Last week, the federal government launched the Paycheck Protection Program (PPP), a new loan program intended to help small businesses that have partially or fully shut down because of the COVID-19 pandemic. The program’s initial roll-out didn’t go well; many banks delayed or refused to accept loan applications. But fixing these issues does nothing to address the far greater concerns over government agencies’ ability to implement legislation.
The new loan program is a part of the Coronavirus Aid, Relief and Economic Security Act (CARES) passed by Congress in March to stimulate a pandemic-crippled economy. The PPP makes low-interest loans available to small businesses to help keep them afloat during the next few months. If a small business complies with certain conditions, the loan will be partially or fully forgiven.
A business can apply for a loan in the amount of 2.5 times its average monthly payroll. It will be eligible for loan forgiveness for the portions of the loan used for payroll costs, mortgage interest payments, rent and utilities.
Before its launch, the Small Business Administration (SBA), the government agency overseeing the PPP, issued a regulation detailing how it will administer the loans. And it appears the SBA and CARES Act are not on the same page. Contrary to the CARES Act, the SBA further limits loan forgiveness eligibility. To be eligible for full loan forgiveness, a business can spend only 25 percent of the loan on non-payroll expenses.
The regulation recognizes what Congress passed, stating that “the Act provides that borrowers are eligible for forgiveness in an amount equal to the sum of payroll costs and any payments of mortgage interest, rent, and utilities.” But in the next breath, the SBA ignored that language and changed the law because it “determined that the non-payroll portion of the forgivable loan amount should be limited to effectuate the core purpose of the statute.”
Congress intended for the loan program to help small businesses and their employees during this time. The SBA’s regulation, however, drops the small businesses from the equation. Business expenses stretch far beyond payroll, to things such as building expenses that often incur significant costs. Congress determined that the CARES Act loans should be available for these other expenses as well as payroll. The SBA, however, says differently and unilaterally changed the law’s meaning.
Moreover, the SBA’s rule adds no additional protections for employees. This, despite the fact that the CARES Act requires that loan recipients not reduce salaries or wages by more than 25 percent. Additionally, nearly all small business employees will receive the $1,200 economic impact checks from the government, further ensuring that their income remains relatively consistent.
Unfortunately, the SBA’s action is just one of many examples where an administrative agency has usurped Congress’s lawmaking power. The Constitution places the power to make laws in Congress. The executive branch is empowered to execute those laws — but not to rewrite them.
But over the past century, executive branch agencies have taken over more and more of the lawmaking function of government. The third branch of government, the judiciary, also has played a role in this power grab. In many cases, courts do not interpret the meaning of legislation, as the Constitution intends. Instead, judges defer to agency interpretation of the laws they enforce.
As a result, in many situations, such as with the CARES Act, an unelected government official decides the meaning and effect of a law. Even when Congress clearly states how a law should work, an administrative agency can change the law’s meaning through regulation.
The Constitution specifically empowered Congress with lawmaking power, in part to ensure that big decisions ― such as how to respond to a public health crisis ― are determined by politically accountable representatives rather than career bureaucrats. It ensures that those decisions are debated among those representatives, rather than made unilaterally by someone who is not elected. And it ensures that citizens know who to hold accountable for those decisions.
Congress debated, wrote and ultimately compromised on the CARES Act. Whether the law has positive consequences will be determined in the weeks and months to come. But those consequences should result from what the legislators wrote, as the Constitution intends, rather than from an agency regulation. It’s time for all branches of government to rediscover the importance of the separation of powers as a tool of accountability ― and that begins with Congress reasserting its authority to make the laws that govern Americans.
This op-ed was originally published by The Hill on April 13, 2020.