[Federal Register Volume 85, Number 90 (Friday, May 8, 2020)]
[Rules and Regulations]
[Pages 27287-27290]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-09963]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 85, No. 90 / Friday, May 8, 2020 / Rules and
Regulations
[[Page 27287]]
SMALL BUSINESS ADMINISTRATION
13 CFR Parts 113 and 120
[Docket Number SBA-2020-0024]
RIN 3245-AH40
Business Loan Program Temporary Changes; Paycheck Protection
Program--Nondiscrimination and Additional Eligibility Criteria
AGENCY: U.S. Small Business Administration.
ACTION: Interim final rule.
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SUMMARY: On April 2, 2020, the U.S. Small Business Administration (SBA)
posted an interim final rule announcing the implementation of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The
CARES Act temporarily adds a new program, titled the ``Paycheck
Protection Program,'' to the SBA's 7(a) Loan Program. The CARES Act
also provides for forgiveness of up to the full principal amount of
qualifying loans guaranteed under the Paycheck Protection Program
(PPP). The PPP is intended to provide economic relief to small
businesses nationwide adversely impacted by the Coronavirus Disease
2019 (COVID-19). SBA posted additional interim final rules on April 3,
2020, April 14, 2020, April 24, 2020, April 28, 2020, and April 30,
2020 and the Department of the Treasury posted an additional interim
final rule on April 28, 2020. This interim final rule supplements the
previously posted interim final rules by providing guidance on
nondiscrimination obligations and additional eligibility requirements,
and requests public comment.
DATES:
Effective date: This rule is effective May 8, 2020.
Applicability date: This interim final rule applies to applications
submitted under the Paycheck Protection Program through June 30, 2020,
or until funds made available for this purpose are exhausted.
Comment date: Comments must be received on or before June 8, 2020.
ADDRESSES: You may submit comments, identified by number SBA-2020-0024
through the Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments. SBA will post all
comments on www.regulations.gov. If you wish to submit confidential
business information (CBI) as defined in the User Notice at
www.regulations.gov, please send an email to ppp-ifr@sba.gov. Highlight
the information that you consider to be CBI and explain why you believe
SBA should hold this information as confidential. SBA will review the
information and make the final determination whether it will publish
the information.
FOR FURTHER INFORMATION CONTACT: A Call Center Representative at 833-
572-0502, or the local SBA Field Office; the list of offices can be
found at https://www.sba.gov/tools/local-assistance/districtoffices.
SUPPLEMENTARY INFORMATION:
I. Background Information
On March 13, 2020, President Trump declared the ongoing Coronavirus
Disease 2019 (COVID-19) pandemic of sufficient severity and magnitude
to warrant an emergency declaration for all States, territories, and
the District of Columbia. With the COVID-19 emergency, many small
businesses nationwide are experiencing economic hardship as a direct
result of the Federal, State, tribal, and local public health measures
that are being taken to minimize the public's exposure to the virus.
These measures, some of which are government-mandated, are being
implemented nationwide and include the closures of restaurants, bars,
and gyms. In addition, based on the advice of public health officials,
other measures, such as keeping a safe distance from others or even
stay-at-home orders, are being implemented, resulting in a dramatic
decrease in economic activity as the public avoids malls, retail
stores, and other businesses.
On March 27, 2020, the President signed the Coronavirus Aid,
Relief, and Economic Security Act (the CARES Act) (Pub. L. 116-136) to
provide emergency assistance and health care response for individuals,
families, and businesses affected by the coronavirus pandemic. The
Small Business Administration (SBA) received funding and authority
through the CARES Act to modify existing loan programs and establish a
new loan program to assist small businesses nationwide adversely
impacted by the COVID-19 emergency. Section 1102 of the CARES Act
temporarily permits SBA to guarantee 100 percent of 7(a) loans under a
new program titled the ``Paycheck Protection Program.'' Section 1106 of
the CARES Act provides for forgiveness of up to the full principal
amount of qualifying loans guaranteed under the Paycheck Protection
Program (PPP). On April 24, 2020, the President signed the Paycheck
Protection Program and Health Care Enhancement Act (Pub. L. 116-139),
which provided additional funding and authority for the PPP.
Prior to the CARES Act, nonprofit organizations were not eligible
to participate in SBA's 7(a) Loan Program (15 U.S.C. 636(a)). Section
1102 of the CARES Act expanded eligibility, limited to PPP, to include
certain nonprofit organizations, among other organizations.
