Contractors for Trump’s Controversial $3 Billion Food Aid Program Have Hired a Longtime Lobbyist to Tout Their Work

2 Jun

by Isaac Arnsdorf

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Companies receiving taxpayer dollars as part of President Donald Trump’s signature food aid program hired a longtime lobbyist to push back on criticism that the government is relying on unqualified contractors, such as an event planner.

“We’re working to take the stories of the impact this is having on farmers, processors, distributors and end users and making sure some positive aspects of the program, from both the economic and social standpoints, are out there too,” said the lobbyist and industry consultant, Dale Apley, who reached out to ProPublica on behalf of the contractors. “It’s not all just certain stories about certain companies that maybe shouldn’t have been awarded contracts.”

The Farmers to Families Food Box Program is supposed to deliver fresh fruit, vegetables, meat and dairy to food banks and other nonprofits. But, as ProPublica has reported, private distributors selected by the U.S. Department of Agriculture through an unusually fast bidding process have raised eyebrows because some of them lack relevant experience or even proper licenses.

At least one contract has already fallen through. Ben Holtz, a California avocado grower who lacked a USDA produce-dealing license, saw his $40 million contract canceled on May 22. The USDA didn’t give a specific reason for yanking Holtz’s deal, but the federal government generally has broad discretion to back out of contracts.

Holtz said he plans to pursue the government’s dispute resolution process to seek USDA compensation for work he’d already done. “They owe me,” he said in a text message.

A USDA spokesman said no other contracts had been terminated and the agency will audit companies to make sure they meet the contract requirements.

Rep. Lloyd Doggett, D-Texas, said the USDA should also cancel the $39 million contract awarded to a San Antonio-area wedding planner called CRE8AD8 after the San Antonio Express-News reported inconsistencies in the company’s representations.

“This contract was issued without a credible background check with a company not licensed to perform and with no work history indicating a capacity to perform at a time of urgent public need for competent delivery,” Doggett said in a May 26 letter to Agriculture Secretary Sonny Perdue. “CRE8AD8 was given until June 30 to complete distribution of the 750,000 boxes in a seven-state region, but to date it has apparently failed to distribute a single box.”

A spokeswoman hired by CRE8AD8 to handle media questions said she was no longer working for the company. The company’s CEO, Gregorio Palomino, didn’t respond to requests for comment.

Lawmakers have also voiced concerns about how the Trump administration is implementing the $3 billion program.

“We share USDA’s goal of providing effective and timely assistance to families, farmers, and food supply businesses like food distributors,” Reps. Stacey Plaskett, Jim Costa and Marcia Fudge said in their own letter to Perdue, dated May 22. “We are concerned, however, that contracts were awarded to entities with little to no experience in agriculture or food distribution and with little capacity to meet the obligations of their award.”

The letter asks Perdue to explain how the USDA wound up picking contractors without relevant experience or proper licenses. Some organizations across the country reported difficulty working with unfamiliar distributors who won the USDA contracts. Meanwhile, well-established firms said their bids were rejected on mistaken grounds.

The Democrats also asked if the USDA thought about apportioning funding to regions based on population. Out of $1.2 billion in the program’s first round, just $46 million is going to the Northeast. Even though the region has the most coronavirus cases, it received the least money of any region except the Mountain Plains, which has almost half as many people. Maine and Alaska were left out of the program altogether. Food banks in the Northeast told ProPublica the imbalance makes it harder to find food for hard-hit communities.

The USDA said it’s evaluating how to reach “underserved” areas in future funding rounds.

The controversy mobilized some contractors who wanted to change the narrative. Apley declined to specify which companies he’s represented or what they’re paying him. He said the companies pay a membership fee to be in the coalition he represents.

While Apley is currently focused on shaping news coverage, he said direct lobbying of Congress could come later.

“Our initial interest right now is getting the story out,” he said. Lobbying “is a possibility being discussed as we proceed.”

Apley’s firm, Black Watch Agribusiness, advises companies on USDA contracting opportunities, according to its website. Apley has been a registered lobbyist on and off for two decades, including as recently as last year, according to congressional records.

Federal contracting rules prohibit using taxpayer dollars on lobbying or political expenses. Contractors are, however, free to use their own funds to lobby, and routinely do.

Trump, his daughter Ivanka and Perdue have personally praised the program. “USDA’s Farmers to Families Food Box Program is an example of Americans helping Americans, and something we should all be proud of,” Perdue tweeted on Thursday.


This Treasury Official Is Running the Bailout. It’s Been Great for His Family.

2 Jun

by Justin Elliott, Lydia DePillis and Robert Faturechi

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published.

Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin have become the public faces of the $3 trillion federal coronavirus bailout. Behind the scenes, however, the Treasury’s responsibilities have fallen largely to the 42-year-old deputy secretary, Justin Muzinich.

A major beneficiary of that bailout so far: Muzinich & Co., the asset manager founded by his father where Justin served as president before joining the administration. He reported owning a stake worth at least $60 million when he entered government in 2017.

Today, Muzinich retains financial ties to the firm through an opaque transaction in which he transferred his shares in the privately held company to his father. Ethics experts say the arrangement is troubling because his father received the shares for no money up front, and it appears possible that Muzinich can simply get his stake back after leaving government.

Justin Muzinich, deputy Treasury secretary, in 2019.
(Wolfgang Kumm/Picture Alliance via Getty Images)

When lockdowns crippled the economy in March, the Treasury and the Fed launched an unprecedented effort to buy up corporate debt to avert a freeze in lending at the exact moment businesses needed to borrow to keep running. That effort has succeeded, at least temporarily, with credit continuing to flow to companies over the last several weeks. This policy also allowed those who were heavily invested in corporate loans to recoup huge losses.

Muzinich & Co. has long specialized in precisely this market, managing approximately $38 billion of clients’ money, including in riskier instruments known as junk, or high-yield, bonds. Since the Fed and the Treasury’s actions in late March, the bond market has roared back. Muzinich & Co. has reversed billions in losses, according to a review of its holdings, with 28 of the 29 funds tracked by the investor research service Morningstar Direct rising in that period. The firm doesn’t publicly detail all of its holdings, so a precise figure can’t be calculated.

The Treasury is understaffed, and Muzinich was overseeing two-thirds of the department before the crisis hit. He spent his first year as the Trump administration’s point man on its only major legislative achievement, the landmark $1.9 trillion tax cut that mainly benefited the wealthy and corporations.

As the markets panicked about the economic impact of the coronavirus, Muzinich’s responsibilities expanded. The Treasury worked with the Fed on the emergency lending programs, and the agency has ultimate power to sign off. Muzinich was personally involved in crafting the programs, including the effort to bail out the junk bond market, The Wall Street Journal reported in April. He communicates with Fed officials daily by phone, email or text, the paper said.

That effort has many skeptics. The Fed has never bought corporate debt in its more than 100 years of existence, much less that of the indebted and fragile companies that raise money through the sale of junk bonds. Private equity firms, hedge funds and specialty investment firms like Muzinich & Co. dominate the market for junk-rated debt. In effect, the Fed has swooped in to protect the most sophisticated investors from losses on some of their riskiest bets.

Muzinich & Co. Profited From the Government’s Actions

Muzinich & Co.’s largest fund, with over $10 billion in assets, jumped in value when the Treasury and the Federal Reserve announced plans to buy bonds

Data from Morningstar Direct for the Muzinich Enhanced Yield Short-Term Fund

Justin Muzinich’s ongoing ties to the family firm present a thicket of potential conflicts of interest, ethics lawyers said. Instead of immediately divesting his stake in the firm when he joined the Trump administration in early 2017, Muzinich retained it until the end of that year. But even then, he did not sell his stake and use the proceeds to buy broad-based securities such as index funds, as is common practice. Instead, he transferred his piece of the company to his father, who owns Muzinich & Co. In exchange, he received what amounts to an IOU — a written agreement in which his father agreed to pay him for the shares, with interest, but with no principal due for nine years.

