Dear Nonprofit Colleagues and Supporters,
We hope that you all had a great long memorial day weekend and are arriving “back to work” in your home or socially distanced office ready to dive into the important work our communities entrust us with. All Oregon counties except Washington and Multnomah counties are in Phase I reopening and it is now a waiting game as we wait with bated breath to see if the numbers of new cases stay low and continue downward.
As of yesterday, 29 new cases were reported, bringing the total to 3,949 Oregonians that have contracted COVID-19.
Thankfully, no new deaths have been reported so the previous total of 148 remains the same
.
We hope that as you plan for office reopening you will follow the Center for Disease Control and Prevention and the Oregon Health Authority guidelines and ensure your program participants, staff and volunteers are as safe as can be.
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State of Play in Washington D.C.
Senate Majority Leader McConnell (R-KY) appears to be rejecting pleas from governors and other public officials seeking federal funds to maintain COVID-19 responses and restore balanced budgets. Senator Kennedy (R-LA) introduced a bill (
S. 3608
) last week that would provide state and local governments greater flexibility in spending the CARES Act money. Other Republican Senators are showing their frustration with the wait-and-see approach as well. This week, Senators
Cassidy
(R-LA) and
Collins
(R-ME), joined by Senator
Menendez
(D-NJ), introduced the
SMART Act
, a $500 billion bill to help offset the collapse of state and local revenues resulting from the COVID-19 pandemic. Denying that state/local governments need cash may be a negotiating ploy, but the rank-and-file appear to be siding with their own governors and mayors over Senate leaders. This is needed if the Senate is going to pass a CARES 2.0 bill sooner than later.
The House is taking a different approach with massive spending bills to enact immediate support. As negotiations develop on Capitol Hill, the coronavirus response offers Congress an opportunity to shape the country’s post-pandemic future but also carries the risk of repeating mistakes of past crises, including the 2008-09 recession.
In mid-May, House Speaker Pelosi (D-CA) set the table with passage of
the sweeping $3 trillion coronavirus relief bill
, which includes $1 trillion to shore up states and cities to avert municipal layoffs, $1,200 stipends to Americans and other aid. Then and now, the Democrats believe more needs to be done now for supporting states and the swelling unemployed.
With more than
38 million unemployment claims
, the Republican response centers on kick-starting the economy to reduce the need for more federal intervention. Republican priorities are to wean Americans off unemployment benefits to nudge people back to work and provide liability protections for businesses that reopen. Negotiation points include eliminating the $600 weekly unemployment benefit boost, arguing it “handcuffs” some employees with higher pay than they earn at their jobs. McConnell also wants to protect doctors, schools and others from COVID-19-related lawsuits — a “red line,” he says, for any deal.
It was Federal Reserve Board Chairman Jerome Powell who counseled Pelosi to rely on historically low interest rates to “go big,”
while
Treasury Secretary Steven Mnuchin warned of “permanent damage” to the economy unless businesses reopen.
Despite rare bipartisan support for earlier aid,
the $2 trillion bill
approved in March, neither side was particularly pleased with the outcome, the largest federal intervention in U.S. history.
Polling, however, shows Americans favoring the federal response, even as they have some concerns about spending. Recent polls found that about 9 in 10 Americans favored the federal government providing funding to small businesses and hospitals and about 8 in 10 Americans said they were in favor of suspending evictions and foreclosures, giving lump-sum payments to Americans, increased unemployment benefits and suspended student loan payment.
More is sure to follow in the coming days and weeks. Be sure to have your nonprofit’s voice heard by joining the Oregon Nonprofit Town Hall with Senator Wyden and Senator Merkley on June 3, 3 – 4 p.m. PT. You can register to join us
here
.
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Take the UI Survey for Self-Insured Nonprofits and Tribal Groups
As we reported last week, NAO is working with a coalition of national organizations to collect data on the impacts of the unsupported UI claims that self-insured nonprofits are facing with states. This survey asks self-insured nonprofits facing burdensome unemployment payments to their states to share their experiences. If your organization is one of the self-insured nonprofits or tribal entities that uses this system, please take this survey! NAO is working with a broad nonprofit coalition advocating for relief from crippling unemployment costs and we ask your help in identifying the problems and solutions. The survey is CONFIDENTIAL and will greatly aid our ability to get this issue resolved in future legislation.
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Paycheck Protection Program Loan Forgiveness Interim Final Rule Analysis
The big news late on Friday, May 22 was that the Small Business Administration released long-awaited
guidance on loan forgiveness
under the Paycheck Protection Program. Established in March 2020 in the
CARES Act
(Pub. Law 116-136), the PPP makes low-interest loans available to charitable nonprofits and small businesses of a certain size and permits up to 100 percent forgiveness of those loans under certain circumstances. The Interim Final Rule on loan forgiveness attempts to clarify those circumstances and complements the
loan forgiveness application and instructions
announced by SBA on May 15.
