More Relief and Stimulus Likely, Timing in Doubt
Passage on April 24 of a $484 billion interim spending bill, the Paycheck Protection Program and Health Care Enhancement Act, may be the last bipartisan act by Congress for a month or more as partisan lines are being drawn more deeply as the pandemic and economic shutdown continue. The law provides $310 billion for the Paycheck Protection Program (PPP), including $60 billion earmarked for lending by smaller financial institutions, including Community Development Financial Institutions; $60 billion for SBA’s Economic Injury Disaster Loan (EIDL) program: $75 billion in additional funding for hospitals; and $25 billion for increased testing for COVID-19. See related articles on PPP loans.
After Congress passed the interim spending bill with broad bipartisan support, the opposing sides in Congress began making audacious demands regarding the next coronavirus legislation. First, Senate Majority Leader McConnell suggested there would be no such bill. Then, House Speaker Pelosi called for sending $500 billion to the states and cities (now a trillion dollars), to which Leader McConnell said states should instead file for bankruptcy protection. Senate and House Republicans are also demanding liability protections for businesses. Complicating things further, President Trump said over the weekend that he wouldn’t sign off on a new deal unless it has a payroll tax cut. The sense of urgency that led to the rapid passage of emergency legislation, however, appears now to be lacking. On a call with Maine nonprofits last week, Senator King (I-ME) acknowledged “debt fatigue” among his colleagues, meaning there is growing concern over the trillions of dollars in spending approved by Congress in barely a month. Another bill seems likely, but timing, breadth, and content are uncertain, indicating that advocacy for nonprofit priorities is urgently needed.
Representatives, Senators Championing the Nonprofit Agenda
Nonprofits are not alone in calling on Congress to address significant needs and policy changes in upcoming federal legislation; Representatives and Senators across the political spectrum are stepping up to champion the nonprofit agenda. Last week, Representatives Moulton (D-MA) and Fitzpatrick (R-PA) led a bipartisan group of 144 Representatives in sending a letter to House leadership to ensure inclusion of nonprofit-specific provisions in upcoming legislation. The letter states, “As we work to build on the CARES Act in the next relief package, we cannot overlook the needs of these community-based institutions and must ensure that charitable nonprofits are fully supported in their service on the front lines of responding to the COVID-19 crisis.” The letter seeks expansion of nonprofit access to financial relief and support, increased unemployment reimbursement for nonprofits, and expanded charitable giving incentives.
On the other side of the Capitol, Senators Lankford (R-OK) and King (I-ME) are circulating among their colleagues a similar letter to Senate Leaders. A separate letter from 28 Democratic Senators urged Senate leaders and lead appropriators to “ensure that nonprofits are protected by including additional emergency funding” in order to “maintain a continuity of services.” In releasing the letter, Senator Schatz (D-HI) stated, “Nonprofits are fast, they are nimble, and they are on the frontlines. And as we ask them to do more, they are facing revenue shortfalls. These institutions are absolutely pivotal to our survival and our recovery.”
CARES Act Program Updates
In the 38 days since the CARES Act was signed into law, hundreds of billions of dollars have been paid out in stimulus/relief payments and business/nonprofit loans, and multiple federal departments and agencies have issued seemingly endless interim guidance, updates, and revisions to many programs of interest to nonprofits. Below is a recap of the latest:
Paycheck Protection Program
Verification of Need: In response to criticism that several large for-profit businesses, like Ruth’s Chris Steak House and the LA Lakers, received PPP loans, SBA and Treasury updated the SBA guidance on the program to provide responses to the question (#31) “Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?” The guidance answers that “borrowers still must certify in good faith that their PPP loan request is necessary.” The document points out that “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” The guidance ends with the granting of an escape clause for businesses that abused the system: “Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith.” Subsequent revisions to the guidance extend the “necessity” instructions to privately held businesses and announced that all PPP loans of $2 million or more will be audited by SBA. See analysis from the Morgan Lewis law firm.
Loan Forgiveness: The government has not yet issued instructions on the steps and accounting needed to satisfy the loan forgiveness provisions of the PPP. SBA and Treasury did answer one recurring question in new guidance issued May 3 (FAQ #40). The guidance provides that a PPP borrower’s loan forgiveness will not be reduced if laid-off or furloughed employees turn down written offers of rehire.
