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A lame duck Congress reconvenes over stimulus

| November 6, 2020

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.

Congress reconvenes for a lame duck session on November 9 with both chambers putting a second stimulus bill high on the list of priorities. The two parties previously outlined their relief agendas in the Democrat proposed HEROES Act and the Republican sponsored HEALS Act. There is considerable overlap between the proposals despite a $2.3 trillion gap in spending. Agreement over some headline items—stimulus checks and unemployment insurance—should look like easy wins for both parties with horse trading coming over eviction moratoriums and loan modifications for homeowners and tenants, among other things.

Competing proposals for a second stimulus bill

Democrats in the House of Representatives outlined their priorities for a second coronavirus relief package in the Health and Economic Recovery Omnibus Emergency Solutions Act, or HEROES Act. The first version of the legislation (H.R. 6800) proposed a $3.4 trillion stimulus package. It passed the House on May 15 in a 208 to 199 vote, largely along party lines. One Republican voted in favor of the HEROES Act, Rep. Peter King of New York, a 14-term congressman not up for reelection. A group of 14 mostly moderate Democrats, many of whom faced tough races for reelection in districts that Trump won in 2016, voted against the legislation.

The Senate Republican counterpoint to the HEROES Act is the Health, Economic Assistance, Liability Protection and Schools, or HEALS Act, which was introduced by Senate Republicans on July 27. The HEALS Act is a group of eight bills providing $1.1 trillion in stimulus, which was intended to be the Republican starting point for negotiations for the next coronavirus relief bill.

  • Safe to Work Act (S.4317)
  • American Workers, Families, and Employers Assistance Act (S.4318)
  • Supporting America’s Restaurant Workers Act (S.4319)
  • Coronavirus Response Additional Supplemental Appropriations Act, 2020 (S.4320)
  • Continuing Small Business Recovery and Paycheck Protection Program Act (S.4321)
  • Safely Back to Work and Back to School Act (S.4322)
  • Time to Rescue United States Trusts Act of 2020 (TRUST Act) (S.4323)
  • Restoring Critical Supply Chains and Intellectual Property Act (S.4324)

The first HEROES Act did not come up for debate by the Senate, but negotiations between Democrats and Republicans continued. On October 1, the House passed a revised, somewhat scaled-back version of the HEROES Act (H.R. 925, as amended) in a near-party-line vote of 214 to 207, with 18 Democrats voting against it. The revised bill allotted $2.2 trillion for stimulus aid. The House Democrats published a detailed, title-by-title 87-page summary of the 2,000 page bill, as well as a 1-page overview.

There is an excellent side-by-side comparison of the HEALS Act vs the HEROES Act by law and lobbying firm GrayRobinson.

Election post-mortem

At this point, it appears that Democrat Joe Biden will be elected president by a narrow electoral margin. Republicans will likely maintain a razor-thin majority in the Senate, with two Senate races headed to January runoff elections. Republicans have whittled down the Democratic majority in the House by gaining five seats.

Among the group of House Democrats who opposed the Heroes Act were South Carolina Rep. Joe Cunningham, Iowa Rep. Abby Finkenauer, Oklahoma Rep. Kendra Horn, and New Mexico Rep. Xochitl Torres Small, all of whom lost their bids for reelection.

The five House Democrats who lost their bid for re-election included:

  • Kendra Horn (D-OK) whose district was won by Trump in 2016.
  • Collin Peterson (D-MN) whose Minnesota district Trump won in 2016 by the largest margin of any held by a Democrat.
  • Freshman Rep. Abby Finkenauer (D-IA) also from a district in Iowa that Trump carried in 2016 but the Democrats flipped in 2018.
  • Freshman Rep. Xochitl Torres Small (D-NM) who lost in a rematch to Yvette Herrell after Democrats flipped the district at the 2018 midterms.
  • Joe Cunningham (D-SC) whose Charleston district flipped to the Democrats in 2018 after Republican Rep. Mark Sanford–an outspoken Trump critic–lost in the primaries. The district was retaken by Republican Rep. Nancy Mace who was the first woman to graduate from the Citadel.

Stimulus bill becomes top priority for lame duck session

Senate Majority Leader Mitch McConnell said on November 5 that Congress needs to pass another Covid-19 stimulus bill before January, and has made it his top priority when the legislature reconvenes on November 9. Based on the existing overlap between the HEALS and HEROES Acts, and ongoing bones of contention between the two parties, here are some guesses of the headline economic and market-based items that might be included in the new package.

What’s probably in:

  • Another round of $1,200 direct stimulus checks to qualifying individuals and more generous payments for dependents. Democrats want payments of $1,200 per child while Republicans suggested $500 per dependent with no age limit.
  • Renewal of enhanced unemployment insurance. Democrats want the $600 per week reinstated, while Republicans have proposed payments that replace only up to 70% of lost wages, up to $500 per week, when combined with state unemployment insurance payments.
  • Expansion of Paycheck Protection Program loans, easier loan forgiveness terms and broader eligibility requirements for small businesses.
  • Aid to states and local governments. This was not offered in the Republican HEALS Act. However, McConnell commented in a post-election press interview that such aid should be included in a new stimulus bill, though the amount will likely fall short of the $1 trillion sought by the Democrats in the HEROES Act.
  • Money for a comprehensive coronavirus testing and tracing program.
  • Easing of repayment terms for federal student loans.

What could be in:

  • A liability shield for businesses to protect them from coronavirus-related lawsuits from workers and customers. This is a high priority for Republicans and is part of the HEALS Act, but does not appear in the HEROES Act.
  • An extension of the moratorium on evictions and foreclosures; and a modification of CARES Act forbearance requirements with specific loan modifications and loss mitigation options available to homeowners. This was included in the HEROES Act but there was very little additional assistance provided to homeowners or renters in the HEALS Act.
  • Assistance to airlines.
  • Additional assistance to restaurants.

Notably absent:

  • Any targeted provisions for commercial real estate owners or developers

Both of the proposed bills are expansive pieces of legislation that include funding or accommodations for laundry lists of party priorities, many of which have little or nothing to do with the pandemic. The Congressional horse trading during negotiations will hopefully eliminate most of the pork stuffing.

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