In a bureaucratic equivalent of the opening scenes of “Raiders of the Lost Ark” - in which a rolling boulder is bearing down on the fleeing figure of Dr. Indiana Jones - already hard-hit nonprofits were in danger during the COVID-19 pandemic of being flattened by required unemployment insurance payments to the government.
In the movie, Jones was saved by leaping through a fortuitously-appearing cave entrance. In real life, the U.S. Congress, in a bipartisan act, has given nonprofits an opening to escape the unintended consequence of being further financially crushed.
The congressional action helps out state and local governments, too – at a cost to the U.S. taxpayer.
The U.S. Senate on July 8 passed unanimously the more-than-a-mouthful Protecting Nonprofits From Catastrophic Cash-Flow Strain Act. It passed the House on July 11, and went to President Donald Trump for his signature. The legislation revises how nonprofits and federally recognized Indian tribes are treated as “reimbursing employers” for unemployment insurance purposes.
The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March 2020 at lightning speed, as opposed to the normal sloth-like course of legislation. With something that large, which moved that quickly, it quite literally was necessary to find out afterwards everything that was in the legislation.
The U.S. Dept. of Labor in April, under the CARES Act, had required states to collect from nonprofits and other reimbursing employers 100 percent of unemployment costs on the front-end, to be reimbursed later.
A U.S. Senate Committee on Finance news release summarizes the nonprofit protection legislation: “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.”
It’s worth keeping in mind that whenever a news report says, “state government will pay,” or “the federal government will pick up the tab,” it means that despite how laudable the goal, taxpayers always eventually foot the bill.
Nonprofits, like just about everyone else in America, have been slammed by the effects of COVID-19. In April, Charity Navigator, a charity assessment organization, and Reuters conducted a survey of nonprofits.
Among its findings: “83% of respondents reported they are suffering financially. Of those nonprofit organizations experiencing financial hardship, the average expected decline in revenue is 38% for the April - June time period.”
The New York Times on March 27 published a story titled, “A New Mission for Nonprofits During the Outbreak: Survival.” It said, “Upended by the coronavirus outbreak, nonprofits are laying off workers and seeking help from stretched donors.”
The CARES Act, with its initial 100 percent upfront unemployment payment requirements, was another weight on the scale. That has now been dealt with – but nonprofits still are on the hook for 50 percent of those costs. Nonprofits must still contend with the effects of enforced shutdowns, donation declines, and fundraising setbacks.
Many nonprofits count on a few big fundraisers during the year to help them meet their financial goals. In the COVID-19 world, large gatherings aren’t an option, and it’s difficult to stage big fundraisers via a Zoom video meeting.
With the mitigating legislation, nonprofits have achieved a bit of a cost reprieve, but it doesn’t mean other boulders aren’t still rolling toward them.
As for the cost to taxpayers of the stimulus bills and the increasing debt generally, actor Roy Scheider may have described it best in “Jaws,” when he said, “You're going to need a bigger boat.”
This article first appeared in KnoxNews.