Congressional leaders and White House officials have been involved in intense negotiations about new legislation to prop up the economy during the pandemic. The stakes are high and the negotiations remain far apart.
Two and a half months ago, the Democratic-controlled House passed a comprehensive, $3 trillion plan called the HEROES Act that included extending until the end of the year a $600-a-week supplement for people collecting state unemployment insurance (UI); in addition, some unemployed workers who don’t qualify for state UI would be able to collect the federal money. The HEROES Act was passed with the understanding that it would go into effect as soon as the original supplement expired July 31. That deadline has since passed, along with an eviction moratorium for most tenants and homeowners. The House bill also included money for testing and aid for states and municipalities, schools and businesses, along with a second round of direct payments of $1,200 to most adults.
The Republican-led Senate, having already signed off on trillions of dollars of coronavirus relief spending earlier in the spring, originally took a wait-and-see attitude, hoping that that the economy would bounce back and unemployment would drop enough that more spending wouldn’t be necessary. While the number of Americans filing for jobless benefits the week of July 27 fell to its lowest level since March, that number – 1.2 million for the week ending August 1 – was still far higher than the peak totals during the Great Financial Crisis. With the gross domestic product falling at an astronomical annual rate of 32.9% in 2Q 2020 (first estimate) and the unemployment rate dropping to a still historically high rate of 10.2% in July, many Republicans (but not all) are willing to take more action.
As the July 31 deadline approached with mixed signals of an economic recovery, Republican leaders put together a $1 trillion plan with less in supplemental UI and no aid to states and municipalities. The Republicans have also pushed to make employers exempt from any coronavirus-related lawsuits.
It was clear that the two chambers were far apart – the Republicans said they wouldn’t approve the $600-a-week unemployment supplement, suggesting it discouraged people from going back to work, while Democrats said they would never approve a liability exemption that would put workers at risk. Senate Majority Leader Mitch McConnell, R-KY, suggested breaking up the proposal into separate pieces of legislation as a way of finding the votes to pass them all, but it soon became clear that many Senate Republicans opposed all additional spending, professing concerns about rising budget deficits, and Speaker Nancy Pelosi, D-CA, rejected any standalone measures.
With the Senate Republicans unable to pass their own bill, the administration’s Chief of Staff Mark Meadows and Treasury Secretary Steve Mnuchin began negotiating directly with Pelosi and Senate Minority Leader Chuck Schumer, R-NY. On August 4, they said they were making progress, with each side making some concessions, but that they were still far apart. In a somewhat surprising twist, McConnell said he would support whatever final proposal that the Democratic leaders and the White House work out, even if he doesn’t agree with everything. That would even include an extension of the $600-a-week UI extension, he said.
One bill proposed by Sen. Mitt Mitch Romney, R-Utah, provides for extending the UI for three months but reducing the payments each month: $500/week in August, $400/week in September and $300/week in October or 80% of wages for UI benefits.
An important piece of background to the current negotiations is that Pelosi faced substantial opposition from her caucus when the HEROES Act was capped at $3 trillion. Apparently, some sought $2 trillion in additional spending (for a total of $5 trillion), and it’s considered highly unlikely that Democrats will vote for a bill that spends less than $1.5 trillion – or a “skinny” UI-only extension.
Senate Republicans still lack consensus on how or whether to pass another stimulus bill. By some estimates, at least 10 and as many as 32 Republicans will not vote for another stimulus, and McConnell said 15 to 20 members of the Senate Republican conference will not support any further spending bills. Nonetheless, McConnell is expected eventually to bring legislation to the floor a spending bill of $1.5 to $2 trillion.
The economic – and political – stakes could not be higher. The GDP has plummeted; the jobless rate is at record levels and may rise again; extended UI benefits have expired; eviction moratoriums have lapsed; schools are struggling to reopen nationwide; and the COVID-19 death rate is rising again.
In the realm of commercial real estate, investors are dealing with volatility and uncertainty. All the asset classes are affected. Until an effective vaccine is created and distributed, the overall economy will suffer – and even more if Congress and the White House can’t work out a deal in the very near future.