What Should Be Included In The Next COVID-19 Relief Bill

Wall Street Journal editorial

Both parties in Washington seem intent on passing another COVID relief bill this month, but it matters what's in it and especially how it's paid for. Republicans above all need to repurpose the unused funds from the Treasury backstop for the Federal Reserve's 13(3) pandemic lending facilities.

The two sides are focusing on something close to $900 billion, which is much more than needed given the imminent arrival of COVID-19 vaccines. But at least that's down from the Chuck Schumer-Nancy Pelosi demand of $2.2 trillion. The Speaker last week came off that attempt at political extortion, proving that it had been a gambit to prevent a deal before the election.

The Speaker figured the lack of a deal would hurt the GOP, and she even refused President Trump's pre-election offer of $1.8 trillion. She got too politically greedy. Voters decided to slash her credit-card limit by reducing her House majority and giving the GOP a chance to keep its Senate majority in the two Georgia runoffs on Jan. 5.

Senate Republicans have offered a bill for somewhere north of $500 billion that would be an ample bridge to the vaccine. It would extend jobless benefits for gig workers not covered by regular unemployment benefits. It would provide a second round of paycheck protection loans for small businesses hurt by shutdowns. And it includes tens of billions for COVID-related health care such as building stockpiles of medical supplies, as well as $31 billion for vaccines and therapeutics.

Even better is what it leaves out. There's no repeat of the $1,200 checks to most Americans, most of whom never lost their job or are re-employed. There's also no direct aid for profligate states, though the states would benefit from the other payments, including for child care and schools. No doubt Democrats will demand more in negotiations, most of which is intended to help the public unions that run Illinois, New York and California.

But the most significant planks of Mitch McConnell's GOP proposal are the "offsets" to finance it. The bill would redirect $140 billion in unspent funds from the March Cares Act. More important, it would re-obligate the $429 billion in Cares Act money that had been allocated to backstop the Federal Reserve's 13(3) pandemic lending facilities.

The Fed recently returned this money to the Treasury at Secretary Steven Mnuchin's request. The money was intended to prevent a financial meltdown in the scary early days of the pandemic, and it did its job. Markets that were frozen in late March had mostly healed by June and now are in good shape with more than enough liquidity. The mere presence of the facilities seems to have reassured markets as only $25 billion was used for loans or other purposes.

The problem is that the Fed returned the money only grudgingly, and the Biden team wants to return it. Worse, they believe Treasury can legally hand it back to the Fed as soon as Janet Yellen is confirmed as secretary. Talk about a moral and political hazard.

Senate Democrats last week pounded Mr. Mnuchin because he dared to recall the money. Sherrod Brown, who would run the Banking Committee in a Democratic Senate, berated him and claimed he is "trying to sabotage our economy on the way out the door."

Former Elizabeth Warren aide Bharat Ramamurti, who is now on the COVID-19 Congressional Oversight Commission, recently tweeted what has become the new Democratic Party line: "The CARES Act bars the Treasury from making 'new' investments in Fed lending programs at year-end. It doesn't say the Fed programs must stop making new loans or purchases at year-end. Mnuchin's decision to end the programs was purely discretionary."

This willfully misreads the bill, as Congress intended the special facilities to expire on Dec. 31. The hilarious irony here is that when President Trump and the Fed asked for the money in March, Democrats denounced it as a "slush fund." Sen. Warren tweeted in March: "Trump wants our response to be a half-trillion dollar slush fund to boost favored companies and corporate executives." She still voted for it. Joe Biden also slammed the Fed programs as a "$500 billion slush fund for corporations with almost no conditions."

Now they claim it's essential to save the economy that is recovering fast without it. That may have something to do with the election results that could limit the prospects of a multi-trillion-dollar spending spree next year. Democrats want the Fed cash as a substitute, especially since it can use its borrowing power to leverage the funds by five or 10 times.

The Yellen Treasury could also insist on policy mandates on loans such as climate rules, wage demands, and race and gender quotas. Fed Chairman Jerome Powell isn't likely to object to Ms. Yellen's requests if he has any desire to be reappointed for a second term starting in early 2022.

A COVID bill should be limited to easing genuine hardship while doing the least amount of new harm. Using the $429 billion in Fed money to finance the former is a fair trade.

–The Wall Street Journal