The U.S. government’s central economic response to the coronavirus, the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (“Cares”) Act enacted in March, included $500 billion in financing to avert a crippling credit crunch. Much of that funding remains untapped, and what happens to it going forward is a point of contention between the outgoing Trump administration and the incoming Biden one.

1. What is the money for?

When the pandemic shut down much of the U.S. economy, businesses saw revenue collapse and couldn’t pay their bills, and investors were too shell-shocked to lend. The Federal Reserve and Treasury, stepping in as lenders of last resort, offered emergency help to borrowers. (Such emergency loans are sometimes called 13(3) loans, after the section of the Federal Reserve Act that authorizes them.) Congress included $454 billion in the Cares Act for the Treasury to back those Fed lending programs, plus $29 billion for direct lending to passenger and cargo airlines and $17 billion to firms critical to national security. There were strings attached, such as caps on executive pay, for some types of help. A big chunk of the money, $195 billion, was handed directly to the Fed to backstop emergency lending programs aimed at Main Street, municipal debt, asset-backed securities and corporate credit.

2. How much is left?

Of the $454 billion total that was meant to back Fed emergency lending programs, some $429 billion is left over. And of the $46 billion for loans to airlines and companies critical to national security, $26 billion remains.

3. Why was so little used?

The mere announcement of the emergency lending effort had a dramatic, positive impact on markets. Borrowing costs tumbled, and there was a record surge of corporate-debt issuance. With private-sector lenders prepared to extend credit again, there was less need for borrowers to turn to official sources for help -- with their strict terms, strings attached and the stigma of needing a government bailout. For businesses in the deepest trouble, federal grants, not more debt, would ultimately be needed to cope with the economic slump.

4. Is the money still needed?

That depends on whom you ask. On the face of it, no, given how easily and cheaply borrowers are currently able to tap the capital markets. Republicans in both the administration and Congress have pointed to that fact as ample evidence that it’s fine to wind down these emergency programs. The Fed, however, says it would prefer to keep the “full suite” of facilities going into 2021 as a safety net, just in case. And it’s clear that many businesses are still in dire need of help -- especially another round of forgivable loans to keep workers on payrolls -- and also that millions of unemployed Americans can’t keep up their spending without more assistance. But leftover Cares Act money, or additional appropriations, cannot be deployed in new ways without congressional authorization.

5. What does the Trump administration plan to do?

Treasury Secretary Steven Mnuchin says the law requires him to return the unused money to Congress at year’s end. Section 4029 of the Cares Act states, “On December 31, 2020, the authority provided under this subtitle to make new loans, loan guarantees, or other investments shall terminate.” According to Mnuchin, another section of the law specifies that unused funds are to be deposited in the Treasury Department’s general fund, and that money can be spent only with congressional approval.

6. Who disagrees?

Democrats -- including House Speaker Nancy Pelosi, Senate Banking Committee members and those overseeing Cares Act implementation -- say that Mnuchin is trying to hamstring the incoming administration of President-elect Joe Biden by not extending the Fed facilities and by returning the unused money to the general fund for redeployment by Congress. They want the money left in the Treasury’s Exchange Stabilization Fund so that Janet Yellen, whom Biden plans to nominate as Treasury secretary, can use it. Democrats say the authority to continue lending the money lies with Mnuchin, as Treasury chief, and does not expire, according to their reading of the Cares Act. They also take issue with Mnuchin’s interpretation that leftover money must go into the general fund at this time; they point to a section of the Cares Act that states that any funds remaining on Jan. 1, 2026, “shall be transferred to the general fund of the Treasury to be used for deficit reduction.” For his part, Fed Chair Jerome Powell says Mnuchin has “sole authority” over the funding, making his interpretation “the authoritative one.”

7. What options will the Biden administration have?

The most obvious one is to help generate consensus in Congress to pass a new stimulus bill that includes fresh authorization for the lending programs. Yellen, if confirmed by the Senate as Treasury secretary, could otherwise try to reverse Mnuchin’s interpretation of the Cares Act and re-launch the Fed facilities that were wound down. However, any such move would embroil the new Treasury chief in a fight with Republican lawmakers including Senator Pat Toomey, who sits on the Covid-19 relief funds oversight panel, at a time when she likely will have bigger priorities, including pursuing the fresh economic aid that Biden has pledged.

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