Advice for Businesses in Dealing with the Expanding Coronavirus Events
Interpreting the Federal Government’s Next Steps Regarding the Coronavirus
March 12, 2020
Charles A. Patrizia, Dina Ellis Rochkind, Rick Kirkbride, Michael Spafford, & Daren Stanaway
In light of the March 11, 2020 Oval Office address, we provide a summary of the federal government’s immediate and likely next steps concerning the Coronavirus:
Effective March 13, 2020, travel from the EU Schengen Area (except the United Kingdom) into the United States will be restricted for the next 30 days. U.S. citizens and permanent residents will not be affected, but will be screened upon arrival in the United States and, if traveling from known Coronavirus hotspots, likely will be asked to self-quarantine. Notably, the President’s proclamation is specifically limited to (a) the Schengen Area, and (b) persons who were in the Schengen Area within 14 days prior to travel to the United States, but (c) includes specific exemptions regarding U.S. nationals and certain aliens with family connections to U.S. nationals.1
The President will take certain immediate steps to provide assistance through Small Business Administration (“SBA”) loans to small businesses affected by the economic impact of the Coronavirus community spread. Eligibility and terms have yet to be defined.
The President is instructing the Treasury Department to defer tax payments that would be owed by businesses and individuals. Again, the specifics of which taxes will be included (likely payroll and FICA payments) and the terms of the deferral have yet to be defined.
The President announced an intention to take “emergency action” to assist caregivers or hourly workers affected by quarantines. The specific relief has yet to be defined.
The President announced that insurance companies have agreed to waive copay obligations related to Coronavirus testing and treatment, and is directing the Department of Health and Human Services to ensure that Medicare and Medicaid cover Coronavirus testing and treatment.
The White House press release on the President’s statement is availablehere.
The House Democratic majority has drafted a bill focused on their priorities (emergency expansion of food stamps (SNAP), school lunches during school closures, emergency social security benefits for workers affected by Coronavirus quarantines, and imposition of paid sick leave requirements). They hope to pass that bill today, before Congress leaves for a scheduled weeklong recess. Republicans have indicated opposition to the package, or at least elements of it, and there is no agreement with the Administration. Consequently, immediate passage by both houses is unlikely, and any package will need to be fully negotiated on the Senate side. Negotiations between the Administration and congressional leadership likely will continue in an effort to conclude an agreed package that likely will include some payroll tax relief or deferral, sick leave requirements (at least for hourly workers), and similar measures. How quickly Congress will act, and the specific elements in the package, are not yet clear. We note that in a difficult partisan atmosphere, reaching agreement will be difficult; this will be must-pass legislation, and therefore may attract additional, unrelated proposals that could delay or hinder final resolution. At least one Senate staff member now has been confirmed to be infected with the Coronavirus. As a result, more congressional staff may telework, and Members and Senators will be anxious to take advantage of the recess to return home, rather than working.
There is significant risk that the polarized political sphere increases the likelihood of unilateral Administration steps using emergency powers, as each side seeks to capitalize politically on proposed relief measures.
The actions are aimed at two targets: First, to slow the pace of community spread. CDC and NIH officials on the Coronavirus Task Force believe that the virus is in communities and that the spread cannot be stopped or eliminated, but slowing the pace is critical to avoid overloading hospitals and clinics in the immediate term. Some officials continue to hope that the Coronavirus will prove to be a seasonal illness and decline as weather warms, but there is no specific evidence of that. Second, to mitigate immediate economic impacts, particularly on hourly workers and small businesses. As uncertainty roils financial and ordinary business markets, continued economic impact is likely.
The effect of the Schengen Area travel ban is likely to be somewhat muted by the more significant impact on travel already occurring. The impact on hospitality and entertainment venues and workers likely will be significant, at least in the short term. The NBA has suspended its season, at least two NHL teams have announced they will play only to empty arenas at home, and more suspensions of athletic events are likely. Coachella is postponed, and other major concert tours are cancelled or postponed.
Needless to say, the Coronavirus has had a decimating impact on hotels, restaurants, and other aspects of travel and tourism around the world. A surveyof more than 400 Global Business Travel Association (“GBTA”) member companies last month found that two-thirds of respondents reported cancelling meetings, and almost one in five had cancelled “many.”2All in all, the Coronavirus could cost the global business travel industry $47 billion in a single month. For both hotel owners and operators, the recently classified pandemic has created uncertainty for business operations around the world. With both business and leisure travel severely limited, hotels and resorts, casinos, restaurants, clubs, lounges, and other major tourist hotspots are feeling the widespread effects, with a recession hot on the heels of this contraction in the travel sector. How big could the decline be, and how fast could it recover? The Coronavirus strikes at a time when hospitality supply already is greater than demand, with occupancies down and continuing to fall. Historically, however, even after severe declines, hotels and resorts have recovered occupancy rapidly. For example, following the SARS outbreak, some markets saw around a 35% decrease in demand virtually overnight, but demand rose to near normal levels within six months. The Coronavirus is likely to follow a similar pattern. Until then, though, the hospitality market is in for some trying months. The stock market is the single largest indicator of consumer business and sentiment, and lodging stocks took steep tumbles in the wake of Coronavirus uncertainty. The worst of it was Ashford Inc. (AINC), with a nearly 28% drop, followed by Sotherly Hotels Inc. (SOHO) heading to penny stock status, down another 24%, and Braemar Hotels & Resorts Inc. (BHR), with a drop of 21%. A large travel destination and timeshares company similarly experienced a nearly 20% drop. Still, CBRE analysts suggest that it is too early to say whether growth forecasts should be adjusted downward for the year. On the other hand, annual global GDP growth is projected to drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, with possible negative growth in the first quarter of 2020. Many hotel companies now have said that due to the uncertainty related to the ultimate impact on travel demand resulting from the Coronavirus outbreak, they are withdrawing their first quarter and full year 2020 guidance. Government comments suggest that help specific to the travel and tourism industry (mainly hotels and cruise lines) is forthcoming, but nothing concrete is yet on the table.
We will continue to track Administration and legislative actions and update.