Though U.S. Speaker of the House Nancy Pelosi (D-Calif.) expressed optimism that a new federal coronavirus relief package would be completed within the next 10 days and would include some key elements for the hotel industry, she cautioned on a call Wednesday hosted by American Hotel & Lodging Association president and CEO Chip Rogers that it might not include everything the industry has been lobbying for.
"The travel tax credit: I don't know that that would be a part of this kind of a bill, but it is something we should be considering," Pelosi said of AHLA's proposed tax credit to incentivize U.S. travel.
She also cited concerns about expanding meal and entertainment expense deductions on corporate tax filings. "Because we're saying we're OK with that, but then why won't you have more money for food stamps? We can't say we'll have a meal deduction when we have starving kids in America, and we're not doing that," Pelosi said. "That's all within the conversation. It's not making a judgment about any one thing, but recognizing you can't do one without the other."
Choice Hotels president and CEO Pat Pacious, who also was on the call, recognized that the meal and entertainment tax credit is likely a bargaining chip, "but it would really help," he said. "It could be temporary. That would really help, particularly business travelers, to get back on the road."
Pacious also laid out other hotel industry interests, including liability protections and liquidity concerns, and said he was pleased to hear the Speaker say the relief package would recapitalize the Paycheck Protection Program and that its focus would be on "limiting access to the program to those businesses that are really severely impacted."
However, Pacious also noted that the application for forgiveness for PPP loans of less than $150,000 needed to be simplified, and the minimum percentage of funding that must be used for payrolls to qualify for forgiveness should be below 50 percent. "That's really too high to provide meaningful relief to small business owners," Pacious said. "We would like to see it in the 25 percent to 30 percent range. We are an asset-heavy business. You have to own a building, and the operating margins are small. There is a significant amount of debt that our owners have to deal with, and servicing that commercial mortgage is important."
As grateful as Rogers and Pacious said they were for the PPP loans, they also criticized the Federal Reserve's Main Street Lending Program, set up to support small and midsize businesses and nonprofit organizations, as a "big failure," Rogers said. "For anyone whose business relies on real estate, the formula for accessing the loan through the MSLP precludes anyone who has a significant amount of real estate debt. I don't know of any hotel that has been able to gain access to the MSLP because of that debt text."
Pacious agreed: "It's the six-times-EBIDTA that is the threshold for the loan amount. It's not really effective for hotels."
Pelosi promised to look into it and said she would ask the chairman of the Federal Reserve on what basis that "six times" amount was determined. She also asked if the industry had spoken directly to the Fed.
"Many times," Rogers said. "In the beginning, they didn't recognize what would actually happen. But it is happening. We see delinquency rates, especially at the [commercial backed-mortgage securities] market, already at 25 percent. In New York City, they're at 50 percent. The problem is, if some of these properties fall into foreclosure, it does a spiral downward and pulls a lot of people down with them. Once a hotel closes its doors for good, it's many years before it reopens again. It will fall into disrepair. We're trying to prevent that from happening."
Pacious also said allowing destination marketing organizations to access PPP loans would be important for the industry. Pelosi thanked him for bringing that to her attention, and mentioned that the Health and Economic Recovery Omnibus Emergency Solutions Act, or Heroes Act, passed in May by the House, provides for non-for-profit organizations and does not have a size limit.
In talking about the overall hospitality industry, Pelosi said "in many ways, it is discretionary. People decide 'maybe I'll go now, or maybe next year instead of now.' " But she stressed the need for people "to decide in a discretionary way to spend. A lot of people are concerned about saving money. That's wonderful, but right now we need them to spend."
She also praised the hotel industry as one that employs many women and communities of color and is "beautifully diverse."