Administration Continuing to Limit Transparency and Oversight of CARES Act Funds

It’s been almost three months since President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. While the executive branch has already spent much of the emergency aid appropriated by the bill, it has not approached the bill’s oversight and transparency provisions with the same fervor. Without transparency and oversight of the spending, American taxpayers cannot have full confidence that the government is acting in their best interests, or that those who most need the economic assistance are the ones who got it.

This unprecedented economic relief package provided more than $2 trillion in funds to stimulate the economy, help workers, and offer a lifeline to struggling businesses, large and small. To ensure accountability of these funds, Congress created three key oversight mechanisms in the CARES Act: the Special Inspector General for Pandemic Recovery to oversee the spending by the Department of the Treasury; the Congressional Oversight Commission to oversee Treasury’s and the Federal Reserve’s implementation of the law; and the Pandemic Response Accountability Committee, a body of inspectors general from across the federal government to oversee CARES Act spending as a whole. Each of these entities has an important statutory mandate to review spending data and identify potential waste, fraud, and abuse. However, the administration is limiting the data being made available for review and is hindering the oversight entities from being able to complete their statutory functions.

As a brief refresher of the more than 330-page bill, Division A included some of the more well-known projects of the CARES Act, including the $349 billion Paycheck Protection Program to help small businesses and their employees, the $500 billion infusion to the Treasury’s Exchange Stabilization Fund to help economically distressed sectors of the economy, the $150 billion bailout to state, tribal, and local governments, and the Federal Pandemic Unemployment Compensation program that provides an extra $600 per week in unemployment benefits on top of what individuals receive from their state unemployment office.

In addition, Division A created the Special Inspector General for Pandemic Recovery and the Congressional Oversight Commission. While it was through Division A that Congress created and funded new relief programs to combat the economic impact of the coronavirus, Division B provided supplemental appropriations to government agencies, including the Departments of Justice, Agriculture, and Commerce, to pay salaries and other administrative expenses. It was also through Division B that Congress created the Pandemic Response Accountability Committee.

The CARES Act includes detailed reporting provisions meant to ensure that the extraordinary level of government spending of taxpayer dollars would get a higher level of transparency and accountability than government programs typically get. However, in a recent guidance memo to federal agencies on how to report on allocation of relief funds, the Office of Management and Budget (OMB) defied Congress by ignoring a number of clear reporting requirements in the CARES Act. Last month, the Project On Government Oversight published an analysis laying out some of the major problems with the recently issued OMB guidance interpreting the reporting requirements in the CARES Act. In short, the guidance meant taxpayers will get almost no data on job retention and creation, one of the main objects of the multi-trillion-dollar relief bill. This guidance defies clear legal reporting requirements and instructs agencies to report less information on a slower timeline—not exactly a recipe for robust oversight.

The OMB guidance memo foreshadowed what was to come: A concentrated effort by the administration to reduce transparency from federal agencies and make oversight difficult.

Division A or Division B—Does It Even Matter?

Last month, the Treasury Office of Inspector General, a member of the Pandemic Response Accountability Committee, issued its first report on the use of coronavirus relief funds. This particular report was looking at the use of funds allocated to state, tribal, and local governments under Title V of the CARES Act. The inspector general’s office found that Treasury “has not provided user-friendly means for recipients to meet reporting requirements” under the law. In their response, the Treasury’s general counsel argued that the reporting requirements in the CARES Act don’t apply to any of the pandemic relief funds the law appropriates to Treasury and distributes to states or territories because the requirements and the funds are legislated in different sections of the CARES Act. Unfortunately, the general counsel is technically correct in their reading of the law; however, this does not appear to be the intent of Congress.

Section 15010 of the CARES Act says the Pandemic Recovery Accountability Committee, which by statute includes the Treasury’s inspector general, shall report on “covered funds” under “this Act; the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020; the Families First Coronavirus Response Act; or any other Act primarily making appropriations for the Coronavirus response and related activities.” Including the Treasury’s inspector general as a member of the committee signals that Congress intended for funds issued by Treasury to be examined and reported to the committee.

