‘No Lessons Have Been Learned.’ Why the Trillion-Dollar Coronavirus Bailout Benefited the Rich

When Congress passed the $2.2 trillion dollar Coronavirus Aid, Relief, and Economic Security Act (CARES) in late March, lawmakers were quick to tout its egalitarian guardrails.

Unlike the 2008 bailout packages, which funneled hundreds of billions to Wall Street and padded executives already-cushy pay packages, the CARES Act was shot through with provisions that lawmakers said would ensure that federal funds actually went to those in need. Any money loaned through the new $500 billion Federal Reserve program, for example, came with oversight measures, limits on stock buybacks and caps on executive compensation.

But nearly three months after the CARES Act’s passage, none of those guardrails appear to have made much of a difference. The disbursement of the money so far has been riddled with complaints and analyses showing it has disproportionately gone to the wealthiest corporations and individuals.

“No lessons have been learned [from the 2008 bailout]—it certainly seems that way,” says Neil Barofsky, who oversaw the Troubled Asset Relief Program as Inspector General under the Obama administration. Those much-talked-about guardrails that lawmakers imposed on the $500 billion Federal Reserve program, for example, have been mostly irrelevant so far. By June 17, the Treasury had committed to spending just $222 billion, less than half of the funds it was allocated. The rest of the roughly $1.7 trillion allotted through the CARES Act was not, for the most part, subject to the same restrictions.

TIME’s analysis of just three pots of money allocated in the CARES Act—the programs buttressing small businesses, healthcare organizations, and institutions of higher education—indicates that the inequitable distribution was of a myriad legislative and regulatory design flaws. While lawmakers included language in the law that explicitly directed funds to those most in need, they often designed programs that were not set up to carry out those intentions. “The safeguards in place are certainly not foolproof,” says Philip Mattera, Research Director at Good Jobs First, a non-profit organization tracking the recipients of the CARES Act.

While few dispute that an ambitious federal bailout package was necessary to help the country confront dueling economic and public health crises, it’s clear now that Congress’s massive outlay of cash has been often inefficient, helping to exacerbate the already-yawning wealth gap in the United States while leaving the neediest in the lurch during the worst unemployment crisis since the Great Depression. This package, devised and promoted as a mechanism to alleviate inequitable suffering during the pandemic, may end up playing a role in exacerbating it in the immediate future.

“All of this is going to tilt towards the biggest and most established companies and the smaller businesses and regular people are going to get left behind,” says Barofsky. “Because that’s what always happens.”

Small, minority-owned businesses struggled to access the Paycheck Protection Program

The Paycheck Protection Program (PPP) has become one of the most heavily scrutinized components of the CARES Act. It was the first program to launch and has spent the most money. It has also become a case study in the ways in which the law has fallen woefully short in distributing relief equitably.

The concept of PPP itself earned broad praise: the program was designed to offer small businesses federally-backed loans that would transform into grants (that do not have to be paid back), so long as the majority of the funds were used to keep workers on payroll. But the implementation of the program, says John Arensmeyer, the CEO of the Small Business Majority, an advocacy group that represents more than 65,000 independent companies, was structurally flawed. Because PPP required banks to act as intermediaries, it created a dynamic wherein larger, more established companies—often with existing relationships and lines of credit with banks—received funds before smaller operations, who feared their collapse was imminent.

“We never felt that running it through banks as intermediaries was the way to go,” says Arensmeyer. “We really felt the larger grant program would be more effective.”

The law’s definitions were also problematic. While PPP defined “small businesses” as entities with up to 500 employees, the law included a provision pertaining to the food and hospitality sectors wherein companies with individual locations of fewer than 500 people were still eligible. That meant that large, multi-million dollar chains, like Ruth’s Chris Steakhouse and Shake Shack were able to apply, often edging out the smaller mom-and-pop enterprises that the law was touted as propping up. (Both Ruth’s Chris and Shake Shack returned their loans after a wave of public criticism.)

