Iowa's richest man, lawyers and private schools land Paycheck Protection Program funds

The federal government gave Iowa’s richest man up to $6.3 million in coronavirus stimulus money intended to help small businesses, and he's far from the only deep-pocketed or politically connected Iowa business owner to benefit from the program.

Seed geneticist Harry Stine received six forgivable loans through the Paycheck Protection Program, according to disclosures from the U.S. Small Business Administration released earlier this month.

The McCarthy-Bush Corporation — a family of construction, mining, real estate development and steel fabrication businesses — received up to $13.3 million. Brownells, a Grinnell firearms manufacturer owned by former National Rifle Association president Pete Brownell, got up to $10 million. And pork producer Dr. Daryl Olsen received up to $8.4 million.

The heads of big businesses in Iowa said the federal money accomplished Congress’ intent: It allowed them to pay workers through the first months of the economic downturn. But government spending watchdogs say they doubt that many of the larger recipients needed the stimulus to avoid laying off employees.

They argue that big businesses took money away from small restaurants, shops and poorer families who will spiral as the economy continues to struggle.

“Too much of the (Coronavirus Aid, Relief, and Economic Security Act) went to stabilize our financial system,” said Aaron Klein, an economics fellow at the Brookings Institution. “And too little went to address families in need.”

Stine: My business has suffered, too

Forbes Magazine estimates Stine's net worth at $5.7 billion; he was the only Iowan on last year's Forbes 400 list, at No. 131.

Stine told the Des Moines Register last week that he used the Paycheck Protection Program to pay his workers, as Congress intended. He said he employs about 600 people, including about 350 at Stine Seed's main operation in Adel. Of those, he estimates that the coronavirus affected about half of his employees in early April. 

"There were times when almost none worked," he said. "They thought they had been exposed, or they were afraid they might — that sort of thing."

Banks administered the loans, based on how much a business paid employees for 2½ months before the pandemic. The loans are capped at $10 million each.

The federal government will forgive the loans if businesses use the money on salaries, utilities, rent and mortgage payments, meaning the Paycheck Protection Program functions as a grant.

In the first weeks of the program's rollout, large companies like Shake Shack, Potbelly Sandwich Shop and the Los Angeles Lakers announced they received payments. (All three later returned the money.)

The SBA's disclosures two weeks ago revealed more big-name recipients, like Kanye West, West Virginia Gov. Jim Justice and the family of Jared Kushner, the president's son-in-law.

While Congress created the Paycheck Protection Program, the Treasury Department wrote the administrative rules. Initially, Treasury officials asked loan applicants to certify that they faced "economic uncertainty" and that the loans were "necessary."

In late April, Treasury Secretary Steven Mnuchin said companies should not receive the loans if they have “substantial market value and access to capital markets." He said the federal government would audit loans north of $2 million.

For his part, Stine does have access to capital markets. But, according to the SBA data, he received his forgivable loans on April 16, before Mnuchin made that statement.

Stine told the Register that his businesses have several other loans and that the Paycheck Protection Program funds "are piddly nothing" compared to the money he has borrowed through traditional means. 

PPP loan database: Which Iowa businesses have gotten Paycheck Protection Program loans during the pandemic?

It's not clear how much Stine's businesses received from the Paycheck Protection Program. In its disclosures, the SBA did not present specific loan amounts, instead sharing ranges.

The loans associated with Stine's businesses show a range between $2.5 million and $6.3 million.

Stine said he was not sure how much money his businesses received. But, he said, broader struggles in the agricultural economy have affected his business. Some farmers still have not paid for seed they received last winter, driving the business' receivables to an all-time high.

"Our cash situation is far from perfect," he said. "We're borrowing more than we ever have."

Blame the rule-makers, not the players?

While some of the wealthiest business owners in the country got the money when banks would have lent them traditional loans, smaller businesses weren't necessarily left empty-handed. Through July 17, according to the SBA, businesses have received $518 billion, leaving another $142 billion in the fund unclaimed.

But the design of the program didn't benefit small businesses enough, Klein said. Dollars going to rich owners are funds that could have gone to business barely scraping by.

He said the loan's cap for a single business should have been lower than $10 million.

"If you need $5-$10 million to cover two months of payroll, you ceased being a small business a long time ago," he said.

Klein said the program's design incentivized banks to grant loans to the biggest applicants first. The federal government pays fees to the bank, based on a percentage of the loan's size.

Bigger companies also tend to have faster access to lawyers and accountants, helping them submit paperwork faster. Congress exhausted the first $350 billion dedicated to the Paycheck Protection Program within two weeks of its April 3 rollout, before appropriating another $310 billion.

Klein said the program should have created a staggered start, prioritizing the smallest businesses first. For example, the federal government could have created rules to allow only those businesses needing $150,000 or less to apply for loans in the program's first week, and then gradually increasing the cap.

"Time is money," Klein said. "The first round went lickity-split and shut out many small businesses. They had to wait for a second round. This is another example of the federal government benefiting big business first, even in programs designed for small businesses."

Congress would have more effectively accomplished its goal by sending salary payments directly to workers, Klein said. 

