Each round of COVID-related relief discussions in Washington is its own adventure in priorities, politics, and appearances.
The current round of sporadic back-and-forth has encountered two additional obstacles: Democrats and Republicans in Congress no longer share consensus about the need for any additional legislation, and November elections put a predictable damper on both Congress’ collaborative spirit and its legislative calendar.
The House of Representatives passed its version of the next relief bill on May 15. The wide-ranging HEROES Act from House Democrats carried a price tag estimated at over $3 trillion. Senate Majority Leader Mitch McConnell elected to not take up any negotiations or pursue a separate Senate bill in response.
With federal enhanced unemployment support about to expire in early August, Senate Republicans then hustled together a narrower, roughly $1 trillion HEALS Act of their own. However, Senate Republicans lacked consensus among themselves that any additional support was needed at all. That limits McConnell’s leverage in any bipartisan discussions, so he removed himself almost immediately from negotiations toward a compromise.
Left to strike a deal with the Trump administration instead, Democrats reportedly offered to trim the HEROES Act scope by $1 trillion dollars if Republicans would meet them around that $2 trillion midpoint.
The White House rejected that offer. One sticking point between the two bills was the duration and amount of any continued federal enhanced unemployment support.
On Aug. 8, President Donald Trump followed with a batch of executive orders, including one that would provide for continuing enhanced support at a reduced level, with some budgetary strings attached for any participating states. It remains unclear if the executive order’s plan can or will come to fruition.
That executive order does not rule out more traditional legislation in Congress to send pandemic-related support to individuals or businesses.
Whether or not the federal government enacts further meaningful COVID relief, and how much, if any, stimulus for individuals is included, will affect the HVAC industry and its contractors. However, those representing the industry in Washington evaluate the status quo differently, as they do regarding how additional federal action might affect contractor businesses.
Contractors vs. the Couch?
“As great as the PPP funding has been, the unemployment has just been kicking their butt,” asserted Barton James, ACCA president and CEO, when asked about how things sit at present.
On the good side, he sees very strong demand for HVAC contractors, especially on the residential side, but he said there is also a catch: federal enhanced unemployment aid disincentivizing workers, on top of the industry’s long-running tech staffing challenges.
“You’ve got this pent-up workforce issue, but everyone you talk to has more business than they know what to do with. And they don’t have enough employees,” he said. “If they can get people off the couch, they’ve brought back all those people and are hiring more.”
James shared an anecdote of one contractor’s adjusted strategy, which he suspects others might be following.
“With the money out there right now for unemployment, they’re cutting people’s hours so they fall under 31 hours, so they still get unemployment and end up making more money,” he explained. “I hate to hear our system [is] broken where people need to do that, but I appreciate the creativity in finding a way to get their employee off the couch while meeting their needs, too. So if everyone gets a win from that, then great.”
ON HOLD: MCAA members largely believe that the landscape for commercial and institutional HVAC work is likely to worsen. Associated General Contractors of America leadership encourages further federal COVID relief as a means to avoid additional project postponements and industry layoffs.
John McNerney, general counsel and director of government and labor relations at MCAA, recognized the standing personnel challenges but had a different view on whether the federal supplement has exacerbated problems for contractors. MCAA’s members tend to work more in the nonresidential sectors.
McNerney acknowledged that “you can hear an anecdote here and there” about workers inclined to decline and recline, but generally, “they’re answering the bell to go back to work.”
He said a key is that “we’re as careful as we can be about the work protocols. We’ve worked pretty well with the UA in mitigating that risk to the highest degree that we can and still serve the market. So there might be an isolated case here and there, but I don’t see [refusal to come back] as a big impediment in our industry.”
Robert Kaplan, Dallas Federal Reserve Bank President, gave his broader perspective on the issue earlier in August during an interview with BloombergTV. “We don’t see it as much in the data, but I can tell you I’m hearing it from business people,” he said. Kaplan opined that while the enhanced benefits may be making life more difficult for “certain individual businesses,” the aid’s net effect “still has probably been positive for the economy for employment” by supporting consumer spending in a dip that otherwise might be even deeper.
The return of some employees may be hindered by COVID-related changes in child care or health within their families. ACCA has heard of multiple instances of employees themselves fighting the virus from members and within its own organization, with the impact reaching office staff in the industry as well as field technicians.
Neither James nor McNerney felt that contractors were being anything but understanding in those instances.
“I don’t see any hardliners in our group, I just don’t,” McNerney said. “People are reacting to this with a good deal of mature empathy and consideration for their entire workforce.”
Reflecting on the COVID toll on the health of HVAC professionals in recent weeks, James acknowledged that sadly “there’s a price to pay for being essential.”
PPP Needs Met
Turning to which possible components of any upcoming legislation might best serve HVAC contractors, sources agree that additional Paycheck Protection Program funding is one item that Congress can skip.
McNerney commented that contractors who wanted to participate in the program had largely done so by now. ACCA concurred.
“Most who wanted [PPP loans] got them, and those who didn’t need it have already given the money back,” said ACCA government relations representative Chris Czarnecki.
James does not sense significant ACCA member interest in tapping into any future funding, stating that contractors who sought PPP help generally received it quickly within the first two rounds.
“The people who struggle,” he added, “are the people that don’t have their books in order.”
The paperwork associated with PPP loans has been a consideration, ranging from forgiveness applications to lingering uncertainty regarding terms or the taxability of any forgiven PPP loan funds.
