New COVID-19 Relief Legislation and its Impact on Private Schools and Other Nonprofit Organizations

On December 21, 2020, Congress passed new COVID-19 legislation, which was signed into law on December 27, 2020.  The new legislation, the Consolidated Appropriations Act, provides $600 stimulus payments to individuals, adds $300 to extended weekly unemployment benefits, and provides more than $300 billion in aid for small businesses, including $2.75 billion set-aside for private K-12 (including parochial schools), and $10 billion set-aside for childcare providers, as detailed below.

A. Emergency Aid Provided to Eligible K-12 Private Schools

The new legislation allocates $4.1 billion in funding for governors to direct to both K-12 and higher education.  Of that fund, $2.75 billion is reserved for private schools, including parochial schools, to assist with costs related to COVID-19.  Schools are not permitted to accept aid both under this program and through the new round of the PPP loans.  Schools that participated in a previous round of PPP will still be eligible to apply for funding under this program.  In addition, K-12 private schools that serve low-income students and have been most impacted by COVID-19 will get priority for this funding.

K-12 private schools receiving these funds will be permitted to use it for services or assistance to address educational disruptions resulting from COVID-19, including reimbursements for costs already incurred, for the following purposes:

• Supplies to sanitize, disinfect, and clean facilities
• Personal Protective Equipment (PPE)
• Improving ventilation systems, including windows or portable air systems
• Training or professional development of staff on sanitation, the use of PPE, and minimizing the spread of infectious diseases
• Physical barriers to facilitate social distancing
• Other materials, supplies, or equipment to implement public health protocols, including guidelines and recommendations from the Center for Disease Control and Prevention (CDC) for the reopening and operation of school facilities
• Expanding capacity to administer COVID-19 testing, conducting surveillance and contact tracing activities, and to support other activities related to COVID-19 testing of students, teachers, and staff
• Educational technology to assist students, educators, and staff, with remote or hybrid learning or learning loss
• Leasing sites or spaces to ensure safe social distancing
• Reasonable transportation costs
• Initiating and maintaining educational support services or assistance for remote or hybrid learning or to address learning loss

The funds may not be used to provide direct or indirect financial assistance to scholarship granting organizations or to provide support vouchers, tuition tax credit programs, educational savings accounts, scholarships, scholarship programs, or tuition assistance programs.

In order to receive this funding, K-12 private school will be required to document the following:

• The number and percentage of students from low-income families enrolled at the school during the 2019-2020 school year;
• A description of the authorized emergency services that the private school is requesting be provided by the State;
• Whether the school received a PPP loan and the amount of the loan.

States will each complete an application in order to access the funding no later than 30 days after the legislation is enacted.  States applying for this funding will be required to distribute information about the program to private schools and make the information and application easily available.  States will also be required to make an application available for private schools within 30 days of receipt of funds, and to approve or deny an application within 30 days.  The funds must be administered by a state public agency, and the services provided must be secular, neutral, and non-ideological.

It is unclear at this time whether K-12 private schools receiving this aid will be required to comply with certain federal or state laws as a condition of receiving these funds.

B.     Funding Provided to Eligible Childcare Providers under the Child Care and Development Block Grant Program

The new legislation provides $10 billion in funding pursuant to the Childcare and Development Block Grant program for childcare providers to help providers pay for additional supplies and operating costs due to COVID-19 and to help subsidize the cost of childcare for some families, including essential workers and low-income families.  The funds may be used for: (1) providing families with relief from tuition payments; (2) financial assistance due to decreased enrollment or closures related to COVID-19 to assure childcare providers are able to open or reopen, including for fixed costs and operating expenses, such as rent; and (3) increased operating expenses as a result of COVID-19.  States are encouraged under the legislation to place conditions on payments to childcare providers that ensure a portion of the funds are used to continue to pay the salaries and wages of employees and staff.