House Oversight and Reform Committee Chairwoman Carolyn Maloney, who helped co-author this section of the law, envisioned the Pandemic Recovery Accountability Committee to look at disbursement of CARES Act funds from all sources. She said in a statement:

The Pandemic Response Accountability Committee will be made up of independent Inspectors General who will conduct and coordinate audits and investigations to provide accountability and identify waste, fraud, and abuse in spending under the Act and the response to the coronavirus crisis. This provision will help ensure that Inspectors General have the authorities and funding necessary to conduct oversight, including access to documents and testimony from government officials and private sector entities.

Given that Congress intended for the Pandemic Response Accountability Committee to seek documents and testimony from private sector entities in the course of its investigations, it only makes sense that Congress also intended for the committee to be subject to the reporting requirements indicated in Division A of the CARES Act. Division B, after all, primarily appropriates funds to agencies for salaries and administrative expenses—areas unlikely to require testimony.

However, in their response to the inspector general’s report, the Treasury’s general counsel points to section 3 of the CARES Act, which states that, “except as expressly provided otherwise, any reference to ‘this Act’ contained in any division of this Act shall be treated as referring only to the provisions of that division.” This provision thus led the general counsel to conclude that “the definition of covered funds in Division B can only be construed to refer to funds made available under provisions within that division.” However, the kind of language from section 3 is typically only used when Congress drafts large omnibus appropriations bills that are supposed to be passed as separate bills. For example, if one division of an omnibus appropriations is legislating on issues about defense and another division is about education, you would want this clause to differentiate the completely unrelated topics. This language was likely included in the CARES Act since Division A primarily includes funding for new programs and Division B primarily provides supplemental funding to agencies for salaries and administrative costs. Regardless of the reason the boilerplate language was included, there is no indication Congress intended for the Pandemic Response Accountability Committee to be excluded from reporting on how CARES Act funding is being implemented and spent.

Congress had included identical language in the American Recovery and Reinvestment Act in 2009. However, the Recovery Accountability and Transparency Board created by the 2009 law was still able to conduct its statutorily mandated oversight work and bipartisan former oversight officials have called the 2009 board “immensely successful”. That the Pandemic Recovery Accountability Committee’s organization and duties resemble those of the Recovery Accountability and Transparency Board further demonstrates Congress’s intent.

While the Treasury inspector general’s report was only about Title V funds, the general counsel’s legal opinion has a much larger significance. In essence, we can expect Treasury and other agencies to transmit no data on covered funds in any program in Division A that involves more than $1 trillion in funding unless Congress fixes the problem. Congress should clarify that the committee should be able to look at Division A funds.

In their response to the inspector general’s office, the Treasury’s general counsel points to, among other things, alternative reporting requirements in Division A for certain pandemic response appropriations as a means of accountability and oversight. These do in fact include the newly created Special Inspector General for Pandemic Recovery and the Congressional Oversight Commission, as well as other periodic reports to be submitted to Congress and published on Treasury’s website. However, these alternatives do not address the full range of programs for which the Pandemic Recovery Accountability Committee is responsible, nor do they provide the breadth and depth of reporting needed for the committee to fully carry out the responsibilities required by Section 15010 as Congress envisioned.

Given that the Pandemic Recovery Accountability Committee comprises inspectors general from across the federal government, it is uniquely qualified to conduct this oversight: The members have the experience and know-how to uncover waste, fraud, and abuse, and to identify potential reforms that would increase the efficiency and effectiveness of these relief programs. Specifically, the committee could help coordinate the various oversight mechanisms.