Additional Information: In other PPP news, more than two million PPP loans totaling $175 billion and averaging $79,000 in size, have been processed since the program restarted on April 27, the SBA Administrator and Treasury Secretary announced in a joint news release on Sunday. Click here to view the data. Also, SBA and Treasury have issued a guide, How to Calculate Maximum Loan Amounts – By Business Type, to help applicants determine how much of a loan to seek under the PPP. Answers to questions #6 and #7 provide step by step instructions for how nonprofits and nonprofit religious institutions, respectively, can calculate payroll costs using IRS Form 990 and other data. Finally, separate IRS guidance (Notice 2020-32) clarifies that organizations that receive PPP loans for payroll and other expenses may not also claim those expenses as business deductions, a determination that may affect nonprofits with unrelated business taxable income.
Main Street Loan Programs
The Federal Reserve Board announced expansion of the Main Street Lending Programs, but not to the benefit of nonprofits. According to the materials, larger for-profit businesses will now have three Main Street options managed by the Fed: the New Loan Facility, the Expanded Loan Facility, and the newly announced Priority Loan Facility, which applies to businesses with up to 15,000 employees or $5 billion in annual revenues. The news release explaining a new lending program stated: “The Board recognizes the critical role that nonprofit organizations play throughout the economy and is evaluating a separate approach to meet their unique needs.” The Federal Reserve and its regional banks reportedly are actively investigating what larger nonprofits would need in a special loan program.
Employee Retention Tax Credit
The Internal Revenue Service has posted updated Frequently Asked Questions (FAQs) providing answers regarding the Employee Retention Tax Credit under the CARES Act Section 2301, but fails to answer a key question for nonprofits. The Employee Retention Credit under the CARES Act encourages businesses, including nonprofits, to keep employees on their payrolls. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19. The IRS’s FAQs include determining which employers are eligible, determining which government orders can be taken into account, when a business is partially or fully suspended, considerations for significant declines in gross receipts for for-profit businesses, and several other questions. However, the guidance acknowledges that the IRS is working on a nonprofit-specific set of rules for determining when tax-exempt organizations suffer “significant declines in gross receipts.”
- DOL Issues “Breathtakingly Cruel” Guidance: Last week, the U.S. Labor Department issued an Unemployment Insurance Program Letter that the National Council of Nonprofits called “breathtakingly cruel” due to the imposition of significant burdens on certain nonprofits. The guidance ignores the CARES Act dictate of “maximum flexibility.” Instead, it requires organizations that have elected to self-insure unemployment claims to pay their states 100 percent of the costs of unemployment benefits their laid-off or furloughed employees receive and only receive reimbursement of half of that amount later. Further, states that reimburse those organizations for more than the remaining half of those costs could receive less funding from the federal government. At a time when Congress is providing loans to help organizations stay open, and charitable donations are plummeting, the Labor Department is forcing nonprofits to pay out money they don’t have. Members of Congress and some in the Administration reportedly are reviewing the Labor Department’s position with an eye toward regulatory or legislative correction. Learn more about self-insured nonprofits and unemployment insurance, and see related articles below.
- Dialogue on Reopening Workplaces: The U.S. Labor Department is inviting employers to provide input on “Opening America’s Workplaces Again National Online Dialogue.” The public – including employers, workers, local authorities and advocacy groups – is invited to share ideas on six topics: 1) Reopening businesses; 2) commuting safely; 3) working safely; 4) accommodating members of vulnerable populations; 5) supporting America’s families; and 6) reducing regulatory burdens. Go here to register and submit your ideas. The comment period ends May 7, 2020. See related story on Oklahoma Guidance, below.
- IRS Proposes “Trade or Business” UBIT Rules: The IRS issued proposed rules to provide guidance on how nonprofits are to calculate their taxes on unrelated business income (UBI) from separate trades or businesses. Until the 2017 tax law, nonprofits were treated the same as for-profit businesses when it came to taxable business income – revenues and expenses were aggregated and taxes paid on the excess. The “Tax Cuts and Jobs Act” added Internal Revenue Code Section 512(a)(6) singling out nonprofits with UBI for a punitive tax by requiring charitable organizations to calculate each “trade or business” separately, and pay income taxes on each separate business line. The proposed rules would nonprofits to group their UBI into 20 or so broad buckets, or silos, based on the first two numbers of NAICS codes. For instance, all types of accommodations and food services fall into one category (72). The National Council of Nonprofits and other nonprofits made clear in prior public comments that the initial proposal from the IRS would have required organizations instead to have broken down their various unrelated business income into dozens or even hundreds of separate categories, leading to burdensome compliance costs, inconsistency, and arbitrariness. Public comments are due on June 23, 2020.
