Nonprofits Remain Committed to Restoring, Maintaining, and Expanding Employment for the Public Good

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The unemployment news across the country is horrific. Forty-million Americans have lost their jobs due to the coronavirus pandemic, with another 1.5 million new claims in the week ending June 13. The nonprofit community is not immune from this crisis; data from Johns Hopkins University estimate that 1.6 million nonprofit jobs have been lost in the last three months. This translates to 13 percent of jobs in the nation’s third largest industry. As the National Council of Nonprofits and Independent Sector emphasized in a recent statement, it is clear that without appropriate federal assistance, many organizations on which Americans rely are not likely to survive, creating further pain for the public and strains on the economy due to unmet needs.

One form of federal assistance is the Main Street Lending Program being created by the Federal Reserve. Over the past three months, the Fed has rolled out loan programs for for-profit businesses that, as of June 15, is proposing to extend to charitable nonprofits with between 50 and 15,000 employees. Few nonprofits will seek these loans, however, because there currently is no provision that makes the loans forgivable. Unlike in the for-profit sector, nonprofit boards have long been averse to taking on loans to cover operating expenses. But even for those willing to consider applying for a nonprofit Main Street loan, there’s another impediment (among others) that relates to employment, the topic of this article.

The term sheet on the proposed Nonprofit Organization New Loan Facility (and the Expanded Loan Facility) provides that “Each Eligible Borrower that participates in the Facility should make reasonable efforts to maintain its payroll and retain its employees during the time the Eligible Loan is outstanding.” In general, the provision is reasonable in the eyes of nonprofit professionals; the lack of details, however, is concerning.

There is every reason to presume that all charitable nonprofits that seek Main Street loans are committed to maintaining payroll and retaining employees for the duration of the loan. Unlike for-profit employers covered by the other Main Street Loan Facilities, charitable organizations exist to advance their missions in communities rather than earn a profit. Almost universally, the human need for food, shelter, faith, culture, and training transcend business cycles or ability to pay. In most cases, nonprofits will be seeking loans under this program for the express purpose of maintaining and even restoring staff so that the organization’s important, mission-based work can continue. Indeed, more nonprofits would be rehiring or even expanding their workforces to address mounting needs if they had the additional resources. So, on its face, there is no problem with committing to take every reasonable effort to maintain payroll and retain staff.

The vagueness of the requirement in the term sheet, however, is still troubling because of the negative experiences nonprofits have had with the Paycheck Protection Program, the Economic Income Disaster Loan program and EIDL Advance, and other CARES Act provisions. Nonprofits are justifiably leery of government loan programs given the many after-the-fact interpretations of the PPP in the 20 sets of Interim Final Rules and 48 answers to Frequently Asked Questions by the Small Business Administration and Treasury Department, some of which are inconsistent, some of which conflict with the CARES Act, and most of which were issued after many organizations had applied for and received loans.

The Federal Reserve must make clear – before nonprofits decide whether to fill out loan applications – what it means by the requirement: “Each Eligible Borrower that participates in the Facility should make reasonable efforts to maintain its payroll and retain its employees during the time the Eligible Loan is outstanding.”

In April 2020, the U.S. Chamber of Commerce commented on the inclusion of this term in the original versions of the Main Street Lending Facilities term sheets. The business association wrote, “We also believe that greater clarity is necessary regarding the requirement that eligible borrowers must make ‘reasonable efforts’ to maintain their payroll and retain employees during the term of the loan. It is unclear what exactly would constitute ‘reasonable efforts’ and how companies that have already been forced to furlough or lay off workers would be treated under the [loan program].”

We see that the Federal Reserve has since changed the term sheets for the Main Street New, Priority, and Expanded Loan Facilities for for-profit businesses to provide that borrowers “should make commercially reasonable efforts ….” The qualifier “commercially” has been included presumably to ensure that ordinary business judgment guide staffing decisions for the duration of the applicable loan. We can only speculate whether the Federal Reserve deemed commercial or business judgment inapplicable to nonprofits or whether it intended to apply a much tougher standard on charitable organizations. Nonprofits serving communities deserve better.

The description of “Retaining Employees” in the draft for public comment requires refinement if the Federal Reserve expects nonprofits to take advantage of this facility. Specifically, before seeking loans, nonprofits need to know what is meant by “reasonable efforts,” “maintain its payroll,” and “retain its employees,” as well as better understanding of the scope of the “time the eligible loan is outstanding.” We ask that the final regulatory and contractual materials include these clarifications:

  • Reasonable efforts” should be interpreted in the totality of the circumstances, taking into consideration not only the general economic environment in the community or communities in with the borrower operates, but also factors such as workforce, fundraising ability, revenue-generating activities, and overall demand for the services and programs the organization provides. One option would be to add the qualifier “mission-based” before “reasonable efforts.”
  • We presume the terms “maintain its payroll” and “retain its employees” are included in the description to parallel the loan forgiveness provisions of the Paycheck Protection Program, but without the rigid application of the mandates in the CARES Act. We ask the Federal Reserve to make clear that nonprofits participating in the Main Street loan program generally should endeavor to pay staff at the same or increased income levels and should act in good faith to keep staffing levels (measured on the basis of full-time equivalents) at the same or increased levels, both for the duration of the loan. It is also important that the loan documents expressly state that the employee retention provision begins on the date that loan funding is received by the borrower rather than at an earlier date.
  • The need for Safe Harbors: Congress and the Administration have seen as the pandemic unfolded that initial presumptions about its depth and duration were flawed. In both legislation and administrative guidance, policymakers have established clear rules acknowledging that economic and health conditions in parts of the country may make it very difficult or impossible for employers to rehire staff and that these conditions can improve and worsen over time. Therefore, we ask that the Federal Reserve clearly state that nonprofit borrowers will not be penalized under the employee retention provision for the decision of employees to decline offers of rehire, or for those who are fired for cause, voluntarily resign, or voluntarily request a reduced schedule during the time that the loan is outstanding.

It is a cliché, almost to the point of pablum, for employers to claim that their employees are their “greatest asset.” Most charitable nonprofits can only advance their missions through the committed service of individuals dedicated to improving the lives of people in their communities. It is in everyone’s interest – our communities, our employees, and the missions of nonprofits – that the nonprofit workforce returns to pre-pandemic levels and that organizations and their employees continue to contribute to the wellbeing of individuals, communities, and the U.S. economy. For some, the Main Street loan program, as improved with the forgoing recommendations, can be a tool to promote employment and nonprofit missions.

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