Finally, lawmakers failed to allocate even close to enough money to meet small businesses’ needs. When PPP first launched on April 3, the $350 billion fund was depleted within two weeks. The limited supply meant that small-business owners like Tara Williams-Harrington, who owns a Newark franchise of Bricks 4 Kidz, which holds various classes for children using LEGO® bricks, were shut out of the first round. (Williams-Harrington received a loan in May, after Congress allocated more money to PPP.)

In a controversial move, the Treasury Department has refused to release recipients of the program, making it impossible to fully assess which enterprises benefitted most. But independent analyses indicate that the smallest companies, and particularly minority-owned shops, were the least likely to receive PPP funds. A survey of African-American and Latinx workers conducted by the Global Strategy Group released May 13—after the second round of funding—found that just 12 percent of workers received the assistance they requested. A later survey from Arensmeyer’s group showed that, while 63 percent of Black and Latino small business owners sought and received financing, three in 10 did not receive the amount they requested.

The program “is a reflection of the inequity that already existed and that’s playing out in a crisis situation,” Arensmeyer says. While many of the businesses that received help needed it, he adds, the way the funds were distributed was unfair. “The fact [is] that it left more underserved businesses behind, that has widened that gap.”

This outcome, lawmakers say, was not their intention. The CARES Act specifies that lenders prioritize underserved markets, including female and minority owned businesses. The problem is that there was neither an enforcement mechanism nor a system of incentives to ensure that banks actually prioritized such businesses. A May 8 report by the Inspector General for the Small Business Administration found that the organization did not comply with this guidance. As a result, the Inspector General wrote, “these borrowers, including rural, minority and women owned businesses, may not have received the loans as intended.”

Barofsky says this scenario was a classic example of Washington repeating past mistakes. “We learned from [2008] that when you rely on private institutions such as banks to carry out public policy it’s not going to happen unless you build in requirements and incentives,” he explained, noting that TARP implemented similar provisions for homeowners, only to see those efforts fall short. “Rather than learn that lesson…Treasury and SBA really just ignored it and thats one of the reasons the program rolled out the way it did.”

The wealthiest universities were eligible for the most aid—leaving community colleges in the lurch

The CARES Act directed $14 billion in grants to universities and other institutions of higher learning, the majority of which—$12.5 billion—went towards colleges and universities to assist with student financial aid. Institutions that received federal funding were required to spend at least 50% on students; the remainder could be used to reduce pandemic-related costs.

But so far, most students have yet to receive a windfall, in part because — like PPP — the program was structurally flawed. In this case, one major problem was the formula, determined by Congress, dictating how the Department of Education disburse the funds. The formula relied on the number of full-time Pell Grant recipients physically on campus prior to the pandemic. While that data point sounded good on paper, it had the effect of disproportionately rewarding wealthier institutions, which tend to have more full-time students and graduate students than poorer institutions like community colleges, says Ben Miller, a postsecondary education expert at the progressive think tank Center for American Progress.

“A majority of students at community colleges are part time,” Miller says. “So when the calculation uses full time equivalent enrollment, that substantially shrinks the enrollment in community colleges which mean they receive fewer dollars.”

New York University, for instance, which in 2017 had a $4 billion dollar endowment, received $25.6 million from the CARES Act—more than every CUNY community college except for the Manhattan campus. Both Harvard and Yale Universities were slated to receive nearly $9 million and $7 million, respectively. Both Ivy League institutions declined to accept the funds after a public backlash. But their refusal leaves the Department of Education in a bind.

“Given how Congress wrote the law, we are currently assessing our options for redirecting this money that goes either unclaimed or returned by institutions,” Angela Morabito, a spokeswoman for the Department of Education, said in a statement to TIME. The funds that Harvard and Yale refused have yet to be reallocated.