“This is something akin to a fake divestiture,” said Kathleen Clark, a law professor and ethics specialist at Washington University in St. Louis. “It sure looks like he is simply parking this asset with a relative, and he will likely get it back after he leaves the government.”

A Treasury spokeswoman declined to say whether Muzinich has pledged not to take back the stake in the family firm once his public service ends. Muzinich “takes his ethics obligations very seriously” and “any suggestion to the contrary is completely baseless,” she said.

She added the arrangement with his family firm was approved by the Office of Government Ethics and agency ethics lawyers, who recently reexamined the setup given Muzinich’s role in the economic crisis response. They concluded that there is no currently envisaged scenario in which Muzinich would make decisions as a government official that would affect his father’s ability to repay the money he owes under the IOU.

“Treasury’s career Designated Agency Ethics Official has determined that there is no such conflict of interest, as there are no current or reasonably anticipated matters in which Deputy Secretary Muzinich would participate that would affect the note obligor’s ability or willingness to satisfy its financial obligations under the note,” she said in a statement. (The note obligor is Muzinich’s father.)

Muzinich & Co. did not respond to multiple requests for comment.

Muzinich’s relationship with the family firm also creates potential conflicts related to Muzinich & Co.’s clients. The firm makes money by charging investment management fees to several dozen wealthy individuals, insurance companies, pension funds, as well as what filings describe as a “quasi foreign government corporation.” The client list is not public and it’s unclear whether Muzinich would know about clients that came on board since he left. But any large investor has much to gain, or lose, from decisions being made by the Treasury about the bailout policies.

“The clients of this firm, I imagine, must be thrilled that Muzinich has this vitally important, powerful position with a huge amount of discretion and authority,” Clark said.

The Treasury spokeswoman declined to answer a question about the firm’s clients.

Even as Justin Muzinich has presided over bailout policies criticized by some observers, Muzinich & Co. executives have praised the government’s actions in recent briefings for investors. One described the interventions “as providing somewhat of a floor underneath the high yield market.”

Another Muzinich executive, David Bowen, who manages one of the firm’s high-yield bond portfolios, said during a May 20 webinar, “The Fed has been about as supportive, helpful, accommodative — whatever word you want to use — as anyone could imagine.”

Untangling the Financial Relationship

When Treasury Secretary Steven Mnuchin hired Justin Muzinich as counselor in early 2017, in many ways he was selecting a younger version of himself.

Justin Muzinich, center left, then a top adviser to Treasury Secretary Steven Mnuchin, center, on Capitol Hill on Sept. 12, 2017.
(Al Drago/The New York Times/Redux)

Like Mnuchin, Muzinich grew up in New York City, the son of a wealthy finance executive. Also like his boss, Muzinich spent years collecting a series of elite credentials: He attended Groton and holds degrees from Harvard College, the London School of Economics, Yale Law School and Harvard Business School. He worked at Morgan Stanley and spent a few months at a hedge fund associated with billionaire Steven A. Cohen, followed by a few years at EMS Capital, which invests the money of the wealthy Safra family.

Colleagues praise Muzinich as hardworking and serious, and Democrats have expressed relief that he isn’t as inflammatory as many other Trump appointees. Powell, the Fed chair, called Muzinich “creative and extremely capable” in a statement to The Wall Street Journal in April.

In 2010, he joined the family firm and became its president. His father, George, founded the company in 1988, specializing in handling portfolios of American high-yield bonds for European pension funds. The company expanded to offer funds to other institutional investors and wealthy individuals, but it stuck to its focus on corporate credit — particularly the riskier type that pays higher interest rates. Headquartered in New York and London, the firm has eight offices across Europe and one in Singapore.

“Talking about credit all the time might sound boring, I’m sure it does,” Justin Muzinich said in a 2014 interview, “but that is what makes you good.”

As he rose in the family business, Muzinich also launched himself into GOP policy circles, advising the presidential campaigns of Mitt Romney in 2012 and Jeb Bush in 2016. He owns a $20 million ultramodern beachfront house in the Hamptons and a $4.5 million Park Avenue apartment and commutes from New York City to work in Washington.

When Muzinich entered the Trump administration, he reported owning stock and stock options in the family firm collectively worth at least $60 million. The true value could be much higher, but disclosure rules don’t require officials to give a specific figure for any asset worth more than $50 million.

The Treasury’s ethics officers are frequently called on to rule on complex questions, given that the department tends to attract people from careers on Wall Street who have large, complicated financial holdings — from ex-Goldman Sachs Chairman Hank Paulson to banker and Hollywood financier Mnuchin.

Stakes in individual companies can create conflicts of interest. So incoming Treasury officials typically sell those stocks and invest in broad-based options like mutual funds. Ownership in private investment funds can be particularly thorny because ethics rules treat each of the fund’s investments in specific companies as sources of potential conflicts. Sarah Bloom Raskin, who preceded Muzinich as deputy secretary in the Obama administration, reported holding only a collection of index and mutual funds that either track the whole stock market or a large basket of companies.

But government ethics officials did not require Muzinich to sell his stake in the family firm through his first year in office as counselor to Mnuchin.

According to ethics filings, Muzinich said that he did not divest it until December 2017, the month the tax law was signed. (Several months later, in April 2018, Trump nominated him to be deputy secretary.)

Muzinich did not receive cash for most of his stake in the family firm. Instead, his more recent financial disclosures show that the stake, held in a family trust, was replaced with an opaque asset described as a “receivable from family,” valued at over $50 million.

Muzinich’s disclosure filings don’t reveal much about this asset at all. They don’t say who the family member is or explain the arrangement. They don’t say how the terms were negotiated, or even if the valuation of the deal was vetted by an independent third party.

It turns out that Muzinich transferred his stake to his father. But his father didn’t have to pay him right away. According to a Senate Finance Committee memo obtained by ProPublica, Justin received two promissory notes from his father in return for the shares. The notes pay Justin between $1 million and $5 million in interest over a year, at a rate of 2.11%. Moreover, his father does not have to pay any principal on the loan for nine years.

Neither the financial disclosure forms nor the Senate memo say how long the agreement is supposed to last. Neither addresses the possibility of his getting the shares back after he leaves the government. The Treasury says the transaction is “not reversible” but did not elaborate.

In other words, Justin still has an ongoing long-term stake in the financial well-being of Muzinich & Co., since his father now owes him more than $50 million. If the company were to plummet in value or even go under, it could cost Justin. Actions the Treasury and the Fed take can either enhance the chances he gets his money back or lower them.

The Treasury defended the IOU transaction as an appropriate remedy for any conflicts of interest. The agency provided a statement from Elizabeth Horton, an ethics attorney who left the agency in 2019 and who worked with Muzinich on the divestiture from his family business. Horton said that when Muzinich first joined the agency, “the Treasury ethics office correctly advised him that he did not need to divest his holdings in his family business because of the generalized nature of his work on tax reform legislation.” She said that when his duties changed, “I advised Mr. Muzinich that an exchange for a fixed value note was an appropriate way to divest.”

Horton said that advice was “consistent with practice in previous administrations” — though the Treasury declined to cite similar cases. “Muzinich worked very closely with the ethics office and was extremely attentive to his ethics obligations,” Horton said.

ProPublica reached out to four ethics officials, including two former Treasury ethics lawyers. None could recall a similar divestment transaction. Three of the four disagreed that it resolved Muzinich’s conflicts, while one said that turning it into an asset with a value that doesn’t fluctuate with future developments should shield him from any allegations of impropriety.

The deal does not look like an arms-length transaction, said Virginia Canter, who served as a career ethics attorney at Treasury during the George W. Bush administration and is now at the watchdog group Citizens for Responsibility and Ethics in Washington.

“The terms of the loan suggest something less than a bona fide transaction,” she said. “Once he leaves office, nothing in the arrangement appears to preclude Muzinich from forgiving the debt owed to him by his father so they can amicably agree on returning to Muzinich the interest in the Muzinich family business.”