“You’ve got people who are having a really good season,” sympathized James, “and the last thing you want is for them to be upside down from a tax standpoint.” The Small Business Administration has issued updates to advise about regulatory requirements or interpretations. The American Boiler Manufacturers Association recently alerted its members to an August 4 SBA update that included new Q&A about PPP loan forgiveness procedures, payroll implications, and eligibility.
The Treasury Department’s Main Street Lending Program has been another relief mechanism available to companies of a certain size.
“I think if we ever saw the documentation [on participation for that program],” McNerney said, “I think we would see that it is not accessed as much as you would think for large construction employers.”
So if federal money is not the pressing need for most contractors, what would help?
MCAA has been working on pension reform.
“We had a broad-scope, multi-employer pension reform passed in the HEROES Act,” McNerney recounted. While he acknowledges the initial proposal was expensive, he suggested there was room to come down and still attain “a very decent reform.” That remains a key for MCAA, despite some objection that it wasn’t a sufficiently COVID-related issue.
“We couldn’t disagree more with that,” McNerney countered. “Whatever the economic consequences directly for our members, in the medium term, [the pandemic] will impact these plans.”
Another top priority for McNerney’s team is COVID relief with regard to federal contracts. MCAA is advocating for a COVID-related equity recovery fund.
“For federal fixed-price contracts that were bid and awarded pre-COVID but are now being performed under the CDC and OSHA work protocols, there’s tremendous unforeseen workforce conditions,” he said.
MCAA makes the case that in addition to more familiar force majeure timeframe extensions as needed, the federal government should contribute to cover some of the newer COVID-driven costs.
“How you plan the job before and after COVID,” McNerney said, “are two very different things, and the latter is much more expensive.”
ACCA puts liability protection from individuals who might contract COVID-19, at the top of its list. The scope of such protection has been a point of contention in Washington.
“Our goal,” asserted James, “is if you're doing what you think is the right thing, and if you're tracking and following what's out there and doing the best you can, you shouldn't be held liable.”
ACCA’s other concern is whatever Congress can do to make PPP loan forgiveness as easy as possible. Czarnecki pointed to a current proposal in Congress to forgive all loans under $150,000 outright, which would resolve many PPP loans to HVAC companies.
James envisions a simple form, similar to a one-page worksheet that a contractor might fill out with their tax returns, where a recipient can submit the most pertinent basic details to qualify for forgiveness with a minimum of hassle.
Both associations have been providing internal expertise, webinars, and other resources throughout the pandemic.
HARDI data showed the distributor side of the industry catching its breath in June, but caveats and qualifications go along with that. HARDI market research and benchmarking analyst Brian Loftus said that while member sales growth rose 24 percent for the month, a big month was expected due to two additional billing days compared to 2019.
That 24 percent rise happened despite a backdrop of a 33 percent decrease in U.S. GDP in the year’s second quarter. “Both of these numbers are exaggerated by special factors. Both will remain under pressure while COVID-19 risk persists,” he said, referring to confidence, demand and employment, and distributor sales.
Last spring’s original $1,200 individual stimulus checks may have also played into June’s performance.
More recently, Associated General Contractors of America (AGC) cited steep one-month job losses and common state and local project postponements in an August press release that called for additional federal support.
AGC officials have warned that continued COVID-19 flare-ups will translate to more project delays, broader economic sluggishness, and increased odds for more contractor layoffs.
“Without new federal support,” said AGC CEO Stephen Sandherr, “the industry’s recovery will be short-lived.”
Still, the question of another COVID relief bill is intertwined with the advent of campaign season.
“The entire issue is now general election politics as much as anything else,” McNerney said. His own view, however, is that the economy and society overall will need another broad-scope relief measure. It’s possible, he added, that re-election pressure might actually propel some legislators to generate something to show on this front. Or, he continued, Congress could enact measures via continuing resolution or even during a lame-duck session after the election.
Timing makes a difference. It is possible to do too little, or even do what might otherwise be enough, but too late.
“If demand collapses,” he noted, “the economy will become that much harder to reinflate.”
Even in a rosier scenario, McNerney anticipates that any remaining effects of earlier stimulus will fade. “Our members are concerned about a substantial contraction for some period of time,” he said, citing retrenchment in commercial real estate, chain restaurants, and education.
Despite some member reservations about the hiring effect of individual stimulus, ACCA’s James does feel that another round of it will likely make it into any future COVID legislation.
In the meantime, James pointed to one specific member success story of adaptability. A Southern California contractor who had worked heavily in commercial projects took a substantial hit when restaurants had to close down or curtail operations. However, when restaurants started to reopen but needed to be so conscious of disinfecting and sanitation, the contractor got involved with a company that was already doing that kind of work.
“That’s been going gangbusters for him,” James reported, “and that’s gotten into residential,” which in turn has opened the door for the contractor to do more residential work.
So even in turbulent times, “it’s kind of fun to see how people are making lemonade from lemons.”
As for Capitol Hill, James said, “I’m not sure how they get the gumption to get something through right now,” with one hurdle being who gets the credit.
For the moment, no talks are scheduled. On Aug. 21, a group of “Blue Dog” Democrats led by Rep. Stephanie Murphy sent a letter to House and Senate leadership asking them to restart negotiations and making the case for individual, employer, educational, and state and local government relief as well as stronger pandemic response spending. “Although there are meaningful differences between the HEROES Act and the HEALS Act, there is also considerable common ground,” the letter said.
“In an era of divided government, the reality is that only bipartisan solutions will deliver much-needed support, and that requires principled compromise by both parties.”
Further action on either side of the aisle remains unlikely until at least the end of August, given the GOP convention in Charlotte.