“Liberty,” Lynne Behrends

July 9, 2020; Chicago Sun-Times and WBEZ

The nonprofit sector pushed hard to be included in the Paycheck Protection Program (PPP) and have access to its billions of dollars of forgivable loans. From the data recently released by the US Department of the Treasury and the Small Business Administration (SBA), that effort bore some fruit. One hundred and thirty-three thousand nonprofit organizations received almost $1.7 billion to help them meet payroll, retain staff, and cover urgent operating expenses. Distressingly, because of the proxy used to judge eligibility, some others were left out, needing to scramble for other ways to cope with the pandemic’s economic fallout.

Beneath the data lies a nagging ethical question: Were nonprofit organizations that took advantage of the program without pressing need being business-smart, or were they violating their societal trust?

For example, some nonprofits operating charter schools saw an opportunity too good to be refused, downplaying their status as “public schools” to reach out for PPP money. Looking at Illinois schools, the Chicago Sun-Times found “thirty operators of 56 schools got the federal money.”

Publicly funded charter schools in Chicago and elsewhere in Illinois received a total of between $31.2 million and $74.7 million in federal loans intended to bolster small businesses and non-profits during the coronavirus pandemic.

Since their federal, state, and local education funding continued unchanged, PPP funding was a windfall no traditional public schools could benefit from.

From the perspective of the Chicago Public Schools system, though, there was no urgent need for extra funding. CPS leaders believe charter schools were fully funded for the duration of the 2019–2020 school year. What’s more, the city will also be allocating $206 million in special CARES Act funding to help offset the pandemic’s extraordinary costs, some of which will go to charter schools.

CPS spokeswoman Emily Bolton Charter school told WBEZ, “We have asked our inspector general to review the legitimacy of applications submitted by charter operators. CPS did not endorse the Paycheck Protection Plan loan applications submitted by charter-school operators.”

The Chicago experience is mirrored across the country. According to a June New York Times story:

Charter recipients of the forgivable loans include wealthy networks like Summit, whose most recent tax filings show it had assets totaling $43 million and an endowment, and it paid its chief executive nearly $500,000. The charter network receives donations from the philanthropic organizations of Mr. Bloomberg and Bill and Melinda Gates, and the Bezos Family Foundation. And its business-savvy California board of directors includes Meg Whitman, the chief executive of Quibi and former chief executive of eBay.

From the charter school perspective, whether it was fair or right seems less important than its value as a business decision. Even with a healthy balance sheet, additional funding might be important in the future, especially when facing the challenges of teaching from afar. Officials of the Catalyst Schools, a network of two campuses and more than 1,600 students that received $767,965 in PPP loans, tells WBEZ, “We thought it was wise, prudent, and responsible to accept a low-interest loan for which we qualified, given the current economic uncertainty.”

Many large organizations with significant reserves also stepped forward and received loans. The Forward recently examined the federal database, looking for its impact on the Jewish community. Of the five organizations shown as receiving the largest permitted loans, between $5 and 10 million, three have endowment funds of more than $100 million (JUF Chicago and ADL), and one with more than $90 million (Union for Reform Judaism). Rather than need, these loans are the result of relationships and community clout.

Andres Spokoiny, president and chief executive of the Jewish Funders’ Network, told the Forward “the best predictor of who would get a loan and wouldn’t is the banking partner they used.” This, he thought, added “weight to a claim many nonprofit experts were making all along—that working with the right bank improved an organization’s likelihood of getting a loan,” rather than need and impact.

Our community has an ethical problem if organizations without critical need are putting loans in their bank accounts while, as NPQ recently observed, “direct service organizations working with people who are especially vulnerable—due to homelessness or disability, for instance—are laying off and furloughing essential workers because they do not qualify to apply.” Qualifying within the letter of the law should not be a reason to step forward. If we are committed to those in need being protected from the worst of the pandemic, then we should model the right priorities. “The public interest” needs to mean more than one organization’s interest. It’s time for healthy nonprofits to step back.—Martin Levine

Disclosure: NPQ received a PPP loan in the amount of $202,432.56.