As ranking member of the Finance Committee, Sen. Ron Wyden opposed Muzinich’s nomination as deputy secretary because of his role in crafting the tax bill. Although he would have preferred a cash sale of the Muzinich & Co. stock, Wyden said in a statement that in July 2018 Muzinich had agreed to “strengthen his recusal commitments to include matters where his family’s company is a party.”

That satisfied Wyden at the time, but it is a very narrow restriction. A vast range of issues before the Treasury could affect Muzinich & Co. regardless of whether the firm was directly a party to any of them.

How Justin Muzinich treated the transaction for tax purposes could reveal whether it was a true and final sale or not.

Ordinarily, a sale of an asset such as equity in a company would trigger a capital gains tax bill. In Muzinich’s case, that could run into the tens of millions of dollars, even though his father paid him no cash upfront. But there is an exception if the asset in question is merely transferred with a commitment to have it returned, said Steve Rosenthal, a tax law expert at the Urban-Brookings Tax Policy Center.

“If you are merely parking or pledging securities, and you are going to get them back, that’s not viewed as a taxable transaction,” he said.

It is not clear how he reported the transaction to the IRS, and whether he was left with a huge tax bill. The Treasury declined to comment on the tax issues.

Tax Reform — for Friends and Family

Through his first year in the administration, even as Muzinich continued to own his stake in the family firm, he met with a wide range of business executives to hash out major tax provisions that would affect them, according to his 2017 calendars that ProPublica obtained after suing the Treasury last year under the Freedom of Information Act. Others were obtained by the watchdog group American Oversight. The Treasury redacted large sections of the calendars, saying that they required consultation with the White House before they could be released.

One of the most important principles in the federal government ethics rules covers whether an official is dealing with a “particular matter” that would affect a discrete group of people with specific interests or a “general matter” that affects a larger and more diverse group.

The Treasury spokeswoman said the tax reform bill was to affect a very large and diverse group, so ethics rules did not prevent Muzinich from working on it. He was allowed to keep his equity in the company while working on the tax bill because his “duties did not include particular matters that required divestiture of certain assets.”

But many industries had specific interests in the tax bill that they lobbied on — industries that may include clients of Muzinich & Co. Insurance companies, for example, featured prominently. Muzinich met with trade groups representing insurers as well as Liberty Mutual, The Hartford, Zurich and Blue Cross Blue Shield. In the final tax bill, property and casualty insurers fared particularly well by dodging new limitations on deductions that applied to other companies.

Insurance companies invest their premiums in order to increase their profits. In its regulatory filings, Muzinich & Co. reports that 17 of its 89 clients are insurance companies, which have given the firm more than $1.4 billion to invest. Muzinich & Co. did not provide a list of its clients.

Some of the companies Muzinich & Co. has stakes in also have been lobbying the Treasury on their own behalf. For example, Muzinich & Co. helps its clients invest in business development companies, a type of investment fund that enjoys lower taxes in exchange for providing capital to medium-sized companies. The firm itself owns stock in BDCs, many of them run by private equity companies such as Ares Capital Corporation, which has paid millions of dollars to lobby for looser rules governing the BDC industry.

Even beyond any overlap with the family firm’s interests, Muzinich’s calendars, which cover the period from February to September of 2017, reflect the administration’s priorities in negotiating the tax deal. Muzinich spent long days in meetings with private equity titans, energy company CEOs and heavy-hitting interest groups like the Business Roundtable and the anti-tax group Americans for Prosperity. His calendar shows no meetings with labor unions or progressive groups.

Muzinich did meet often with the Treasury’s in-house tax experts but frequently didn’t follow their recommendations. Richard Prisinzano, who served in the agency’s tax analysis office until August 2017, recalled trying to tell Mnuchin and Muzinich that drastically lowering corporate tax rates would likely prompt businesses to transform into C corporations, which often pay lower rates under the new law.

He argued that such a change would further reduce tax revenues. Muzinich disagreed, Prisinzano said, protesting that businesses wouldn’t change their corporate form just to lower their taxes. “He really pushed back,” Prisinzano recalled. “He said to me, ‘The secretary is a numbers person, and the numbers don’t make sense to him.’”

“‘I’m a numbers person, and they make perfect sense to me,’” Prisinzano said he responded. “That was not an answer that they liked.”

In the following two years, many large businesses did indeed convert into C corporations, including private equity giants Ares, Blackstone and KKR. The government hasn’t produced an estimate of how big a hit taxpayers took from these conversions.

During his confirmation hearing as deputy secretary in July 2018, Democratic senators pressed Muzinich on whether he agreed with the White House that the tax bill would “pay for itself,” despite the dire projections of independent forecasters such as the nonpartisan Congressional Budget Office. “Yes,” Muzinich responded.

It has not come close, as corporate tax collections plunged and left the national debt at historic levels on the eve of the pandemic.

Muzinich Takes on the COVID-19 Crisis

As the economic response to the novel coronavirus consumed Washington in March, Mnuchin turned again to Muzinich to negotiate with Congress over the shape of a bailout intended to sustain companies as they weathered the worst part of the crisis.

Ultimately, Trump administration officials and lawmakers settled on a package worth more than $2 trillion, divided into aid regimens for different sectors of the economy. While setting general parameters, the Coronavirus Aid, Relief and Economic Security Act gives the Treasury wide latitude over how the money is to be distributed. It calls for $50 billion in grants and loans for the airline industry, for example, with few rules on who should get what. (In another potential intersection with Muzinich’s Treasury work, Muzinich & Co. started a new business line to loan money to airlines to buy planes in February.)

Perhaps the greatest power the Treasury now has is the authority to sign off on Fed loan programs funded with CARES Act money. The Fed has said it will leverage that money to lend up to several trillion dollars.

Among their biggest decisions: Which firms to include in the $600 billion Main Street Lending Program, which will lend directly to mid-sized businesses, and how to structure two programs that will purchase up to $750 billion in corporate bonds.

The Main Street program, which has yet to launch, changed substantially after it was first announced to sweep in bigger companies and those with heavier debt loads. Offering a glimpse into how the Treasury directly shaped the Fed programs, Energy Secretary Dan Brouillette told Bloomberg the change was made in part to make sure beleaguered oil companies had access to the program’s favorable terms. Muzinich & Co.’s U.S.-based funds include dozens of energy companies.

Mnuchin also deputized Muzinich to fix problems that arose during the first round of funding for the Paycheck Protection Program, which offers forgivable loans to small businesses. The government hasn’t said who got money through the program, but Muzinich & Co.’s portfolio includes many companies that are small enough to be eligible.

The Fed’s bond purchasing programs will go even further to help companies with poorly rated credit.

On March 23, the Fed and the Treasury announced a sweeping stimulus program that would involve buying hundreds of billions of dollars of investment-grade bonds. Selling bonds is a way for large companies like Boeing or PepsiCo to raise money for new investments, to fund day-to-day operations or to pay back older loans. Companies that are strong and profitable are expected to be able to pay back the borrowed money. Their bonds are deemed “investment grade” and come with lower interest rates. The news of the Fed program on its own heralded a dramatic recovery in the bond market, which in three weeks recovered nearly all of the 13.6% it had lost since the plunge began on March 6, according to one index.

Then, on April 9, the Fed announced, with the Treasury’s approval, that it would expand its efforts to buy some junk bonds. These carry higher interest rates because the borrowing companies are viewed as riskier and may already be heavily in debt. One index tracking that market segment surged nearly 8% on the news, the most in a decade. This risker category of bonds has expanded dramatically in recent years as companies took on higher debt burdens to do things like acquire competitors and buy back stock. These are the bonds in which Muzinich & Co. has long specialized.

At the end of 2019, Muzinich & Co. reported it had $2.8 billion of assets under management in its U.S. high-yield bond strategy. A Muzinich fund that focuses specifically on those bonds took significant losses in March, as companies like oilfield services provider Targa Resources and Caesars Entertainment saw the price of their bonds fall 30% and 35% respectively.

The government’s announcement buoyed Muzinich & Co.’s high-yield holdings along with everyone else’s. The portfolio manager for the firm’s U.S. high-yield offering also praised CARES Act’s tax provisions that would “help high yield companies.”

