“Art is much less important than life, but what a poor life without it.”
Across the world, museums, theatres and libraries are closed, all victims of the COVID-19 specter and the attempt to flatten the curve. As a result, the arts community is expected to suffer billions of dollars in losses.
Economic data compiled by the American Alliance of Museums and Oxford Economics indicate that museums alone contribute $50 billion a year to the US economy, support 726,000 jobs annually and generate $12 billion in tax revenue to local, state and federal governments.1 As the “Coronavirus Aid, Relief, and Economic Security Act” (“CARES Act”) wended its way through Congress, The Metropolitan Museum of Art (“The Met”) petitioned the government for $4 billion in support “for financially at-risk non-profit arts organizations.”2 As stated by Daniel H. Weiss, President and CEO of The Met, “As we prioritize the health and safety of people around the globe first and foremost, we must also plan for the world we will re-enter once this crisis finally subsides.”
Late in the evening on March 25, 2020, the CARES Act passed the Senate. In the early afternoon of March 27, 2020, the House also passed the historic stimulus package. The CARES Act now goes to President Trump for signature.
The stimulus package includes $75 million for the National Endowment for the Arts, a federal program that even in the best of economic times has not fared well. The $75 million is “to remain available until September 30, 2021, to prevent, prepare for, and respond to coronavirus, domestically or internationally, to be distributed as grants.” Forty-percent of the funds are to be distributed to state arts agencies and regional arts organizations and sixty-percent is for direct grants. The matching requirements provided for in the National Foundation on the Arts and Humanities Act of 1965 (20 U.S.C. § 954) may be waived.3 Furthermore, “notwithstanding any other provisions of law, such funds may also be used by the recipients of such grants for purposes of the general operations of the recipients.”
The CARES Act also includes $7.5 million for the Smithsonian Institution for “salaries and expenses,” $25 million for the John F. Kennedy Center for the Performing Arts for “operation and maintenance,” $50 million to the Institute of Museum and Library Sciences “to expand digital network access, purchase internet accessible devices and provide technical support services” and $75 million to the National Endowment for the Humanities, with forty-percent of the funds to be distributed to state humanities councils and sixty-percent to be direct grants.
In addition, the CARES Act provides federally guaranteed loans to small businesses that pledge not to lay off their workers. This assistance will be available to both nonprofits and for-profit companies. With respect to not-for-profit companies, the CARES Act allows small businesses – as defined by Small Business Administration (“SBA”) rules – with less than 500 employees to apply for low-interest forgivable 7(a) SBA loans from participating banks (“7(a) Loans”). These loans are part of the Paycheck Protection Act. These 7(a) Loans will be issued in a principal amount of up to $10,000,000, with the actual loan amount depending on calculations tied to the last twelve months of payroll costs of the business. All repayments of the 7(a) Loans are waived for a minimum of 6 months and a maximum of 12 months. The loan proceeds must be used for certain enumerated purposes including payroll costs, group health care benefits during periods of paid sick, medical or family leave and insurance premiums, mortgage interest payments, rent, utilities and interest on debt incurred prior to February 15, 2020. No personal guarantees or collateral for not-for-profit borrowers are required and shareholders have no loan liability. The length of the 7(a) Loans can be up to ten years and there are no prepayment penalties. The deadline for applying for a 7(a) Loan is June 30, 2020.
As an alternative, some not-for-profit entities may also qualify for loans under the $20 million of capital that the SBA has added to the Economic Injury Disaster Loan Program (called the “EIDL Program”).4 The EIDL Program Loans may not be as attractive as the 7(a) Loans available under the Paycheck Protection Act. While the EIDL Program Loans are low-interest loans, the maximum amount of a loan is $2,000,000. In addition, although the EIDL Program Loans may have terms of up to 30 years, allowing companies significant time to repay the debt, if a loan exceeds $25,000, the SBA requires the borrower to provide loan collateral.
It should also be noted that as of the date of publication of this alert, federal regulators are working on similar emergency loan programs for companies that may not qualify for 7(a) Loans or EIDL Program Loans because they do not meet the SBA size standards or have more than 500 employees. In the future, there may be other options for emergency funding for arts organizations. We will continue to monitor the CARES Act, the EIDL Program and any future emergency loan programs as they are formulated or finalized.
For now, the CARES Act offers a modicum of economic relief to arts organizations. Your regular Locke Lord contact and the authors of this article would be happy to help you navigate the CARES Act and the benefits it afford the arts community.5
While the sums allocated to the arts community are far distant from the $4 billion championed by The MET, hopefully “the world we will re-enter once this crisis finally subsides” will not be “a poor life without [art].”
Visit our COVID-19 Resource Center often for up-to-date information to help you stay informed of the legal issues related to COVID-19.
3 20 U.S.C. § 954, Section 5 (e), (g)(4)(A) and (p)(3)
4 Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, Pub. L. No. 116-123, 134 Stat. 146.
5 For an in-depth examination of the Paycheck Protection Program, see Locke Lord QuickStudy: Saving Our Small Businesses: Congress Reaches Agreement on New Forgivable Paycheck Protection Loans to Small Businesses.
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