It is possible that labor unions improperly received more than $36 million in “loans” under the federal Paycheck Protection Program (PPP). The program was intended to provide relief for businesses suffering during the COVID-19 pandemic, but it also aided unions and labor activist groups, despite most not apparently being eligible for the loans at the time they applied. An estimated $24 million of those improper loans have now been forgiven.
That’s according to a research by the nonprofit Freedom Foundation based on documents obtained from the Small Business Administration (SBA) through the Freedom of Information Act. The foundation determined that 181 loans totaling $32.6 million went to unions that were registered as 501(c)(5) nonprofit organizations, the standard IRS designation for unions. The loans were approved between PPP’s creation in March 2020 and March 11, 2021, when the Democrat-led Congress amended the program to make 501(c)(5) nonprofits officially eligible for loans. The largest single loan was $6.4 million one to the Michigan Education Association. Another $4 million in loans went to union-run or affiliated organizations whose eligibility was suspect.
Giving a PPP loan to a union is contrary to the point of the program. PPP was meant to ensure that businesses remained open and continued to employ their workers. The loans often had quite stringent requirements in terms of retaining workers. Unions, by contrast, represent their members but don’t employ them. Any financial hardship a union would have faced due to the pandemic would have addressed by keeping their members’ workplaces open, thus allowing the workers to continue to pay union dues. Sending loan money directly to a union meant fewer funds for businesses struggling to stay open.
It’s unclear who is to blame. As the Freedom Foundation notes, the original version of the PPP loan application’s eligibility section did not require applicants to specify their tax status, allowing them to simply check “other” instead. Thus, some unions might have falsely indicated that they were eligible for a loan, while others might have filled out the form truthfully and still gotten a loan if no one followed up and checked the union’s tax status. The SBA loans were processed by 5,000 private financial institutions that had little incentive for due diligence, since it wasn’t those institutions’ money that was being lent out.
In some cases, the financial institutions were themselves affiliated with unions and should have known better. The foundation notes that the Bank of Labor, an institution owned and managed by International Brotherhood of Boilermakers (IBB), apparently approved $274,000 in loans to an IBB local. The bank’s stated mission is “to serve the financial needs” of unions.
Report author Maxford Nelson says the situation reflected a “failure on so many levels” to protect taxpayer dollars and to direct the relief funds to where they were needed to go. He said, “the Small Business Administration should have had better controls in place to ensure that only eligible organizations were being approved for loans.”