Close readers of this blog (yes, we have a few!) might have noticed a theme: what hospitality industry leaders say doesn’t always match what they do.
A case in point is the Paycheck Protection Program, the controversial SBA program enacted as part of the CARES Act, whose ostensible purpose is to encourage small businesses reeling from pandemic shutdowns to continue providing pay and benefits to their idled workers. While the legislation was being drafted, the hospitality industry trumpeted the program as a critical job retention measure. But since then, few hospitality workers have been rehired, and an industry lobbyist has made it clear that they are focused on managing hotels’ mortgage payments – not helping workers.
Hospitality industry leaders had initially pushed for an industry-specific program, calling it the “Hospitality Workforce Relief Fund”, which they envisioned as $100 billion in government “grants to businesses for the purpose of employee retention and rehiring.”
Although the hotel industry had already begun laying off most of its workforce by the time Congress began drafting the CARES Act, the industry’s lobbying group, the American Hotel and Lodging Association, claimed:
“the unemployment rate will dramatically increase in the next month unless Congress prevents millions of hotel workers from being furloughed or laid off. The fund would help employers meet their payroll obligations, slow the growth of rising unemployment numbers, and help keep employees on employer provided health insurance, lessening the impact on the Unemployment Insurance program.”
The CARES Act provision that created the PPP did not hew exactly to the AHLA’s vision, and the PPP was open to all affected small business employers, not just those in the hospitality industry. But hospitality lobbyists did persuade the Act’s drafters to create an unusual carve-out for their industry. Whereas in every other industry, PPP eligibility was restricted to small businesses, hospitality companies were allowed to apply for a loan at every location with fewer than 500 employees, regardless of the size of the company’s parent organization. Thus, large businesses, including multi-billion dollar real estate investment trusts and private equity companies could apply for the forgivable loans at every one of their hotel properties that employed fewer than 500 employees.
Before the ink had even dried on the CARES Act, the AHLA began to criticize the program it had proposed, calling the PPP’s loan limit of 250% of payroll “unworkable” because it “will not allow a business owner to meet both payroll and debt service obligations beyond an estimated four to eight weeks.”
By then, the hotel industry had already laid off 70% of its workers nationwide, and most employers were in no hurry to get them back. Imagine their chagrin then when the Small Business Association, accustomed to serving mainly, well, small businesses, imposed a rule requiring 75% of the amount of loan forgiveness ultimately received by a PPP recipient to have gone to workers’ wages and benefits.
The AHLA got to work. In an April 8 letter to Congressional leaders, AHLA called the 75% rule “too restrictive” and suggested the agency adopt a 50% rule. And instead of a maximum loan amount equal to 250% of payroll, AHLA suggested the maximum should be 8 months of total operating costs.
AHLA CEO Chip Rogers conducted a flurry of TV and print interviews, raising the alarm that “if small business hotel owners can’t pay the mortgage or utilities, they will have to close their doors with no jobs for employees to come back to work.”
To Travel Weekly he acknowledged, “lawmakers were hoping that they could create a plan that would keep people on the payroll. For many hotels, however, people were already off the payroll by the time the plan was implemented.”
By late May, the industry’s lobbying efforts had apparently had an effect: House Speaker Nancy Pelosi told the Wall Street Journal she regarded the SBA’s 75% rule to be “debilitating”, and later announced that the only measure she was stripping out of the comprehensive HEROES bill for a stand-alone vote on the first day after the House recess was one that expanded the PPP from 8 weeks to 24 and eliminated the SBA’s 75% rule altogether.
That probably would have been the end of it had not a group of union leaders suggested on the eve of the expected vote that maybe it wasn’t such a good look for Congress to be stripping the paycheck protection part out of the Paycheck Protection Program. Rather than eliminating the SBA rule as originally planned, the amended PPP Flexibility Act simply changed the formula for loan forgiveness so that 60%, rather than 75%, of a recipient’s loan forgiveness amount would need to go towards worker paychecks and benefits.
The bill passed the House on a vote of 417 to 1 on May 28th and sailed through the Senate the following week before being signed into law by the President. In addition to changing the payroll formula, the new law contains provisions allowing recipients to receive loan forgiveness in some circumstances even if they did not ultimately use 60% of the forgiven amount for payroll expenses, as long as they can prove they have been “unable” to hire employees or return to the “same level of business activity” as before the pandemic due to new standards for sanitation, social distancing, or other safety requirements.
Although pitched by the AHLA in March as an “employment retention” measure, by May the industry had largely succeeded in turning the PPP into something that better suited its needs: a means of subsidizing hotel real estate investors’ debt service.
Now, as many cities and states begin the process of reopening for business, the large hotel employers perceive a new problem: with the pandemic far from over and $600 supplemental unemployment benefits not set to expire until the end of July, workers might not be eager to return to their workplaces just yet. Here is how AHLA CEO Chip Rogers put it in a May 7 podcast:
… So, what we were seeing was people were taking out the PPP and then were going back to their employees and saying, “Look, because of the PPP, I need to bring you back on the payroll.” And people were saying, “No. I’d rather stay off the payroll. A, I don’t have to work, and B, I’m getting more money.” And so, it was a weird situation – we’re trying to get people back on the payroll because we had the PPP money, but they wouldn’t come back. We kept reminding the administration: this is really problematic. They just came out with some rules that say, “Look, if your employer asks you to come back, and you say, ‘no I’m not coming back,’ then you no longer qualify for the additional $600 of bonus money.” We think that’s fair because the unemployment is not meant for people who have a job. It’s meant for people who don’t have a job or can’t work. And if your employer is saying, “Hey, come back, work, your job is now available again,” then unless you don’t want that job anymore, you should go back.
At which point the interviewer, an Atlanta-based hotel industry consultant, says:
Yeah great, we’ve been hearing that a lot, so I appreciate that you brought it up. It’s definitely a concern, and I’m glad that you’re there fighting. Do you think it will have impact? Do you think it will work?
CHIP ROGERS: It will work, yeah. There’s no doubt about it. We’re already hearing from people saying, “Thanks, this is going to make it a lot easier for me to get my employees back.” And it’s the right thing to do. Again, we don’t want a country where we’re incentivizing people not to work. That does not work at all. We know that, both economically and just historically. So, if we want to get back to the way America was – which was going pretty well – then we need to use those rules of free enterprise that have worked so well for centuries.
The employees of a swanky Hollywood restaurant might be finding out the hard way how hospitality employers can exploit the new PPP rules for their own purposes. Food service workers at the luxe Yamashiro told the LA Times that their employer had told them it received PPP funds and offered to rehire them – but only in jobs they were unqualified and unsuited to do, such as maintenance, HVAC, and plumbing. Meanwhile, workers saw their old positions listed on job websites. (Yamashiro declined to comment.) Under the rules championed by the AHLA, could Yamashiro claim that workers had refused rehire offers, and then apply to have PPP loan funds forgiven even though less than 60% were used for purposes other than workers’ wages and benefits?
The possible future that Rogers is painting is a grim one for workers: forced to choose between staying home without pay, or going to work during an ongoing pandemic. Or, for Yamashiro’s workers, losing unemployment benefits after being ‘offered’ jobs that they can’t actually fill.
The next time corporate lobbyists ask taxpayers for a half trillion dollars so they can “save jobs” and “retain workers,” let’s hope Congress gets receipts.