The Petty Prudery of the Vice Exceptions to CARES Act SBA Relief Loans
by Diane Klein
On Sunday, April 5, 2020, President Trump claimed that 28,000 loans had already been processed by the Small Business Administration on Friday, April 3, 2020. "It's worked out incredibly well," he lied. I will leave to others with far more expertise than I have an evaluation of whether the "Paycheck Protection Program" and other components of the Coronavirus Aid, Relief and Economic Security (CARES) Act for small businesses are adequate, administrable, or likely to provide sufficient support to America's 30.2 million small businesses in time to save any significant number of them from going under.
But however well or poorly this phase of relief works out, we already know that hundreds of thousands, perhaps a million or more, Americans work for employers who are not eligible for any sort of relief: those employed in the "vice" businesses of sex, gambling, and cannabis.
I am not referring here to prostitutes, bookies, and drug dealers, if we think of those terms are referring to people engaged in illegal occupations (at least some of which I personally think should be decriminalized). I am talking about unconscionable (and one might think, unconstitutional) SBA policies that deny emergency and disaster benefits to perfectly legal, tax-paying businesses related to sex, gambling, and marijuana. Some of these restrictions are a bizarre holdover from Clinton-era Puritanism (yes, really), renewed under the regime of teetotalling Trump and sex-phobic Pence.
There are a number of perfectly reasonable limits on SBA relief funds - for example, lobbyists are ineligible, as are agricultural businesses (which qualify for different forms of federal assistance). State and local governments are ineligible as are business-owning members of Congress and deadbeat parents more than sixty days behind in their child-support obligations.
And then there are the others, who are excluded by the SBA's equivalent of the Hays Code.
The SBA application has a number of check-off boxes. One of them requires the applicant to affirm that they do not present
The intent to discriminate against these business, codified in 1995, was explicit and intentional. As described in the Federal Register,
Just as a reminder, this is the Mission of the SBA:
Finally, the CARES Act also excludes legal cannabis businesses, because they are illegal under federal law, and applicants must certify that they are not engaged in "any illegal activity (as defined by Federal guidelines)." These businesses are also excluded from other forms of federal disaster relief, even if they would otherwise qualify. Legal marijuana businesses provided more than 240,000 full-time jobs as of February 2020, many of them in some of the early states hardest hit by COVID-19 (California, 67,000; Washington, 47,000; Florida, nearly 10,000; and New York, 5,000). A 2018 SBA Policy Notice makes clear that also barred are indirect (or "non plant touching") marijuana businesses, such as those that sell hydroponic equipment, lights, and paraphernalia.
The SBA's mission does not include the advancement of repressive social morality, or the punishment of those who make their living in these specific avenues of adult pleasures or indulgence. Where are the shrieks of libertarians and others who thought former NYC Mayor Mike Bloomberg's 2012 notorious "portion cap" rule on sugared soda reflected a nascent "nanny state"? No logic or sense of fairness makes "bean to bar" chocolatiers, small-batch cigar makers, and microbreweries eligible for taxpayer-funded relief, but not sex toy manufacturers, Indiana riverboat casino operators, or sellers of legal cannabis. These exclusions should be challenged and eliminated from the next phase of relief.
On Sunday, April 5, 2020, President Trump claimed that 28,000 loans had already been processed by the Small Business Administration on Friday, April 3, 2020. "It's worked out incredibly well," he lied. I will leave to others with far more expertise than I have an evaluation of whether the "Paycheck Protection Program" and other components of the Coronavirus Aid, Relief and Economic Security (CARES) Act for small businesses are adequate, administrable, or likely to provide sufficient support to America's 30.2 million small businesses in time to save any significant number of them from going under.
But however well or poorly this phase of relief works out, we already know that hundreds of thousands, perhaps a million or more, Americans work for employers who are not eligible for any sort of relief: those employed in the "vice" businesses of sex, gambling, and cannabis.