In fact, the Pandemic Recovery Accountability Committee is itself alarmed by the administration’s stance and legal opinion regarding data submission to the committee. On June 11, acting committee chair Michael E. Horowitz and committee executive director Robert Westbrooks wrote to four congressional committee chairs expressing concern about the administration’s opinions and the separation of oversight between Divisions A and B of the CARES Act. The letter said, “if this interpretation of the CARES Act were correct, it would raise questions about the PRAC’s authority to conduct oversight of Division A funds.”

To help improve transparency and oversight of the use of funds, Congress should amend the CARES Act by explicitly stating that the Pandemic Recovery Accountability Committee’s oversight and reporting requirements apply to Division A programs. By not doing so, they are allowing federal agencies to hide information from the committee and thus from the public. Given the vast amount of funding appropriated by the CARES Act, especially in Division A, the American people deserve to know how the government is spending federal taxpayer dollars. This requires full transparency. If Congress clarifies agencies’ requirements to submit data to the Pandemic Response Accountability Committee, the committee will be able to deter fraud before it happens, as the successful Recovery Accountability and Transparency Board accomplished in the wake of the recession that started in 2007.

The Paycheck Protection Program Disclosure

One of the most well-known provisions in the CARES Act is the Paycheck Protection Program. The program was created as part of the Small Business Administration’s 7(a) loan guarantee program. The Paycheck Protection Program provides direct loans to small businesses that were harmed economically by the coronavirus. A key part of the Paycheck Protection Program is the ability for these loans to turn into grants if employers maintain and rehire workers. The program was so popular that it ran out of its initial $349 billion funding in less than two weeks, and Congress injected another $310 billion into the program the following month.

The attractiveness of what could essentially be free money didn’t go unnoticed by larger companies. For example, companies such as Ruth’s Chris Steak House, Shake Shack, and the Los Angeles Lakers applied for loans through the Paycheck Protection Program and received millions of taxpayer dollars in loans. Media reports led to public criticism of those and other companies, leading some companies to return the money. Moreover, it recently came to light that even some members of Congress have taken out Paycheck Protection Program loans. Clearly, the importance of transparency and oversight of these funds cannot be overstated.

That’s why it was perplexing to hear Treasury Secretary Steven Mnuchin announce last week that the administration would not publicize the recipients of the Paycheck Protection Program loans. Mnuchin said that the administration believes the loans are “proprietary information, and in many cases for sole proprietors and small businesses, it is confidential information.” The claim that the names of the loan recipients are proprietary and confidential is false and contrary to current law. The Federal Funding Accountability and Transparency Act, Digital Accountability and Transparency Act, and Freedom of Information Act all require public disclosure of recipients of these types of funding streams, regardless of what the law establishing the Paycheck Protection Program says or does not explicitly say regarding reporting. For example, the Federal Funding Accountability and Transparency Act statutorily mandates the disclosure of several data elements on a public website (USAspending.gov) such as the entity receiving a federal award—including loans—and the amount of that award. While the Federal Funding Accountability and Transparency Act and the Digital Accountability and Transparency Act specifically require proactive reporting, the Freedom of Information Act only requires reporting upon request, which five news organizations are suing to obtain. Nevertheless, the decision to conceal the information is just another attempt to avoid transparency and accountability of these funds.

When Congress passed the CARES Act and, with it, the Paycheck Protection Program, Congress almost certainly intended for comprehensive transparency around this spending since existing laws already require these disclosures. In addition to three separate laws that would already require disclosure, the Small Business Administration has been disclosing this data on 7(a) small business loans as well as other types of small business loans for decades across multiple administrations. Based on existing law mandating disclosure of these types of awards and existing agency practice, there is every reason to believe Congress meant for these loans to be made public.

What’s most ironic about the administration’s decision about not publicizing the recipients of these loans is that the loan application actually says these loans will be made public. The last page of the loan application reads, “Information about approved loans that will be automatically released includes, among other things … the names of the borrowers, … the collateral pledged to secure the loan, the amount of the loan, its purpose in general terms and the maturity.” Borrowers knew when applying that this information could and would be made public. There is no excuse for the Small Business Administration to refuse to follow the law by not releasing the information publicly as it has done many times before on other small business loans.

