Senate Passes CARES Act

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Senate Passes CARES Act

By Michal Christine Escobar - 03/26/2020

On Wednesday night, March 25, the United States Senate passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This act is a $2 trillion relief package aimed at helping those who have been most severely impacted by the economic downturn due to COVID-19. The legislation will offer direct payments to Americans, an expansion of unemployment insurance, billions of dollars in aid to both small and large businesses, and more funding for the health care industry.

For the hospitality industry in particular, the bill will offer those employees who have been laid off from their jobs at hotels and restaurants access to an extended unemployment insurance which will provide for up to four months of full pay rather than the usual three months. It will also raise the maximum unemployment insurance benefit by $600 per week. It will apply to traditional workers as well as those who are self-employed and workers in the gig economy.

It also provides $350B in the form of loans for small businesses impacted by the pandemic and allows for some of these loans to be forgiven. However, according to the AHLA, these loans will not allow hoteliers to meet payroll and debt service obligations which could result in the continuation of furloughing of hotel workers.

“The hotel industry applauds leaders in the Administration and Congress who are working around the clock during this unprecedented public health crisis, to ensure the health and well-being of our country and to pass a financial package that helps save the American worker and the industries that drive our economy, including the hotel industry,” said Chip Rogers, AHLA president and CEO.

“However, there is one challenge that makes the current plan unworkable for hoteliers. The legislation limits an SBA loan to 250% of average monthly payroll. This limit will not allow a business owner to meet both payroll and debt service obligations beyond an estimated 4 to 8 weeks. Consequently, it will result in furloughing the very workers the bill seeks to protect. Since the measure reduces debt forgiveness with any reduction in payroll, hoteliers would be forced to use the entire loan amount on payroll, at the expense of debt service. The harsh reality is that travel restrictions and mandated business closures remain in place. The outlook for the foreseeable future is zero revenue for most hotels. If a hotelier cannot make debt payments the business will go under and the jobs are lost,” Rogers added.

AAHOA President & CEO Cecil P. Staton agreed with Rogers that while this relief package was a “step in the right direction” it does not yet quite provide the relief needed by those in the hospitality industry.

He noted that there remains “administrative hurdles between small businesses and the capital they need. It may take weeks to get this capital, and many small businesses have days until they close. We are disappointed that the formula for determining the maximum loans available to small businesses still does not provide hotel owners with sufficient liquidity to meet their obligations. This is of great concern to us because we do not anticipate travel to resume by May.”

Update: March 27, 2020 9:30AM CT

Major cruise lines will not qualify for aid under the CARES Act as they do not fill two major criteria: 1) being a U.S.A.-based corporation and 2) having the majority of their employees based in the U.S.A., reports The Wall Street Journal. While Trump said he would like to provide assistance to to the cruise industry, it is "very tough to make a loan to company when they're based in a different country."