Federal Reserve report: 75% of $800 billion PPP didn't reach workers

A new report from two officers of the Federal Reserve has concluded that the vast majority of the billions of dollars spent for the Paycheck Protection Program, instituted to help save jobs when officials shut down America’s economy over the COVID-19 pandemic, went astray.

The report comes from William R. Emmons, lead economist in the Supervision Division at the Federal Reserve Bank of St. Louis, and Drew Dahl, an economist at the bank.

The program, involving hundreds of billions of dollars, “was poorly targeted, as almost three-quarters of its benefits went to unintended recipients, including business owners, creditors and suppliers, rather than to workers,” they wrote. “Due to differences in the typical incomes of those varied constituencies, it also ended up being quite regressive compared with other major COVID-19 relief programs, as it benefited high-income households much more.”

They advised that the program, to provide relief to small businesses, was set up fast and wound up most operations in two years.

But they found “only about one quarter of PPP funds supported jobs that otherwise would have disappeared.” Further, “PPP’s benefits flowed disproportionately to wealthier households rather than to the rank-and-file workers that its funds were intended to reach.”

The report explained, “Established as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act—which was signed by President Donald Trump on March 27, 2020—the PPP began to distribute forgivable loans to small businesses on April 3, just three weeks after a national emergency was declared in the United States. This was a remarkably timely response to the crisis. More than 90% of the nearly $800 billion of PPP loans were forgiven by June 20, 2022, making the program largely temporary as well.”

The recipients “included any business, nonprofit, veterans’ organization or tribal business with fewer than 500 employees (or, alternatively, the SBA’s size standard for number of employees for the industry in which they operated). Sole proprietors, independent contractors and self-employed individuals also were covered,” they explained.

The money was for “payroll costs, costs related to the continuation of group health care benefits (sick, medical or family leave), insurance premiums, employee salaries, commissions or similar compensation, mortgage payments, rent, utilities and interest on any debt obligations.”

The Fed officers point to a 2022 study called “The $800 Billion Paycheck Protection Program: Where Did the Money Go and Why Did It Go There?,” by David Autor and others.

The study estimated that the program did help save jobs, 2.75 million per week in the fourth quarter of the year.

“But preserving jobs was expensive. The study found that, depending on the assumptions, the cost per job saved for one year was $169,000 to $258,000, which was much higher than the average amount—$58,200—paid in wages and benefits to small-business employees in 2020,” the Fed officers wrote.

“The PPP cost taxpayers roughly $4 for every $1 of wages and benefits received by workers in ‘saved’ jobs. The ‘leakage’—$3 out of every $4 distributed through the program—went to small-business owners. According to the study, small-business owners shared these dollars with suppliers, whose sales to loan recipients were greater than they would have been without the PPP, and with banks and other lenders in the form of greater loan volumes and fees for PPP loan administration.”

And the wealthier ended up with the dollars, the report said.

“Based on the known distributions of incomes among workers in small businesses, as well as on the incomes of bank and small-business owners (both PPP loan recipients and their suppliers), the authors estimated that 72% of PPP funds were captured by households with incomes in the top 20% of the national distribution,” the report said.

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