Questions surround Paycheck Protection Program (PPP) loans that were forgiven, including some in North Carolina, during the COVID-19 pandemic.
The loans were set up through the US Small Business Administration (SBA) as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It was designed to provide emergency financial assistance to the millions of Americans who were economically suffering from the pandemic.
The CARES Act also authorized up to $649 billion in forgivable loans to small businesses. Financial institutions issued the PPP loans, which were guaranteed by the SBA.
According to data released earlier this year by the SBA, over 90% of PPP loans were either partially or fully forgiven.
It’s estimated that North Carolina companies received around $12.3 billion from the program by August 2020.
A recent report from The News & Observer details how North Carolina politics and lobbying firms on both sides of the aisle received forgiveness from PPP loans that they may not have been eligible to receive.
The US Small Business Administration (SBA) considers a business primarily engaged in political activities or lobbying if it derives more than 50% of its gross annual income from that type of work.
One of the firms mentioned in the report is Raleigh-based Martin & Blaine, also known as The Differentiators, which is owned by Jim Blaine and Ray Martin and focuses on Republican-based candidates.
According to ProPublica, the firm received a $59,620 loan on April 15, 2020, that was later forgiven with interest. The firm worked on various races in 2020, including the lieutenant governor’s race.
Martin told McClatchy that very few of their revenue streams come from politics.
On the Democratic side, Nexus Strategies, also based in Raleigh and owned by Scott Falmlen and Morgan Jackson, received an $82,747 PPP loan on April 27, 2020, that was also forgiven with interest.
Jackson told McClatchy that most of their business is based in public affairs, not politics.
In 2020, the firm worked with campaigns for Joe Biden, Gov. Roy Cooper, and US Senate candidate Cal Cunningham.
There has also been widespread fraud with the PPP loans, including nearly $40 million in North Carolina. Nationwide, the SBA estimates 70,000 loans are potentially fraudulent.
So, while questions remain about whether previously mentioned businesses should have received the loans and had them forgiven, and the many fraudulent cases tied to the PPP loans, many people, including Mike Walden, William Neal Reynolds distinguished professor emeritus of economics at N.C. State., say they were still necessary for many others.
“The loans were an effort to maintain employment and paychecks for workers,” he told Carolina Journal in an emailed statement. “They were part of a number of measures to ‘keep the economy afloat’ during the shutdowns of the pandemic. Direct payments to workers (stimulus checks, augmented unemployment payments) were also used.”
Walden said he hoped there would be some serious analysis of what policies were most efficient and effective in case the same situation arose again.
“My expectation is that direct payments from the government to workers and households would achieve higher marks for efficiency and effectiveness,” he said.
So, what is the best way to tackle the problem?
“The best way to counter that would be for government agencies to audit recipients to see if they legitimately qualified for the program,” said Brian Balfour, senior vice president of research, John Locke Foundation. “This process, however, may require more resources than the government has available, or otherwise take a very long time.”
Balfour said in the future, the economy shouldn’t be shut down in response to a virus, as the repercussions are still being felt in the form of high inflation, supply-chain issues, and a looming recession.
Walden was a bit more forgiving of past shutdowns due to the pandemic.
“The Covid pandemic hit the country quickly and massively,” he told CJ. “There was legitimate concern the economy would be fatally crippled, and serious suffering would result. Public decision-makers — mainly at the federal level — were under pressure to act quickly and decisively, which they did with the first multi-trillion-dollar Covid rescue bill passed at the end of March, only weeks after the virus was recognized as a danger.”
Walden said this meant there was little time to compare alternative policy measures and craft the response to maximize the focus on true “need” and minimize the possibility of abuse.
He stated that current and future lawmakers should take the time now to do the studies and analysis so that effective measures can be planned for any future situation similar to what the country and North Carolina faced in early 2020.
The post Questions surround much of NC’s $12.3 billion in PPP loans first appeared on Carolina Journal.