The Paycheck Protection Program and Faith-Based Organizations

April 24, 2020

I‘m going to end the week where I started it: with the Paycheck Protection Program.

Remember, the CARES Act created the PPP, which expands the SBA’s loan program. Under the PPP the government can make or guarantee forgivable loans to small businesses–and, in an expansion or its previous mandate, small nonprofit organizations–provided those organizations use the funds for permissible purposes, including critically, for compensation.

The president signed the CARES Act into law on March 27. One week later, the SBA issued a FAQ dealing with the PPP and faith-based organizations. In essence, the FAQ clarified that the PPP was available to faith-based organizations under essentially the same terms as it was to any other nonprofit. That is, as long as the faith-based organization met the size limitations and used the money for purposes, it could participate in the PPP.

(It turns out that the SBA differentiated faith-based organizations from other nonprofits in one critical manner: while the law applies the same affiliation rules to nonprofits as it does to for-profit borrowers, the SBA announced that it will not look at the relationship between faith-based organizations where that relationship is based on religious teachings or other religious commitments. In regulations, the SBA went on to explain that applying the affiliation rules to religions that had doctrinal reasons for affiliating would impose a substantial burden on the organizations’ free exercise, raising First Amendment and RFRA questions. Thus, the SBA said, it would take faith-based organizations at their word if they claimed their affiliation was based on religious requirements.)Ariz

Interestingly, in its April 3 FAQ, the SBA explicitly states that “loans under the program can be used to pay the salaries of ministers and other staff engaged in the religious mission of institutions” (emphasis mine).

Now, this sets up a really weird dynamic. At the very least, using public money to pay the salaries of ministers and other clergy raises sticky questions of establishment. In 1947, the Supreme Court credited the founding generation’s abhorrence of publicly-funded clergy as the impetus for the First Amendment:

These practices [that is, dissenters being forced to pay taxes to support church buildings and hostile ministers] became so commonplace as to shock the freedom-loving colonials into a feeling of abhorrence. The imposition of taxes to pay ministers’ salaries and to build and maintain churches and church property aroused their indignation It was these feelings which found expression in the First Amendment.

Everson v. Bd. of Ed. of Ewing Twp., 330 U.S. 1, 11, 67 S. Ct. 504, 509, 91 L. Ed. 711 (1947).

Now, actual questions of constitutionality are well beyond the scope of this blog post. There are compelling arguments for including faith-based organizations within the scope of the PPP, and there are compelling arguments that it shouldn’t be included and, while that’s an interesting and important conversation, I want to focus on a much narrower question: can the application of the PPP to faith-based organizations be challenged?

There are groups that object. Four days after the SBA issued its FAQ, six organizations (African American Ministers Leadership Council, Americans United for Separation of Church and State, Bend the Arc: Jewish Action, Interfaith Alliance, National Council of Jewish Women, and People For the American Way) signed a letter encouraging the SBA to create rules ensuring that no PPP money went to fund religious activities.

That letter looks like it was ineffective. So can these organizations sue?

As we all know (from our law school days, if nothing else), a litigant needs standing to file a suit. And standing requires a cognizable injury. In Flast v. Cohen, the Supreme Court endorsed the idea of taxpayer (or sometimes Establishment Clause) standing. Taxpayer standing provided that, if certain circumstances were met, taxpayers had standing to challenge government expenditures that violated the Establishment Clause even if they couldn’t demonstrate harm to themselves.

In Arizona Christian School Tuition v. Winn, the Supreme Court narrowed the scope of taxpayer standing. Now a taxpayer has to show an actual government expenditure; tax breaks aimed at religious organizations are insufficient to provide standing.

And the PPP looks like it would probably provide taxpayer standing. To the extent PPP loans are made to faith-based organizations, are used to pay the salaries of clergy, and are forgiven because the federal government pays them back, it looks a lot like federal spending on religion. (You could maybe argue that the federal government pays the banks that made the loan, so the government isn’t actually paying for the clergy salary, but that seems like a laughably formalistic assertion.)

I don’t know if it’s a winning argument. I honestly don’t know how the courts would come down. But I would be shocked if there is no litigation over this program, and I’d be sincerely surprised if the litigation managed to be dismissed on standing grounds.

Samuel D. Brunson

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