I am not referring here to prostitutes, bookies, and drug dealers, if we think of those terms are referring to people engaged in illegal occupations (at least some of which I personally think should be decriminalized). I am talking about unconscionable (and one might think, unconstitutional) SBA policies that deny emergency and disaster benefits to perfectly legal, tax-paying businesses related to sex, gambling, and marijuana. Some of these restrictions are a bizarre holdover from Clinton-era Puritanism (yes, really), renewed under the regime of teetotalling Trump and sex-phobic Pence.
There are a number of perfectly reasonable limits on SBA relief funds - for example, lobbyists are ineligible, as are agricultural businesses (which qualify for different forms of federal assistance). State and local governments are ineligible as are business-owning members of Congress and deadbeat parents more than sixty days behind in their child-support obligations.
And then there are the others, who are excluded by the SBA's equivalent of the Hays Code.
The SBA application has a number of check-off boxes. One of them requires the applicant to affirm that they do not present
live performances of a prurient sexual nature or derive directly or indirectly more than de minimis gross revenue through the sale of products or services, or the presentation of any depictions or displays, of a prurient sexual nature.(The same restriction is found at 13 C.F.R. 123.404(g).)
The intent to discriminate against these business, codified in 1995, was explicit and intentional. As described in the Federal Register,
SBA considers this proposed rule to be consistent with its obligation to direct its limited resources and financial assistance to small business in ways which will best accomplish SBA's mission, serve its constituency, and serve the public interest. Applicants' First Amendment freedoms are in no way abridged. They may still express their views, exercise their freedoms, operate their businesses, and obtain any other aid available to them.Whether relevant resources were genuinely "limited" at that time, it is simply not the case today that many of these businesses can still "operate" - no "other aid" is available on anything like the scale that is needed. Lack of access of CARES Act funds will almost certainly be fatal to many businesses so affected. How can this be justified?
Just as a reminder, this is the Mission of the SBA:
The U.S. Small Business Administration helps Americans start, build, and grow businesses. The SBA was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation.Gambling is another "vice" business that disqualifies applicants from SBA relief. Applicants who "derive more than one-third of gross annual revenue from legal gambling activities" are ineligible. As of 2018, more than 400,000 people worked in Nevada casinos (many of which are too large to qualify for SBA assistance), and nearly 40,000 in the casinos of Atlantic City, New Jersey. But so did another nearly 300,000 in more than twenty other states, like those employed by riverboat casinos in Indiana and elsewhere. With the cut-off set as low as one-third, this exclusion reaches much more widely than just casino-owners. It also affects small restaurants or other businesses that made the perfectly reasonable business decision to install a few legal slot machines, electronic poker machines, or other games, to bolster revenue; it also affects those who manufacture those machines. Now, they too are out of luck. In all, the CARE Act's anti-gambling restriction affects one-third of all gaming business in the United States, and approximately 350,000 jobs, according to the American Gaming Association.
Finally, the CARES Act also excludes legal cannabis businesses, because they are illegal under federal law, and applicants must certify that they are not engaged in "any illegal activity (as defined by Federal guidelines)." These businesses are also excluded from other forms of federal disaster relief, even if they would otherwise qualify. Legal marijuana businesses provided more than 240,000 full-time jobs as of February 2020, many of them in some of the early states hardest hit by COVID-19 (California, 67,000; Washington, 47,000; Florida, nearly 10,000; and New York, 5,000). A 2018 SBA Policy Notice makes clear that also barred are indirect (or "non plant touching") marijuana businesses, such as those that sell hydroponic equipment, lights, and paraphernalia.
The SBA's mission does not include the advancement of repressive social morality, or the punishment of those who make their living in these specific avenues of adult pleasures or indulgence. Where are the shrieks of libertarians and others who thought former NYC Mayor Mike Bloomberg's 2012 notorious "portion cap" rule on sugared soda reflected a nascent "nanny state"? No logic or sense of fairness makes "bean to bar" chocolatiers, small-batch cigar makers, and microbreweries eligible for taxpayer-funded relief, but not sex toy manufacturers, Indiana riverboat casino operators, or sellers of legal cannabis. These exclusions should be challenged and eliminated from the next phase of relief.