1) Payroll Costs
The CARES Act and the Interim Final Rule define the term “payroll costs” broadly to include compensation in the form of salary, wages, commissions, or similar compensation. [A] Salaries subject to loan forgiveness are capped at $100,000 on an annualized basis ($15,384 maximum in the covered period). The Interim Final Rule makes clear that employee hazard pay and bonuses are eligible for loan forgiveness, subject to the $100,000 annualized limit.
2) Non-payroll Costs
In addition to payroll costs, Section 1106 of the CARES Act permits forgiveness of certain non-payroll costs. The Interim Final Rule lists these as payments on business obligations in force before February 15, 2020 for:
- Mortgage interest on real or personal property (but not prepayments or payment of principal);
- Rent on real or personal property, and
- Utilities for electricity, gas, water, transportation, telephone, or internet access.
The Interim Final Rule clarifies that a non-payroll cost is eligible for loan forgiveness if it was either (a) paid during the covered period
or
(b) incurred during the period but paid on a regular billing date after the period. (This has been an area of some confusion, but is now clarified.)
Although permissible PPP expenses under Section 1102 of the CARES Act, “interest on any other debt obligations that were incurred before the covered period” are not included as non-payroll costs in the forgiveness section of the CARES Act nor in the Interim Final Rule.
The Interim Final Rule repeats the limit in a previous rulemaking that “eligible non-payroll costs cannot exceed 25 percent of the loan forgiveness amount.” [B]
3) Reductions to Loan Forgiveness
As a general rule, borrowers that retain their workforce and maintain employees’ salaries for the eight-week (56-day) covered period of the PPP loan will be eligible for the greatest loan forgiveness. On the other hand, Section 1106 of the CARES Act requires reductions in a borrower’s loan forgiveness amount based on the number of full-time equivalent employees or amount of employee salary and wages paid during the covered period compared to the employer’s pre-pandemic experience. The Interim Final Rule provides information for determining whether reductions are required and identifies
safe harbors
and
exemptions
that are beneficial to borrowers.
Retaining the Workforce:
The determination of whether an employer has maintained its workforce is based on a count of full-time equivalent (FTE) employees prior to the pandemic and during the loan period. The Interim Final Rule states, “If the average number of FTE employees during the covered period or the alternative payroll covered period is less than during the reference period, the total eligible expenses available for forgiveness is reduced proportionally by the percentage reduction in FTE employees.” The Rule provides borrowers several options for designating when the highlighted periods begin and end.
- Covered Period: Borrowers have the option of starting the covered period either on the day it receives the loan proceeds (date of disbursement) or the first day of the next biweekly or more frequent payroll cycle (“alternative payroll covered period”).
- Reference Period: Each borrower is entitled to select one of several reference periods for use in gauging its workforce complement prior to the pandemic. Most employers can choose between (1) February 15, 2019 through June 30, 2019, or (2) January 1, 2020 through February 29, 2020. Seasonal employers can choose either of the preceding options, or select a consecutive 12-week period between May 1, 2019 and September 15, 2019.
For calculating full-time employees, the normal method is to divide the average number of hours paid for each employee per week by 40, capping this quotient at 1.0. The overtime regularly worked by an employee is disregarded for this calculation. Borrowers have two options for determining how each part-time employee will be counted for purposes of identifying total FTEs. They can apply the same calculation as above, and apply a quotient, such as 0.75 for an employee who averages 30 hours per week. In the alternative, SBA allows borrowers to elect to use an FTE of 0.5 for each part-time employee. The borrower must use the same method in both the covered period and reference period.
Exemptions:
SBA has announced several safe harbors or exemptions that allow borrowers to count employees who have not been on the payroll through the covered period or are no longer on the payrolls.
- The CARES Act expressly allows borrowers to count a formerly laid-off or furloughed employee at the time of loan forgiveness if the employee was (a) laid off or furloughed between February 15 and April 26, 2020, and (b) rehired by June 30, 2020.
- Employees who decline offers of rehire will also be counted as on the payroll for forgiveness purposes. The borrower must have made a good faith, written offer to rehire the employee at the same wages and hours, the employee must have rejected the offer, and the borrower must retain records of the offer and rejection and inform the state unemployment office within 30 days of the rejection. [C]
- Borrowers may still include in their covered period FTE count those employees who are fired for cause, voluntarily resign, or voluntarily request a reduced schedule during the covered period. SBA’s rationale is that “borrowers should not be penalized for changes in employee headcount that are the result of employee actions and requests.” Employers must maintain records that document the reason that employees are no longer on the payroll.
