Up to 226 forgivable loans totaling more than $36 million were given to labor unions and related organizations that weren’t eligible to receive the loans, according to a new reportFreedom Foundation, a conservative think tank that promotes free markets.
The loans were administered by the Small Business Administration through the Paycheck Protection Program, which was created by Congress in March 2020 to help businesses retain their employees during the COVID-19 pandemic.
Under the Paycheck Protection Program, loans were limited to “certain eligible small businesses, individuals and non-profit organizations.”
The program was later extended to include labor unions when President Joe Biden signed into law the American Rescue Plan last March 11. However, at the time of its inception, the loans were not available to unions.
The Freedom Foundation report, “Profiting From a Pandemic: How Ineligible Unions Collected Millions in Federal Covid Relief Funds,” says the union fraud “diverted resources away from the purpose of the PPP”; namely, helping small businesses.
“While a variety of business enterprises with fewer than 500 employees qualified for the forgivable loans, nonprofit eligibility was primarily limited to tax-exempt organizations operating under 26 U.S.C. § 501(c)(3), which covers most traditional charitable nonprofits,” the report states. “As labor unions are generally registered with the Internal Revenue Service (IRS) under 26 U.S.C. § 501(c)(5), most were not initially eligible for PPP loans.”
Because unions’ revenues mostly derive from members’ dues, the report contends direct support to unions was unnecessary: “[T]o the extent the PPP loans to businesses allowed union employees to keep working, it also allowed unions to continue collecting dues from their paychecks.”
The majority of the loans were reportedly received by teachers unions and teacher advocacy group. The largest loan to Michigan Education Association was more than $6.4million.
“Not only were the unions ineligible for these funds, but they had little need for them,” according to the report. “The federal government allocated nearly $200 billion to public schools to help them weather the pandemic and keep staff on payroll—and paying union dues.”
Since the COVID-19 pandemic, many teacher unions have advocated for school closures, lockdowns and remote learning.
The other recipients were the California Retired Teachers Association as well as the Ohio Retired Teachers Association. These are advocacy groups for teachers and are 501 (c)(4) classified.
Robin Rayfield, the executive director of the Ohio Retired Teachers Association confirmed that the organization received the loan but denied knowing of any ineligibility.
“We applied, and they gave it to us, and we were happy for it,” Rayfield said.
Other than teachers unions and affiliated organisations, loans were made to various state and local government employee associations, including the Alaska State Employees Association and the Alabama State Employees Association.
The unions received millions in forgivable loans “despite the fact that state and local governments did not experience the kinds of economic disruption felt by private businesses and received hundreds of billions of dollars in direct federal aid used to keep staff employed,” the report says.
SBA Administrator Jovita Carranza said If a loan-review process found that a recipient was not eligible to receive a loan it would not be forgiven. According to the report, however, “What action, if any, the SBA took is unknown, and at least $24.2 million of the $36.7 million in union-related loans identified by the Freedom Foundation have now been forgiven.”
The authors of the report urged the Small Business Administration to investigate further and prosecute anyone who fraudulently received taxpayer funds.
“Disconcertingly, the apparently inappropriate PPP loans may have been granted due to fraudulent loan applications or other questionable conduct by applicants or the private lenders operating under the SBA’s delegated authority to approve loan applications,” according to the report. “As the entity charged by Congress with implementing and overseeing the distribution of PPP loans, the SBA certainly bore responsibility for instituting internal controls necessary to ensure ineligible organizations did not receive loans.”
The Small Business Administration couldn’t be reached for comment, and with the exception of the Ohio Retired Teachers Association, none of the other unions, advocacy groups, or related organizations cited returned calls or emails seeking comment.
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