In a separate development in May, the Fed expanded another Treasury-backed lending program in a way that could help Muzinich & Co.’s portfolio. The central bank said May 12 it would support “syndicated loans,” another form of corporate debt often in which riskier firms borrow money from multiple lenders. Muzinich & Co. had more than $3 billion in assets under management in U.S. and European syndicated loans at the end of last year.

The good news for Muzinich & Co. keeps coming. As the firm’s head of investment strategy, Erick Muller, told investors in a May 13 webcast about the junk bond market: “The recovery is pretty spectacular.”

Doris Burke and Hannah Fresques contributed reporting.

Do you have access to information about the economic crisis response by the Treasury or Fed that should be public? Reach Justin Elliott at justin@propublica.org or via Signal at 774-826-6240 and Lydia DePillis at lydia.depillis@propublica.org or via Signal at 202-913-3717. Here’s how to send tips and documents to ProPublica securely.


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Trump’s Food Aid Program Gives Little Funding to the Northeast, Where Coronavirus Hit Hardest

22 May

by Isaac Arnsdorf

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published.

President Donald Trump’s signature food aid program is sending less relief to New York and New England than other parts of the country, even though the Northeast has the most coronavirus cases. Some states — Maine and Alaska at least — have been left out completely so far.

The regional imbalances are an unintended side effect of the U.S. Department of Agriculture’s strategy in hiring private contractors to distribute food, the agency said. It is now looking for ways to reach areas that were passed over.

“USDA is evaluating how we might expand access to the program in areas that are underserved,” the agency said in a statement.

Out of $1.2 billion in the program’s first round, just $46 million is going to the Northeast. The region, which encompasses New York and New England, has the most coronavirus cases but received the least money of any region except the Mountain Plains, which has almost half as many people.

By contrast, the Southwest (including Texas) is getting more than five times as much money even though it has only about 50% more people and a quarter as many coronavirus cases.

Food Aid Funding Is Lowest in the Hardest-Hit Areas

In President Donald Trump’s signature food relief program for the coronavirus pandemic, the Northeast — the hardest-hit region — got the least amount of money per confirmed COVID-19 case.

Sources: USDA, Johns Hopkins University

Isaac Arnsdorf/ProPublica

Put another way, the Northeast has 10% of the country’s population and 33% of COVID-19 cases but is receiving only 4% of food relief dollars, according to ProPublica’s analysis of data from the USDA, the Census Bureau and Johns Hopkins University.

The pandemic is also taking a severe economic toll on New England. According to an analysis by the Federal Reserve Bank of Boston, unemployment claims from March 21 to April 11 equaled 16.6% of the region’s total workforce, and 36% of renters and 18% of homeowners in New England are at risk of being unable to make their payments.

Trump and his daughter Ivanka have personally heralded the USDA’s new program, which is meant to deliver boxes of fruit, vegetables, meat and dairy to food banks, churches and other nonprofits. Instead of using its regular system for buying and distributing food, which typically handles nonperishable items in bulk, the USDA awarded contracts to private distributors.

The process was unusually fast for government contracting: Companies had only a week to apply, and the USDA announced the winners a week later.

Although the USDA announced the contracts on a regional basis, the agency had no method for allocating funding to each region — it just depended on which companies won their bids. “The amounts and locations awarded were based on the offers received and the evaluation of those offers,” the USDA said.

The relative dearth of distributors in the Northeast is making it harder for food banks there to meet the needs of their communities. In Rochester, New York, the Foodlink food bank consulted with dozens of companies that it has worked with about applying for the USDA contracts. But none of those bids were successful, and Foodlink didn’t have a relationship with any of the winning contractors.

Now the food bank is in touch with the winning distributors but has yet to receive any shipments. As a result, it doesn’t have much fresh food to give out, even as the city’s service hotline is getting a surge of calls from people needing food, according to Foodlink’s chief strategy officer, Mitch Gruber.

“We could have had more food sooner, and they could have guaranteed more geographic representation across the nation if the program had been designed around food banks and not around distributors,” Gruber, who’s also a Democratic member of Rochester’s city council, said in an interview. “Everyone’s genuinely trying to best connect surplus at farms with increased need at food banks, and I’m glad the USDA is trying to fill that void. The smartest way to have done it would be to fund the food banks and work backwards to food distributors and vendors to serve them, rather than to have the USDA work with distributors and vendors.”

Thus far, the USDA has awarded $1.2 billion worth of contracts to distributors, out of $3 billion available overall. The agency said the contracts were competitively evaluated based on the companies’ ability to deliver.

But some of the winning bids raised eyebrows because the companies appeared to lack experience in food distribution or did not have a proper USDA license. At the same time, some applicants with more traditional qualifications said their bids were denied on mistaken grounds.

The USDA defended its selections. “A lot of groups and organizations have some very great abilities that you wouldn’t necessarily be able to assess by looking at the name of the organization,” Greg Ibach, the USDA’s under secretary for marketing and regulatory programs, said on a conference call with reporters on Tuesday. “We feel confident that between our screening process and our audit process that we will be able to assure that those companies will be successful in fulfilling the responsibilities and the design of our program.”

One of the rejected applicants was a local distributor in Maine called Native Maine Produce & Specialty Foods. The USDA told the company its application was missing a signature on a certain page, according to vice president of sales Jimmy Davolio. Davolio said he rechecked the paperwork and the signature was there.

“I don’t know what we could have missed,” Davolio said.

No other companies serving Maine won contracts either, so the state is receiving no food boxes, according to the state Department of Agriculture, Conservation and Forestry.

“We were disappointed we didn’t get it, but now I’m more disappointed that the folks in Maine aren’t getting those funds,” Davolio said in an interview. “We bid where we thought we could help. Now I feel terrible.”

The state is sorely missing the relief as food bank demand has tripled in some places, at a statewide average of about 35%, according to Kristen Miale, president of the Auburn-based Good Shepherd Food Bank, which serves a statewide network. Maine’s growers are also hurting and looking for new customers since their primary buyers — restaurants and the food service industry — have been largely shuttered.

“We need to be distributing a lot more food. Our primary constraint is we just don’t have enough food to give out,” Miale said. “This program would be a huge help.”

Miale is hoping that the USDA will give Maine distributors another chance, taking into account the logistical challenges of a sprawling, rural state with islands and mountains.

“They kind of put out a one-size-fits-all approach and it didn’t fit for everybody,” Miale said. “So now let’s go back and look at it again.”

Maine’s agricultural commissioner, Amanda Beal, formally asked the USDA to reopen the bidding process in the fall to give Maine distributors time to develop a way to participate.

“Like all small businesses in Maine, farmers in our state have been significantly impacted by the COVID-19 pandemic but are eager to continue to grow food for consumers,” Beal said in a letter to the USDA on Thursday. “Likewise, many families in Maine need extra support during this unprecedented time, and it has been projected that food insecurity in Maine could increase by as much as 39 percent in 2020 due to COVID-19. We are confident that the Farmers to Families Food Box Program can help provide much-needed support for both, but only if the program can be adapted and flexibility be given to fit individual state needs.”

In another corner of the country, Alaska was also left with no access to the program. Two companies submitted bids but the USDA didn’t accept them, according to Cara Durr, director of public engagement for the Food Bank of Alaska, which serves the entire state.

Though Alaska has kept its case count down to only about 400, the shutdowns imposed to control the outbreak have taken a steep economic toll and made it harder for remote communities — many inaccessible by road — to get needed supplies. The state’s budget is also heavily dependent on oil, whose price has cratered.

The Food Bank of Alaska found a workaround where one local company signed on as a subcontractor to a winning bidder. That company is now supplying hard fruits and vegetables such as potatoes, apples and oranges.

But they’re still not able to receive meat or dairy, and the shipments won’t reach outside Anchorage to more far-flung places like Fairbanks, Durr said.

“The cost to bring food up to Alaska wasn’t factored in,” Durr said. “We would have loved to have gotten more through this program. Supporting local in-state vendors when there are applications would have been a much better way to go, for our state at least.”

