Are some Jewish nonprofits using Payroll Protection loans to lay people off?
For Jewish nonprofit employees, finding out that their organization has obtained a loan from the Small Business Administration’s Payroll Protection Program is a piece of long-sought good news. Even the name of the program signals that it’s a harbinger of job security in a turbulent time. And while it’s technically a loan, the government will most likely forgive it, if the recipient follows the program rules.
The program “helps businesses keep their workforce employed during the Coronavirus (COVID-19) crisis,” according to the SBA. And Jewish nonprofits are eligible — about 50% of them received the loans they applied for in the first round. (The second round started on April 27.)
Indeed, the leading national Jewish organization advising many smaller groups on the program — the Jewish Federations of North America — describes it similarly on their website. It says, “The CARES Act allocated $349 billion in funding to help keep workers employed amid the pandemic and economic downturn,” and that organizations receiving loans must certify in good faith that they will use the funds to “retain workers and maintain payroll or to make mortgage, lease, and utility payments.”
But while employees bask in a renewed sense of optimism, the conversation among those nonprofit leaders seeking advice from JFNA sounds quite different. Despite the language on its website, the JFNA sees the program first as a way to protect the organizations, and secondly as a way to protect employees. They are spreading the word that severance pay is included in the list of things the loan can be used for, which means that the Payroll Protection Program can be used to help lay people off and the government will likely still forgive the loan.
“We’re all under the collective assumption that this was meant to protect peoples’ jobs through June 30,” said Sarah Shapiro-Plevan, the cofounder of the Gender Equity In Hiring Project and founder of Rimonim Consulting. “It is a loophole that is likely to be manipulated by the people who need to manipulate it.”
On the one hand, organizations need to use temporary relief to make long-term decisions to sustain operations past the short loan period. On the other, payroll protection was supposed to provide a lifeline to employees as more than 36 million people have sought unemployment insurance nationally over the past few months.
Leading Edge, an organization that surveys Jewish nonprofits, estimates there are about 80,000 Jewish nonprofit employees in the U.S. Some sectors, including Jewish Community Centers and summer camps, have been hard hit by layoffs due to coronavirus, and many have had to lay off staff. It’s not clear how many have also gotten Payroll Protection Program loans — the Union of Reform Judaism, for example, which laid off 60 people this month, declined to say if it got a loan.
JFNA has emerged over the last few months as the authority on the loan program in the world of Jewish nonprofit organizations,including social service charities and synagogues. It was a part of a broad coalition that lobbied legislators to include charities in a bill providing loans from the Small Business Association. It hosts frequent webinars and answers frantic questions from Jewish organizations, authoritatively and honestly. It put together a survey to get a sense of how Jewish organizations fared in their loan applications.
And its advice to Jewish nonprofits on PPP and severance is totally legal. The statute says recipients can use loans for “payroll costs” including salary, payment for accrued vacation and “allowance for dismissal or separation.”
But it also got a payroll protection loan itself and reportedly laid off as many as 37 members of its staff, previously made up of about 180 people.
Spokeswoman Rebecca Dinar confirmed that JFNA got a loan but declined to say whether the organization is using the loan to pay for severance packages.
JFNA is, however, advising Jewish organizations on how to maximize loan forgiveness while paying employees who have been laid off.
“Anything that would count as compensation should be included in the ability to be forgiven,” said Pam Kurtzman, the director of the National Jewish Federation Bond Program, one of the presenters in a webinar Thursday hosted by JFNA. “Severance, we know, is included.”
It is not entirely clear how the severance payments fit into requirements that organizations retain a consistent monthly average of full-time employees, but during a March 1 webinar Kurtzman advised participants to compare their current staff to one of two periods where the average would be lower to maximize forgiveness, even if the number of full-time employees was reduced.
One of the slides in last week’s presentation also states “Forgiveness will not be impacted” if “employees are replaced with other employees.”
Lawyers catering to non-sectarian companies and nonprofits are also advising their clients that using SBA loans for severance packages is allowed and won’t hurt the organizations’ chances of getting their loans forgiven.
A spokeswoman for the SBA declined to say if the statute defining severance as a payroll cost is compatible with the original spirit of the bill.
It is unclear how this provision ended up in the legislation, and House Speaker Nancy Pelosi’s office did not respond to a request for comment. But in her remarks on the CARES Act, which included the Payroll Protection Plan, she said the tension between business and worker protection was in the bill from the beginning.
Democratic leaders “transformed a Republican, corporate-focused bill into a Democratic, workers-first focus,” she said.
JFNA drew its interpretation of the loan program as a way to protect organizations from Senators Marco Rubio, a Republican from Florida and Ben Cardin, a Democrat from Maryland, who answered questions on a JFNA webinar last month.
“The payment protection plan was actually created to relieve businesses and be a cover for a period of time,” said Dinar. “A part of that is to think about the impact on staff, but really it’s about relieving businesses, and when you look at the statute, that becomes pretty clear.”
She also said the loan is designed to help in the short-term, but difficult decisions like laying people off might be the only reasonable way to spend the money to sustain operations for the long haul.
“You have to make decisions over a short period of time based on how you project your business will resume,” said Dinar. “The loan wasn’t meant to carry you into perpetuity.”
JFNA retained more than $127 million in net assets in 2018, according to tax filings, and spent about $24 million on salaries and other compensation.
JFNA’s CEO, Eric Fingerhut, said when announcing the layoffs he would take a temporary 10% salary reduction and that seven senior employees would cut their salaries by 5%.
Neither JFNA nor the SBA has released a list of organizations and businesses who received loans, and many Jewish nonprofits have declined to announce their loan statuses.
T’ruah, a nonprofit that trains Jewish clergy to work on human rights campaigns, got a loan and is using it to pay salaries and even hire more people, said executive director Rabbi Jill Jacobs.
“We’re using it for what I understand is the purpose,” she said.