Ruth's Chris Steakhouse Got 'Small Business' Loans To Pay Executives, Managers. Well Done!
Congress and the White House are reportedly close to reaching a deal that would add more funding to the federal loan program that's supposed to be bailing out American small businesses. The "Paycheck Protection Program" ran out of its initial pot of $350 billion in funds last week, and the new bill would provide an additional $310 billion. Democrats have managed to include a provision that would make sure at least $60 billion of the new funding would go to smaller banks that serve primarily "minority and lower-served areas," so that's good, too.
It would also be nice if the next bill could include something to make sure the funding actually goes to small businesses, and that the companies getting the money actually use it to keep ordinary workers on the payroll, which is supposedly the purpose of the loans. But as Judd Legum reports in his invaluable Popular Information newsletter, quite a few companies that are in no sense "small" have managed to suck up millions of dollars in PPP funds, even as they lay off lower-paid employees and use the money to pay management.
Case in point: Ruth's Hospitality Group, the corporate parent of Ruth's Chris Steakhouse, which has thousands of employees, but took advantage of a loophole in the stimulus law to get $20 million in loans, even though the company had "over $441 million in revenue last year — and $86 million cash reserves." It was a pretty clever trick:
The law contained an exception for restaurant chains as long as the chain didn't have more than 500 employees at any single location. Ruth's Hospitality Group exploited that exception by applying through two corporate subsidiaries, obtaining twice the limit for a single company on April 7. Ruth's Hospitality Group was able to get to the front of the line because JP Morgan Chase, like many banks, gave preference to companies that had a preexisting banking relationship.
Legum says that might be OK if Ruth's Blur Of Republicans and Meat had actually used the funds to keep waiters, bartenders, and kitchen staff paid, but hell nah, that doesn't appear to be where the loans went. The company has completely shuttered 23 of its 83 restaurants (plus 73 franchises) that it decided couldn't do enough takeout or delivery business to be "viable," and the ones that are still open appear to have shed their hourly employees, running the places with managers only, plus some chefs.
[A] furloughed Ruth's Chris employee in Indianapolis said that three managers and a few chefs were still working delivery, but approximately 50 hourly employees in the restaurant were out of work. The employee received a check for less than $150 on March 27, which was supposedly equivalent to their average weekly pay from January to March. The $20 million forgivable loan, financed by taxpayers, would be enough to pay all 5,195 hourly restaurant workers $3,850 each.
Fortunately, there's still somewhere for all that loan money to go: The executive suite, where top corporate officials are paid hundreds of thousands of dollars a year in base salary, plus benefits and bonuses and stuff.
This is how Ruth's Hospitality Group can spend most of the $20 million on "payroll" while furloughing nearly all of its staff. Under the Payroll Protection Program, salary up to $100,000 counts toward the requirement that 75% of the forgivable loan is used to support payroll. But for a company like Ruth's Hospitality Group, they could meet that threshold, for example, with just 150 employees that make $100,000 and up.
Keep in mind, too, that as long as companies uses 75 percent of the loans for "payroll," the loans will be forgiven, because look at all the stimulus.
Ruth's Beef Boutique did issue a statement saying the company's executives had all "elected to reduce their 2020 base salaries" in March, presumably in soup or salad-arity with the thousands of employees furloughed without a penny. The company didn't say how much that reduction would be, however, and Legum, that cynic, says "it is safe to say that [CEO Cheryl] Henry and her colleagues will be making in excess of $100,000" even now, and like all top corporate executives, their base salary is just the appetizer when it comes to their total compensation.
Ruth's Steakholders won't be the only big companies getting a nice boost from PPP either, says Legum.
According to summary data released by the Small Business Administration, banks approved 67,216 loans of $1 million or more. Assuming the rules were followed, that means these companies have a monthly payroll of at least $400,000. Funds distributed to these companies accounted for more than 40% of the available money.
The Wall Street Journal also details how other big companies have managed to get huge "small business" loans, too, even as they lay people off. And if that's paywalled, CNN has another, looking at how the loans went to big chains like Potbelly Sandwich Shop and Shake Shack, the latter of which was actually shamed into returning its $10 million loan; we'll assume the money immediately went to some other giant because America is just the best that way.
I am concerned that many businesses with thousands of employees have found loopholes to qualify for these loans meant for small businesses. Unfortunately, when it comes to the PPP, millions of dollars are being wasted [...]
Right now, companies that are not being harmed at all by the Coronavirus crisis have the ability to receive taxpayer-funded loans that can be forgiven. That's wrong, and it takes money out of the hands of those Americans who really need it.
Scott is calling for the next round of PPP funding to make sure the money only goes to companies that "show a substantial reduction in revenue due to the Coronavirus," although it's unclear whether there's any significant support for adding such rules, given the hurry to get another pile of money for "small businesses" passed. We'd be far more interested in making sure that the funds get to the people being hurt the most by the economic slowdown resulting from fighting the disease, like maybe the emergency income proposals we've profiled, but there we go being all socialist again.
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Doktor Zoom's real name is Marty Kelley, and he lives in the wilds of Boise, Idaho. He is not a medical doctor, but does have a real PhD in Rhetoric. You should definitely donate some money to this little mommyblog where he has finally found acceptance and cat pictures. He is on maternity leave until 2033. Here is his Twitter, also. His quest to avoid prolixity is not going so great.