SBA regulations at 13 CFR part 113 impose regulatory requirements
``to reflect to the fullest extent possible the nondiscrimination
policies of the Federal Government as expressed in the several
statutes, Executive Orders, and messages of the President dealing with
civil rights and equality of opportunity.'' 13 CFR 113.1(a). But
because SBA's loan programs previously served business entities, these
regulations did not restate certain limitations and exemptions under
federal law primarily pertinent to certain faith-based or nonprofit
organizations. In particular, Title IX of the Education Amendments of
1972 permits single-sex admissions practices by preschools, non-
vocational elementary or secondary schools, and private undergraduate
higher education institutions. See 20 U.S.C. 1681(a)(1). Additionally,
the Fair Housing Act of 1968 allows religious organizations to reserve
housing for coreligionists, see 42 U.S.C. 3607, and allows for single-
sex emergency shelters that provide refuge to abused women (or abused
men), see 24 CFR 5.106; see also Johnson v. Dixon, 786 F. Supp. 1, 4
(D.D.C. 1991) (``It is . . . doubtful [that] `emergency
[[Page 27288]]
overnight shelter,' . . . can be characterized as a `dwelling' within
the meaning of the [Fair Housing] Act.''). Finally, the Indian Child
Welfare Act of 1978 requires certain placement preferences in the
foster care and adoptions of Indian children. See 25 U.S.C. 1915. The
broadly worded SBA regulations do not articulate these limitations on
the application of the relevant nondiscrimination provisions.
In addition, there is a technical discrepancy between SBA's
religious employer exemption at 13 CFR 113.3-1(h) and Title VII of the
Civil Rights Act, which allows religious employers to make hiring
decisions according to their religious beliefs with respect to all
``activities,'' not just ``religious activities.'' See An Act to
further promote equal employment opportunities for American workers,
Public Law 92-261, 86 Stat. 103, 104 (1972), codified at 42 U.S.C.
2000e-1(a).
Given these various discrepancies, organizations have accordingly
faced uncertainty about whether their participation in the PPP program
would require them to substantially change their operations for a short
period of months. These types of changes are impossible for some
organizations, and impractical for many. This uncertainty risks
frustrating the purpose of the CARES Act, which was to afford swift
stopgap relief to Americans who might otherwise lose their jobs or
businesses because of the economic hardships wrought by the response to
the COVID-19 public health emergency. To provide certainty to
applicants and recipients of loans and loan forgiveness under the PPP,
and to address the large-scale burdens that SBA regulations may impose
on recipients participating only on a short-term basis, this interim
final rule provides guidance that for purposes of the PPP, nonprofits
must meet their nondiscrimination obligations under existing Federal
laws and Executive Orders. This interim final rule also provides
guidance with respect to the religious employer exemption to ensure
harmony with Section 702 of Title VII.
In addition, as described below, to enable certain eligible small
educational institutions to participate in PPP, this interim final rule
provides that institutions of higher education shall exclude work study
students when determining the number of employees for purposes of PPP
loan eligibility.
II. Comments and Immediate Effective Date
The intent of the Act is that SBA provide relief to America's small
businesses expeditiously. This intent, along with the dramatic decrease
in economic activity nationwide, provides good cause for SBA to
dispense with the 30-day delayed effective date provided in the
Administrative Procedure Act. Specifically, it is critical to meet
lenders' and borrowers' need for clarity concerning program
requirements as rapidly as possible because the last day eligible
borrowers can apply for and receive a loan is June 30, 2020.
This interim final rule supplements previous regulations and
guidance on certain important, discrete issues. The immediate effective
date of this interim final rule will benefit lenders so that they can
swiftly close and disburse loans to small businesses. This interim
final rule is effective without advance notice and public comment
because section 1114 of the Act authorizes SBA to issue regulations to
implement Title I of the Act without regard to notice requirements. In
addition, SBA has determined that there is good cause for dispensing
with advance public notice and comment on the ground that it would be
contrary to the public interest. Specifically, SBA has determined that
advance public notice and comment would delay the ability of certain
organizations to implement their nondiscrimination obligations in a
manner consistent with the limitations contained in existing Federal
laws, and potentially force such organizations to change their
operations until SBA adopted a final or interim final rule. Rather than
change their operations, the affected organizations could elect not to
apply for PPP loans and lay off employees, which would defeat the
paycheck protection purposes of the PPP. This rule is being issued to
allow for immediate implementation of this program. Although this
interim final rule is effective immediately, comments are solicited
from interested members of the public on all aspects of the interim
final rule, including section III below. These comments must be
submitted on or before June 8, 2020. SBA will consider these comments
and the need for making any revisions as a result of these comments.
