PPP Loans Were Supposed to Help Workers. Instead, They Evaporated Into Thin Air.

American businesses received billions of dollars to continue providing jobs during the pandemic. But workers haven’t seen much of that money — so where did it all go? In one typical Michigan town, it seems to have gone straight into employers’ pockets.


The Rustic Steakhouse & Saloon in St Charles, Michigan. (Courtesy of Joe Wilkins)

A year after the last Paycheck Protection Plan (PPP) loans were distributed to businesses nationwide, communities like the former coal mining town of St Charles, Michigan are beginning to ask where hundreds of billions of federal stimulus dollars ended up.

Between 2020 and 2021, 106 businesses in St Charles received $6,467,888 in PPP loans. The amount of wealth transferred directly to business owners amounts to $3,411 per resident — in a town where 17.3 percent of the population lives below the federal poverty line. This begs the question: How was all that money used?

The answer is hard to find out, and that’s by design. These loans were functionally grants. The Small Business Administration (SBA) advised lenders to “rely on borrower representations” when processing loan forgiveness applications. To qualify for loan forgiveness, the SBA stipulates that 60 percent of the borrower’s PPP loan must contribute to the lender’s payroll. Lenders were responsible for providing the PPP loan forgiveness application, guiding the borrower through the process, and accepting the borrower’s claims.

Congress rolled out even more red carpet for business owners by striking income tax requirements on any money received through a PPP loan, regardless of its purported use, and by allowing employers to deduct all wages paid with PPP loans, as well as the interest paid to the bank by the federal government on the borrower’s behalf. For their part, lenders received a 5 percent commission on brokerage for loans under $350,000, 3 percent for loans greater than $350,000, and 1 percent for those greater than $2,000,000. Recall that the Fed also backed each loan, creating a zero-risk situation for banks.

Village of St Charles, within Saginaw County, MI. (Courtesy of 2020 US Census)

To any working adult who lived through the 2008 financial crisis, this massive lack of corporate accountability is a familiar routine. But this time, the local effect is much more divisive.

If you believe in the original mission of the PPP, all of that money was used to save millions of jobs. If you’ve been following the aftermath, you’re aware that PPP loans primarily sustained businesses rather than jobs — an especially important distinction in a town of less than two thousand people like St Charles.

As Bloomberg contributor Timothy O’Brien points out, that money could just as easily have gone through state and federal unemployment programs if workers were the intended beneficiaries. Where the money went is unclear by design, but we can infer where money didn’t go with data made available by ProPublica and other watchdog groups, and by listening to people on the ground.


TPI Powder Metallurgy

TPI Powder Metallurgy in St Charles employs sixty-six people and has a projected annual revenue of $9.73 million. The corporation, which includes three sister companies, specializes in powder metal components for original equipment manufacturers. The job of full-service machining and metal die casting is a difficult one. One TPI plant operates twenty-four hours a day.

What TPI did with its PPP loans — or, more to the point, what it didn’t do — is instructive.

TPI received $612,060 in first-round loans in 2020, and $543,896 in the second. In its report to the SBA, TPI claimed that $1,023,989 of the two PPP loans would go to employees. As of January 2022, the entire sum of both loans has been forgiven. MTI Precision Machining Incorporated, a machine shop under the corporate umbrella of TPI, received $101,715 in first-round PPP loans for seven employees, $96,906 of which has been forgiven.

A recent report by Kona Equity estimates that TPI may have earned as much as $199,277 per employee in 2021. Despite this, metallurgy production jobs at TPI still start at $10 an hour. TPI’s only requirement for employment is a high school diploma, and its hiring strategy is aimed at the 36.8 percent of St Charles residents who never obtained additional schooling or training. For them, it offers full-time work and bottom-shelf benefits without drug testing.

Robby Parks is a former tool room attendant at TPI. He began as a full-time machine operator making $11.25 an hour in 2011. When Parks left in 2016 he was earning $13.65 an hour, an average increase of 48 cents per year. Parks said that after multiple requests for an additional raise, TPI management told him he was “maxed out.” He told Jacobin, “When we had our first son, my wife and I signed up for EBT to help pay for formula and other living expenses. It was rough trying to make ends meet.”

Parks is not alone — several current and former TPI employees claim to have received some form of government assistance while working full-time. “Wages did not change at all in 2020 or 2021,” according to one worker, who wished to remain anonymous. “No one received a bonus in that time. . . . They even took away the Christmas bonus for whatever reason.”

The problem with TPI is twofold: lack of federal regulation and an absence of good faith from a for-profit entity now trusted to distribute over one million dollars through its payroll. Estimates for TPI’s 2020–21 payroll hover around $306,280 per ten weeks, assuming a $494 gross operator wage at $13 an hour for sixty-two employees (excluding TPI’s salaried positions, of which there were four at the time Jacobin spoke to TPI employees).

The mathematically gifted will notice that there are $484,700 left unaccounted for after two years of direct government handouts. This is not including cash saved on the income tax, or from the payroll tax credit. So where did the rest of the money go?

Sign posted on The Rustic Steakhouse & Saloon. (Courtesy of Joe Wilkins)

Frank’s and The Rustic

Frank’s Supermarket, the only choice for fresh produce in St Charles, received $420,267 in 2020. The company’s associates earn a little over $10 an hour, with no system in place to scale wages based on longevity. It’s another low-wage choice for those without means to leave the village or attain a job locked behind a college degree or vocational training. At least one employee at the grocery chain receives assistance through SNAP, Jacobin learned. Thankfully for its employees, Frank’s accepts EBT.

The Rustic Steakhouse & Saloon employed ten people on April 4, 2020 when it received $62,000 in PPP. On March 6, 2021, the restaurant received $82,327 for its reduced workforce of five. The majority of these are cash wage earners, who report a stressful workplace despite its slow business. The Rustic reported that $141,248 of that cash would be distributed to its employees, with $1 set aside for utilities in 2021.

Allyson Larkin worked at The Rustic as a server in 2020, before the owner closed his doors on June 28, 2020 due to the pandemic. “When that happened,” Larkin told Jacobin, “we got an instruction sheet on how to file for unemployment.” The Rustic’s owner closed his doors again on June 1, 2021, citing the “free ride” labor market which apparently kept employees home. A server at The Rustic might earn an average of $50 to $60 a day, according to Larkin. In his 2021 going-away post, the owner thanked his staff for their sacrifices including working multiple jobs, as if it were a sign of individual virtue rather than of a broken system which requires scattered income to make ends meet.

Tipped employees still face a massive income disparity, especially in rural areas where restaurant attendance is sparse and order totals are low. At the time of Larkin’s employment, employers in Michigan were only required to pay their tipped staff $3.67 per hour thanks to “tip credit” laws. In Michigan, the only time an employer is required to pay more is if the tipped employee fails to earn the state minimum wage, which was $9.65 an hour at the time. Employers can also claim a percentage of wages paid with tips through the FICA Tip Tax Credit, helping offset federal FICA and Medicare taxes.

The cards were already stacked in favor of employers over employees, and the PPP scheme only exacerbated the discrepancy. This national transfer of wealth directly to the business class dwarfs the scope of the Troubled Asset Relief Program following the 2008 financial crisis, which handed a direct bailout worth $30 billion to banks and megacorporations. This time, the federal government effortlessly earmarked $800 billion in direct aid to the millions of small businesses that now bask in the wake of a gutted welfare infrastructure.

At best, these millions of dollars perpetuated the status quo for the downwardly mobile. At worst, they lined the pockets of an already pampered business class in communities just like this one. St Charles is not an outlier, but rather a dead canary at the bottom of a deep coal mine.