The 2020 Mid-Year Economic Update_long

Distribution Industry Wins and Losses in COVID-19 Stimulus Package and Regulations

NAW Chief Government Relations Officer Jade West discusses the industry associations effort to promote distributors as essential businesses and ensure distributors are not cut out of the supply chain, as well as ongoing initiatives such as financial support for distribution businesses with more than 500 employees.
Compliance concept with San Francisco

In last month’s rush to solidify a national plan and relief effort on the coronavirus pandemic, certain aspects of the response were helpful to distributors, while others had the potential to inadvertently do harm. For example, guidelines for qualifying a business as essential excluded several distributors. The National Association of Wholesaler-Distributors advocated that they be broadened. Throughout this process, NAW has made sure distributors’ interests have been noted, most recently in the $2 trillion stimulus package. MDM spoke with Jade West, chief government relations officer for NAW, for a breakdown.

MDM: NAW President Dirk Van Dongen on March 25 sent a letter to Vice President Mike Pence’s office expressing concern about the administration’s recommendations for getting crucial products to intended users. According to the letter, manufacturers were being asked to send product directly to the end user, which would exclude distribution networks. What is the status of that?

West: At this point, I’m not aware of a reply from the vice president but we also haven’t heard any more unfortunate rhetoric from them encouraging manufacturers to drop ship directly to end-users. What I can tell you is that we’ve gotten their attention, and the White House knows who we are as an industry, what we do and the companies that we represent, so I hope that we have heard the last about disrupting the supply chain by encouraging the use of direct shipment by manufacturers. 

MDM: Another initiative that has consumed quite a bit of your organization’s time as of late is making sure NAW distributors understand the guidelines the Cybersecurity & Infrastructure Security Agency (CISA) issued on the identification of essential businesses and workers during the COVID-19 response. Are these identification guidelines meant to help the public identify businesses categorized as essential? 

West: The guidelines are primarily intended for the use of state and local authorities. It’s not a mandate but a guideline on what CISA deems essential. A lot of states have adopted them, but not all. As a result, we’ve heard from members that operate in states where the guidelines have not been adopted that they are being told they are not essential, although the guidelines say they are.  

Also see: “COVID-19: Distributors Take Hit in Late March, Move to Weather Q2.”

For example, we had some members in Washington state concerned that their state and local governments were ignoring the national standards and inaccurately deeming them nonessential versus essential. The guidelines give companies a resource to go back to their state and local government and say, “This is the federal guideline, under this guideline I am covered.” 

And although we don’t lobby state governments, we wrote a letter to all of the governors urging them to adopt the federal guidelines. We were hoping that CISA would issue an official form of certification. As Dirk says, “You know that a HAZMAT vehicle is a HAZMAT vehicle because it wears a big sticker that says HAZMAT.” We were hoping for something similar that essential businesses could place on their vehicles and put into the hands of the people that are carrying out those essential services. That is not forthcoming but a number of groups, including NAW, have created self-certification templates. 

We sent a sample letter template to NAW member companies informing them that if they are designated as an essential service, they can use the letter to self-certify their company as an essential service in accordance with CISA guidelines. Folks are using them and they’re working. 

MDM: Let’s turn to the economics of COVID-19. During House and Senate negotiations on the stimulus bill, NAW informed its members that there was an effort to remove a few business-tax provisions from the bill. Can you elaborate on this, as well as speak to NAW and other trade associations’ success in keeping those provisions in the bill?

West: When the Senate finished its bill and House Democrats came up with an alternative bill, somewhere during the course of what turned out to be a bipartisan negotiation, we heard that the Treasury Department had decided that they did not need a couple of the business-related tax provisions that were in the Senate-written bill.

They weren’t the big things such as the PPP [Paycheck Protection Program] small business lending program but it was the ability to defer payroll taxes, and that’s liquidity. Some of our companies are in essential trades so they are not hurting as much as others, but they still have cashflow problems because everyone is down at some level. Some of us are down 20%, some of us are down 90%. The ability to postpone the payment of payroll taxes and keep some of that money while they desperately need it is a great source of support. 

The same goes for the opportunity to take advantage of a temporary net operating loss carryback (NOL). In prior tax law, if you had a NOL, you could carry that loss backward and take the loss against a preceding year’s income. That was repealed a few years ago and made NOLs only available on a forward basis. This bill had a provision to temporarily allow NOLs on a carryback basis, so if you’re really taking a huge loss his year because of the coronavirus, they’d let you carry your losses backward. 

We were told that the business tax provisions were going to get dropped from the bill and we did what everyone in the downtown trade association community did, we reached out to everyone we knew in the Treasury Department, we reached out to everyone we knew in Sen. Mitch McConnell’s office and in the White House. There was no one we knew that we didn’t reach out to … and all of a sudden, those parts of the bill weren’t coming out. 

Also see: “A Three-Part Plan to Grow Business During the Coronavirus Crisis.”

In the middle of a bill negotiation, rumors fly fast and furious, so we’ll never know for sure if there really was a serious effort to take those provisions out of the bill, but it’s certain that the engagement of the business community was focused and unified in our effort to ensure the provisions were retained.  

MDM: NAW also pushed for change in the small business loan program proposals in the bill, allocated for employers with 500 or fewer employees. You wanted to extend those benefits to employers with more than 500 employees. Here, you were not successful.

West: No. There was an effort during the drafting of the bill to expand the employee cap to 1,500 and we supported that effort, but the small business loan program only applies to companies with 500 or fewer employees. That program is up and running. The Paycheck Protection Program (PPP) is what it is called. It is a small business lending program that went online last week. The Treasury Department and the Small Business Administration both had their oars in the water on this and Treasury Secretary Steve Mnuchin tweeted, “We’re up and running. The program’s good, here’s a link to the loan application.”

The SBA, on its site, linked to a different form. When we saw that, we thought, “This is not good.”  And we knew there was a lot of worry from community banks that the system was going to implode — like the Obamacare [website] did when the online system wasn’t adequately prepared to handle the volume. And the roll-out wasn’t smooth or efficient. Hopefully they’re working on getting the glitches fixed. We really need this program to work so the economy can recover when the health crisis is past us.  

MDM: Is there support on the way for companies with more than 500 employees?

West: There is a loan program for the employer community with 500 to 10,000 employees. That loan program is not up and running yet and we’re told it’s probably 10 days to two weeks out. We don’t know for certain but this program will probably be the Fed setting up a facility to buy loans issued by banks to their business customers. There’s also the possibility of direct lending by the Fed, and the law authorized the Fed to also pursue a “Main Street” lending program. 

We are getting a lot of questions from NAW companies in the 500-to-10,000-employee bracket because they don’t have any benefits from the small business loan program and they are facing the same economic crises as are the smaller companies. We have also heard rumors and reports that some banks are trying to take advantage of this crisis by changing the loan terms of their existing customers to the bank’s advantage. We are closely watching this space and are hopeful both that guidance on the midsize company program is launched soon, and that there is no real effort by banks to take advantage of the crisis.  

Jade WestJade West is chief government relations officer for NAW

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