people wear, masks and other protective equipment in public, even in bars, restaurants, and hotels if and when they are allowed to reopen;
- Fourth, the opening should be done in rolling stages, starting perhaps with lifting stay at home orders for some groups, opening small businesses, schools, daycare centers, and offices that can implement social distancing measures; and
- Fifth, large scale events and gatherings would be the last to come on line, perhaps a year from now.
Is Puerto Rico ready to implement such a program? The hard truth is no. We don’t have the testing capability, the necessary PPE, the isolation facilities, or the contact tracing expertise—the Department of Health doesn’t know in which municipality some 300+ people who have tested positive for the coronavirus even live.
Given the totality of circumstances then, the Government of Puerto Rico would be well advised to start real preparations for the reopening now and to withstand pressures to move too early, too fast. The private sector for its part should do all it can to help the government in this endeavor, beginning with setting aside puerile thinking. Here is a tradeoff, for those who like to think in such terms: how many deaths is one percentage-point in profit margin worth? Weigh your options carefully, lest you end up like Lady Macbeth, sleepwalking with nightmarish visions of that “damned spot.”
This is the end of today’s briefing.
Stay safe and well informed!