(RNS) – A dispute with the federal government over how to count employees, mixed with some bad timing, could cost a small evangelical Christian college more than $7 million.
Gordon College, founded north of Boston in 1889, is suing the Small Business Administration after the agency denied a request to forgive a loan made under the Payroll Protection Plan, which was aimed at preserving jobs during pandemic shutdowns. While millions of PPP loans have been forgiven, some employers, like Gordon, have run afoul of SBA rules and found themselves with debt they did not expect to repay.
“We had every reason to expect the loan forgiveness portion of the program would be fulfilled when applicable,” school officials said in a statement to RNS.
Gordon’s lawsuit reveals some of the confusion that accompanied the PPP program, which was hastily passed in the early days of the pandemic in 2020, and began distributing money before the rules governing those loans were finalized. More than 11.5 million loans, amounting to some $793 billion, were made under the program.
In mid-April 2020, according to documents filed in a federal lawsuit, Gordon applied for a PPP loan. According to the program’s rules at the time, Gordon alleges, if the school kept paying its employees during the term of the loan, and didn’t lay them off, the loan would be forgiven. There was one catch: the loan program limited its benefit to organizations with fewer than 500 employees.
Gordon had more than 500 employees at the time, but that number included student workers and part-time staff. After talking with their legal counsel, Gordon decided to count employees using a “full-time-equivalent,” or F.T.E, model of counting, common in academic settings, and submitted a loan application.
Under that model, Gordon had 495.67 employees.
The school’s loan application, submitted on April 15, 2020, was approved a few days later, according to court documents, and by April 23, the school had the funds in hand.
Three days later, the SBA clarified how to count employees, telling them to use a head count approach.
“For example, if a borrower has 200 full-time employees and 50 part-time employees each working 10 hours per week, the borrower has a total of 250 employees,” the SBA advised.
When Gordon applied to have its loan forgiven in 2022, the SBA turned them down, citing that new guidance. Gordon countered by saying the headcount rule was published after their loan was approved and should not apply. “SBA has determined that the borrower was ineligible for the PPP loan,” the SBA said in a letter dated April 12, 2022.
Gordon, in its statement, said it had “spent the entire amount on its employee payroll expenses to keep faculty and staff employed and avoid extensive short-term furloughs or layoffs.”
In an email, the spokesperson said, “This is precisely why the PPP loan program was established by Congress.”
In 2023, after appeals to reverse the SBA decision were turned down, Gordon filed suit in federal court, alleging that the SBA had failed to follow its own rules and claiming the government agency had violated Gordon’s religious freedom, pointing to a similar-sized secular school whose loan had been forgiven.
Gordon’s case is unusual in that most PPP loans — 97 percent, according to the SBA — were forgiven. The SBA declined to comment further, citing ongoing litigation.
According to an RNS analysis of PPP data, 1,370 loans were made to colleges and universities. Of those, all but 21 were forgiven. (Of those 21 loans, nine were repaid.)
In its court filings, Gordon insists it followed the SBA’s rules and that its loan should be forgiven. The school also pointed to guidance published by the SBA in early April 2020, when the rules for the program were still in development.
“Borrowers and lenders may rely on the laws, rules, and guidance available at the time of the relevant application,” the SBA said in an FAQ dated April 2, 2020, that is cited in Gordon’s lawsuit.
Gordon also included in its filing a list of about two dozen other colleges that had more than 500 employees, yet had their PPP loans forgiven, alleging that they also used an F.T.E. approach.
Among them was the University of Dallas, a Catholic college that had its $5.8 million PPP loan forgiven in 2021. The college reported 1,453 employees on its Form 990, an IRS financial disclosure for nonprofits. A spokesman for the university said that the school had 424 F.T.E in 2020, a figure it used for its PPP loan.
Several other schools on Gordon’s list, including the University of St. Francis in Fort Wayne, Ind.; Houston Christian University; and Vanguard University in Costa Mesa, Calif. — all schools with religious ties — either declined to comment or did not respond to requests for comment, as did Wheaton College, a secular school in Norton, Mass.
Drew University in Madison, N.J., a school with Methodist ties, reported 471 employees on its PPP loan applications, which a school spokesperson said was an actual headcount. Trevecca Nazarene University, which reported 461 employees, also used an actual headcount, according to a school spokesperson. Those schools reported higher employee counts on their 990s, which included student employees and adjuncts.
Gordon’s lawsuit also highlights the case of Husson University in Bangor, Maine, which also used an F.T.E. count, according to court documents, and had its forgiveness request turned down. That decision was reversed during an SBA internal review, in part because the SBA had counted student workers as part of Husson’s total employees.
Husson is a key point in Gordon’s allegation that the SBA had violated its religious liberty, but last month, U.S. District Judge Beryl Howell of the U.S. District Court for the District of Columbia rejected that argument, saying Gordon had failed to prove any discrimination.
“The Establishment Clause is not offended simply because certain religious groups and organizations benefit from neutral government programs, especially where plaintiff fails to allege that it was excluded ‘solely because of religious status.’”
Despite losing its religious liberty claim, Gordon remains confident it will prevail in court.
“We believe that our remaining claims provide more than sufficient grounds for the Court to reverse the SBA’s denial of forgiveness,” Gordon told RNS.
From Religion News Service. May not be republished.