Beena Raghavendran contributed reporting.


The Trump Administration Says a New Bailout Program Will Help 35 Million Americans. It Probably Won’t.

14 May

by Justin Elliott, Lydia DePillis and Paul Kiel

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published.

Within a few weeks, the Federal Reserve will start a $600 billion lending program that the Trump administration says will help 40,000 midsized businesses that employ 35 million Americans.

The Main Street Lending Program is the next marquee effort of the Coronavirus Aid, Relief and Economic Security Act, which Congress passed in March. It is set to begin after weeks of criticism of the first, the Paycheck Protection Program for small businesses. While it’s too early to judge a program that hasn’t begun, the Main Street effort appears to have replicated some of the flaws of the paycheck program, and it has added some new ones.

Experts from across the political spectrum already are concerned that the Main Street program will not come close to meeting the ambitious goals touted by the administration. They worry it will move too slowly, that lenders won’t embrace it and that companies won’t seek out the loans because they’re not sure whether they’ll be able to pay them back.

“My fear is that no one will lend and no one will borrow,” said Glenn Hubbard, an economist at Columbia Business School who served in the George W. Bush administration.

Even if companies do get Main Street loans, there is nothing in the program stopping them from continuing mass layoffs. Bankers, former government officials and academics from across the political spectrum told ProPublica that direct support for workers and businesses, not just loans, might be more effective. The CARES Act, however, requires that the money appropriated by Congress be used for loans, not grants. And so far Congress has declined to provide more aid, with negotiations stalled over another economic relief package.

During an online event Wednesday, Fed Chair Jay Powell called the Main Street program “unique in our history” and “operationally very complex.”

“It’s an incredibly diverse group of companies, very diverse industries and credit needs,” Powell said. “And we’re trying to create products with Main Street that address as broad a swath of those needs as we possibly can.”

The Treasury did not respond to questions.

Under the paycheck program, small companies applied to banks for government loans that would be forgiven if they used most of the money to keep workers on payroll. Main Street, in contrast, is a pure loan program designed to make sure that companies with solid business models make it through lockdowns required to stop the pandemic. Recipients have a year before they have to start paying back the loan, which can range from $500,000 all the way up to $200 million, and they’re barred from issuing dividends or buying back stock until a year after the loan is paid back.

“To go from the grants of the Paycheck Protection Program to a program that is straight lending is a problem,” Hubbard said, explaining that these businesses need money without the need to pay it back with interest.

If the Main Street program is useful, it won’t be for businesses on literal Main Streets across America. The minimum loan amount of $500,000 makes it inaccessible to the small businesses — the local pizzeria or day care center — currently gasping for cash across America. And the Fed’s idea of what constitutes a midsized business is many orders larger than is commonly meant by the term; the National Center for the Middle Market at Ohio State University, for example, defines the upper bound as $1 billion in revenue.

But in the Main Street program, there’s not much limit on how large a company can be. On the high end, the loans will be available to companies with up to 15,000 employees or annual revenue of up to $5 billion. According to Fortune, only 539 individual companies in the entire country brought in more than $5 billion last year.

Lax Conditions

One problem stems from the drafting of the law, which proposes some restrictions but also includes a major escape clause.

In the CARES Act, lawmakers wrote that Treasury Secretary Steven Mnuchin should “endeavor to seek” to create a loan program for medium-sized businesses that would require several conditions: Companies could not oppose union organizing or break their union contracts; recipients would be required to restore 90% of the company’s workforce as of Feb. 1; and they could not outsource or offshore jobs until two years after the term of the loan.

Democrats celebrated their efforts on the behalf of working people. Senate Minority Leader Chuck Schumer claimed his party had secured “robust worker protections attached to all federal loans for businesses.”

In fact, those conditions were little more than suggestions, which the Trump administration and the Fed quickly cast aside. The Fed’s Main Street program includes none of those protections; instead, it requires companies only to make “commercially reasonable” efforts to keep employees. There is essentially nothing stopping companies that take the loans from laying off more workers.

Schumer’s office did not respond to requests for comment.

Some observers believe there’s a legitimate reason the Treasury and the Fed opted not to attach worker protections to the Main Street loans: If borrowers are locked into their current workforce structure, they won’t be able to adapt to a post-COVID-19 world. Manufacturers might need to automate more, for example, to physically separate workers and avoid a return of the virus. Companies also may be in a better position to rehire more of their workers if they use a Fed loan to retrofit their operations to better control infections.

To progressives and labor unions, however, there’s little point in subsidizing loans if the companies receiving them don’t use the cash to support jobs.

“If they get the money, and then they lay people off, or they move their operations to another country where there’s less restrictive worker protections, why is it in [taxpayers’] interest to be giving them money?” said Dan Mauer, head of government affairs for the Communications Workers of America.

As the last deep recession demonstrated, it’s much harder to escape from unemployment than it is to get a new job while you’ve still got the old one. And requiring that the loan be spent to support jobs may reduce the chances that companies spend the money on projects that instead primarily benefit creditors or shareholders, such as acquiring other businesses.

“I’ve asked the Fed to impose these requirements on bailout recipients,” Sen. Elizabeth Warren said in a statement to ProPublica. “Anything less would represent a giveaway to large corporations and CEOs to use this money to enrich themselves.”

The rules got even more friendly to large corporations as the Main Street program evolved.

After initially announcing plans to set up the program, the Fed fielded 2,200 comments from interested parties (which it has refused to disclose publicly). In late April, the Fed announced an overhaul, boosting the workforce size cap for borrowers to 15,000 employees and the maximum loan amount to $200 million. It also allowed companies to qualify with a rosier calculation of their earnings, dispensed with the requirement that companies say they needed the money because of impacts from COVID-19 and allowed the loans to be used for refinancing existing debt.

Thus, the program became more attractive both to less healthy companies that might not otherwise have qualified, and to more healthy companies that might simply find the interest rates appealing. Gregg Gelzinis, a senior policy analyst with the left-leaning Center for American Progress, calls that a waste of money.

“We shouldn’t be providing cheap government dollars to companies that either don’t need it or are facing severe difficulties completely unrelated to COVID,” Gelzinis said, noting that highly indebted oil and gas companies in particular lobbied for the rules to be loosened.

Also, allowing Main Street loans to refinance existing debt may improve a company’s financial standing, but not generate new spending that would stimulate growth.

“If the Fed loans are used to refinance, the money flows back to lender’s balance sheets, not the economy,” said Amias Gerety, who served as the Treasury Department’s acting assistant secretary for financial institutions until January 2017. “Allowing companies to repay earlier debt changes the character of the program, almost as significantly as making the program more available to larger companies.”

Banks Might Not Lend

Another problem is the mechanism by which the program will be implemented: through banks.

The Federal Reserve doesn’t normally lend to nonfinancial companies. So, as with the Paycheck Protection Program, banks will take on the responsibility of studying the finances and prospects of each business that wants a Main Street loan and decide whether to approve it.

To protect taxpayers and incentivize the banks to make good loans, the program requires banks to keep between 5% and 15% of the debt — and thus a portion of the risk — on their own books. But that clause also deter banks from participating.

Putting their own money on the line could be an obstacle, said Christy Hester, director of growth and development at the Independent Bankers Association of Texas. “It means they’ve got accounting and reporting requirements,” she said. “Just setting up the accounting side of that and the servicing side of that, if it’s not already set up, that’s a pretty big burden for a small community bank.”

The Main Street program compensates banks by allowing them to charge an origination fee of up to 1% of the loan, plus an annual servicing fee. Because it’s so difficult to assess the risk of lending money in the climate of pandemic-induced uncertainty, that might not be enough.

It’s not surprising that banks would prefer to receive higher fees and take on less risk. But it does mean that running the program through the banks could slow things down.

So far, only a handful of banks have mentioned in their regulatory filings that they intend to participate; most say only that they are considering it. In its response to the Fed’s overhaul, the American Bankers Association urged further changes to boost demand for the program and bank participation, like lowering the minimum loan size even more and relaxing the loan terms even further.

