Follow the Money: COVID Emergency Funds And Church/State Separation

On March 27th, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act to address the initial social and economic fallout of the pandemic. This bill included aid for small businesses in the form of the Paycheck Protection Program (PPP). The program was designed to offer forgivable loans to small businesses facing economic hardship but, in the absence of clear guidance from lawmakers, other entities like houses of worship and large corporations have received funding.

Our democratic values are most at risk in times of crisis. As we continue to grapple with the fallout of the coronavirus pandemic, protecting the separation of religion and government is urgently important. By inviting religious institutions to apply for public funding without few limits, the Trump administration and their allies are undermining this basic principle. As information about the PPP program becomes public, Interfaith Alliance calls on lawmakers to exercise greater oversight and redirect funding where it is needed most.

Taxpayer Dollars for Religious Activities?

Soon after its passage, Interfaith Alliance expressed concern that limited guidance and rules in the CARES Act would allow faith-based entities to use PPP loans for religious activities in violation of church/state separation. These concerns were confirmed by the U.S. Small Business Administration (SBA) Interim Final Rule, which invited houses of worship to apply for federal assistance without limit on what they could be used for.

Longstanding agency requirements and constitutional law prohibit the use of taxpayer dollars for religious activities like worship materials or clergy salaries. Programs that don’t include a religious component, like food pantries and senior centers, can and do receive federal assistance regardless of whether they are operated by a religious or secular entity.

Many houses of worship have both types of expenses, as congregations across the country work to sustain themselves financially and spiritually. But in this moment, offering up taxpayer funds to cover religious expenses directly undermines the separation of religion and government required by the Establishment Clause of the First Amendment. These expenses may be met in other ways. We cannot abandon our commitment to our constitutional values in times of crisis.

Reinforcing Existing Disparities for Applying Congregations

As of June 22, 2020, more than 4.6 million loans have been approved by the Small Business Association (SBA), totaling more than $514 billion of the $659 billion in funding. As information about PPP loan recipients comes forward, it is increasingly evident that the PPP program has not fulfilled its purpose of aiding small businesses. Houses of worship and large public companies have received significant sums from the program, leaving little left for those for whom it was intended.

Though the Establishment Clause prohibits using taxpayer funds for explicitly religious activities, a significant number of religious institutions have sought PPP loans with few restrictions on their use. Though the SBA is not releasing exact numbers, well-established congregations with significant communal and institutional power seem to have navigated the eligibility process more easily than smaller ones. 

Additionally, anecdotal evidence has emerged that suggested that smaller and historically Black congregations have been less successful in receiving PPP loans. Derrick Johnson, president and CEO of the NAACP, told NPR he has heard consistent complaints from all of their major African-American denominations that banks have been unresponsive to their applications. This trend appears to be consistent with reports that large institutions with strong connections to big banks have been more successful than those with less experience with financial institutions. 

PPP Loans Granted to Wealthy Corporations – And Members of Congress

By design, PPP loans were established to help organizations and small businesses with fewer than 500 employees on a first-come, first-served basis. However, small businesses allege that banks have prioritized higher-value loan applications rather than processing loans in the order they are submitted. Small business owners have already filed class action lawsuits against some of the nation’s largest banks, alleging that banks provided special consideration to their wealthiest clients instead of those most in need. 

After weeks of lobbying by the hotel and restaurant industries, Congress allowed separate subsidiaries and locations to apply as businesses – even if they were part of a national or international chains. Reports of large companies taking sizable loans soon began to surface. Ruth’s Chris Steak House reported receiving $20 million in PPP loans, while the Potbelly sandwich shop chain received more than $10 million. Shake Shack, after immense public pressure from small business advocates, returned their $10 million PPP loan. Countless other examples have reinforced criticism that money intended for small businesses is being siphoned off by national brands.

Perhaps most troubling, at least four members of Congress have confirmed they have close ties to companies that have received PPP loans. The businesses that benefited from these loans are either run by a family member of the congressperson or employ their spouse as a senior executive. They are likely not the only representatives who have close ties to a PPP loan recipient, but their admissions have amplified calls for greater oversight. 

SBA and Treasury Department Will Disclose Some – But Not All – Loan Recipients

In a June 11, 2020 hearing before the Senate Committee on Small Business and Entrepreneurship, Treasury Secretary Steve Mnuchin said that the names and loan amounts of businesses who received PPP loans would not be disclosed. However, following backlash from both sides of the aisle, on June 19, 2020, the SBA and Treasury Department announced they would release the names of recipients who received loans of more than $150,000. The disclosures would also include a dollar range of each loan received. While some believe that this announcement does not give enough information to provide adequate oversight, it is a first step in determining whether the program has been equitable and effective. 

The Paycheck Protection Program is Ineffective and Undermining Church/State Separation 

These revelations confirm our worst fears about a program with few eligibility requirements and little oversight. The SBA and Treasury Department have cast aside agency precedent to help the Trump administration pander to allied corporations and religious institutions with little regard for the constitutional consequences. Handing out checks to well-funded, well-established houses of worship is a direct violation of the separation of religion and government. The erosive effect on our democratic values will endure long after the current crisis has passed.

When administering PPP loans, the federal government must prioritize those in need, not cater to their allies. Wealthy organizations and religious institutions should not have access to taxpayer funds particularly when small businesses are struggling to stay afloat. Interfaith Alliance urges our leaders to push for greater transparency and accountability in the ongoing administration of coronavirus relief funds. Now more than ever, our elected officials are duty-bound to act as good stewards of our public resources and constitutional values. 

Take a look at this one-pager for more information on the constitutional consequences of Paycheck Protection Program and how your lawmakers can do something about it.

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