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Companies Took $1.8 Billion to Save Jobs and Laid Off 90,000 Workers Anyway

Businesses that don’t rehire all their workers may have to pay back the loans plus 1 percent interest.

A worker cleans stanchions and ropes in the front desk area of Bellagio Resort & Casino on the Las Vegas Strip on June 4, 2020, in Las Vegas, Nevada.

Rosa Rodriguez spent eight years ironing and hanging bathrobes for guests at the Mirage, the Bellagio and other five-star hotels on the Las Vegas Strip. But as COVID-19 spread through the United States and kept tourists away, there were fewer and fewer robes for her to press.

In March, Rodriguez and about 800 of her co-workers were laid off from Brady Linen Services, a laundry service provider for hotels in Las Vegas, Mexico and the Bahamas. Rodriguez said her boss told her he would call her back when more work was available.

On May 27, Brady Linen was approved for a loan of $4.6 million from the federal Paycheck Protection Program, according to data from the U.S. Small Business Administration. The government-backed loans were supposed to help small businesses that struggled during the pandemic pay employees’ salaries and benefits for up to six months, among other things. But Brady Linen did not use the money to rehire Rodriguez and all the other laid-off workers, which the program requires if companies want their loans forgiven.

Brady Linen and its parent company, PureStar Linen Group, did not respond to questions from the Center for Public Integrity about how the federal funds were spent. Rodriguez, who lost her health insurance after her layoff and had to move in with a friend, said, “It makes me sad that they got money from the government to help us and they didn’t.”

Brady Linen is among hundreds of companies that reported layoffs right before, or soon after, receiving a government loan through the Paycheck Protection Program, according to an analysis by Public Integrity. More than 5 million businesses received loans totaling $525 billion. For the SBA to forgive the loans, companies must spend at least 60% of the money on payroll and employ the same number of full-time workers as they did before the pandemic began.

Public Integrity found that more than 900 companies took PPP loans while laying off or furloughing at least 90,000 workers in 44 states and the District of Columbia. Those companies received more than $1.8 billion total. It’s unclear what they spent the money on or if they broke the program’s rules. Businesses that don’t rehire all their workers may have to pay back the loans plus 1% interest, with some exceptions. If they spent the money on anything besides payroll, rent, utilities or mortgage interest, they could be charged with fraud.

The SBA released the PPP data after newsrooms, including Public Integrity, sued to get it. (Public Integrity received a PPP loan.)

Like Rodriguez, most of the laid-off employees in Public Integrity’s analysis worked in the service industry as cleaners, cooks, servers and porters — occupations with a high percentage of Black, Asian and Latino workers.

“The money was not supposed to go only to the companies; it was for the people who work there,” said Geoconda Argüello-Kline, secretary-treasurer of the Culinary Workers Union Local 226. “These workers need an income, they need to go back to work.”

A Massive Bailout Program

In March, COVID-19 was spreading rapidly. Americans began to avoid restaurants, hotels, theme parks and other businesses and the economy nosedived. That month, companies laid off a record 11.4 million workers. Hotels and restaurants cut the most jobs: 4.1 million.

That prompted Congress to create the largest bailout program for small businesses in modern U.S. history. In one week, a bipartisan group of senators hammered out the details of the $349 billion Paycheck Protection Program, which was the central program in the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.

On March 27, President Donald Trump signed the act and the SBA began distributing the money seven days later. Within two weeks, the program ran out of money, and Congress authorized more.

Senate Majority Leader Mitch McConnell, R-Ky., praised the PPP as a “job-saving program.” Sen. Susan Collins, R-Maine, called it an “important lifeline” to small businesses and their employees. House Speaker Nancy Pelosi, D-Ca., said she was “very proud” of it.

Congress made it clear that the money was supposed to pay workers’ salaries.

“It gives small businesses emergency capital so that workers can keep getting paychecks instead of pink slips,” McConnell said April 9 on the Senate floor.

The SBA acknowledged that the core purpose of the program was “keeping workers paid and employed.”

But tens of thousands of employees got pink slips anyway. One of them was Michael Culmo, a 40-year-old legal assistant who was laid off with dozens of co-workers in March from a law firm in Buffalo, New York.

“I am behind on every bill I have because of this,” said Culmo, who made $19 an hour filing foreclosure paperwork for the firm Gross Polowy. He said unemployment checks helped through June, but he had to drain his retirement savings to pay his bills.

On April 14, a few weeks after Culmo lost his job, the law firm was approved for a $3 million federal loan, according to the SBA data. Instead of using the money to bring back all furloughed workers, the firm laid off more employees — a total of 146 between March and May, according to a notice it sent to the New York Department of Labor.

Culmo said he wasn’t told the firm had received a loan.

“Gross Polowy believes it is in full compliance with all statutes, regulation and rules that govern the PPP loan program,” said Adam Gross, a partner at the firm, in an email to Public Integrity. He did not respond to a question about how the PPP funds were spent.

Another company that took a PPP loan and laid off workers is Manhattan-based PBM LLC, which provides cleaning services to museums and retail stores in the Northeast. Past clients include Ann Taylor and The Container Store. The day after it was approved for a $10 million loan in April, the company notified New York state authorities that it planned to lay off 349 workers.

Denis Johnston, vice president of the 32BJ union, which represents most of the workers who were laid off, said it’s alarming that the loan money didn’t reach all the employees it was intended to protect.

“We are very concerned that even after taking the PPP loan, to our knowledge, hundreds of their cleaners are still out of work and struggling,” Johnston said in an email to Public Integrity.

A spokesperson for PBM did not respond to questions about how the company spent the PPP funds.

Johnston said the company’s lawyer told union leaders that some of the aid was spent to pay out unused vacation time to workers, which the law allows. But if the company paid all of its cleaners for two weeks’ vacation, the amount would have been only a fraction of the total loan, Johnston said.

“We are demanding answers from PBM as to why more of the loan proceeds haven’t been used to assist workers who remain on layoff, and whose extended health benefits are terminating,” he said.

Sandy Baruah, former acting SBA administrator in the George W. Bush administration, said the PPP has been a “critical lifeline” to millions of businesses that received the loans, the majority of which did not report layoffs.

“If companies broke the rules, obviously they should be held accountable for that,” said Baruah, who now leads the Detroit Regional Chamber. “At the very least, all of those loans should be repaid.”

Weakened Accountability

The SBA’s inspector general released a report in May evaluating the first round of PPP funding, warning that “tens of thousands” of businesses would have to repay parts of their loans because they weren’t spending enough on payroll. This trend could result in an “unintended burden” for businesses, the inspector general wrote.

A spokesperson for the inspector general’s office declined to comment on Public Integrity’s analysis.

In June, facing pressure from business groups, Congress amended the CARES Act to allow some companies to keep PPP loan money even if they laid off workers. The SBA will forgive loans to such companies as long as the workers are rehired by Dec. 31. Businesses can also have their loans forgiven after cutting jobs if they can prove business activity hasn’t returned to pre-pandemic levels because they followed federal COVID-19 safety guidelines.

The bill also lowered the requirement for how much of the loan each business must spend on employee payroll, from 75% to 60%.

Senate Republicans have pushed for another round of funding for businesses. In October, Senate Republicans introduced a stand-alone bill that would have allowed businesses to take out another PPP loan of up to $2 million. The bill failed, with Democrats insisting it be part of a larger coronavirus relief package.

A bipartisan group of senators and House representatives are negotiating another economic relief package that would set aside $300 billion for small businesses, including more funds for the Paycheck Protection Program.

Johnston, of the 32BJ union, said the PPP needs better oversight if Congress plans to extend it.

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