Borrowers Might Not Borrow

Despite the cash crunch facing thousands of companies that have seen their businesses drastically curtailed, it’s not clear that the Main Street Lending Program is the right medicine.

Under the initial plan announced in early April, the minimum loan amount was $1 million and would only be accessible to companies with at least $165,000 in annual earnings, and more than that for companies with debt.

When the Fed and Treasury revised the Main Street terms late last month, the only concession to small businesses was dropping the minimum loan amount to $500,000. But that’s still far higher than the $100,000 that the community bank trade association had asked for. “Otherwise,” the Independent Community Bankers of America warned in an April 17 comment, “Main Street businesses and community banks will not participate.”

Even if they could qualify for the Main Street program, plenty of businesses worry about their ability to repay a loan of more than a half-million dollars and having a huge debt burden might hamstring their ability to invest after the pandemic has passed. Grants might be more likely to help businesses survive what looks to be a prolonged economic downturn.

“Borrowers have to be confident that they’re going to be able to generate cash flow to pay back the principal and interest,” a senior loan industry official said. “How can you project that right now during the crisis?”

As with the Paycheck Protection Program, the central role of banks could again give a leg up to their existing clients rather than the neediest or most deserving businesses, according to industry observers. That’s because banks must approve the loans, so they might favor companies for whom much of the time-consuming work of underwriting and due diligence is already done.

Kathryn Judge, a professor at Columbia Law School who specializes in financial regulation, said that, as the program gets underway, it will be important to scrutinize the role of the banks as well as how companies that get the loans treat employees.

“Not just the Fed, but Congress and oversight bodies should make clear that if you’re taking these funds, we have the ability to come in and ask you to show what were those ‘commercially reasonable’ efforts’ to keep workers,” Judge said.

So far, however, those efforts haven’t been terribly effective.

In mid-April, Schumer and Democratic members of the Senate Banking Committee sent a long letter to the Fed and Treasury asking basic questions including “What is the Federal Reserve’s strategy?” and “Will the strategy help protect workers?” The letter, which requested answers by April 24, has received no response.

Jeff Ernsthausen contributed reporting.

Do you have information about the Treasury, the Fed or the Main Street Lending Program that should be public? Reach Justin Elliott at justin@propublica.org or via Signal at 774-826-6240 and Lydia DePillis at lydia.depillis@propublica.org or via Signal at 202-913-3717. Here’s how to send tips and documents to ProPublica securely.


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Grieving Families Need Help Paying for COVID-19 Burials, but Trump Hasn’t Released the Money

29 Apr

by Lisa Song and Yeganeh Torbati

ProPublica is a nonprofit newsroom that investigates abuses of power. Sign up to receive our biggest stories as soon as they’re published.

As the U.S. death toll from the coronavirus mounts, President Donald Trump has yet to free up a pool of disaster relief funding specifically intended to help families cover burial costs.

Approximately 30 states and territories have requested the funding as the pandemic spreads across the country and struggling families ask for help burying their dead. The funding is part of the wide array of “individual assistance” programs handled by the Federal Emergency Management Agency to help disaster victims. But Trump has sharply limited what kinds of assistance FEMA can provide, and the agency has told states their requests are “under review” or only agreed to pay for counseling services for their residents.

Often in disasters, the federal government steps in to reimburse families for funeral expenses. FEMA offered funeral assistance after Hurricane Katrina and Superstorm Sandy. The amount varies, but a September 2019 report from the Government Accountability Office found that FEMA paid about $2.6 million in response to 976 applications for funeral costs of victims of three 2017 hurricanes, or an average of about $2,700 per approved application.

But with the coronavirus, the funding stream has remained closed, despite calls from politicians including New York Democrats Sen. Chuck Schumer and Rep. Alexandria Ocasio-Cortez. At least 58,000 people have died of COVID-19 in the United States, and those deaths are coming as tens of millions of people deal with lost jobs.

In response to questions, FEMA stated that the decision on which programs to fund is in Trump’s hands.

“The approval of programs in response to a disaster declaration request is made at the discretion of the President,” a FEMA spokesperson said.

On April 28, Trump issued a memorandum authorizing crisis counseling assistance through FEMA, but noted that the order “shall not be construed to encompass any authority to approve other forms of assistance.” That language effectively bars FEMA from granting states other forms of aid.

A spokeswoman for the White House’s Office of Management and Budget, Rachel Semmel, referred questions to FEMA, saying “Individual Assistance is within FEMA’s area of responsibility.” White House spokesmen Devin O’Malley and Judd Deere did not respond to questions.

Craig Fugate, a former FEMA administrator during the Obama administration, said OMB plays a key role in deciding what funding is released during disasters.

“What gets turned on in a disaster is based on FEMA’s recommendations, but the White House has a heavy influence on what that is,” Fugate said. “FEMA does not have the independent ability to turn on the programs at will.”

The lack of federal aid for burial costs has left people like Sufian Nabhan to figure out solutions. As executive director of the Islamic Center of Detroit, Nabhan helps the large Muslim community in southeastern Michigan arrange family burials in accordance with religious traditions. He estimates that his center has lost about two dozen people so far. In about a third of the deaths, families have struggled to pay costs averaging about $5,000.

On Monday, Nabhan had another painful conversation about burial expenses with the relative of a new coronavirus victim.

“I felt he wanted to tell me something, but he’s hesitant,” Nabhan said. “You feel it, they are shy.”

Nabhan said he asked the man if the family could pay for the funeral and learned it was raising money online through GoFundMe. Nabhan told him to focus on grieving his loss and that the Islamic center would cover whatever the family could not.

Nabhan said he feels the federal government should step in to help these families.

“Everyone is grieving right now, everyone is feeling not safe, everyone is feeling stressed,” Nabhan said. “They lost a loved one and then they’re going to worry about covering the cost of the burial? I think it’s too much.”

GoFundMe sites that have sprung up in the crisis show the shortfalls many families are facing. Family and friends of Devin Francis, a 44-year old radiology technician in Miami who was about to get married when he died of COVID-19 in early April, raised $4,300 of its $5,000 GoFundMe goal. Other posts cite burial costs for a father and son in New York who both died of the disease, and a chef in Chicago.

Mark Neveau, a former FEMA presidential appointee who worked on the federal response on Long Island during Sandy, said there’s a critical need for federal assistance. To prevent further spread of the virus, patients often die alone without their families around them, he said, and that makes it hard for everyone.

“We’ve not seen that before in this country. To have the federal government pay for funeral[s] is an appropriate thing,” he said, especially since communities of color and less affluent families are disproportionately affected by the virus.

Samantha Montano, a professor of emergency management at the University of Nebraska, said FEMA and the White House have the authority to implement the programs and the need for funeral aid is particularly obvious in hard-hit areas like New York, Louisiana and Michigan.

FEMA grants assistance from its Disaster Relief Fund, which has been funded by Congress in recent years at levels ranging between $7 billion and $13 billion. The fund got an extra boost of $45 billion in the Coronavirus Aid, Relief and Economic Security Act.

Federal aid to states is triggered when Trump approves their request for a Major Disaster Declaration, which jump-starts various kinds of assistance under the Stafford Act. Trump has approved the disaster declaration requests, but not the requests for the specific types of assistance.

Typically, FEMA has a limited number of assistance requests — for a handful of counties in a state struck by flooding or tornadoes, for instance. But with the pandemic, every state and U.S. territory has sought federal help, and for the first time ever, as of April 17, all of them are under a major disaster declaration and eligible for significant aid.

“We’ve never had anything like this event before in U.S. history,” said Patrick Roberts, a scholar at the RAND Corp. who researches disaster preparedness. “This is an exceptional event that FEMA hasn’t had to prepare for before.”

The demand is coming months before hurricane season and the anticipated peak in wildfire activity, when calls for FEMA aid will spike again.

