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What does indecision on second COVID-19 relief package mean for Utah, US economies?

By Carter Williams, KSL.com | Posted - Aug. 12, 2020 at 8:04 a.m.



SALT LAKE CITY — It’s been a few months now since President Donald Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act, which offered $2.2 trillion in federal money to Americans and U.S. businesses struggling from the economic aspect of the COVID-19 pandemic.

Since then, there’s been a partisan divide on how to handle the coronavirus and prevent its spread, and now on how to handle any further economic aid. It’s gotten to a point that Utah Rep. Ben McAdams, a Democrat, said he thinks many small business owners and Utahns likely believe the government “has failed” based on the political squabbles in Washington.

“We could have done much better and our failings at the federal level have caused harm to the economy and hardship,” he said Monday, during an online forum hosted by the Sutherland Institute on fiscal responsibility in the age of the COVID-19 pandemic.

Cost is one factor regarding further economic action. It may be due to the hiccups from the first recovery package passed by Congress — which there were plenty — while to some it may be tied to the fact there are fewer lockdowns in the country than there were when Trump signed the first legislation on March 27.

But it’s left two big questions in Washington that carry weight in Utah: Should there be a second round of recovery funding? And if so, what should that look like?

KSL.com spoke with different economic experts in Utah to look into the need for a second COVID-19 recovery package and who that should help.

Understanding what worked and what didn’t from first round of funding

While it wasn’t perfect, the first round of recovery spending fulfilled its intended purpose, said John Barrick, an associate professor of accounting at the BYU Marriott School of Business. He has unique experience with economic stimulus packages because he worked at the Joint Committee on Taxation in the U.S. Congress from 2007 to 2009, which is when the U.S. provided a stimulus package during the Great Recession.

As the U.S. experienced a record number of unemployment claims at the start of the pandemic lockdowns, it wasn’t surprising the COVID-19 relief package dwarfed the Great Recession relief in size.

The $2.2 trillion package helped provide relief and sustain the economy while businesses were locked down during the pandemic beginning in March. It included loans for businesses impacted by COVID-19 to allow them to keep Americans employed, as well as a one-time $1,200 check to every American adult and $600 per week unemployment checks. In Utah, the $600 checks were tacked onto state benefits, so someone who lost a $40,000 a year job received $979 a week.

In short, it helped those who lost jobs due to COVID-19 have the ability to continue to pay bills during the economic crisis.

"The primary goal of stimulus is to put cash in the hands of individual citizens so they can spend that, so they can keep the economy going," Barrick explained.

McAdams said he believes many Paycheck Protection Program loans went to businesses in need who pushed that to their employees.

"It kept our economy afloat in that critical time and, I think, kept us from the brink of economic disaster," he said. "It was a very useful program."

But the stimulus package also came with problems, and McAdams also pointed out some of its foibles on Monday. McAdams said many struggling small businesses were left at the back of the line, while celebrity clothing lines, large restaurant chains, hedge funds and even the Los Angeles Lakers got massive loans.

Then there were the slip-ups with personal checks. News agencies picked up stories on how individuals who were dead received personal checks while many didn’t get them until weeks after others.

"During this pandemic, every federal dollar wasted is a dollar less to support our health care system, our workers and our businesses," McAdams said. "Protecting taxpayer money should be the ultimate bipartisan cause, and the American people are counting on us to get this right. … Every dollar that went to an undeserving, unneedy or fraudulent company, is a dollar that did not help a hardworking person, struggling small business to get through this crisis."

There were also concerns that people lost the incentive to return to work because they were making more from unemployment checks than they would have from returning to the workforce, or that it was safer to receive unemployment checks than return to work and risk contracting COVID-19.

Even with these issues, Barrick believes most politicians would agree there needs to be another stimulus package. The argument and delay aren’t as much about that. "The question isn’t if there should be another round of stimulus, it’s how large should the second round of stimulus be?" he said. "That’s the fundamental problem that we’re having."

What a second round of funding should do

Congress hasn’t reached a deal on more funding despite calls to extend provisions and aid. Congress went into its August recess without an agreement and that means the next stimulus package may not come until September.

