House report is sharply critical of Treasury’s handling of payroll program

Ultimately, the subcommittee concluded that instead of preserving jobs, the Trump administration’s implementation of the Payroll Support Program “significantly weakened the Program’s impact on job preservation.”

The subcommittee’s assessment comes in stark contrast to how the program has played out for passenger airlines, which received the bulk of the more than $25 billion that was allocated to pay front-line workers. Airline and union leaders say the program saved tens of thousands of jobs until it expired Oct. 1 and have been aggressively pushing to extend it through the end of March.

“The Payroll Support Program has supported hundreds of thousands of aviation industry jobs, kept workers employed and connected to their healthcare, and played a critical role in preserving the U.S. airline industry,” the Treasury Department said in a statement. “Implementation focused first on the largest employers to help stabilize an industry in crisis and support as many jobs as possible for as long as possible. Treasury provided over 80% of the requested funds supporting over four hundred thousand jobs within 26 days of the enactment of the CARES Act.”

The subcommittee’s report also slammed contractors for laying off workers even as they sought to secure government aid.

“Documents uncovered during the Select Subcommittee’s investigation show that aviation contractors sought to avoid ‘unnecessary costs’ by terminating employees before executing [Payroll Support Program] agreements,” the report said.

The report found that aviation contractors laid off or furloughed nearly 58,000 employees before applying for assistance through the Payroll Support Program, 17 times the number reported by passenger carriers. At least 16,655 employees were laid off or furloughed between when the application period opened and when companies finalized their agreement with the Treasury Department.

The subcommittee said briefings with Treasury officials and contractors as well as its review of tens of thousands of documents found that the agency knew that companies were conducting layoffs, even as their applications for payroll support were pending, but failed to raise objections or require that furloughed employees be rehired once the funds were received. The subcommittee alleged that led companies to “urgently” fire employees before signing agreements.

“Treasury’s decision to allow layoffs while applications were pending, in conjunction with the delay in executing agreements, meant that many companies paused layoffs for far shorter than the six months Congress intended,” the report said.

The report noted that although Treasury officials have maintained they did not have the ability to lower payroll support awards to reflect the size of a company’s current workforce, the subcommittee argued that is not in keeping with the provisions of the Cares Act.

The report also said that in not imposing a deadline on when the funds had to be spent, Treasury gave companies little or no incentive to rehire workers.

“Many chose not to rehire workers and instead to use the funds to cover payroll for the remaining workers over a period of many months,” the report said.

The Payroll Support Program was created as part of the Cares Act to prevent massive job losses in the aviation industry as the demand for flights cratered in the face of a global pandemic. In addition to airlines, aviation contractors, including those that provide food and other support services to the industry, also were eligible to receive funds.

While the Cares Act directs Treasury to base the award amount on a company’s payroll costs between April 2019 and September 2019, the house committee’s report said that is designed to be a “proxy” for expected payroll costs between April 2020 and September 202o.

Despite its concerns, the subcommittee recommended that a second round of payroll support be passed by Congress as part of a broader response to the coronavirus pandemic. However, it recommended that any new legislation include an amendment to prohibit involuntary layoffs or furloughs as long as contractors still have unspent payroll support funds. In addition, it said that the Treasury Department should “learn from its mistakes and ensure that job retention is the top priority.”

The report released Friday comes a few months after Democratic lawmakers on the subcommittee launched an investigation this summer into whether four aviation contractors violated provisions of the Cares Act by laying off thousands of workers, despite receiving millions of dollars from the government to keep employees on the job.

An analysis by the subcommittee found that more than $500 million in federal funds went to four companies that have laid off more than 7,500 workers.

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