Big Business and the PPP

By now it is clear that the recipients of Paycheck Protection Program loans were often companies larger than the mom-and-pop operations we were led to believe would be the main beneficiaries. A closer examination of the data shows assistance going not just to mid-sized companies but also to portions of Big Business.

This finding comes from a comparison of the PPP data released in early July to the 1.1 million entries my colleagues and I at Good Jobs First have assembled in our Violation Tracker and Subsidy Tracker databases. The Trackers link the individual penalty or subsidy records to a universe of nearly 4,000 parent companies.

We have now been looking for matches between Tracker data and the more than 1 million entries we have assembled in our newer database Covid Stimulus Watch, which contains data on loans and grants to companies and large non-profits from 19 programs created by the CARES Act.

So far, we have found 775 Tracker parents that have also received covid-related financial assistance, either directly or through a subsidiary. Not all of these are surprises. Some CARES Act programs were designed to help larger companies. For example, the Payroll Support Program is providing massive grants and loans to the major airlines (as well as smaller carriers, air cargo companies and others).

The healthcare systems receiving assistance from the Provider Relief Fund include the large for-profit hospital chains HCA and Tenet as well as both large and small non-profits. The Federal Reserve’s Secondary Market Corporate Credit Facility has been buying the bonds of Fortune 500 companies.

The larger corporations participating in those programs account for about two-thirds of the Tracker-Covid Stimulus Watch parent overlaps. That leaves about 220 that show up in connection with the PPP. Of these, about 150 are privately held. That means, of course, that precise information on their size is not readily available.

We chose to include these firms in the Tracker universe because of indications they are sizeable businesses. Some, in fact, are sizeable enough to be included in the Forbes list of the largest privately held companies in the United Sates.

One example is Ashley Furniture Industries, a manufacturer and retailer that Forbes estimated has $5.8 billion in revenue and 31,000 employees. Two of Ashley’s stores received PPP loans worth between $500,000 and $1.4 million (the loan amounts were disclosed in ranges).

Ma Labs, a computer components producer which Forbes puts at $2.1 billion in revenue and 1,200 employees, received a PPP loan worth between $2 million and $5 million. A more complicated example is Tauber Oil, which Forbes says has revenue of $7.4 billion but only 168 employees. It received a PPP loan of at least $2 million.

Some very large publicly traded companies can also be linked to PPP loan awards. Garden Fresh Gourmet, a salsa company in Michigan owned by Campbell Soup, got a PPP loan in the $2 million-$5 million range. Campbell Soup, with revenues of $9.9 billion, is No. 322 on the Fortune 500.

Marion Resource Recovery Facility LLC, which operates a waste management facility in Oregon, got a PPP loan of up to $250,000. The company is owned by Republic Services, No. 305 on the Fortune 500 with $10.2 billion in revenue.

Large foreign corporations also have PPP connections. For example: Hanwha Advanced Materials America LLC, which received a PPP loan in the $2 million-$5 million range, is owned by South Korea’s Hanwha Group, which ranks No. 261 on the Fortune Global 500 with revenue of $44 billion.

Welspun Pipes, a subsidiary of India’s large Welspun Group conglomerate, received a PPP loan between $5 and $10 million.

These are but a few examples of how some of the world’s largest corporations have managed to benefit from a program advertised as a lifeline for small business.

CORRECTION: I have been told by Campbell Soup that it has sold Garden Fresh Gourmet, even though the latter’s website still refers to an ownership relationship.

Should Taxpayers Aid Corporate Bad Actors?

The uproar over the participation of larger companies in the Paycheck Protection Program is a sign that the country will increasingly confront a broader issue about the massive Covid-19 relief effort: does every company deserve assistance during a crisis that affects all parts of the economy?

Apart from the issue of size, there is the question of behavior—that is, should a company with a track record of bad conduct be eligible for large amounts of taxpayer-funded aid?

This issue is behind the decision my colleagues and I made to create Covid Stimulus Watch, a website that combines available company recipient data with information on the accountability records of the corporations getting the aid. Much of the latter consists of penalty data we have previously collected for our Violation Tracker database. We also added data on issues such and tax avoidance and CEO pay.

So far, we know the recipients of only about 400 grant and loans, mostly PPP awards that publicly traded firms have disclosed in SEC filings. Yet there are already signs that corporate bad actors are getting assistance.

I took a close look at the executive compensation data we collected. In their documents known as proxy statements, firms are required to disclose how much their chief executive is paid and calculate the ratio of that compensation to the median pay of the company’s workforce, which is also disclosed. Smaller companies can opt out of the requirement to reveal median worker pay and the ratio.