Under FEMA’s aid programs, states may request money for individual assistance, which includes unemployment assistance, crisis counseling and funeral reimbursements. If the Trump administration granted all the aid requested for coronavirus relief, the costs could quickly run into the billions.

More than two dozen states and territories have asked for the full suite of individual assistance programs, according to FEMA documents reviewed by ProPublica, while others have stopped short of asking for everything but still requested significant help.

Rhode Island requested all types of individual assistance from FEMA in late March, including funeral reimbursement. Armand Randolph, a spokesman for the Rhode Island Emergency Management Agency and head of the agency’s recovery branch, said the state’s thinking was informed by the unpredictability of the pandemic, which is still little understood by scientists and continues to infect thousands each day.

“You don’t know what’s going to happen, so let’s throw everything in,” Randolph said. “Why short ourselves, saying ‘We don’t need this, we don’t need that’?”

FEMA responded two days later and said the request was “under review.”

“I’m being optimistic,” Randolph said. “They didn’t say no yet, so I’m going to keep trying.”

Rebecca Clark, communications manager for Illinois’ Emergency Management Agency, said in an email that the state is still waiting for a verdict on its requested funeral assistance. “Unfortunately, while there are deadlines for the state to meet in order to qualify for this assistance, there are no such deadlines for the federal government to respond to the state’s request,” she wrote.

North Dakota officials have heard from FEMA that “there is so much federal funding created through the CARES Act, and so many different federal programs currently available,” that the agency is considering pushing out its assistance only to address “any gaps in coverage,” said Justin Messner, recovery chief at the North Dakota Department of Emergency Services, via a spokesman.

The four pandemic bills that Congress has passed so far have expanded food aid, funded testing for the uninsured, increased Medicaid coverage and boosted unemployment assistance, among other provisions. Some elements are similar to aid that FEMA provides, but the bills do not include burial cost reimbursement.

If Trump authorizes funeral assistance through FEMA, the funds will be just enough to cover the essentials of burial or cremation, Neveau said. He pointed to the urgency of the situation, citing the mass burials in New York City, where people whose bodies aren’t claimed, or whose families can’t afford burials, are being interred on Hart Island at several times the usual rate.

“We’re seeing people buried in wooden boxes,” he said. “That’s somebody’s loved one.”

Do you have access to information about the U.S. government response to the coronavirus that should be public? Email lisa.song@propublica.org or yeganeh.torbati@propublica.org. Here’s how to send tips and documents to ProPublica securely.


Trump Administration Officials Warned Against Halting Funding to WHO, Leaked Memo Shows

15 Apr

by Yeganeh Torbati

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An internal memorandum written by U.S. officials and addressed to Secretary of State Mike Pompeo warns that cutting funding to the World Health Organization, as President Donald Trump said he would do Tuesday, would erode America’s global standing, threaten U.S. lives and hobble global efforts to combat the coronavirus pandemic.

The memo, which was prepared before Trump’s Rose Garden announcement, was written by officials within the State Department’s Bureau of Near Eastern Affairs and includes a detailed list of how U.S. funding to the WHO helps countries in the Middle East control the pandemic.

A draft version of the memo, which was labeled “Sensitive But Unclassified” and was titled “Information Memo for the Secretary,” was seen by ProPublica.

It’s unclear if the memo has been sent to Pompeo, and the draft version reviewed by ProPublica was still unfinished. The State Department, the U.S. Agency for International Development and the White House did not immediately respond to requests for comment.

The Trump administration has worked closely with the WHO on pandemic response, especially in places where the United States has a limited presence. One U.S. official with knowledge of the State Department memo said it was likely written so that Pompeo could justify waiving parts of Trump’s order, allowing U.S. funding to the WHO to continue. The emphasis on how the halt in funding could bolster China was likely meant to appeal to anti-China hawks in the administration, this person said, speaking on the condition of anonymity.

Trump announced on Tuesday that he would halt WHO funding while his administration reviews what he described as mismanaging and “covering up” the coronavirus spread. He said the WHO had not done enough to call out China’s lack of transparency. The virus originated in China before spreading worldwide.

But Trump himself has praised China for its coronavirus response. On Jan. 24, he tweeted that China “has been working very hard to contain the Coronavirus,” and that the U.S. appreciates the country’s “transparency.”

A White House fact sheet issued on Wednesday said the administration will “redirect global health aid to others directly engaged in the fight.” But in some countries with weak health sectors, the WHO is by far the strongest conduit for U.S. and other international funds meant to protect public health, a U.S. official with knowledge of the situation said. That could mean the administration will find it difficult to reprogram funding originally meant for the agency.

The U.S. is the largest donor to the WHO, contributing more than $400 million per year. And the administration had chosen to funnel extra funds provided by Congress through the WHO as well, a tacit endorsement of its capabilities.

“Current discussions regarding pausing U.S. assistance to the WHO to combat the pandemic risks not only further undermining our ability to help host governments address urgent needs, but also undermines the U.S. narrative of a long-standing partner at precisely the time posts are most reliant on that narrative,” the memo said.

Pausing funding to the organization, the memo said, “will impact over $50 million in U.S. assistance planned to help host governments address urgent needs and risks undermining the U.S. narrative of a long-standing health leader, ceding ground to the (People’s Republic of China).”

Congress provided that funding in supplemental packages in March, the memo said.

Congressional Democrats quickly denounced Trump’s decision to halt funding to the WHO, and they argue that at least some of the U.S. funding to the organization is beyond his power to stop.

“President Trump does not have the authority to withhold funds that Congress has appropriated for the United States’ assessed contribution to the World Health Organization,” said Evan Hollander, a spokesman for the House Appropriations Committee.

But the emergency funds given to the State Department and USAID and referenced in the memo are separate from the “assessed contributions.” The additional funding that Congress provided for the coronavirus response gave the administration much more flexibility to determine recipients, meaning that Trump is legally able to halt those funds.

The memo detailed a number of key WHO activities related to the pandemic fight. In Lebanon, the WHO sent test kits in February and planned to send masks, gloves and other supplies afterward, the memo said. In Yemen, which is already experiencing a humanitarian crisis because of years of war, the WHO was working to open ports for humanitarian supplies and providing American and Chinese tests.

In Libya, which is also in ongoing conflict, the memo said the WHO is “the most technically viable implementing partner on public health issues; very limited alternatives exist.” Around two dozen Americans in Libya have said they want to return to the U.S., but the State Department cannot help them do this for now, the memo said, and the agency has urged them to shelter in place. “Any one of them who encounters a health crisis will likely depend on WHO-provided assistance to make it through,” the memo said.

In Algeria, where the coronavirus pandemic has proven especially deadly, USAID had approved half a million dollars in funding for the WHO’s response in the country and was considering sending a further $1.5 million, the memo said.

“The PRC, meanwhile, has sent a medical team of 13 doctors and eight medical assistants, while private organizations have donated over $450,000 worth of medical equipment,” the memo said, referring to China.


Do you have access to information about the State Department and USAID response to the coronavirus that should be public? Email yeganeh.torbati@propublica.org. Here’s how to send tips and documents to ProPublica securely.

No, President Trump, the Coronavirus Is Nothing Like H1N1 Swine Flu Either

19 Mar

by Charles Ornstein

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As the coronavirus threat has escalated in recent weeks, President Donald Trump has repeatedly compared it to the U.S. handling of the H1N1 swine flu outbreak of 2009.

In three press briefings and five tweets since March 1, the president has compared his administration’s handling of the coronavirus favorably to the way President Barack Obama’s team dealt with the H1N1 outbreak, which infected 60 million Americans. This comes after Trump spent weeks saying the coronavirus paled in comparison to the seasonal flu, a comparison we debunked over the weekend.

“Interestingly, if you go back — please — if you go back to the swine flu, it was nothing like this. They didn’t do testing like this. And actually, they lost approximately 14,000 people. And they didn’t do the testing. They started thinking about testing when it was far too late,” the president said at a press briefing on March 13.

Or this on March 15:

….The USA was never set up for this, just look at the catastrophe of the H1N1 Swine Flu (Biden in charge, 17,000 people lost, very late response time), but it soon will be. Great decision to close our China, and other, borders early. Saved many lives!