The $600 per week unemployment checks ended on Aug. 1. Trump signed an executive order on Saturday that extended benefits but at $400 per week; unlike the original plan that was covered by the federal government, one-fourth of it is supposed to be paid by states. That means states must pay for $100 of the $400 per week unemployment benefits.

Mark Showalter, a professor of economics and chair of BYU’s economics department, pointed out the order likely won’t hurt Utah as much as it may other states because Utah’s unemployment rate — at 5.1% in June — is one of the lowest in the nation. In fact, it was 6 percentage points lower than the national average and even 10 percentage points lower than some states in June. Lower unemployment means less state spending on the benefits.

The executive order, however, could point to another partisan divide, Barrick added. Many Democratic-controlled states opted for longer shutdowns to control the coronavirus, but that also led to larger unemployment rates compared to Republican-controlled states, which means Democratic-controlled states might be left with a heftier bill from the executive order.

The Hill and other national outlets reported Monday that state aid emerged as one of the major holdups to a second deal — with Democrats seeking $915 billion for states and Republicans seeking $150 billion.

Natalie Gochnour, director of the University of Utah’s Kem C. Gardner Policy Institute, was unavailable for an interview for this article. The staff at the institute said she’s working on crunching numbers of recent policy updates — such as Trump’s executive order — to see how they will impact Utah’s and the nation’s economy.

But in a joint KSL/Deseret News editorial board meeting on July 20, she said she supports a second round of funding, as long as it focused more on individuals in need instead of the entire population, and targeted businesses most likely to be in economic trouble in the coming months. Those include commercial real estate, airlines, restaurants and health care organizations. She added during the meeting that her ideal solution would be a $1.5 trillion package to those most affected to keep the economy afloat.

"The dominoes that might fall if you have big hits to the airlines and these tourism entities and restaurant entities that have just been hanging on and can no longer go the distance," she said. "So you’re in a situation where you’ll have loan defaults and where you’ll get bankruptcies."

Barrick, who also supports a second round of funding, added the education system and pharmaceutical companies working to develop a COVID-19 vaccine as other industries that funding should target. He was skeptical of some of the industries Gochnour listed because of questions about how the government chooses private industries to help and the individual companies within those industries.

"How do you design a package that’s effective? That’s the hardest item. … I’m not a fan of picking winners or losers," he said.

Showalter agreed there is "some justification" for another round of stimulus funding since the effects of the pandemic haven’t been spread evenly across the country. He would prefer that the second deal would be a little more careful about where the money goes.

"The first set of packages back in March were all hands on deck, 'We’ve got an emergency, let’s do everything we can, don’t worry about the details.' That was, in my judgment, the right thing to do," he said. "But we see now that the data suggests that there are a lot of things that got wasted. Money went to places where it didn’t serve any useful purpose and so, in the second round, it is wise to be more judicious and more purposeful in a way that targets the funds as much as possible with as little of waste as possible."

Like Gochnour, he agrees that travel and tourism industries — like restaurants — should receive congressional funding, as well as health care organizations.

"The health care industry is in real trouble, especially rural hospitals and other places that were working on thin margins in the first place," Showalter said.

While there are concerns about what that would do to the federal spending deficit, Gochnour argued that doing nothing would be worse for the U.S. economy than adding to the current deficit.

"We need another stimulus. We’re sideways," she said back on July 20. "The virus has intensified. We’ve got nervous consumers; hiring is set to slow even more and we think this setback can be a catalyst for more business failures so you’ve got to do some stabilization."

Both she and Barrick agree that Congress should have come up with a deal before convening for recess because the point of a stimulus package is to be ahead of another economic slump. It's the same conclusion other analysts agreed with heading into August.

Showalter, on the other hand, said it’s important that whatever is agreed upon isn’t put together hastily, and that money is going to individuals and businesses truly in need. That’s why he’s supportive of a more patient process because that money will eventually have to be paid back.

"I think it is important for multiple reasons to target this next round a little more carefully, especially on things like the Paycheck Protection Program that was meant to cover employment wages," he said. "We are spending a huge amount of money and we ought to make sure that the expenditure is wise. The first round of trillions of dollars had to be done on a quick basis; it’s not clear that we ought to do that kind of rush on the second round. I certainly don’t fault Congress for taking some time to deliberate, weigh the numbers and balance things out."

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