Among the publicly traded firms that have disclosed PPP awards, five reported paying their typical worker an amount below the federal poverty level for a family of four ($26,200). These included three with active loans: Drive Shack ($13,902), Applied Opto-Electronics ($15,620) and Trans World Entertainment Corporation ($17,346). The two others are among the larger firms that are returning their loans in response to public pressure: Fiesta Restaurant Group ($14,241) and Shake Shack ($17,032). 

The restaurant employers tend to complain in their proxies that they have to include part-timers in their calculations, while Applied Opto-Electronics tries to downplay its low figure by noting that it includes employees in China and Taiwan. The company provides a separate figure for U.S. workers only — $43,427 — which is still below the national median income level.

Many of the low-wage employers are much more generous when it comes to CEO pay. Drive Shack, for instance, paid its CEO more than $7 million, which is more than 500 times what the median employee received.  

Problematic corporate recipients can be found in other covid stimulus program. Take the Higher Education Emergency Relief Fund. There was a great deal of criticism among Republicans, including Trump, over the fact that Harvard University, with its immense endowment, was participating in the program.

Yet, it turns out that for-profit colleges are also among those institutions getting aid. Looking through the list published by the Department of Education, I found 11 awards going to the likes of the University of Phoenix, owned by the Apollo Education Group, and Chamberlain University, owned by Adtalem Global Education. The largest amount I found (looking only at the maximum portion schools are allowed to use for institutional costs) was $11.2 million going to Grand Canyon Education Inc.

This industry has been embroiled in numerous scandals based on allegations of unfair and deceptive practices, especially that of luring students with deceptive claims about the value of the degrees they offered. For example, Perdoceo Education Corporation, the parent of two schools receiving the stimulus aid, used to be known as Career Education Corp., which in 2019 had to pay $493 million to resolve fraud allegations by state attorneys general.   

Or consider the Provider Relief Fund set up by the Department of Health and Human Services. Those providers include for-profit hospital chains such as Tenet Healthcare, which has reported receiving $370 million so far from the fund. Tenet has had to pay out hundreds of millions of dollars to resolve regulatory violations and False Claims Act cases brought by the Justice Department, including a 2016 settlement in which the company paid $513 million and two of its subsidiaries pleaded guilty to criminal charges relating to bribes and kickbacks.

We are thus left with the question of whether companies that pay poverty-level wages, have excessive CEO compensation levels, routinely cheat their customers or plead guilty to criminal bribery charges should qualify for aid amid a pandemic. There is no easy answer.

The executives of those firms may not deserve help, but lower-level employees should not suffer because of the sins of their bosses. The solution might be to attach some strings to the aid they receive, requiring them, for example, to pay a living wage and to deal honestly with their customers and the government. Failure to adhere to those provisions should trigger an obligation to refund all the aid and other serious consequences.

Getting such a system enacted would be a longshot, and even if it happened, an administration like the current one could undermine it with weak enforcement. Yet it is worth imaging how well-structured covid stimulus programs might not only provide relief from the effects of the pandemic but also promote better corporate behavior now and in the future.

Introducing Covid Stimulus Watch

The furor over some of the companies receiving federal financial assistance through the Paycheck Protection Program represents one of the most remarkable outbursts of anti-corporate sentiment seen for quite some time. A corporation such as Shake Shack, which used to have a cult following, found itself vilified for getting a $10 million loan from a program the public assumed would be used to help mom-and-pop businesses rather than a fast casual chain that last year had revenues of more than half a billion dollars.

I’s not just a matter of big versus small. Journalists have pounced on the disclosures of the PPP loans—which have come from SEC filings rather than the federal government—to look for examples of problem companies on the list. One of the best examples, by the New York Times, found all kinds of corporate bad actors getting the loans.

A new website my colleagues and I at Good Jobs First have just launched will make it even easier to pursue this kind of research. Covid Stimulus Watch combines available recipient data for the PPP  — as well as the Payroll Support Program, which has doled out billions to the airlines – with accountability data about the companies.

The accountability data comes in six categories. Four of those are derived from data in Violation Tracker: employment-related penalties (such as wage theft and workplace discrimination); government-contracting related penalties (mainly False Claims Act cases); environmental, healthcare and safety penalties; and consumer protection, financial misconduct and unfair competition penalties.

The fifth category, relating to taxes and subsidies, shows which large companies have paid very low federal income tax rates and which have received large amounts of pre-pandemic financial assistance from federal, state and local programs, such as those shown in Subsidy Tracker. The final category shows which recipient companies have high levels of executive compensation, especially in comparison to what they pay a typical worker.