— Donald J. Trump (@realDonaldTrump) March 15, 2020

The president is wrong in multiple ways.

First, the swine flu did not kill 17,000 people, as Trump maintained in his tweet. Nor did it kill 14,000, the figure he cited days earlier. The U.S. Centers for Disease Control and Prevention has estimated that H1N1 killed about 12,500 Americans between April 2009 and 2010, far fewer people than typically die each year from the flu. (Trump has gotten this figure right on other occasions.)

Second, the president’s characterization of the government’s response does not match reality. If anything, the response to H1N1 was swift in comparison to the current administration’s handling of the coronavirus.

“I assume what he’s trying to say is somehow he’s doing a much better job,” Kathleen Sebelius, secretary of health and human services under Obama, said in an interview Wednesday. “I just find that totally baffling. Anybody who looks at the comparisons very quickly understands that this is not the case.”

From First Case to Approved Test: Two Weeks

Though the H1N1 virus had begun spreading in Mexico, the first case in the United States was detected on April 15, 2009, in a 10-year-old patient in California. Two days later, CDC laboratory testing confirmed a second infection in an 8-year-old also living in California. Within one week, the CDC had activated its Emergency Operations Center to respond to what it had identified as an emerging public health threat.

Before the end of April, the government had declared a public health emergency and started releasing medical supplies and drugs from the CDC’s Strategic National Stockpile. “The real-time PCR test developed by CDC was cleared for use by diagnostic laboratories by FDA under an Emergency Use Authorization (EUA) on April 28, 2009, less than two weeks after identification of the new pandemic virus,” the CDC notes on its website.

Sebelius remembers that date well. It was the day she was sworn in as HHS secretary.

The test developed by the CDC was created quickly. It was accurate. And it was shared with governments around the world, she said. “The capacity of CDC at that point to make and develop and quickly turn out a test was vastly different than what we saw occurring” with the coronavirus, Sebelius said.

In an interview, Dr. Tom Frieden, who was CDC director under Obama, said testing for H1N1 and the United States’ willingness to share its test with other countries was a success. “I traveled all over the world and for years afterward even very hostile governments were saying thank you for sending it to us.”

Coronavirus testing, on the other hand, remains mired in delays. Though the first person in the United States was confirmed to have the virus on Jan. 20, a series of problems have kept testing out of reach for many patients with telltale symptoms of the virus. The CDC designed a flawed test for COVID-19, then it took weeks to figure out a fix so state and local labs could use it, ProPublica found. Trump said on March 6 that “anybody who wants a test gets a test,” but many doctors, patients and public health leaders say that is not the case.

On Wednesday, Ohio Gov. Mike DeWine, a Republican, said: “Testing is limited. It will, in all likelihood, remain limited.”

#COVID19 Testing: Testing is limited. It will, in all likelihood, remain limited. But please, do not fixate on testing. The vast majority of Ohioans who have symptoms do not need to be tested for the virus. If you are feeling symptoms, you should act like you have it.

— Governor Mike DeWine (@GovMikeDeWine) March 18, 2020

Vaccine Successes and Weaknesses

Almost from the day the H1N1 strain of flu was identified, researchers set out to develop a vaccine for it. Six days after the first case was identified in April 2009, the CDC began working to develop a candidate vaccine virus. Clinical trials began in July. And on Sept. 15, the Food and Drug Administration approved four 2009 H1N1 influenza vaccines. The first doses of the vaccine were available in October, and by December, 100 million doses were available to be ordered.

The vaccine production didn’t go as smoothly as officials had hoped. In October, the CDC and Frieden were called to task about the pace of the manufacturing process.

“We are now in a period where the vaccine availability is increasing steadily but far too slowly,” Frieden said at a press briefing in October 2009. “It’s frustrating to all of us. We wish there were more vaccine available. … Manufacturers are working hard to get as much vaccine out safely as possible. The vaccine strains of the virus grow and that’s how we develop vaccine. Even if you yell at them, they don’t grow faster.”

Once it was manufactured, the vaccine was distributed widely. CDC arranged for 126.9 million doses of the vaccine to be shipped to tens of thousands of medical providers. All told, about 81 million U.S. residents were vaccinated, and the strain is now a regular part of annual flu shots. I remember waiting in line with my family at a school in Bergen County, New Jersey, to get my shot. The line was long but orderly.

“The biggest problem with the H1N1 [response] is that the vaccine didn’t come on time,” Frieden said.

President Barack Obama is vaccinated against H1N1 by a White House nurse on Dec. 21, 2009.
(Pete Souza/The White House/AP)

There is no vaccine yet for the coronavirus. The disease is novel and appears to behave differently than the flu, so it will likely take longer to develop a vaccine, which would not be the fault of the Trump administration. The first patients in a clinical trial of a vaccine were given shots this week. But Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, cautioned that the process may take a year or more.

“We’re close to starting a phase 1 trial to determine safety,” Fauci said recently on CNN. “We’re going to do that in about one and a half to two months. But that doesn’t mean you have a vaccine. In order to get a vaccine that’s practically deployable for people to use, it’s going to be at least a year to a year and a half at best.”

If Trump wants to learn from H1N1, he could start readying manufacturing capabilities right now, so once the coronavirus vaccine is proven to be safe and effective, there won’t be any delay.

Coronavirus Is Not H1N1

The coronavirus that causes COVID-19 is different from the H1N1 swine flu.

Though we are still learning a lot about the coronavirus, the biggest difference appears to be the difference in mortality between the two viruses. The death rate of H1N1 was just 0.02%. By comparison, the data to date seems to indicate that the case fatality rate (the number of reported deaths divided by the reported cases) for the coronavirus is 3% to 4%, the World Health Organization reported this month. Researchers have acknowledged that number may fall over time.

Moreover, the coronavirus appears to spread more easily than H1N1. What that means is that each person who is infected will likely infect more people than a patient who had H1N1.

And who is affected by the coronavirus is also different from the patients most susceptible to death from H1N1. Deaths from COVID-19 have been concentrated in those over age 65. By comparison, H1N1 struck children and young and middle-aged adults the hardest.

It remains unclear how many people will ultimately become infected by the coronavirus, but experts at Harvard have said 20% of adults is a conservative estimate based on other pandemics and its spread so far, though many will not be tested or will have only mild symptoms. Because of its virulence, that could overwhelm hospitals and has prompted widespread calls for people to stay home. In 2009, those calls were largely confined to schools that had outbreaks of H1N1.

Lessons From H1N1

Both Sebelius and Frieden said one of the key lessons from H1N1 was the need for clear and honest communication, something they both faulted in the current coronavirus response.

Obama’s administration reacted with alarm as cases of H1N1 were initially reported. Trump, by comparison, repeatedly reassured the public that everything was under control.

“From Day 1, [Obama] said: ‘We will be led by the facts. We need to tell people what we know and what we don’t know,’” Sebelius said. She said she and her team held twice-a-day press conferences to do that.

At one point, in June 2009, Obama invited experts who helped respond to the 1976 swine flu outbreak to a private meeting at the White House. He wanted to know “what went right and what went wrong. What do we need to learn, how do we need to do this,” Sebelius said.

“I haven’t seen any of that go on with this,” she added, referring to the coronavirus.

Asked to rate his response to the crisis on a scale of 1 to 10, Trump said on March 16: “I’d rate it a 10. I think we’ve done a great job. … We were very, very, early with respect to China. And we would have a whole different situation in this country if we didn’t do that.”

Frieden said he’s been troubled by the fact that CDC officials haven’t played a more visible role in the crisis response. Instead of briefings led by CDC leaders, Trump, Vice President Mike Pence and others brief the media each day.

“The biggest concern that I see now is the lack of CDC at the table when decisions are being made and at the podium when they’re being communicated,” Frieden said. “That is a really big mistake. That has not happened before.”

“This is not the way to run a railroad. It might get better. We’ll see. I hope so. We all want them to succeed.”