Stein Mart Inc. was desperate for shoppers long before COVID-19 forced closures at its discount department stores, scattered mostly throughout the Southeast.
While extreme, the situations underscore broader flaws in the rapidly deployed program, including only cursory reviews of applicants’ pre-pandemic financial state and no requirement that recipients actually save jobs or even stay open. For Stein Mart and others like it that failed anyway, the millions in taxpayer dollars will never be fully repaid – the companies simply do not have the cash.
Inside Trump Tower in New York, the Triomphe Restaurant Corp. took out more than $2 million in PPP money but still shuttered, saving no jobs. And the company that operates The MC Hotel in New Jersey received more than $1 million in PPP funds in April, reporting that 109 positions would be saved. The hotel filed notices that 64 of its employees would lose their jobs by Sept. 14, after laying off 123 before it received the loan.
“The question becomes what happens to the funds – do they get returned back into the government’s hands or do they add insult to injury?” said attorney Neil Getnick, chairman of Taxpayers Against Fraud, a Washington, D.C.-based nonprofit. “One of the first things clear from this data is that it’s not the illegal things that threw this program off-kilter – it’s the misuse and money that went to unintended recipients.
In June, Stein Mart took out the maximum $10 million for the loan program. Financial records show the federal PPP support paled in comparison to the bailout it needed. Gardner Davis, a Jacksonville attorney who represents Stein Mart in the bankruptcy, said the PPP money was essential to keep paying employees during the initial pandemic. But he insisted nobody inside the company knew how long the fallout from the virus would last – or how deep its impact would be.
Stein Mart will seek forgiveness of the $10 million PPP loan on the grounds that it was used for payroll, Davis said. If denied, the debt to the U.S. government will be added to the stack of unsecured creditors in the bankruptcy, to be paid out cents on the dollar. Officials in the rural area have anticipated the mill’s closure for years – a major blow to the local economy. Advertising losses tied to the virus further exacerbated the decline. Officials now fear a rail line that depended on its paper shipments could fold, too.
John Munding, a trustee in the federal bankruptcy case, said the PPP funds were used for operations, like payroll. Ponderay Newsprint, he said, has no revenues left to repay the government loan. “The hope with the loan would that it would bridge to the other side of the pandemic and Ponderay would survive,” Reed said in an email.
Watchdog groups have cited more than $4 billion in improper loans, saying 50% of all funding went to just 5% of the applicants, with communities of color and microbusinesses left out. An MIT study in July showed that each job saved through PPP cost nearly $225,000. Changes to the CARES Act allow loans to be forgiven if companies rehired employees by the end of 2020. Businesses that couldn’t are expected to repay the note with modest interest – if they can. Those rules left a loophole for struggling companies: take the money, fold and leave nothing left to repay the debt.
In Madison, Wisconsin, Union Cab received nearly $690,000 in PPP loans in April to save 180 jobs, government records show. By summer, the taxi company announced it was laying off or furloughing 126 of those workers.