Once the covered and reference periods are selected, the FTE status of each employee is identified, and employees are properly accounted for based on the safe harbor and exemptions, it’s time to calculate whether a proportional reduction in PPP loan forgiveness is necessary. This is done by dividing the average number of FTEs during the selected covered period by the average number of FTEs during the selected reference period. The resulting quotient, if less than 1.0, is the percentage of amount of eligible expenses that may be claimed for forgiveness based on the FTE analysis. [D]
Maintaining Employee Salaries:
The CARES Act also calls for a reduction in loan forgiveness by the total dollar amount of the salary or wage reductions that are in excess of 25 percent of base salary or wages between January 1, 2020 and March 31, 2020 (the reference period), subject to exceptions for borrowers who restore reduced wages or salaries. Stated another way, borrowers will suffer a dollar-for-dollar reduction in loan forgiveness for all employees who earn less than 75 percent of their pre-pandemic wages. This is best explained in an example. An employee’s average wages during the reference period were $1,000/week and $700/week during the covered period. The borrower is not “docked” for the first 25 percent in reduction ($250/week), but would not be entitled to forgiveness of the excess ($50/week), which over the eight-week covered period would amount to a $400 reduction in loan forgiveness.
Exemptions:
The Interim Final Rule provides some exemptions and exceptions. The borrower will not be subject to a reduction in forgiveness based on salary reductions if (a) the salary reduction occurred between February 15 and April 26, 2020, and (b) the borrower restores the salary (eliminates the reduction) on or before June 30, 2020. Also, reductions in wages due to reduced hours will be treated as a change in FTE status (discussed above) and will not also be counted as a reduction in pay, assuming the employee’s wage rate is the same.
4) Application Process and Timing
Once the borrower submits the
loan forgiveness application
and documentation to its lender, the lender has 60 days to make a decision regarding loan forgiveness. The lender then sends its determination of full or partial forgiveness (or ineligibility) to SBA, which has 90 days to review and respond. SBA could determine that the borrower is ineligible for the PPP loan. The SBA has initiated
separate rulemaking
for its procedures for reviewing applications for PPP loans and loan forgiveness.
The Loan Forgiveness Interim Final Rule is effective immediately, but still subject to public review and comment. Public comments are due approximately on June 25, 2020.
Note: This document is neither intended to be nor should it be used as legal advice.
[A] The Interim Final Rule, at footnote 2, summarizes what are considered eligible payroll costs: “Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation. See 15 U.S.C. 636(a)(36)(A)(viii); 85 FR 20811, 20813.”
[B] The limitation of forgiveness for non-payroll expenses to 25 percent is not found in the CARES Act but was announced in the first
Interim Final Rule
on April 15, 2020. In public comments, the
National Council of Nonprofits
and other organizations called the limitation “arbitrary, capricious, and contrary to the will of Congress.” The House-passed HEROES Act (
H.R. 6800
) and another pending bill (
H.R. 6886
) would abolish the 25 percent limitation.
[C] The Interim Final Rule at footnote 4 states, “Further information regarding how borrowers will report information concerning rejected rehire offers to state unemployment insurance offices will be provided on SBA’s website.”
[D] CARES Act Section 1106(d)(2) provides that the amount of loan forgiveness shall be reduced by multiplying the loan amount of forgivable expenses by the quotient obtained by dividing the average number of FTE employees per month employed during the covered period by the average number of FTE employees per month during the selected reference period. The Interim Final Rule, in Section 5(c),
appears to misstate the calculation this way
: “This formula implements section 1106(d)(2) of the CARES Act, which expressly requires that the loan forgiveness amount be reduced by the amount resulting from multiplying the amount that the borrower would otherwise receive by the quotient of the average FTE employees in the relevant reference period divided by the average FTE employees in the covered period.” We will keep seeking clarity on this issue and will report the findings.
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Upcoming Online Sessions for Nonprofits
Ask the Experts: Legal and Practical Realities of Reopening the Workplace, Tuesday, May 26, Noon
–
1 p.m. PT:
Jenna Reid, Vice President of HR Services and General Counsel at Cascade Employers Association will cover the many challenges all employers, including non-profits are facing in reopening the workplace, keeping employees and returning employees to work. From the Phase 1 Reopening Guidelines to employees refusing offers to return, this session will give you insights into the current and potential future state of the new workplace.
Register for this free session
here
.
