PPP Loans Should Fund Small Businesses, Not Religious Activities

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The Constitution is the foundation that allows our democracy to weather times of hardship. In every generation, we are faced with challenges that test our commitment to our constitutional principles. At times, we have succeeded in living up to its values; at others, we have failed. Yet we are constantly presented with new opportunities to correct the mistakes we have made – and the current moment is no exception. The COVID-19 pandemic has put unprecedented strain on every aspect of American life. In responding to this crisis, we have been forced to make difficult choices that test our commitment to our constitutional values.

Our democracy is most at risk in times of crisis. As we continue to suffer the impacts of the coronavirus pandemic, it is urgently important we honor our constitutional commitments. In a letter to the Small Business Administration, Interfaith Alliance urged Acting Administrator Tami Perriello to protect the separation of church and state and prohibit the use of PPP dollars for religious purposes.

PPP Loans Cover Religious Expenses – Leaving Small Businesses Behind

The economic fallout of the COVID-19 pandemic has pushed small businesses to their breaking point. Every day, more and more businesses shutter their storefronts, the effects of their loss rippling through the communities they support. As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Paycheck Protection Program (PPP) offered small businesses a lifeline to help them stay afloat. The program offered forgivable loans to businesses facing economic hardship, particularly small businesses who need it the most.

But in the absence of clear guidance from the Small Business Administration, hundreds of thousands of religious institutions sought funding. Both secular and faith-based organizations, including Interfaith Alliance, immediately raised the alarm. The SBA – and federal programs in general – prohibit the use of taxpayer dollars for explicitly religious expenses like clergy salaries and worship materials. But no such distinction exists for PPP applicants. As a result, small businesses across the country were left out while many religious organizations – particularly wealthy, well-connected ones – were able to secure huge amounts of government funding. 

The Biden Administration Announces Changes to Paycheck Protection Program

The Biden administration recognized that the Paycheck Protection Program did not work as intended. On February 22, 2021, President Biden announced that the Treasury Department will make targeted changes to its Paycheck Protection Program to direct more funding towards small businesses struggling to make ends meet. Among other changes, Biden instituted a 14-day period where only businesses with 20 employees or less will be able to apply for aid. Additional financial support will also be available to sole proprietors, independent contractors, and self-employed individuals, a move that will predominantly help businesses owned by women and people of color.  

On March 11th, President Biden signed the American Rescue Plan, a $1.9 trillion COVID-19 package that includes an additional $7 billion in PPP funding and expanded eligibility for nonprofits and small businesses. Though the stated purpose of the funding is to target hard-hit small businesses, it does not include necessary safeguards to prevent the use of government funds for religious activities. 

PPP Changes Are Welcome, But Further Reforms Are Needed

Federal regulations prohibit organizations, “principally engaged in teaching, instructing, counseling or indoctrinating religion or religious beliefs,” from receiving SBA funding. But in the absence of clear guidance from lawmakers, religious organizations sought and were awarded PPP funding in large numbers. Since, Congress has affirmed the eligibility of religious institutions by passing the “Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act.” This act explicitly names “churches and religious organizations” as entities eligible for future PPP loans.   

The American Rescue Plan also declines to honor SBA precedent by including religious organizations in its expanded eligibility for nonprofits. It modifies federal regulations that prohibit religious organizations from using SBA funds by including them among the “additional nonprofit entities” eligible for PPP loans. By explicitly including religious organizations among those eligible for government funds, the American Rescue Plan further codifies this special exemption for religious organizations.

We applaud the efforts of the Biden administration and members of Congress to direct funding towards small business and nonprofits who need it most. But further reform is needed to ensure vulnerable small businesses get the aid they need. By restricting the use of funds for religious purposes, the SBA can open up additional funding for these hard-hit small businesses. Interfaith Alliance calls on the Small Business Administration to issue guidance that ensures PPP funding is distributed efficiently, equitably, and in accordance with the constitution.

Using Public Funds for Religious Activities is Ineffective and Unconstitutional

Public dollars should never be used to fund religious activities, particularly when small businesses are struggling to stay afloat. But instead of directing funds where they are needed most, under the previous administration, the Small Business Administration allowed religious institutions to use PPP aid funding for explicitly religious expenses such as clergy salaries and worship materials. When it came to securing funding, federal assistance went to the most well-connected religious entities with experience navigating the system. Many vulnerable small businesses and nonprofits were unable to secure the funding they needed, forcing them to make impossible choices about their futures.

Many religious organizations and houses of worship have essential programs that are open to the public. 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 religious or secular entities. But allowing religious institutions to use taxpayer dollars to cover religious expenses directly undermines the separation of religion and government required by the Establishment Clause of the First Amendment. The Establishment Clause prohibits using taxpayer funds for explicitly religious purposes – the Paycheck Protection Program should be no exception.

PPP Guidance Benefits Small Businesses and Protects Our Constitutional Values

Allowing religious organizations to receive PPP funding for religious activities is inherently unconstitutional and sets a dangerous precedent for future funding. In the short term, small businesses and nonprofits will be shouldered out by well-connected religious organizations as they have been in the past. In the long term, religious groups will be emboldened to seek new pathways of securing government funds for religious purposes. With President Biden’s support, the Small Business Administration must correct past mistakes and prevent the use of PPP dollars for explicitly religious activities. 

Learn more about our work to advance true religious freedom at the federal, state, and local level.