III. Paycheck Protection Program Nondiscrimination and Additional
Eligibility Criteria
Overview
The CARES Act was enacted to provide immediate assistance to
individuals, families, and organizations affected by the COVID-19
emergency. Among the provisions contained in the CARES Act are
provisions authorizing SBA to temporarily guarantee loans under the
PPP. Loans under the PPP will be 100 percent guaranteed by SBA, and the
full principal amount of the loans and any accrued interest may qualify
for loan forgiveness. Additional information about the PPP is available
in interim final rules published by SBA and the Department of the
Treasury in the Federal Register (85 FR 20811, 85 FR 20817, 85 FR
21747, 85 FR 23450, 85 FR 23917, 85 FR 26321 and 85 FR 26324)
(collectively, the PPP Interim Final Rules).
1. Non-Discrimination
Are recipients of PPP loans entitled to exemptions on the grounds
provided in Federal nondiscrimination laws for sex-specific admissions
practices, sex-specific domestic violence shelters, coreligionist
housing, or Indian tribal preferences in connection with adoption or
foster care practices?
Yes. With respect to any loan or loan forgiveness under the PPP,
the nondiscrimination provisions in the applicable SBA regulations
incorporate the limitations and exemptions provided in corresponding
Federal statutory or regulatory nondiscrimination provisions for sex-
specific admissions practices at preschools, non-vocational elementary
or secondary schools, and private undergraduate higher education
institutions under Title IX of the Education Amendments of 1972 (20
U.S.C. 1681 et seq.), for sex-specific emergency shelters and
coreligionist housing under the Fair Housing Act of 1968 (42 U.S.C.
3601 et seq.), and for adoption or foster care practices giving child
placement preferences to Indian tribes under the Indian Child Welfare
Act of 1978 (25 U.S.C. 1901 et seq.).
In addition, for purposes of the PPP, SBA regulations do not bar a
religious nonprofit entity from making decisions with respect to the
membership or the employment of individuals of a particular religion to
perform work connected with the carrying on by such nonprofit of its
activities.
2. Student Workers and PPP Loan Eligibility
Do student workers count when determining the number of employees
for PPP loan eligibility?
Yes, student workers generally count as employees, unless (a) the
applicant is an institution of higher education, as defined in the
Department of Education's Federal Work-Study regulations, 34 675.2, and
(b) the student worker's services are performed as part of a Federal
Work-Study Program (as defined in those regulations \1\) or a
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substantially similar program of a State or political subdivision
thereof. Institutions of higher education must exclude work study
students when determining the number of employees for PPP loan
eligibility, and must also exclude payroll costs for work study
students from the calculation of payroll costs used to determine their
PPP loan amount.
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\1\ The Department of Education's Federal Work-Study Programs
described at 34 CFR part 675 are (1) the Federal Work-Study Program,
(2) the Job Location and Development Program, and (3) Work Colleges
Program.
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The Administrator, in consultation with the Secretary, has
determined that this is a reasonable interpretation of section 1102(a)
of the CARES Act's reference to ``individuals employed on a full-time,
part-time, or other basis.'' Such programs generally provide part-time
jobs for students with financial need, and their services are incident
to and for the purpose of pursuing a course of study. Work study
students are excluded from the definition of employees in other areas
of federal law. For example, in the regulations implementing the
Affordable Care Act, Treasury defined an employee's ``hours of
service'' to exclude work study hours.\2\ Explaining this exclusion,
the regulation's preamble states that ``[t]he federal work study
program, as a federally subsidized financial aid program, is distinct
from traditional employment in that its primary purpose is to advance
education.'' \3\ Similarly, student work is generally exempt from
Federal Insurance Contribution Act (FICA) and Federal Unemployment
taxes.\4\
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\2\ 26 CFR 54.4980H-1(a)(24) (``Hour of service . . . (ii)
Excluded hours . . . (B) Work-study program. The term hour of
service does not include any hour for services to the extent those
services are performed as part of a Federal Work-Study Program as
defined under 34 CFR 675 or a substantially similar program of a
State or political subdivision thereof.'').
\3\ 79 FR 8544, 8550 (Feb. 12, 2014).
\4\ Internal Revenue Code Section 3121(b)(10) excepts from FICA
tax ``service performed in the employ of--(A) a school, college,
university . . . if such service is performed by a student who is
enrolled and regularly attending classes at such school, college,
university.'' Student workers, who are not full time, are excepted
where the services are ``incident to and for the purposes of
pursuing a course of study.'' 26 CFR 31.3121(b)(10)-2(d)(3)(i).
