Government Pandemic Loans Plagued by Potential $260 Billion in Fraud
All told, Congress has authorized about $5.9 trillion in spending to address the social and economic fallout from the pandemic, of which $4.32 trillion has been disbursed or committed already. By now, more than a year into this unprecedented burst of spending, there’s sufficient hindsight to assess the federal pandemic response, and the early results bode poorly for proponents of “big government.”
In a new Cato Institute Legal Policy Bulletin, I describe the Small Business Administration’s (SBA) shambolic implementation of two marquee pandemic policies. The first is the $813 billion Paycheck Protection Program (PPP), involving federal loan guarantees, set at a low interest rate (1 percent), which could be forgiven if the borrower spent a certain percentage (about two-thirds) on payroll. The second is the $367 billion Economic Injury Disaster Loan (EIDL) program, which entails loans on favorable terms that are disbursed directly by the government.
Both of those pandemic programs reflect gross expansions of troubled frameworks. The PPP is an extension of the SBA’s “section 7(a)” loan guarantee program, which, in the years prior to the pandemic, was an annual presence on the Office of Management and Budget’s list of “high priority” programs that warrant greater scrutiny due to their poor stewardship of taxpayer dollars.
Similarly, watchdogs had sounded alarms about core aspects of the EIDL program (including the SBA’s assessment of creditworthiness and applicant eligibility) long before COVID-19 plagued us. Despite these repeated warnings, the EIDL program reported its highest-ever improper payment rate of 11.98 percent in the fiscal year before the pandemic, among the worst rates in government.
From this suboptimal baseline, both programs were further stressed by a vastly increased workload. For example, in a “normal” year, the SBA makes about 62,000 loan guarantees, totaling $16.7 billion, under the section 7(a) program; over the first year of the PPP, in comparison, the agency made more than 9 million loan guarantees worth $746 billion. The EIDL program, too, exploded: In the first year of the pandemic, the SBA disbursed about twice as many direct loans as the agency had made over its entire 67-year history be
Article from Latest – Reason.com