On May 15, House Democrats passed a bill that would amend the formula, distributing funds by total headcount, rather than full time enrollment. The bill as a whole has virtually no chance of passing the Republican-led Senate, although the fate of that individual provision is unclear. Other critics point at Education Secretary Betsy DeVos’s April guidance, which decreed that certain students, including recipients of the Deferred Action for Childhood Arrivals Program (DACA) were ineligible for aid. (The California community college system is currently suing DeVos over this matter.)

Hospitals serving wealthier patients got more aid than those serving the poor

The CARES Act allocated $175 billion to the Department of Health and Human Services to help prop up hospitals and health care providers, but that program, like the one designed to serve students, relied on a flawed formula. In this case, the formula was determined by HHS, not Congress. But it still resulted in unintended outcomes, says Colleen Meiman, a policy adviser at the National Association for Community Health Centers who previously worked at HHS. Because the formula relied on net patient revenue, it meant that wealthier hospitals, where patients are more likely covered by private insurance, received more funds than community health centers and hospitals in poor regions, where patients are more likely to be on Medicaid.

A May 13 Kaiser Foundation study found that hospitals with the lowest share of revenue from private insurance received half as much per hospital bed as their counterparts with the highest share. “All things being equal,” the study found, “hospitals with more market power can command higher reimbursement rates from private insurers and therefore received a larger share of the grant funds under the formula HHS used.”

The fund set aside $10 billion for hospitals and health centers in rural areas, but the results were perverse: community health centers, particularly larger outposts in urban areas hit hard by COVID, like New York City, that were ineligible for other programs like the PPP, were less likely to receive federal aide than wealthy hospitals in places where the rate of infection was lower. Meiman, who says she has been in frequent touch with HHS voicing her concerns over formula, says she’d perplexed that nothing has changed. “Its HHS’s responsibility to look at these discrepancies and try and even them out. I’m frustrated.”

An HHS spokesperson said a “number of approaches” were considered, and these were adapted after consultations across both the department and broader presidential administration.

Most hospitals nationwide stopped elective surgeries—a significant source of revenue—to handle COVID patients. But Karyn Schwartz, a senior fellow at Kaiser who wrote the study, notes they were the ones “ probably better positioned to absorb some of the shock from coronavirus” than those that received less funding.

On June 9, after facing pressure from lawmakers on both sides of the aisle, HHS announced an additional $25 billion will be distributed to healthcare organizations, with a priority on providers that either did not receive funds in the initial round or serve a disproportionate number of patients reliant on Medicaid. But Meiman says that doesn’t fix the problem. The eligibility requirements mean community health centers, particularly those who already received funds, “won’t get a penny,” she says.

“I cant tell you how many phone calls I got from health centers saying, ‘They are going to give us some funding finally,'” Meiman says, “And I had to say, I’m very sorry but read the fine print. You’re not eligible for any of this.”

Hundreds of billions have yet to be disbursed

Almost three months after President Trump signed the CARES Act into law, some of the most anticipated programs are finally getting off the ground. On June 15, Treasury Secretary Steve Mnuchin announced lenders could begin registering for the Main Street Lending Program (MSLP). Like PPP, the MSLP will administer federally-backed loans, but expands the eligibility requirements to encompass businesses with up to 15,000 employees or $5 billion in revenue. (Unlike PPP, the loans are not forgivable). While the program is not yet operational, the use of banks as intermediaries could potentially mean a repeat of the anger that surrounded PPP recipients.

“Once you start getting into the ideas of awards without formulas, lobbying and influence comes into play,” says Mattera, who is tracking the money for the Good Jobs First project.

Democrats are already taking issue with several MSLP provisions, including one that allows companies that have already laid off or furloughed workers to apply for MSLP, and another that fails to require that companies keep workers on payroll to receive the federal funds. (According to the latest Federal Reserve guidance, companies must only demonstrate a “commercially reasonable” and “good-faith effort” to keep payroll intact.)

What’s clear now is that neither the pandemic itself nor the economic recession will be short-lived. And as the debate over another relief package to combat these woes intensifies in Washington, the inequitably disbursement of cash in the first round could soon take center stage.