C.    Non-Profits That Received a PPP Loan May Apply for a Second PPP Loan if They Meet Specified Criteria

Non-profit organizations that have previously received a Payroll Protection Program Loan (PPP) may apply for another loan of up to $2 million, if they can meet the following criteria: (1) they have 300 or fewer employees; (2) they have used or will use the full amount of their first PPP loan; and (3) they can show a 25% gross revenue decline in any quarter of 2020 compared with the same quarter in 2019.  One significant consideration is that receiving a second PPP loan will likely extend compliance obligations with certain federal laws that otherwise would not apply to private schools and certain non-profits.

D.     Non-Profits That Have Not Received a PPP Loan or Returned All or Part of a PPP Loan May Apply for a New PPP Loan

Non-profit organizations, including schools, that have not previously received a PPP loan, will be able to apply for one.  Non-profit organizations that returned all or part of a previous PPP loan may also reapply for a PPP loan for the maximum amount available to them.  As set forth above, receipt of a PPP loan will likely trigger compliance obligations with certain federal laws that may not otherwise apply to private schools and certain nonprofits.

E.     New PPP Loan Terms

The new PPP Loans will permit schools and other non-profit organizations to use the funds for payroll, rent, covered mortgage interest, and utilities.  In addition, the new legislation permits PPP Loan funds to be used for the following additional expenditures:

• Covered worker protection and facility modification expenditures, including personal protective equipment, and costs associated with sanitation measures, and social distancing protocols to comply with federal, state, or local COVID-19 health and safety guidelines in effect after March 1, 2020.
• Expenditures for property damage caused by looting or vandalism during public disturbances that occurred in 2020 that were not otherwise covered by insurance or other compensation.
• Expenditures to suppliers of goods pursuant to a contract or purchase order that are essential at the time of purchase to the school’s or non-profit organization’s current operations.
• Covered operating costs for software and cloud computing services that facilitate business operations, including processing payments, tracking payroll expenses, human resources, accounting, and tracking of records.

Schools and other non-profit organizations may receive a loan amount of up to 2.5 times their average monthly payroll costs in the one year prior to receipt of the loan or during the 2019 calendar year, up to a maximum amount of $2 million.  To be eligible for full loan forgiveness, schools that receive a PPP loan will have to spend no less than 60% of the funds on payroll over a covered period of either 8 or 24 weeks.

Additionally, there is a simplified loan application and a simplified forgiveness application that will be available for PPP loans in the amount of $150,000 or less.

F.      Extends Payroll Tax Credits Through March 31, 2021 for FFCRA Leaves

The legislation does not extend the Families First Coronavirus Act (FFCRA), which expires on December 31, 2020.  The FFCRA requires employers to provide eligible employees with up to 80 hours of Emergency Paid Sick Leave (EPSL) for specified reasons related to COVID-19, as well as up to 12 weeks of Emergency Family Medical Leave (EFMLA) for an employee whose child’s school or childcare provider is unavailable due to COVID-19 related reasons.  While the new legislation does not extend the FFCRA, those employers that, as of January 1, 2021, voluntarily continue providing employees with EPSL and EFMLA will be eligible for payroll tax credits for this paid leave through the end of March 2021.  The legislation does not provide employers with payroll tax credits if additional EPSL or EFMLA is provided to employees that have already used or exhausted their EPSL or EFMLA.

G.                Expands Employee Retention Credits

The CARES Act created an Employee Retention Tax Credit (ERTC) for employers that retained their employees during 2020 despite the impact of COVID-19.  The new legislation amends the CARES Act and extends the ERTC through July 1, 2021, and expands its coverage.  Schools and non-profit organizations taking a PPP loan may now be able to claim an ERTC when previously they could not claim the credit if they accepted a PPP loan.  The new legislation further expands employer eligibility for the credits, and increases the amount of credits an employer may claim. We expect that the IRS will issue guidance regarding these changes to the ERTC.  In the meantime, private schools and non-profit organizations are encouraged to consult with their payroll providers and tax-professionals for further guidance on how to take advantage of ERTC.

H.                Extended Unemployment Insurance Benefits

The new legislation provides employees receiving unemployment benefits a $300 per week supplement from December 26, 2020 until March 14, 2021.  This legislation also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to those not traditionally eligible for unemployment insurance benefits (such as employees of religious schools who are exempt from paying into unemployment insurance benefits through the Employment Development Department) and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.