By Greg Ellison
PPP rules changed after board had applied for aid
(May 21, 2020) After sparking criticism in April for receiving $1.143 million through the federal Paycheck Protection Program, the OPA Board of Directors spent an hour in open session last Tuesday debating the merits of retaining the low or no-interest loan before voting 7-0 in closed session to keep it.
Subsequent to Congress passing the Coronavirus Aid, Relief and Economic Security Act on April 3, an initial sum of $349 billion in PPP funds were released through the Small Business Administration. Simultaneously, the OPA formed a workgroup to examine the loan application process,
Qualifying as a 501(c)(4) nonprofit, the OPA applied prior to the first round of federal assistance being depleted on April 16 and had funds deposited through loan processors the Bank of Ocean City on April 21. Since that time, the PPP rules were revised to exclude 501(c)(4) entities.
Under the PPP guidelines, loan amounts used for payroll costs are forgivable, as well as less than 25 percent of awarded sums for mortgage interest, rent, and utility costs incurred before Feb. 15 and paid over the eight-week period after loan receipt. Funding not qualifying for grant status becomes a two-year loan at 1 percent.
OPA President Doug Parks said the unanticipated PPP rules change prompted multiple conversations with tax attorneys with Lerch, Early & Brewer, in addition to representatives from the Bank of Ocean City who also consulted with federal officials.
“They confirmed with their contact at SBA,” he said. “If you were approved, the terms and conditions that were in place are the ones that take precedent.”
The closed session on May 12 was originally slated to examine ongoing economic impacts from the covid-19 pandemic and potential staffing ramifications for OPA employees.
Board member Frank Daly, who also withdrew a motion to authorize General Manager John Viola to apply for emergency aid at the county, state and federal during the current state of emergency in Maryland, expressed hesitancy to jump directly into closed session.
“I feel like the primary discussion is about the PPP loan, it’s not about staffing or layoffs,” he said.
Daly said OPA membership should be privy to the conversation, with board members Camilla Rogers and Tom Janasek backing that sentiment.
Taking a different slant was OPA Treasure Larry Perrone.
“The discussion and decision we’re going to make here are going to directly impact our employees,” he said.
Perrone said OPA leadership should vet the topic privately before sharing details in public.
“I don’t think it’s appropriate for us to have these discussions and then let the employees wonder what, in fact, is going to happen,” he said.
In agreement with Perrone was board member Dr. Colette Horn.
“It would be difficult for us to have a free-wheeling discussion in open session about the alternatives that we face and are going to undoubtedly directly impact employees,” she said.
Horn said in lieu of stifling the conversation the result could be shared after closed session.
“I think transparency can come at the end of the meeting [when] we can fully disclose to the membership the decision we’ve made and the rationale,” she said.
While expressing mixed sentiments, Daly noted revenue and expense issues should be a public matter.
“In open session we should discuss … the reason that we applied for the loans for any shortfall that we see,” he said.
Still, Daly also concurred that debating the merits of accepting the loan in closed session would allow a more robust process.
“Depending on which way we go, we might get into some personnel issues that merit a closed session,” he said.
Parks, while noting Maryland HOA laws allow personnel issues to be handled in closed session, agreed that fiscal issues should be open.
“We should provide a financial update to avoid any suspicion or misinformation regarding the process,” he said.
Parks also said conversations about pending personnel decisions are still hypothetical.
“The decision now is keep or return the money,” he said. “There’s a lot of what-if scenarios in there, which include staffing, [that] I will not discuss in public.”
Janasek questioned the need to examine personnel matters behind the scenes.
“There’s not an employee in America that’s not worried about losing their job,” he said. “I thought our discussion was going to be whether we are legally bound to keep or return the money.”
Parks said, short of further changes, the legality of keeping the PPP funds is not in question.
“It’s not a money grab, it’s a business decision on how we can run our operations,” he said.
Despite having reservations that future federal guidelines could be enacted retroactively, Janasek agreed the loan process was legitimate.
“There is no question in my mind that we did everything correct and above board,” he said.
Janasek said the funding would be needed to help maintain payroll.
“We may need to raise assessments next year even with the money,” he said.
Horn said one criticism leveled at the OPA regarding the PPP application was the idea that reserve funds could be tapped into to cover shortfalls.
Parks said both the capital and replacement reserve accounts are designated for specific uses under the OPA bylaws.
“It’s not an operational reserve, it’s not a rainy day fund, [and] it’s not a slush fund,” he said. “We’re required to carry a reserve fund to protect the assets that we have here in Ocean Pines.”
Parks said although the board can decide to appropriate reserve account balances for other expenses by a super majority vote, that option is frowned upon.
“The concept of us having millions of dollars sitting in the bank … gathering interest and waiting for a rainy day is inaccurate at best,” he said.
Perrone said the replacement reserve account is projected to be $3.2 million at the end of April to close the OPA fiscal year, while also noting some reserve funds are already being redirected to compensate for earlier deficits.
“We’ve been paying off a deficit of $1.6 million over last couple years from the prior acting general manager [Brett Hill],” he said. “We still have a deficit of about $650,000.”
Perrone said to further muddy the financial picture, after granting a 90-day extension for annual assessment fees due May 1 following the covid-19 pandemic, despite netting $5.4 million to this point, about $4 million remains unpaid.
“As of today we’ve received about 60 percent of assessment dollars,” he said. “Our projection is that we could be looking at a deficit by July 1 of about $500,000.”
Perrone said the challenge is reaching the best educated guess regarding future lost revenue to guide the decision on retaining PPP funding.
“I’m sitting here looking at … numbers that are based on the best set of assumptions that we could throw together,” he said.
Daly, noting the budget process is typically undertaken in January and early February based on prior year numbers, said the current health emergency has thrown normalcy askew.
“We went from one of the best economies in our lifetime … to a Depression-level economy in 90 days,” he said.