Nonstop Presents: Workplace Strategies to Support Mental Health, Thursday, May 28, 10 – 11 a.m. PT: Nonstop Administration and Insurances Services, an NAO partner, will be hosting Laura Green, SHRM-CP of Nonprofit HR, who will share how employers can best support their employees during these uncertain times. She’ll discuss tangible, simple solutions to help employees feel connected to the organization, as well as provide resources to assist with finding personal peace of mind. Register for the session on Nonstop’s site
here.
Rethinking Your Strategy: Planning for Your Nonprofit’s Recovery – a three-part series on
Thursday, May 14
,
Thursday, May 21
, and Thursday, May 28, Noon – 1 p.m. PT: Steve Patty, Founder of Dialogues in Action will guide nonprofits on how to rethink our pre-COVID strategies and plan for recovery in this three-part series. The COVID-19 pandemic has disrupted the way nonprofits deliver services and programming and continuing to pursue our pre-COVID-19 strategies is not an option. Steve will discuss how nonprofits can make it through this crisis, emerge better, and be even more valuable to our communities for greater impact. The series consist of: Session 1 – The Opportunity of a Crisis; Session 2 – How to Adapt Your Strategy; and Session 3 – Create a New Future for a New Normal. You can still sign up for the third session and view previous sessions
here.
Body-Based Resiliency – Empowering the Mind to Listen to the Body, Saturday, May 30, 10 – 11:30 a.m. PT:
NAO Nonprofit Member Living Yoga is offering an online 90-minute immersive and practice-oriented group session that focuses on how to cope with stress, overwhelm, and trauma through mind-body movements that down-regulate the nervous system. The suggested donation for an open session is $50 but no one will be turned away for lack of funds. Register for the session
here
.
Ask the Experts: How to Ask for $$$ in Tough Times, Tuesday, June 2, Noon – 1 p.m.:
Matt Lehrman, Managing Partner of Social Prosperity Partners will share how nonprofits can ask donors for support in ways that are highly compelling yet incredibly sensitive. This session offers an espresso shot collection of ideas and practices to help nonprofit leaders ask for – and secure – the contributions upon which their organizations depend. Register for the session
here.
Above-the-Line Deduction National Session, Tuesday, June 2, 2 p.m. PT:
Start getting excited; full details coming soon. The National Council of Nonprofits and other national nonprofit partners will be holding a virtual event to promote expansion of the CARES Act above-the-line charitable deduction. The nationally prominent speakers are still being confirmed – so we can’t say who yet - but hold this time on your calendar. It is anticipated that registration for the event will easily max out the 10,000-capacity Zoom line they’ll be using. More information to come.
Oregon Nonprofit Virtual Town Hall with U.S. Senators Ron Wyden and Jeff Merkley, Wednesday, June 3, 3 – 4 p.m. PT:
Join NAO for a virtual town hall with U.S. Senators Ron Wyden and Jeff Merkley addressing Oregon’s nonprofit community. We will have the opportunity to hear from our Oregon senators about the CARES Act and plans for future congressional action, as well as discuss specific issues and needs facing Oregon’s nonprofits. This session will be moderated by Raziah Roushan, NAO Board Member and Chair, NAO Public Policy Committee and Jim White, NAO Executive Director. Register for the session
here
.
QuickBooks Desktop Edition Made Easy for Nonprofits, June 16, 17 & 18, 11 a.m. – 1 p.m. PT:
Gregg S. Bossen, CPA of QuickBooks Made Easy, is partnering with NAO to offer an updated three-part QuickBooks® training webinar for nonprofits.
This webinar is for the Desktop edition of Quickbooks
. Gregg will cover the basics of setting up and entering transactions specifically for nonprofits, an overview of the software updates included in the QuickBooks® 2018 Desktop Edition, as well as advanced topics covering a host of specific processes that will help you do more helpful and amazing things! Register for the three-part webinar
here
.
QuickBooks Online Edition Made Easy for Nonprofits, June 23, 24 & 25, 11 a.m. – 1 pm. PT:
Gregg S. Bossen, CPA of QuickBooks Made Easy, is partnering with NAO to offer an updated three-part QuickBooks® training webinar for nonprofits.
This webinar is for the Online edition of Quickbooks.
Gregg will cover the basics of setting up and entering transactions specifically for nonprofits, an overview of the software updates included in the QuickBooks® 2018 Online Edition, as well as advanced topics covering a host of specific processes that will help you do more helpful and amazing things! Register for the three-part webinar
here
.
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Stay safe and healthy!
Sincerely,
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Jim White
Executive Director
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Thank you to the following SUPPORTERS and SPONSORS who are supporting NAO’s online COVID-19 events and communications during these challenging times. Their support is vital in helping NAO to bring much-needed resources and information to Oregon’s nonprofits – thank you.
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FRIEND PLUS PARTNER SPONSORS
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FOLLOW NAO ON SOCIAL MEDIA
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