More information about the CARES Act, PPP Guidelines, and FEMA’s Public Assistance Grant Program

More information about the CARES Act, PPP Guidelines, and FEMA’s Public Assistance Grant Program

April 27 | Financial Management

The COVID-19 Pandemic has left schools scrambling to turn their traditional curriculum into distance learning curriculum. Texas schools have been mandated to close their doors, but they are still operating from off-campus locations. Running a Distance Learning program has caused some unforeseen costs (not to mention stress) in supplies and technology that frankly, schools were not prepared for. Charter schools are looking to subsidize the increase in expenses through government aid.

What are the aid options available to charter schools? When can charters apply? These are questions upon which we are hoping to shed a little light.

We also encourage you to visit our new Charter School Community Roundtable for more information and communication about COVID-19.

CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) –  is the $2 trillion stimulus bill that Congress passed on March 27, 2020 to help combat the economic damage that COVID-19 has caused due to the majority of Americans being ordered to stay at home.  The CARES Act is meant to provide economic aid to Americans and small businesses in hopes of stabilizing the economic downturn. This stimulus bill is providing an array of aid, from loans to small businesses to Coronavirus testing.  Not all options are available to charter schools. For the purpose of this CSS TIP, we will give brief definitions on some of the funding options that are available in the bill for informative purposes.

Education Stabilization Fund

$30.75 billion have been allocated to fund four grant programs through the CARES Act. These four programs listed below will be managed through the United States Department of Education (USDE). https://oese.ed.gov/offices/education-stabilization-fund/

  • Elementary and Secondary School Emergency Relief Fund (ESSER)
    • The CARES Act has set aside $13.2 billion to fund ESSER. The USDE will award these funds to the states for disbursement amongst their LEA’s including charter schools. ESSER Funds to each state will be based on the same proportions used to fund Part A Title I funds. At this point, States are not aware of how much funding they will be receiving or if there will be additional restrictions applied to these grants. We do know that 90% of the funds received must be spent at the local level. State education agencies will know more once the USDE informs the state agencies of their award amounts. TEA is hoping to have more answers for this funding at the end of April. Once this information has been released, look to our Roundtable for more guidance.
    • TEA Coronavirus Costs and CARES Act Funding and Documentation FAQ
    • TEA Federal Funding & Grants FAQ
  • Governor’s Emergency Education Relief Fund (GEERF)
    • This portion of the Education Stabilization Fund has $3 billion set aside for it. Funds will be awarded to each state based on these two factors: 1.) 60% on the basis of the State’s relative population of individuals aged 5 through 24, and 2.) 40% on the basis of the State’s relative number of children counted under the Elementary and Secondary Education Act (ESEA). These funds are at the discretion of the states to decide how they will be disbursed. Texas is estimated to receive a little over $307 million.
  • Higher Education Emergency Relief Fund (HEERF)
    • $14.25 billion of the Education Stabilization Fund has been set aside to help fund institutions of higher education. $12.56 billion of the HEERF funds will be awarded to Institutions based on the following formula: 75% of funds will be based on the number of full-time Pell Grant recipients and 25% of funds will be based on the total in-person enrollment before distance learning.
  • Education Stabilization Fund Discretionary Grants
    • 1% of the CARES Act, so roughly, $300 million will be granted to the states that were most affected by the Coronavirus.

Economic Stabilization Fund

This is meant for businesses with less than 10,000 employees and less than $2.5 billion in revenue, so big, but small businesses like airlines and large nonprofits. This fund will provide loans to these larger companies ranging from $1 million to $25 billion; as long as they keep 90% of their workforce on as of March 24, 2020. Some states and cities are eligible for this fund as well.

Paycheck Protection Program (PPP)

The PPP loan currently seems to be the most talked about right now amongst charter schools.  The loan amount is based on 2.5 x the average monthly payroll. The funds are meant to allow employers affected by the closures to still pay their staff. The “loan” will become a grant if during the 8-week time period 75% of the funds received are used on payroll costs. The loan is implemented by SBA, but it is the Lender that facilitates the process of deciding if the “loan” becomes a grant or will continue on as a loan. Please continue reading below for more guidance on the PPP loan.

Economic Injury Disaster Loans

This loan was already part of the SBA program. The CARES Act is providing more funding for it. It is meant to serve as a lifeline to small businesses and some non-profits to cover operating expenses that the borrower is unable to pay because of a decrease in revenue. An applicant can apply for an advance on their loan and may receive up to $10,000 while waiting to be approved for funding. The applicant does not have to pay the $10,000 back if funding is not approved. Loan amounts range from up to $25,000 for an unsecured loan and up to $2 million for a secured loan. These funds can be used for to cover payroll cost, sick leave, production costs, debts, rent, and mortgage payments. Economic Injury Disaster Loan info from SBA.

Family Assistance

Tax paying families will receive up to $1,200 per adult for individuals whose income was less than $99,000, or $2,400 if filing jointly and earning less than $198,000. They will also receive $500 per child under the age of 17. The IRS has already calculated these funds and has automatically sent these funds out to families that had an active bank account on file with the IRS. For those that do not have a bank account, checks will be mailed out.