Transfer of .org registry rejected
After concerns were raised by California Attorney General Xavier Becerra, the National Association of State Charity Officials, several members of Congress, the United Nations, and thousands of nonprofits, last week the Internet Corporation for Assigned Names and Numbers (ICANN) rejected the transfer of the .org registry to Ethos Capital. Advocacy from NTEN, the Electronic Frontier Foundation, the National Council of Nonprofits, and many others helped protect the .org registry from the takeover by a private equity firm. Quoted in the Chronicle of Philanthropy, Rick Cohen, chief operating officer for the National Council of Nonprofits, said, "We’re glad that the online home for millions of nonprofits worldwide will continue to be run by a nonprofit."
States Supporting Nonprofits May Suffer Under Federal Guidance on Unemployment Insurance
Federal and state laws enable many different employers, including nonprofits, to opt out of their state unemployment insurance pools and, instead, pay back the system for actual unemployment benefits claimed by their former employees. The Department of Labor’s guidance issued last week instructs states to charge these self-insured nonprofits for 100 percent of the costs of unemployment benefits paid to employees laid off as a result of COVID-19. In some instances the guidance threatens to penalize states that already had provided additional assistance to nonprofits. For instance, officials in at least six states (Iowa, Louisiana, Montana, Nebraska, New Hampshire, and New Mexico) have acted to hold nonprofits harmless by not requiring them to reimburse the state unemployment systems during the coronavirus crisis. The DOL guidance, however, provides that these states may be in jeopardy of not receiving any federal funds due to these acts of reasonableness. The North Carolina Center for Nonprofits explains, “Based on the examples provided…, it appears that states can cover some or all of the remaining 50% of self-insured nonprofits’ costs for COVID-19 related claims from their [unemployment insurance] trust funds.” This may apply to the states listed directly above. “However, the guidance warns that states that cover more than 50% of self-insured nonprofits’ claims from their [unemployment insurance] trust funds will not receive full federal support under Section 2103 of the CARES Act.”
Virtual Board Meetings and Annual Meetings Allowed During Coronavirus Crisis
Officials in several states are acknowledging the realities of the pandemic and social distancing requirements by approving virtual and electronic meetings for nonprofits and corporations incorporated in their states. The Georgia Secretary of State clarified in a memo that state law does “not specifically prohibit virtual or telephone attendance of annual meetings.” The New York State Attorney General Charities Bureau issued guidance last month outlining proper procedures and stating that such meetings will be “deemed in substantial compliance with the requirements” under state law. Across the river, New Jersey lawmakers quickly enacted legislation to permit nonprofits to allow members to participate in meetings by remote communication during a state of emergency. And in North Carolina, the Governor issued Executive Order No. 136 that gives nonprofit boards the flexibility to allow membership meetings to take place by remote communication and through remote voting, even if these types of remote meetings are not expressly authorized in the nonprofit’s articles of incorporation or bylaws.
Business Interruption Insurance Polices During Coronavirus Crisis
Nonprofits rely on various forms of insurance, including business interruption and property insurance, especially during difficult times like the current pandemic. However, insurers are denying claims for a variety of reasons. Lawmakers in at least eight states have introduced legislation to require insurance companies to pay out claims despite language in insurance contracts. The bills generally apply to small employers, and some include nonprofit employers. Amended language in pending legislation in New York (A10226B / S.8211A) specifically extends the protections to nonprofit employers, due to strong advocacy by a coalition of nonprofits in the state. However, pending legislation in Pennsylvania only applies to small businesses that meet United States Small Business Administration criteria or receive funds from the Administration, which leaves out many nonprofits. Language in a Michigan bill applies to “a business interruption policy in force on the effective date.” Model language in Louisiana (H.B. 858 / SB 477), Massachusetts, New Jersey, Ohio, and South Carolina apply to “every policy of insurance insuring against loss or damage to property.” Many of the bills would be retroactive to the beginning of the crisis. The changes and application to insurance policy contracts, if enacted, may face constitutional challenges.
