Shake Shack, Then Harvard: Who’s Minding That $2.6 Trillion?

(Bloomberg Opinion) -- At some point today, Congress and the White House will sign off on a bill authorizing an additional $380 billion in federal emergency aid for small businesses. The money will then begin making its way to banks and, ideally, find a home with tens of millions of shops unraveling amid the coronavirus pandemic.

We aren’t living in an ideal world, of course. This $380 billion follows a previous $349 billion lifeline Congress teed up for small businesses. That earlier fund evaporated in just a couple of weeks, and perhaps only about 5% of the nation’s 30 million small businesses — and possibly significantly less — got their hands on it. Some of it went to more well-heeled enterprises, including Shake Shack and, as the Associated Press reported, 94 publicly traded companies that didn’t appear to be prime candidates for small-business rescues. Shake Shack gave the money back. Others haven’t.

Upon learning that Shake Shack disgorged its $10 million in public aid, Treasury Secretary Steven Mnuchin, who stewards the small-business program, took to Twitter on Monday to note that he was “glad” the company did so. Given that there are likely to be myriad companies and possibly many billions of dollars that wound up in the wrong hands, Mnuchin might stow his joy for the moment. It was his team’s responsibility to make sure banks properly vetted and prioritized borrowers to avoid foul-ups before taxpayers’ money went out the door, not after.

Although Mnuchin has used selective data to spin the first round of aid as a success, he and the Small Business Administration haven’t released enough information about exactly who was funded, and how much they received, to convince outside observers to agree with him. The money was meant to support employees of small businesses, and it’s not clear yet whether workers received it or what impact it will ultimately have if the crisis is prolonged. And the Treasury Department, like so many federal agencies these days, also may not be in fighting shape — which raises questions about its broader ability to manage the most sweeping financial rescue in history. Senior positions at the Treasury Department have gone unfilled, and the agency’s lack of experienced leadership and expertise is particularly apparent in its domestic finance unit, which would normally handle the bulk of financial engineering needed in a rescue of this magnitude.

All of which begs a more general question about oversight of what is now a $2.6 trillion federal airlift of individuals, businesses, state and local governments, health-care providers and other public institutions: Who’s minding the store?

Let’s put aside the question of whether the federal government had to embrace its inner Keynes to stem the havoc Covid-19 has unleashed (I think it certainly needed to). Instead, let’s consider whether the money has been deployed with enough transparency and accountability for the public to monitor the effort in real time.

Legislators created the bipartisan Covid-19 Congressional Oversight Commission to help answer these questions. Four of its five members have been appointed, but it still lacks a chair. President Donald Trump, who has resisted oversight of the bailout, derailed a panel of inspectors general meant to do similar work. A vacancy for an oversight official in the Treasury Department hasn’t been filled because the Senate isn’t present to confirm him. House Speaker Nancy Pelosi moved to appoint her own oversight commission to fill the gap, but it can’t get moving until the House  reconvenes to approve it. The Government Accountability Office is likely to emerge as the most sophisticated, reliable and independent auditor of the stimulus package. It received special funding to oversee the bailout and is stocked with experienced nonpartisan experts who helped monitor the federal bailouts after the 2008 financial crisis. But its first report isn’t likely to arrive until the end of June.

Meanwhile, consider the biggest tranches of aid and how little we know about how they’re being put to use (these figures are approximations):

• $729 billion for small businesses (loans/aid)
• $561 billion for individuals and families (largely enhanced unemployment payments and “recovery rebate” checks)
• $510 billion for large businesses and governments (loans)
• $298 billion in corporate/individual tax cuts (largely corporate)
• $195 billion for public health and social services (aid)
• $150 billion for state, local and tribal governments (aid)
• $71 billion for transportation
• $45 billion for disaster relief
• $40 billion for educational institutions

We already know some of the follies and tragedies associated with all of this money: rebate checks the Internal Revenue Service sent to the wrong people; Harvard University, proud possessor of a $40 billion endowment, receiving almost $9 million in educational aid (as with Mnuchin and Shake Shack, Trump said Harvard, not the White House, bore responsibility for that one); Senator Majority Leader Mitch McConnell suggesting that states short on adequate federal financial aid could simply declare bankruptcy; a continued lack of federal support for ubiquitous testing to determine where, exactly, the coronavirus resides; and health-care aid allocated without considering which hospitals are actually sagging the most beneath coronavirus burdens.

Some of this may amount to nitpicking once we have a handle on how the rescue is being orchestrated. Some of it surely won’t, especially when it comes to people’s jobs and health. To their credit, Congress and the White House moved quickly to pull the rescue package together when speed was of the essence. Until there’s better monitoring of the effort, and greater transparency surrounding the funding, we won’t know if speed trumped efficacy and social equity.

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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