Don’t Overlook the COVID Lifeline for Cultural Organizations

 

With all of the uncertainty recently regarding the extension of unemployment benefits, more PPP loans for businesses and a possible government shutdown while the COVID vaccine would need to be distributed, it would have been easy to miss the myriad other provisions in the 5,593 pages of the stimulus bill that was signed by the president on December 27, 2020.  One significant provision that is likely to be overlooked is the authorization for COVID-related grants to “shuttered venue operators” (“Cultural Grants”)In contrast to the many provisions of the stimulus bill that have nothing to do with the pandemic (e.g., the tax benefits for NASCAR racetracks), the Cultural Grants are intended to provide a lifeline to the many cultural institutions that have been struggling to hang on since most of the United States banned group activities in March 2020.

The organizations that are eligible for Cultural Grants are broadly defined to include “a live venue operator or promoter, theatrical producer, or live performing arts organization operator, a relevant museum operator, a motion picture theatre operator, or a talent representative,” subject to certain conditions.  Although the focus appears to be on live entertainment, museums and movie theatres also made the list, along with the talent agents who book live entertainment events.  (For simplicity, this post focuses on organizations but it is worth noting that the grants cover individuals as well.) In order to participate, an eligible organization must have operated during 2019, have suffered a significant decline in revenues in 2020 and also intend to reopen after the pandemic.

The Cultural Grants are divided into initial grants and supplemental grants.  The initial grant for an eligible organization is equal to the lesser of (1) 45% of its gross earned revenue for 2019 or (2) $10 million.  There is a proration formula if an organization operated for only part of 2019.  An organization receiving an initial grant can also receive a supplemental grant equal to 50% of its initial grant if, as of April 1, 2021, the revenues of the organization for the most recent calendar quarter are not more than 30% of its revenues for the corresponding calendar quarter during 2019 due to the COVID-19 pandemic.

The initial grants must be used for costs incurred during the period from March 1, 2020 through Decem­ber 31, 2021, and supplemental grants must be used by June 30, 2022.  Recipients may spend the granted funds on a wide range of operating expenses, including payroll costs, rent, utilities, scheduled principal and interest payments on a mortgage obligation or other indebtedness, payments to independent contractors, maintenance, taxes, leases and “other ordinary and necessary business expenses.”

The Cultural Grants are not restricted to just those organizations that desperately need the additional funding.  There are no exclusions for organizations with large endowments or significant net income.  There is some attempt to limit the size of the for-profit organizations that are eligible by excluding any organization that has (or is controlled by another organization that has) securities listed on a national securities exchange.  That exclusion would probably exclude some of the large movie-theatre chains but not if the parent organization is a privately held company, such as Fidelity Investments, Wawa or Bloomberg.

The stimulus bill sets a priority for paying out Cultural Grants.  The first priority for payments in the first 14 days is eligible organizations whose revenue has declined at least 90% in 2020 relative to 2019.  Next, during the succeeding 14 days, the funds go to organizations whose revenue has declined at least 70% in 2020 relative to 2019.  Thereafter, the funds may be distributed to any eligible organization.

Many universities have multiple live-performance theatres and performing-arts companies, as well as museums.  However, it appears that most universities would not be eligible for Cultural Grants because the eligible organizations are limited to those for which “a principal business activity” is promoting live cultural events or serving as a museum.  In addition, a qualifying live venue operator must generate at least 70% of its earned revenue from events and related activities (or make available for purchase by the public not less than 60 days before events tickets to events or which performers are paid under certain contractual arrangements).

Pennsylvania has a lot of money that is available for the asking.  The website maintained by Cause IQ has comprehensive data for non-profit organizations based on the annual reports that they filed with the Internal Revenue Service.  (It is worth noting, however, that for-profit organizations may also qualify as eligible organizations for the Cultural Grants, so the data below understates the number of eligible organizations and revenues).

Here are several types of organizations in Pennsylvania that would likely qualify as live venue operators or museums along with the respective numbers of such organizations and their reported annual revenues:

Pennsylvania Data

Performing arts organizations (1,242)– $719,236,292

Museums (337)– $477,183,722

Theatres (283)– $135,922,296

Musical festival and event organizations (271)– $45,929,069

History Museums (180)– $119,101,106

It is not surprising that Philadelphia and Pittsburgh have many eligible organizations, but looking at Allentown’s information shows the money that may be available to smaller cities as well.  Here are the types of organizations used for the Pennsylvania data above along with the respective numbers of such organizations and their reported annual revenue:

Performing arts organizations (76)– $26,477,206

Museums (26)– $8,740,483

Theatres (20)– $7,372,619

Musical festival and event organizations (19)– $4,082,475

History Museums (17)– $2,435,900

It is tempting to multiply the revenue numbers by 45% (and then by 22.5% for supplemental grants) in order to calculate the maximum Cultural Grants that are available.  However, the new stimulus bill links the grants to “earned revenue,” and it unclear the extent to which the revenue numbers above would qualify.  Irrespective of the definition, there is a lot of money at stake.

The Small Business Administration will need to issue regulations to fill in any interpretative gaps (such as the definition of earned revenue) and explain the procedure for applying for Cultural Grants.  If you are affiliated in any way with an organization that may qualify for a Cultural Grant, you should encourage the management of the organization to consider applying for a grant as soon as possible.  Pennsylvania’s tenants and homeowners missed out on $108 million  of the CARES Act funds earlier this year because it was too difficult to access the funding, and it would obviously be unfortunate to repeat this with the opportunity to receive Cultural Grants.

 

Tom Sharbaugh, professor of practice at Penn State Law and director of the law school’s Entrepreneur Assistance Clinic, contributed this post. Tom acknowledges the heads-up on Cultural Grants from his brother, Charlie, a lawyer in Atlanta and a major participant in the arts community there.

 

 

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