Payroll Tax Deferral

Employers can defer their portion of the Social Security tax paid though the end of the 2020 year. Half of the deferred amount has to be paid by Dec. 31, 2021 and the other has to be paid by Dec. 31, 2022. If you have received a PPP loan, you cannot defer your portion of taxes after the date the loan was received.

Employee Retention Credit

The CARES Act allows employers to take a tax credit for up to 50% of wages up to $10,000 per employee. The effective wage dates are March 13, 2020 – Dec. 21, 2020. Employers can start to take this credit when making tax payments. The settle up will occur when filing the 941’s. The Second Quarter 941 will be the first quarter to allow this. If you have received a PPP loan, you cannot participate in the Employee Retention Credit. Governmental employers and self-employed people are not eligible for this credit. To read more about eligibility, please visit this IRS website.

401(k) Loans

The 401(K) loan limit has increased to $100K, up from $50K. This only applies to loans made between March 27, 2020 – September 23, 2020. The CARES Act is also allowing payments to be deferred during the 2020 year, essentially allowing for an extra year to pay back 401(k) loans. However, interest will still accrue on the loan amount. The CARES Act is waiving the 10% penalty withdrawal fee for pulling out retirement funds early for up to $100K.

Net Loss Carryover

The CARES Act has changed the Tax Cuts and Job Act (TCJA) to allow taxpayers to carry back losses incurred from 2018 – 2020 for five years. This means that businesses will be allowed to amend their returns of past years to reduce their taxable profits. Previous years corporate tax rate was 35 percent, but today’s current rate is 21 percent.

These are just some of the items listed in the CARES Act. For a full listing of all aid options available, you may refer to the full text of the bill here.

If you have any questions regarding the CARES Act, please contact your accountant or legal professional.

Paycheck Protection Program

The CARES Act is offering payroll loans to small businesses with fewer than 500 employees to help combat the loss of funds/revenues so that employers may be able to cover their payroll costs for an 8-week period. The CARES Act had $349 billion allocated to the Payroll Protection Program (PPP) and available to small business on a first-come, first-served basis. Funds for this PPP loan quickly ran out by April 16th as the need definitely outweighed the availability. Congress has since allocated an additional $310 billion that will become available. We know that some charter schools have applied for this loan. If you are interested in applying for this loan, this is what we know.

Good Faith

Borrowers must certify in good faith that their PPP Loan request is necessary. They must assess their economic need for a PPP loan under the standards established by the CARES Act and the PPP regulations at the time of their loan application. A need has to be present.

Loan Amounts

Loan amounts will be based on a 2.5 x multiplier of the entity’s average monthly payroll costs. The average monthly payroll is based on 12 months of data. Allowable calculations are 12 months of payroll data from the 2019 year, trailing 12 month data (i.e. 4/1/19 – 3/31/2020), or if the entity was not in business between February 15, 2019 and June 30, 2019, then average payroll costs from January 1, 2020 thru February 29, 2020 may be used instead.

The maximum amount allowed is $10 million.

Payroll Costs

When calculating payroll costs, you can include salaries, wages, commissions, tips, stipends, allowances, employer paid benefits, employer paid retirement, and state and local taxes. You have to exclude employer paid federal taxes, qualifying wages paid through the Families First Coronavirus Response Act (FFCRA), and salary amounts over $100,000 for a single person.

Allowable Expenses

The intention of the PPP loan is to provide funds to employers so that they may be able to pay their staff’s wages and benefits while their revenues are down. Recipients of the loan can also use their PPP funds to cover utilities, rent, and interest on mortgage payments as long as these items were in force before February 15, 2020.

Grant or Loan?

Your PPP Loan lender decides whether your loan is forgiven and essentially made into a grant. They also have the option of stating that part of your PPP Loan will be forgiven, and the rest will remain a loan. You will first have to request that your lender forgive the loan and supply documents that show for the 8-week period that you were given the loan, funds were spent on applicable costs. If 100% of the loan was used on payroll costs during the 8-week period, then the loan will more than likely be forgiven. Your lender has 60 days to respond to your request.

Your loan forgiveness can also be reduced if:

  • You decrease your full-time employee headcount.
  • You decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • You do not restore your full-time employment and salary levels for any changes made between February 15, 2020 – April 26, 2020 by June 30, 2020.
  • More than 25% of your loan was not used on direct payroll costs.

If you are interested in applying and have not yet done so, contact your local bank, or an SBA approved lender. Please click on the links below for more information and Good Luck!

More PPP Information:

FEMA’s Public Assistance Grant Program

FEMA’s Public Assistance (PA) Grant Program provides aid to communities after disasters have hit to help in the recovery efforts such as debris removal, restoration or property, repairs,  and emergency equipment and efforts. Considering the unprecedented event that has hit the whole country, eligible expenses might change to accommodate schools and the costs associated with “Distance Learning” will become applicable. We do not know this for a fact yet, but any group that feels they are eligible for disaster aid is welcome to apply on FEMA’s Grant Portal. FEMA will not allow for expenses to be reimbursed if other agencies or other federal grant programs are covering those expenses.

If you are interested in applying for FEMA’s PA Program, please click on the links below for more information.

It’s fair to say that this is all just beginning, and everyone is still trying to quantify the impact of the economic damage being done. Let us help you by visiting our Charter School Community Roundtable and posting your questions.

Other Helpful Resources