The Threat to Nonprofits and What to do about It
Posted on June 24, 2020By Congressman Pat Meehan and John Feehery
Nonprofits are the third-largest employer in the United States, but if a quirk in the law meant to save them doesn’t get fixed, many of them will be forced to close their doors and lay off their workers.
Like many corporations and small businesses, nonprofit organizations have been hit exceptionally hard during the Covid-19 pandemic. They serve critical needs in our communities, providing food to the hungry, finding shelter for the homeless, caring for the elderly, providing kids positive outlets for their boundless energy, giving jobs to people who can’t or don’t want to work in corporate America.
Nonprofits rely on the generosity of the American spirit to stay open. Churches rely on donations from their parishioners. Zoos rely on families paying admission to be able to pay the bills. Little Leagues need fields to be open so that the kids can play games.
Under our complicated system of unemployment compensation laws, some nonprofit entities choose to reimburse rather than participate in a state unemployment tax system. They do that because traditionally, that’s the best way to stretch their limited resources because they seldom lay off many of their employees.
The Pandemic changed all of that.
Nonprofits that elect to become reimbursing employers are required to pay their state unemployment insurance trust funds for the amount of benefits their terminated or laid off employees claim.
These nonprofits could never adequately plan for an event as economically catastrophic as the Covid-19 emergency.
For example, one nonprofit that hires disabled workers traditionally pays about $100,000 in unemployment claims every 3 months. They are now facing claims of $300,000 PER WEEK.
The CARES Act that passed Congress did many good things. It put money in the pockets of millions of Americans. It helped to prop up many small businesses through the PPP program. It sent direct payments to State and Local governments.
But when it came to self-insured nonprofits, it came up woefully short. Instead of providing a lifeline to these critical organizations that are dedicated to serving the needs of local communities, it included a requirement that many of these nonprofits to pay more money than they can afford to state unemployment compensation systems.
Under the CARES Act, these entities are required to pay 50% of all the claims that are made by their furloughed employees. This makes little sense, especially if you consider that no such requirement is made on small businesses or large corporations. Requiring these entities to pay this money when they are struggling to just survive not only makes it more difficult to hire back those who were furloughed, it threatens the long-term viability of many of these organizations.
There is time to fix this egregious error. The bills to pay back these reimbursements come due this Fall. Congress probably has one more, big Covid relief law in it. And the fact is that many Members on both sides of the aisle see fixing this problem, created by Congress, as an important priority.
But should it fail, people will suffer. Nonprofits will go bankrupt, more people will be laid off, and much of the important work that many of the organizations do at the local level will go undone.
That would be a tragic mistake. Nonprofits are critically important to each and every American community. Congress needs to fix this mistake and allow them to continue to do their work for the American people.
Pat Meehan formerly represented the 7th District of Pennsylvania and is now a lobbyist for the firm Harvey Run Strategies. John Feehery is a partner at EFB Advocacy and a columnist for The Hill.