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Federal Reserve: 75% Of PPP Covid Relief Money Never Reached Employees, Went To Higher Income Households

Federal Reserve: 75% Of PPP Covid Relief Money Never Reached Employees, Went To Higher Income Households

PPP

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The federal Paycheck Protection Program (PPP) saved about 3 million jobs at its peak during the coronavirus pandemic but was poorly targeted, with almost 75 percent of its benefits going to unintended recipients rather than to workers, according to a new Federal Reserve Bank of St. Louis report.

The PPP provided loans to help businesses maintain payroll, hire staff, and cover costs but didn’t support jobs at risk of disappearing, and money flowed disproportionately to wealthier households, according to the Fed study.

Many small businesses found themselves shut out of PPP loans in what was considered a botched rollout of relief in the CARES Act. The problem was magnified for Black-owned small businesses.

PPP offered up to $10 million in forgivable loans with no collateral for businesses with less than 500 employees. Big businesses received funding from banks with whom they had pre-existing relationships while some of the most vulnerable business owners and mom-and-pop enterprises were left in the dust as funds ran out.

The program was implemented by the Small Business Administration (SBA) and allowed loans to be forgiven if businesses used the funds to keep payroll, cover utilities, rent and other expenses, and maintain employment targets.

Just a quarter of the funds from the PPP went towards supporting jobs that would have disappeared during the pandemic, according to a breakdown of the research, Newsweek reported.

The average wage and benefits for a small business employee was $58,200 in 2020. The research found that the cost per job saved for one year was $169,000 to $258,000.

Taxpayers paid for the PPP program to the tune of $4 for every $1 in wages and benefits received by workers in jobs that were saved.

“The PPP was a very large and very timely fiscal-policy intervention, saving about 3 million jobs at its peak in the second quarter of 2020 and distributing $800 billion well within two years of the onset of the COVID-19 crisis,” economists William Emmons and Drew Dahl concluded in their study, “Was the Paycheck Protection Program Effective?”

“But it was poorly targeted, as almost three-quarters of its benefits went to unintended recipients, including business owners, creditors and suppliers, rather than to workers. 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.”

Forgivable loans went into effect on April 3, 2020, a week after President Donald Trump signed the legislation and three weeks after he declared a national emergency.

PPP loans saved 2.97 million jobs per week in the second quarter of 2020 and 1.75 million per week during the fourth quarter of 2020, the Fed report said quoting research published in the Journal of Economic Perspectives.

Of the almost $800 billion in PPP loans, 90 percent was forgiven by June 2022, according to the study.