CARES Law Update Could Extend PPP Loans to Public Hospital Districts
Pending federal legislation to pump more money into the exhausted loan program created to help small businesses weather the economic shock of the coronavirus, public hospital districts will bite the bullet.
The wording of the bill to provide new funding for the paycheck protection program, passed by the United States Senate on Tuesday and due for approval by the House on Thursday, is expected to resolve the eligibility issue of small hospitals established as political subdivisions.
The new rules should be welcomed in Louisiana, where some small district hospitals have tried to take advantage of the program.
The State Bond Commission approved applications from 10 hospital districts on April 16, although it was not clear at the time whether they were eligible for the Small Business Administration’s $ 349 billion stimulus loan program. , which allows loans to be canceled if employees remain in post. wages.
By then, the loan money was gone, leaving many applicants empty-handed.
In response to the Senate vote Tuesday night for an additional $ 484 million in pandemic relief, American Hospital Association President Rick Pollack thanked Congress to increase emergency relief funds for hospitals and other frontline providers.
“We also welcome the increased funding for the Paycheck Protection Program, which will help some small hospitals cope with payroll and other operating costs through forgivable loans,” he said. Pollack said.
The AHA on April 8 sent a letter to the Small Business Administration urging the agency to “ensure that small and medium-sized public hospitals, including those with both nonprofit and public designations, are allowed to apply for and receive loans “in the PPP.
In the $ 350 million first round of the $ 2,000 billion CARES Act, political subdivisions were not among the entities eligible for the program.
“PPP is for small businesses and nonprofits,” said George Huang, director of municipal health care research for Wells Fargo Securities. “I wouldn’t have thought [political subdivisions would] be eligible for this type of program. In addition, there is a separate jar of money for hospitals in particular. ”
Based on the program’s initial criteria, he said it appears small nonprofit hospitals with fewer than 500 employees might technically be eligible for funding.
“Considering the extreme stress they are facing, it would be prudent for the hospital management to seek out so many support options available to them,” Huang said.
In Louisiana, which is among the hardest-hit states with nearly 25,000 new cases of coronavirus reported and 1,405 deaths to date, hospitals and local governments are struggling.
Head of government bonds, Lela Folse, told the bond committee on April 16 that requests from hospitals for the PPP and local governments for emergency cash borrowing have increased in recent weeks because the revenue collection has been halted or spending has increased due to the need to respond to the pandemic.
Folse said the SBC created a request for emergency funding to accommodate local governments and a separate request for hospital districts interested in the SBA’s wage protection program, although she said it didn’t It was uncertain whether hospital service districts were eligible.
The first round of emergency requests were deemed to be required by state law, said Louisiana state treasurer John Schroder, who also chairs the SBC.
“The constitution requires any political subdivision to have the approval of the State Bonds Commission even if it is a crisis, which is why we currently have a declaration of emergency in place that will allow for review emergency requests, ”said Schroder.
Two hospital districts have also requested approval to apply for debt financing as an alternative to PPP.
The commission authorized the No. 1 hospital services district of Franklin Parish to issue up to $ 3 million in debt certificates and authorized the No. 2 hospital services district of Vermilion Parish to issue up to 5.2 million dollars in revenue anticipation bonds.
Eight other hospital service districts have received approval to request a combined $ 25.2 million from the SBA’s forgivable payroll protection program.
The State Bond Commission has also scheduled a special meeting on April 30 to consider additional emergency borrowing requests due to the impact of increased spending needed to respond to COVID-19.
In Louisiana, most hospital service districts are political subdivisions created using parish government authority, said an attorney familiar with the structure who asked not to be identified.
In the first round of the CARES Act funding, qualified PPP applicants were businesses, most with fewer than 500 employees with a few exceptions, as well as “nonprofits, veterans organizations, corporations. tribals, sole proprietorships, independent workers and independent contractors. ,” according to an information sheet issued by the US Treasury.
Although a Louisiana Hospital Service District is tax exempt as a political subdivision, it is not a nonprofit like charitable, religious, or educational entities organized under Section 501. (c) (3) of the Internal Revenue Code.
When asked why hospital districts in Louisiana were being encouraged to apply for the SBA’s loan cancellation program, the lawyer who asked not to be named said he was told that Senators State officials in Congress were negotiating to include them in the new stimulus bill.
Senators John Kennedy and Bill Cassidy did not immediately return requests for comment.
The problem faced by Louisiana’s hospital districts highlighted similar difficulties for healthcare facilities across the country.
Many small hospitals owned by municipalities and counties tend to be political subdivisions, which allows them to have property taxing power, according to Huang of Wells Fargo.
“Often they are county owned and tend to be very small hospitals that would otherwise struggle without support or with the cost of capital,” Huang said. “Some have a limited GO safety net to help access capital markets at a lower cost. “
On Tuesday, the Senate approved $ 484 billion in spending in the new Paycheck Protection Program and Health Care Enhancement Act, which provides $ 310 billion in additional funding for PPP, $ 75 billion for hospitals, $ 25 billion for testing and $ 60 billion for emergency disaster loans. and subsidies.
The competition for new PPP financing can be tough.
The original coronavirus aid, relief and economic security law, passed on March 30, provided $ 350 billion to kickstart the payroll protection program. After a rough start when banks figured out the application process, funding quickly ran out due to its dire need.
“Hospitals in general are suffering from all the disruption, so the challenge of course would be to move upmarket,” Huang said. “They wiped out the exhaustion of the original PPP in less than two weeks, so there’s a chance we’ll see it again.”