The limited set of recipients currently listed in Covid Stimulus Watch already illustrate the accountability issues at stake. For example, the major airlines that are receiving billions of dollars in aid raise concerns in multiple categories. United has paid out over $40 million to settle employment discrimination lawsuits. American Airlines has paid over $70 million in safety violations. JetBlue and Delta had negative federal income tax rates in 2018.  The ratio of the pay of American’s CEO to that of its median employee was 195 to 1.

Concerning data can also be seen about some of the smaller recipients. One PPP recipient, Veritone Inc., paid its CEO $18 million in compensation. Another PPP company, FuelCell Energy, received more than $170 million in federal grants prior to the pandemic.

The data in Covid Stimulus Watch will hopefully fuel even more debate over which corporations deserve to be rescued by taxpayers.

Bailouts and Bad Actors

The $500 billion business rescue provision of the coronavirus relief bill will be less of a slush fund than originally envisioned, thanks to the addition of some significant safeguards such as the creation of a special inspector general and a Congressional oversight commission.

There has also been a welcome move toward transparency through a requirement that the Treasury Secretary post details on each loan, loan guarantee or other form of assistance soon after the award is made.

Yet there is one risk the bill does not address: the possibility that among the companies sharing in the federal government’s largesse will be regulatory scofflaws and other corporate bad actors.

There are some notable precedents for such an outcome. The Troubled Asset Relief Program, in fact, was largely an effort to bail out the financial institutions whose misconduct to a great extent caused the meltdown of 2008. The biggest TARP recipient, with $67 billion in support from the Treasury Department, was American International Group, which had sold large quantities of risky credit default swaps. Other giant banks that helped generate toxic securities were also high on the TARP loan list, including Bank of America and Citigroup ($45 billion each) as well as JPMorgan Chase and Wells Fargo ($25 billion each).

Along with the TARP loans, these banks also benefitted from massive liquidity programs implemented by the Federal Reserve and the Federal Deposit Insurance Corporation. The data available on these programs, which include lots of short-term loans that were frequently rolled over, add up to more than $3 trillion for Bank of America and $2 billion each for Citigroup and Morgan Stanley.

On top of all this, banks received what amounted to subsidies — $435 million in the case of JPMorgan Chase – through incentives provided to mortgage servicers under the Home Affordable Modification Program.

It was unavoidable that the TARP program, designed to rescue the whole financial system, would end up assisting bad actors. The problem is that those corporations continued to exhibit anti-social behavior after being bailed out.

Consulting the data in Violation Tracker, we see that since 2010, Bank of America has paid more than $63 billion in penalties. Much of this stems from lawsuits linked to the period leading up to the financial crisis, including those brought against companies purchased by BofA, especially Merrill Lynch and the predatory home lender Countrywide Financial.

Yet BofA also got in new trouble of its own. For instance, in 2014 it was ordered by the Consumer Financial Protection Bureau to provide $727 million in relief to credit card customers who had been charged for services they were not receiving.

Since 2010 Citigroup has paid more than $16 billion in penalties. Here, too, much of that total relates to cases stemming from the crisis – but not all. In 2015 it, along with other major U.S. and European banks, pled guilty to conspiring to manipulate the foreign exchange market. Citi’s penalty was $925 million.

And then there’s the case of Wells Fargo, which in the years after getting bailed out, has become a poster child for corporate irresponsibility as a result of its brazen sham-account scandal and other controversies.

Some of the bank misconduct of recent years could have been prevented if the federal government retained the equity stakes it took in TARP recipients while the loans were in effect. In the case of AIG the government had taken control of about 80 percent of the company. Smaller stakes were taken in other recipients.

The government used those stakes mainly to make sure that the loans were repaid, and in the end the feds made a profit on TARP. Yet those ownership interests could also have been used to retain a measure of influence over corporate governance and decision-making on issues relating to regulatory compliance and overall good behavior.

This approach could also apply to the coronavirus relief package, which seems to allow for the possibility that the federal government will take equity stakes in corporations that receive large amounts of financial assistance.

Now as in 2008, Congress cannot avoid providing assistance to bad actors, since doing so would harm employees at those firms. Yet it could use equity holdings to discourage corporations from resuming their bad behavior after we get through the pandemic.

Note: Data on the companies that received TARP bailout loans and liquidity assistance from the Fed and the FDIC can be found on this new Subsidy Tracker page, which also contains a list of corporate recipients of Recovery Act grants, loans and tax credits. Data on the misconduct of these and other companies can be found in Violation Tracker.