An overview of “Phase 3.5” Supplemental Federal Funding

April 27, 2020

Congress Approves a “Phase 3.5” Stimulus, Providing Further Small Business and Hospital Funds

Soon after Congress passed the CARES Act, the 3rd Coronavirus relief bill, which provided over $2 trillion of stimulus money, lawmakers returned to the negotiating table to replenish exhausted funds and fill in gaps. The Senate passed the “phase 3.5” supplemental funding bill on Tuesday, April 21, and the House of Representatives passed it on Thursday, April 23. President Trump is expected to sign it swiftly. The bill includes $484 billion in new funding for existing programs that created under the CARES Act. The Payment Protection Program (PPP), a new small business loan mechanism that forgives loans for businesses that use the funds to maintain their payroll, was originally authorized for $350 billion in funding. PPP applications were first accepted for processing by banks on April 10th and subsequently ran out of funding on April 16th.  You can access an overview of the PPP here.

Republican lawmakers, led by Senate Majority Leader Mitch McConnell, originally proposed an additional $250 billion for the program. Democrats, however, demanded additional funds for hospitals and state governments, as well as carve outs for minority and women-owned businesses. Republicans insisted that a state and local funding package wait for the “phase 4” bill that will likely come within the next several weeks.

Small Business Administration Funds in “Phase 3.5”

The PPP was given an additional $320 billion, granting a lifeline to small businesses who haven’t yet received funds. This money is expected to be disbursed quickly, as many businesses have already applied for loans but haven’t received them yet due to a backlog of applications. Of that $320 billion, $30 billion will be set aside for financial institutions with between $10 billion and $50 billion in assets. Another $30 billion is set aside for institutions with less than $10 billion in assets. Those set asides were part of Democratic lawmakers’ demands that money be reserved for minority and women-owned businesses. On top of the $320 billion for the PPP, an additional $60 billion is provided for the Economic Injury Disaster Loan program. Small farms and ranches are also now eligible to apply for small business loans.

Healthcare Funding in “Phase 3.5”

The bill provides an additional $75 billion for hospitals, which are facing strenuous financial pressures as elective procedures are put on hold and costs of treating uninsured coronavirus patients mount. Previous legislation promised hospitals they would be reimbursed by the federal government for treating uninsured coronavirus patients, and those funds are now bolstered. The Kaiser Family Foundation estimated that up to 40% of the new hospital funds could be used to treat uninsured patients. A significant share of the $75 billion is set aside for rural hospitals. An additional $25 billion is marked for coronavirus testing. This includes $18 billion set aside for state and local governments, $1 billion for the CDC, and $1.8 billion for the NIH. Testing funds can be used for the manufacture and distribution of tests, development of rapid testing, procurement of personal protective equipment, and support for contract tracing efforts. According to Bloomberg Government, “Recipients would have to submit a testing plan to HHS that includes the number of tests needed, monthly estimates of lab and testing capacity, and information on how they will use testing to ease community mitigation policies.”

Looking Ahead to “Phase 4”

Before the ink was dry on the CARES Act, lawmakers were already discussing another stimulus package of similar size and scope. Now that the supplemental funding is moving towards passage, all eyes will move towards “phase 4.” House Speaker Nancy Pelosi signaled “We’re ready to go on to the next bill,” on April 22nd in an MSNBC interview. President Trump also appeared ready to begin negotiations, saying he would like state and local government assistance to be included. Lawmakers have discussed a relief package for state governments on the order of $500 billion, but Leader McConnell has thus far not publicly supported this proposal. McConnell projected a more cautious approach to further stimulus, saying, “Let’s weigh this very carefully, because the future of our country in terms of the amount of debt that we’re adding up is a matter of genuine concern.”

O’Neill and Associates will continue to monitor developments in federal government negotiations over future stimulus packages and the implementation of programs already passed. As the coronavirus pandemic continues to roil the American economy and public health system by the day, lawmakers are struggling to keep pace. While the substance of congressional negotiations may be uncertain, what is certain is that more relief will be coming.

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