In a little more than a decade, the United States has experienced two economic events — the financial crisis of 2008 known as the Great Recession, and the current coronavirus (COVID-19) pandemic. Prior to the global health crisis, the U.S. economy had been in a prolonged period of expansion — an unprecedented expansion that abruptly ended with the emergence of the COVID-19. In both instances, the U.S. federal government intervened in an effort to mitigate the economic impact. The provisions in relief packages from both events contain many similarities, yet there are some notable contrasts — the monetary values notwithstanding.
CARES Act – 2020
The Coronavirus Aid, Relief and Economic Security Act (CARES Act) — a $2.2 trillion aid package to help those impacted by the COVID-19 pandemic — passed in March of 2020. The CARES Act is intended to aid the public health crisis while at the same time, boost the economy. Components of the bill are similar to the economic relief package of 2009 and include:
- Individual relief
- Unemployment benefits
- Healthcare, schools, state & local government relief
- Small business assistance
- Corporate tax relief
- Loans and grants to distressed industries
Under the CARES Act, small businesses — those with fewer than 500 employees — are eligible for a loan under the Paycheck Protection Program that is intended to cover up to eight weeks of payroll, up to a total of $10 million. Corporate tax relief includes a delayed payment of employer payroll taxes through the end of 2020 and modifications to Net Operating Loss carryback and carryforward rules. Ultimately, if a business keeps and maintains its workforce, the entirety of the loan will be forgiven by the federal government in the form of a waived grant. Large corporations are also eligible for provisions under the CARES Act, however, any loans issued to large businesses will not be forgiven.
Economic Stimulus Act and ARRA – 2008 and 2009
Similarly, the Economic Stimulus Act of 2008 provided for several kinds of economic stimuli intended to boost the economy and improve economic conditions. In addition to the $14.2 billion worth of stimulus checks sent to recipients, The American Recovery and Reinvestment Act of 2009 (ARRA) was passed as a stimulus package to save existing jobs and create new ones by investing in infrastructure, education, health and renewable energy. The approximate cost of the economic stimulus package was estimated to be $787 billion at the time of passage.
The ARRA included the Treasury’s Troubled Asset Relief Program (TARP) program, intended to strengthen the financial sector through an investment of $570 million in 84 institutions to strengthen community banks across the country with the purchase of toxic assets and equity from financial institutions. The ARRA also included tax write-offs for small businesses including deductions for machinery and equipment. Property that didn’t qualify for the tax credit could be depreciated by 50%.
How They Differ
One of the major differences between the ARRA and the CARES Act is the allocation of funds in the form of loans or grants to distressed industries. In the case of CARES, distressed industries — those that do not qualify for small business relief — include passenger air carriers, cargo air carriers and large nonprofit companies. Under this provision, companies can apply for loans, but must retain 90% of their workforce and avoid stock buybacks for the duration of the loan, including 12 months following. This provision was not made available in ARRA.
During this time, it’s advisable to keep the lines of communication open with clients and tenants facing significant economic stress. Proactiveness in reviewing current lease terms and loan covenants for force majeure (e.g. does the COVID-19 crisis qualify?) and similar clauses and other possible limitations to amend, modify or cancel terms will yield better results. Utilizing creative and informed strategies will help preserve valuable relationships that will prove critical in the months ahead.
About the Author:
Amanda Ortiz is the Director, National Industrial Research on the National Marketing & Research team at Colliers. Based in Chicago, Amanda partners with national and local teams to deliver market intelligence initiatives and provide direction to drive national competitive advantage through research strategy, development and analytics.