Act Now to Protect Nonprofits from Government-Induced Cash-Flow Strain
Source: Nonprofit Quarterly, Author: Tim Delaney, June 29, 2020
There is a time and place for everything. For nonprofits to protect their missions, the time is this week, and the place is the US Senate.
In a nutshell, the National Council of Nonprofits is calling on all nonprofits to contact their two US senators and urge them to immediately pass S.4001, the aptly titled Protecting Nonprofits from Catastrophic Cash Flow Strain Act. The Senate needs to pass this bipartisan bill by unanimous consent this week, before leaving for its July 4th break, to overrule the Labor Department’s inexplicable interpretation of the CARES Act’s provisions regarding unemployment insurance before it causes thousands more nonprofits avoidable financial strife.
For decades, tens of thousands of nonprofits across the nation have opted to be “reimbursing employers” that pay their states for unemployment benefits attributable to their former employees rather than contributing unemployment insurance payments in advance based on the employer’s experience with how many people normally leave employment. In doing so, many nonprofits have followed the advice of their state governments. This approach—available to charitable nonprofits, local governments, and federally recognized Indian Tribes—normally works well for everyone involved. But the pandemic caused mass layoffs in all sectors that no one could possibly have anticipated.
Congress recognized this issue in the CARES Act, declaring that reimbursing employers, including nonprofits, would have to pay only half the costs of normal make-up payments. However, the US Department of Labor (DOL) has subverted the intent of this legislation. According to DOL guidance implementing the CARES Act, nonprofits that are reimbursing employers must first pay their states 100 percent of the costs of unemployment benefits paid to employees no longer working as a result of COVID-19. At some unknown time later, the nonprofits that are able to survive the cash crunch will receive a 50 percent reimbursement from their states.
This is absurd. The Senate measure would essentially erase DOL’s senseless requirement. But for that to happen, the Senate needs to hear from you.
It’s Easy to Do Contacting your Senators is easy. So is the message. Simply email or tweet this message to each: “.@[SenatorTwitterHandle], #nonprofits in our state must have immediate relief from catastrophic cash flow strains caused by flawed Labor Department guidance. Cosponsor and insist on Senate passage this week of the bipartisan S.4001. #Relief4Charities.” And it’s an easy ask of them, given the strong bipartisan sponsorship of the bill from 16 senators (so far, eight Republicans, seven Democrats, and one Independent). The bill was assigned to the Senate Finance Committee, where the Chair, Chuck Grassley (R-IA), and Ranking Member, Ron Wyden (D-OR), are original, vocal cosponsors, as are Senators Tim Scott (R-SC) and Sherrod Brown (D-OH).
That broad support didn’t begin on Capitol Hill, nor does it end there. To prompt action and get the ball rolling, more than 450 national nonprofits signed the April 8th Nonprofit Community Letter calling for fixing nonprofit unemployment insurance (along with three other major issues). Several filed statements for the Senate Finance Committee’s June 9th hearing, including the National Council of Nonprofits. And at least one state unemployment office is calling on Congress to pass the bill as soon as possible.
If It’s So Easy, Then Why Do We All Need to Take Action? Lots of things in life are easy, but often don’t get done without prompting. Taking out the trash. Putting the cap back on the toothpaste tube. Wearing masks during a viral pandemic. Getting Congress to take action, even when there is no opposition. So prompting is needed. The urgent reason nonprofits need to prompt Senate action is the immediate, substantial harm caused by DOL’s misinterpretation of the CARES Act that blatantly ignored Congress’s express direction that unemployment insurance provisions in the CARES Act be interpreted “in a manner that provides maximum flexibility.” Instead, DOL threatened to punish the states if they didn’t bill nonprofits 100 percent, a move that imperils the ability of charitable nonprofits to continue meeting the public’s needs in local communities.
As a Senate Finance Committee news release explains, the legislation “would free up much-needed money to keep nonprofits running, serving Americans.” The committee’s release continues: Many nonprofits operate as “reimbursing employers,” which means they pay their share of unemployment taxes by reimbursing states for 100 percent of the unemployment benefits collected by their former employees. Recognizing that reimbursing employers would be unable to cover all of their unemployment costs, the CARES Act allows nonprofits to reimburse only 50 percent to the states while the federal government covered the other 50. Guidance issued by the Department of Labor in April, however, requires states to collect 100 percent of unemployment costs from nonprofits up front and reimburse them later, putting a further strain on organizations hit hard by COVID-19. The Senators’ bill would clarify that nonprofits are only required to provide 50 percent in payments up front. The net cost to the employer and the federal government would remain the same, but would free up much needed money to help nonprofits stay afloat.
The committee’s accompanying analysis also underscores that for “many nonprofit employers, the requirement to pay 100 percent of the UI bill before securing relief exacerbates the financial impact of historically high claims triggered by the pandemic, increasing the risk of further layoffs, closures, or substantial reductions in services.”
More than 1.6 million employees of charitable nonprofits have lost their jobs in the past three months. The likelihood that their employers will be able to recall them anytime soon is almost nil if the nonprofits must come up with 100 percent of their unemployment costs, something the nonprofits couldn’t do in the first place or they wouldn’t have let those employees go. The scope of the problem is immense. Until the DOL misinterpretation is repealed via S. 4001, the alliance of 16 YMCAs across Maine is forced to pay $500,000 per month. A human services nonprofit that serves all of Kentucky is anticipating a second quarter bill for $2 million. A Pennsylvania nonprofit professional perhaps said it best: “If we receive that many claims it ultimately may force us to lay off more staff, creating yet even more unemployment, compounding the problem for both the organization and the state.”
It’s the Next Step, But Not the Final Step Nonprofits need to prompt immediate Senate action to overrule the absurdity of DOL’s bizarre guidance that charitable nonprofits, local governments, and federally recognized Indian Tribes have to pay 100 percent of the costs to the state and then have to wait for undetermined lengths of time to be repaid 50 percent that Congress already said they don’t have to pay. Still, even getting back to where we were before the DOL’s inane interpretation is not enough. First, the House will need to approve the Senate bill (which is expected).
But winning on this bill will still leave many nonprofits facing large unemployment insurance expenses, when resources should be supporting struggling communities. For this reason, the National Council of Nonprofits, as my colleague Tiffany Gourley Carter previously wrote in NPQ, is still calling on Congress to cover not just half the up-front costs, but “to hold self-insured nonprofits harmless for 100 percent of the costs that would be charged of their COVID-19 related unemployment insurance claims.”
The nonprofit community, working in coalition, has achieved significant successes in getting relief for charitable organizations included in both the Families First Act and the CARES Act. But as the Nonprofit Community Letter makes clear, our collective work is not done. In addition to unemployment insurance, more progress still must be made on the other major issues of sector-wide concern: expanding nonprofit access to credit; strengthening charitable giving incentives; and appropriating emergency funding to state and local governments for targeted formula grants and programs that nonprofits deliver to vulnerable individuals and communities.
All of those are important and all must be done. But there is a time and place for everything. For now, the place for action is the US Senate. Contact your senators today to pass S.4001.