(Bloomberg Opinion) -- It’s almost always an advantage to have a seat at the table.
In March, as Congress wrestled with the ravages of the Covid-19 pandemic and debated the contours of what would soon become the largest economic bailout in U.S. history, four legislators pushed hard to make sure that franchise operators received special treatment.
They wrote a letter to the two senators steering the legislation toward the finish line, Mitch McConnell and Charles Schumer, asking them to increase the amount of taxpayer funding franchises could receive. While the Coronavirus Aid, Relief and Economic Security Act didn’t ultimately provide extra money for franchises, it arguably provided something far more valuable: It mandated that franchises — regardless of how many stores or restaurants they operated or how many people they employed in those outlets — would be eligible for federal small business aid.
Given that Paycheck Protection Program funds were initially supposed to go only to companies with 500 or fewer employees, this was a significant concession. It meant that large national operators, some of which employed thousands of people, could snare PPP funding by applying store by store. You know what happened after that. Big operators such as Shake Shack Inc. and Ruth’s Hospitality Group Inc. received big loans; authentically small businesses were left out; and a healthy round of public criticism of the PPP program ensued. (Shake Shack and Ruth’s Hospitality decided to return their loans.)
One of the four legislators who pushed for special bailout treatment for franchises in March was Representative Kevin Hern, a Republican from Oklahoma. Hern campaigned for his House seat in 2018 as a can-do businessman who has successfully operated a chain of McDonald’s franchises in his home state. I wrote a column in April asking whether Hern had positioned his own businesses for a rescue on the taxpayers’ dime.
Hern and his office declined to comment when I asked in April whether his franchises would apply for federal aid — and whether doing so would be a financial conflict of interest. They also declined to comment on any discussions Hern may have had about the CARES Act with McDonald’s Corp., the fast-food giant that doles out franchises to entrepreneurs like Hern. On Monday, the Small Business Administration finally answered one of those questions. It released the names of some of the biggest recipients of PPP funds and, as it turns out, a Tulsa enterprise controlled by Hern, KTAK Corporation I, received $1 million to $2 million.
KTAK operates fast-food franchises the Hern family owns. I contacted Hern’s office again on Monday and asked for information about any role he played in getting PPP funding for KTAK. I also asked whether his family’s McDonald's franchises received PPP funding directly and, if so, how much they received. I also asked Hern’s office to disclose any other businesses in which he has a financial or management interest that received PPP funding. Hern and his representatives didn’t respond to any of those questions.
In a press release, Hern’s chief of staff, Cameron Foster, said that his boss “has been open and transparent with members of the community about his family business’ need of a Paycheck Protection Program Loan during the Covid-19 crisis.” Foster also said that Hern was “happy to share that the family business was able to keep all employees either at their current level of employment or move part-time employees to full time.”
If all of Hern’s employees did, in fact, stay on his companies’ payrolls, that’s a good thing. But securing PPP funding also presumably meant that Hern and his family could keep their businesses operating — a direct financial benefit for the congressman himself. And Hern got that funding ahead of somebody else, possibly much smaller businesses that lacked his resources and connections.
Concerns that insiders would benefit from the PPP program have shadowed the bailout from the moment it was enacted in March. Schumer personally promised that no bailout money would go to businesses controlled by President Donald Trump or his family members. Language was added to the CARES Act to try to ensure that didn’t happen. But Congress then exempted PPP — one of the most heavily funded bailout programs — from those provisions.
So far, it doesn’t appear as if the Trumps have received public funds directly. But the Washington Post reported on Monday that dozens of businesses that operate in Trump-owned or Trump-controlled buildings obtained PPP funds. Bloomberg News reported that a business partner of the Trumps in Hawaii received a PPP loan. Corporate entities tied to the family of the president’s son-in-law, Jared Kushner, also pulled in some PPP funds.
The law firm founded by one of Trump’s longstanding personal attorneys, Marc Kasowitz, received PPP funds of $5 million to $10 million. Companies linked to Education Secretary Betsy DeVos and Agriculture Secretary Sonny Perdue also received PPP loans, as did a company linked to House Speaker Nancy Pelosi’s husband, Bloomberg News reported. Two Democrats, Debbie Mucarsel-Powell and Susie Lee, as well as two Republicans, Vicky Hartzler and Roger Williams, are also linked to businesses that have snared PPP funds.
The SBA and the Treasury Department have been the primary administrators of the PPP program, and they’ve been unusually lax about properly overseeing and administering the hundreds of billions of dollars of taxpayer money that they’ve handed over to small businesses thus far. Treasury Secretary Steven Mnuchin resisted disclosing the identities of PPP borrowers for months until public hearings forced his hand. The SBA even waived conflict-of-interest and ethics guidelines that have traditionally prevented legislators from gaining access to the agency’s loans.
So when public officials like Hern are the beneficiaries of taxpayer-funded programs like PPP, it winds up not being illegal or unethical simply because the federal government says it isn’t.
Hern once owned as many as 18 McDonald’s franchises in the Tulsa area that employed more than 1,000 people, though that has shrunk to just five franchises more recently. He continues to own his McDonald’s franchises while serving in Congress because federal ethics and conflicts-of-interest guidelines allow him to. While the guidelines limit how much outside income legislators can earn while serving in Congress, they permit exceptions for performing some kinds of outside work — including practicing medicine or advising a family-owned business.
Financial disclosures that Hern filed in 2018 said his restaurants contributed $25 million to $50 million of value to an overall portfolio of personal holdings worth between $38.7 million and $92.9 million at the time. An Oklahoma nonprofit news organization, The Frontier, nicknamed Hern “the McCongressman.”
Hern seemed committed to altering that perception when he ran for Congress in 2018. “Kevin will use his experience and knowledge to focus on leading Congress by example, and put an end to the typical behaviors of career politicians,” his campaign pledged at the time.
Maybe all that PPP money changed his mind.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Timothy L. O'Brien is a senior columnist for Bloomberg Opinion.
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