Not disclosing data about these loans risks there being no oversight of them. In a joint guidance document issued in May, Treasury and the Small Business Administration said the agencies would “review all loans in excess of $2 million” and are trusting the borrowers when submitting their loan application that they are truly in need of the financial assistance they’re applying for. In one analysis in mid-May by FactSquared, as reported by Market Watch, half of the roughly 400 Paycheck Protection Program loans given to publicly traded companies were below $2 million. Given this metric, the administration plans to conduct no oversight, or provide any level transparency on, as much as $400 million in spent federal funds, and this number could grow as more loans are issued. This is unacceptable. Had businesses sought private funding through private financial institutions, that would be one thing; but the Paycheck Protection Program loans are being backed and financed by the American taxpayer, and the American taxpayers deserve to know how their money is being used, who it’s going to, and that the tax dollars are being spent correctly. The public needs to see this information in order to make sure the loans are going to the businesses that need them the most.

Mnuchin’s statement that the administration will treat the identities of the loan recipients as confidential is unacceptable and contrary to established law. The administration should immediately publish the data for all of these loans, as its own loan application document says it will.

Conclusion

When Congress passed the CARES Act, Congress knew trillions of dollars in new federal spending was ripe for waste, fraud, and abuse. To stem that, Congress created several key oversight mechanisms with overlapping jurisdictions to ensure money was being properly tracked and managed, and was going to entities the money was specifically designed and allocated for. However, the administration has continued its concerted effort to avoid oversight.

In a signing statement he attached to the law, President Trump falsely claimed the right to interfere with the new special inspector general by indicating he would prohibit the special inspector general from notifying Congress “without delay” if any agency is “unreasonable” in denying a request for information. Several weeks later, the Office of Management and Budget issued guidance defying clear legal reporting requirements and instructing agencies to report less information on a slower timeline. And now the administration is saying it’s not required to provide information to the newly created Pandemic Recovery Accountability Committee, or to release the names of recipients and amounts of the $659 billion in loans authorized under the Paycheck Protection Program. During these difficult times, the American people need to know that their government is working for them and is being a good steward of their hard-earned money.

Recommendations

• Congress should amend the CARES Act by explicitly stating that the Pandemic Recovery Accountability Committee’s oversight and reporting requirements apply to Division A programs.
• The Federal Funding Accountability and Transparency Act; Digital Accountability and Transparency Act; Freedom of Information Act; and now the CARES Act all require public disclosure of awards to recipients. The administration should follow the existing laws and immediately publish the complete data for the Paycheck Protection Program loans. If the administration doesn’t comply, Congress should consider taking additional measures to enforce compliance.

Update: On June 19, the Small Business Administration, in a statement with the Department of the Treasury, announced it will disclose details for some of its Paycheck Protection Program loan money. The disclosures will include the names of businesses that received loans greater than $150,000, as well as the businesses’ addresses, zip codes, business types, demographic data, non-profit information, jobs supported, and loan amount ranges. The ranges are: $150,000 to $350,000; $350,000 to $1 million; $1 million to $2 million; $2 million to $5 million; and $5 million to $10 million. Rather than releasing the names of the recipients of loans below $150,000, the Small Business Administration will only release totals of loans aggregated by zip code, industry, business type, and demographic categories.

The Small Business Administration and the Treasury note in the statement that loans greater than $150,000 account for 75% of the loan dollars approved. However, it’s important to note that, based on the Small Business Administration’s own data from June 20, 86% of the loans issued are below the $150,000 threshold. As a result, it appears that the administration will not fully disclose loan data for more than 4 million loans.

While this policy reversal is a win for transparency and a step in the right direction, the agencies should still follow existing law and release the names and exact loan amounts for all Paycheck Protection Program loans.