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For similar reasons, the Administrator, in consultation with the
Secretary of the Treasury, has determined that a limited exception for
work study is appropriate here. In particular, the Administrator
recognizes that requiring institutions of higher education to count
work study students towards employee headcount would result in an
anomalous outcome in two respects. First, it would prevent some small
educational institutions from receiving PPP loans due solely to their
provision of financial aid to students in the form of work study.
Second, it would result in the exclusion of small educational
institutions whose part-time work study headcount dwarfs their full-
time faculty and staff headcounts. Educational institutions that filed
loan applications prior to the issuance of the regulation are not bound
by this interpretation but may rely on it. Lenders may continue to rely
on borrower certifications as part of their good faith review process.
3. Additional Information
SBA may provide further guidance, if needed, through SBA notices
that will be posted on SBA's website at www.sba.gov. Questions on the
Paycheck Protection Program may be directed to the Lender Relations
Specialist in the local SBA Field Office. The local SBA Field Office
may be found at https://www.sba.gov/tools/local-assistance/districtoffices.
Compliance With Executive Orders 12866, 12988, 13132, 13563, and 13771,
the Paperwork Reduction Act (44 U.S.C. Ch. 35), and the Regulatory
Flexibility Act (5 U.S.C. 601-612).
Executive Orders 12866, 13563, and 13771
This interim final rule is economically significant for the
purposes of Executive Orders 12866 and 13563, and is considered a major
rule under the Congressional Review Act. SBA, however, is proceeding
under the emergency provision at Executive Order 12866 Section
6(a)(3)(D) based on the need to move expeditiously to mitigate the
current economic conditions arising from the COVID-19 emergency. This
rule's designation under Executive Order 13771 will be informed by
public comment.
Executive Order 12988
SBA has drafted this rule, to the extent practicable, in accordance
with the standards set forth in section 3(a) and 3(b)(2) of Executive
Order 12988, to minimize litigation, eliminate ambiguity, and reduce
burden. The rule has no preemptive or retroactive effect.
Executive Order 13132
SBA has determined that this rule will not have substantial direct
effects on the States, on the relationship between the National
Government and the States, or on the distribution of power and
responsibilities among the various layers of government. Therefore, SBA
has determined that this rule has no federalism implications warranting
preparation of a federalism assessment.
Paperwork Reduction Act, 44 U.S.C. Chapter 35
SBA has determined that this rule will not impose new or modify
existing recordkeeping or reporting requirements under the Paperwork
Reduction Act.
Regulatory Flexibility Act (RFA)
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule, or a final rule pursuant to section
553(b) of the APA or another law, the agency must prepare a regulatory
flexibility analysis that meets the requirements of the RFA and publish
such analysis in the Federal Register. 5 U.S.C. 603, 604. Specifically,
the RFA normally requires agencies to describe the impact of a
rulemaking on small entities by providing a regulatory impact analysis.
Such analysis must address the consideration of regulatory options that
would lessen the economic effect of the rule on small entities. The RFA
defines a ``small entity'' as (1) a proprietary firm meeting the size
standards of the Small Business Administration (SBA); (2) a nonprofit
organization that is not dominant in its field; or (3) a small
government jurisdiction with a population of less than 50,000. 5 U.S.C.
601(3)-(6). Except for such small government jurisdictions, neither
State nor local governments are ``small entities.'' Similarly, for
purposes of the RFA, individual persons are not small entities. The
requirement to conduct a regulatory impact analysis does not apply if
the head of the agency ``certifies that the rule will not, if
promulgated, have a significant economic impact on a substantial number
of small entities.'' 5 U.S.C. 605(b). The agency must, however, publish
the certification in the Federal Register at the time of publication of
the rule, ``along with a statement providing the factual basis for such
certification.'' If the agency head has not waived the requirements for
a regulatory flexibility analysis in accordance with the RFA's waiver
provision, and no other RFA exception applies, the agency must prepare
the regulatory flexibility analysis and publish it in the Federal
Register at the time of promulgation or, if the rule is promulgated in
response to an emergency that makes timely compliance impracticable,
within 180 days of publication of the final rule. 5 U.S.C. 604(a),
608(b). Rules that are exempt from notice and comment are also exempt
from the RFA requirements, including conducting a regulatory
flexibility analysis, when among other things the agency for good cause
finds that notice and public procedure are impracticable, unnecessary,
or contrary
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to the public interest. SBA Office of Advocacy guide: How to Comply
with the Regulatory Flexibility Act, Ch.1. p.9. Accordingly, SBA is not
required to conduct a regulatory flexibility analysis.
Jovita Carranza,
Administrator.
[FR Doc. 2020-09963 Filed 5-7-20; 8:45 am]
BILLING CODE 8026-03-P