Danielle Brian, executive director of the Project on Government Oversight, said the Treasury Department's rules were not strict enough to hold companies accountable.

While business owners certify that they are facing "economic uncertainty" and that the Paycheck Protection Program loans are "necessary," Brian said the federal government did not define what those phrases meant.

She said the federal government is also not requiring detailed disclosures that Congress intended when it passed the Coronavirus Aid, Relief, and Economic Security Act. The Act requires that anybody receiving more than $150,000 disclose how they spent the money and how many jobs they created or preserved.

Recipients are supposed to share this information every quarter with the Pandemic Response Accountability Committee, a team of inspectors general. But the Office of Management and Budget advised federal agencies in early April that the reporting requirements in the CARES Act are substantially the same as the requirements the agencies have relied on before the pandemic.

Brian said that guidance was misleading, that money spent from the CARES Act was supposed to be more transparent than previous federal aid programs. As proof that federal agencies fell short of this goal, she pointed to the SBA's release of Paycheck Protection Program recipients. The data does not include the number of salaries paid with the forgivable loans to many companies, including Stine's.

Mnuchin's promise to audit businesses that received more than $2 million in loans is not strict enough, Brian said. Some business owners, like Stine, received multiple loans through different subsidiaries, none of which are valued above $2 million on its own.

Still, Brian said some critics have unwisely targeted frustration about the Paycheck Protection Program at the rich recipients. 

"I don't think it's completely fair to blame people taking advantage of a system that was available to them," she said. "I think the fault lies in the execution of the program that essentially allowed people who didn't urgently need those funds to receive them quickly."

Iowa recipients

Olsen, the pork producer, is linked with 12 businesses that were collectively allocated between $3.4 million and $8.4 million, the Register's analysis found.

Olsen, who did not return calls seeking comment last week, was Gov. Kim Reynolds' guest at the White House during the signing of the Phase One Trade Agreement with China in January. His operations stretch across seven states, and he is one of the 10 largest pork producers in the country, according to Successful Farming.

McCarthy-Bush, the Iowa-based construction, mining and real estate business, received between $6.5 million and $13.3 million in four loans to it and its subsidiaries. And Brownells — the firearm manufacturer — received between $5 million and $10 million.

Doerfer Corporation, a global engineering and manufacturing solutions company in Waverly, also received between $5 million and $10 million, records show.

McCarthy-Bush, Brownells and Doerfer representatives did not return calls seeking comment Friday.

METRO GRANTS: Some of the largest allocations in the Des Moines metro included Hubbell Realty, which received between $2.75 million to $6.75 million; and Anderson Erickson Dairy, which received between $5 million and $10 million.

Spokespeople for each company said the loans went to their employees. Neither operation had to stop because of the pandemic.

“It’s important that our business lines remain steady throughout COVID-19, especially in the residential and commercial construction sectors, which also employ many local trade partners who would be adversely affected by loss of work," Claire Brehmer, a Hubbell spokesperson, said in an email.

PRIVATE SCHOOLS: Four Iowa private schools received loans of at least $1 million from the Paycheck Protection Program, records show. Holy Family Catholic Schools in Dubuque, which advertises annual tuition of $3,300 to $7,500, received the most, with a loan range of $2 million to $5 million. A school spokesperson did not return a call seeking comment Friday.

Bishop Heelan Catholic Schools in Sioux City, Cedar Valley Catholic Schools and Kuemper Catholic School System in Carroll all received between $1 million and $2 million, records show.

INSURANCE COMPANIES: Records show 1,339 Iowa insurance companies benefited from the program, led by the Algona-based Pharmacists Mutual Insurance Company, which received $5-10 million.

ARCHITECTS: At least 87 architectural firms in Iowa received loans, including Cedar Rapids-based Shive-Hattery, which received between $5 million and $10 million. The company did not respond last week to a request for comment.

LAWYERS: About 850 Iowa law firms received forgivable loans. Nyemaster Goode, P.C. and Davis Brown Law both received the most, a range of $2 million to $5 million. A spokesperson for Nyemaster Goode did not return a call seeking comment.

John Pietila of Davis Brown said the firm incurred unexpected expenses in shifting to remote work and lost revenue because of court closures during the pandemic. The loan has helped to pay 170 employees, he said.

"As the pandemic continues, it is more clear that widespread interruption and disruption to our clients’ businesses and business investments has had and will continue to have an adverse impact on the demand for legal and professional services overall," Pietila wrote in an email last week.

Sue Dinsdale, executive director for Iowa Citizens Action Network, a progressive public interest organization, said she does not begrudge any company that applied for the federal money. But she wishes the program had stricter guidelines.

"It's our nature to go after what you can get, I guess," Dinsdale said. "It's kind of 'the rich get richer and the rest of us get left behind.' There’s nothing to stop them from doing it. I don’t know that it’s morally right. I don’t know that the way this whole PPP was set up is a wonderful thing."

Tyler Jett covers jobs and the economy for the Register. Contact him at 515-284-8215 and tjett@registermedia.com. Follow him on Twitter @LetsJett.

Your support makes work like this possible. Subscribe at DesMoinesRegister.com/Deal.