When It’s Time to Go Back to Work
Apart from the political debates and protests, nonprofits and others are beginning to ask for their own organizations the basic, but profound question: when is the right time to call employees back to work in their usual workspaces? It’s not as simple as flipping a light switch; the decision affects co-workers, board members and other volunteers, families, and the people and community a nonprofit serves. The complexity of the decision, and the pathway toward sound decision making, are the substance of the new report, Guidance for Nonprofit Reopening: Post COVID-19 Protocols for 501(c)(3)s, released today by the Oklahoma Center for Nonprofits. The guidance offers a clear vision and mission-based values that all nonprofits will recognize and respect. It also provides multiple recommendations, ranging from basic advice like “thoroughly clean and sanitize workspaces” and “assess the space for social distancing,” to clearly communicating schedules and new procedures. It highlights and promotes an “Oath of Personal Responsibility” for all connected with the organization, that is, asking individuals to commit to maintaining social distances, practicing good hygiene, and self-reporting and quarantining in the event of illness. The guidance also provides multiple tips for board governance and policy considerations, public and donor relations, and special considerations for houses of worship
This portion of Nonprofit Advocacy Matters is normally dedicated to telling the untold stories of how nonprofits engage in advocacy every day to advance their missions through policy engagement. This past week Ruth McCambridge at Nonprofit Quarterly wrote such a profound analysis of advocacy in action that we sought and have been granted permission to reprint the April 28 article in full.
Throughout this crisis, NPQ has repeatedly and consistently emphasized the importance of national networks, which can advocate for the best interests of nonprofits and the communities they serve as rapidly as policy is made and implemented. So, we thought we would open a window onto what exactly this means.
The problem at hand was in guidance issued by the Department of Labor that would have cost nonprofits across the country very dearly. It involves tens of thousands of nonprofits nationally who agreed to self-insure for unemployment and make lump-sum payments for unemployment when layoffs occur.
As NPQ noted earlier this month, “Historically, that has been an effective cost-savings strategy because layoff rates in the nonprofit sector tend to be much lower than in the for-profit private sector; the occasional lump-sum payments to the unemployment fund were less costly than monthly payments. Now, because of unprecedented levels of unemployment, this is going to be a tremendous hit to nonprofit employers who self-insure.”
We wrote that sentence when nonprofits leaders believed that CARES at least covered half the payments—and even that, nonprofit state association leaders told us, threatened to sink a number of nonprofits. What is described by the National Council of Nonprofits, however, is far worse. As the National Council writes:
DOL [US Department of Labor] guidance issued late on April 27 instructs states to bill certain tax-exempt employers immediately for 100 percent of the costs of unemployment benefits paid to employees laid off as a result of the COVID-19 pandemic. And worse, the guidance informs states that if they show compassion and forgive nonprofits of the burden of these crippling expenses, the federal government will shortchange the state for much of those costs—despite express language in the CARES Act to allow states to interpret their own unemployment compensation laws “in a manner that would provide maximum flexibility” to those nonprofit employers. The Labor Department’s draconian guidance declares that affected nonprofits must pay, they must pay now, and any state that cuts the nonprofits slack will be punished by the federal government. At a time when nonprofits are dealing with unprecedented levels of need in their communities, DOL decided to take even more money away from this vital work—and threaten more jobs in the process. Breathtakingly cruel, indeed.
Congress is spending trillions to keep people on the job and called on the Labor Secretary to provide the states “maximum flexibility” on the issue. Yet this misguided guidance from the Labor Department fixates on the word “reimbursing,” forcing an unnecessary and burdensome double-reverse reimbursement: First, nonprofits must divert funds from paying their current employees and conducting operations for their communities in order to reimburse the state for the full cost of benefits paid out. And then nonprofits must wait without crucial operating funds until overburdened state unemployment offices can find the time and money to reimburse the nonprofits half of that amount. This absurd guidance will force nonprofits to lay off even more employees to come up with initial funds to pay unemployment bills and curtail serving their communities. The White House and Congress must step in immediately to reverse course and enable America’s charitable organizations to serve their communities to the best of their abilities in these difficult times.
Here is where the network comes in. Yesterday, the National Council cohosted a town hall where the issue was brought up. The issue was apparently surfaced through analysis of DOL guidance by David Heinen of the North Carolina Center for Nonprofits (Problematic DOL Guidance on Nonprofit Unemployment…and How to Fix It). The event was cohosted with two state associations of nonprofits in New York—the New York Council of Nonprofits and Nonprofit New York. The guest presenters were the state’s two US Senators, Minority Leader Chuck Schumer and Kirsten Gillibrand. Here is a recording of the webinar that includes a clip of Chuck Schumer vowing to fix the problem ASAP.
While the proof is always in the pudding, this is an excellent example of how a national advocacy network can and should work. We hope that you are a card-carrying member, because it takes a national village! — Ruth McCambridge
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