Paycheck Protection Program
The Ohio General Assembly is off and running in its new session. Many bills that affect agriculture in Ohio are already on the move. Here’s a summary of those that are gaining the most momentum or attention.
Tax Conformity Bill – S.B. 18 and H.B. 48. The Senate has already passed its version of this bill, which conforms our state tax code with recent changes to the Internal Revenue Code made in the latest COVID-19 stimulus provisions of the Consolidated Appropriations Act. Both the Senate and the House will also exempt forgiven Paycheck Protection Program second-draw loan proceeds from the Commercial Activity Tax. The Senate version additionally exempts Bureau of Workers Compensation dividend rebates from the Commercial Activity Tax beginning in 2020, but the House bill does not. Both bills include “emergency” language that would make the provisions effective in time for 2020 tax returns.
Beginning farmers tax credits – H.B. 95. A slightly different version of this bill is returning after not passing in the last legislative session. The bi-partisan bill aims to assist beginning farmers through several temporary income tax credits:
- Businesses that sell or rent agricultural assets such as land, animals, facilities or equipment to certified beginning farmers can receive a 5% income tax credit for sales, a 10% of gross rental income credit for cash rents, and 15% of gross rental income for share rents.
- Certified beginning farmers can receive an income tax credit equal to the cost of participating in a certified financial management program.
Beginning farmers, among other requirements, are those in or seeking entry into farming in Ohio within the last ten years who are not a partner, member or shareholder with the owner of the agricultural assets and who have a net worth of less than $800,000 in 2021, which adjusts for inflation in subsequent years. Beginning farmers must be certified by the Ohio Department of Agriculture or a land grant institution. The House Agriculture and Conservation Committee will discuss the bill at its meeting on February 16.
Wind and solar facilities – S.B. 52. In addition to revising setback and safety specifications for wind turbines, this proposal would amend Ohio township zoning law to establish a referendum process for large wind and solar facility certificates. The bill would require a person applying for a certificate for a large wind or solar facility to notify the township trustees and share details of the proposed facility. That notification sets up opportunities for the township trustees or residents of the township to object to the application and submit the proposed application to a vote of township residents. A certificate would not take effect unless approved by a majority of the voters. A first hearing on S.B. 52 will be held on Tuesday, February 16 before the Senate Energy and Public Utilities Committee.
Grants for broadband services – H.B. 2 and S.B. 8. The Senate passed its version of this bill last week, which sets up a $20 million competitive grant program for broadband providers to extend broadband services throughout the state. The proposal would also allow broadband providers to use electric cooperative easements and poles, subject to procedures and restrictions. The bill had its second hearing before the House Finance Committee last week.
Eminent domain – H.B. 63. Based on a similar bill that didn’t pass last session, this bill changes eminent domain law in regard to property taken for the use of recreational trails, which include public trails used for hiking, bicycling, horseback riding, ski touring, canoeing and other non-motorized recreational travel. H.B. 63 would allow a landowner to submit a written request asking a municipality or township to veto the use of eminent domain for a recreational trail within its borders. The bill would also allow a landowner to object to a use of eminent domain for any purpose at any time prior to a court order for the taking, rather than limiting that time period to ten days as in current law. The bill had its first hearing before the House Civil Justice Committee last week.
Minimum wage increases. S. B. 51 and H.B. 69. Bills on each side of the General Assembly propose gradually increasing the state minimum wage to $15, but have different paths for reaching that amount. S.B. 51 proposes increasing the wage to $12/hour in 2022, followed by $1/hour increases each year and reaching $15 by 2025, which is when a federal bill proposes to establish the $15 minimum wage. H.B. 69 begins at $10/hour in 2022 with $1/hour increases annually, reaching $15 in 2027. S.B. 51 was referred last week to the Workforce and Higher Education Committee and H.B. 69 was referred to the Commerce and Labor Committee.
Written by Ellen Essman and Peggy Hall
This edition of the Ag Law Harvest has a little bit of everything—Ohio and federal legislation responding to COVID issues, new USDA guidance on bioengineered foods, and a judicial review of Bayer’s Roundup settlement. Read on to learn about the legal issues currently affecting agriculture.
Ohio COVID-19 immunity bill stalls. While the Ohio House and Senate agree with the concept of immunity for COVID-19 transmissions, the two chambers don’t yet see eye-to-eye on the parameters for COVID-19 liability protection. H.B. 606, which we reported on here, has passed both the House and Senate, but the Senate added several amendments to the legislation. The House won’t be addressing those amendments soon because it’s in recess, and doesn’t plan to return for business until at least September 15. The primary point of disagreement between the two bills concerns whether there should be a rebuttable presumption for Bureau of Workers’ Compensation coverage that certain employees who contract COVID-19 contracted it while in the workplace. The Senate amendment change by the Senate concerns exemption from immunity for "intentional conduct," changed to "intentional misconduct.” Currently, there is not a plan for the House to consider the Senate’s amendments before September 15.
Lawmakers propose bill to avoid more backlogs at processing plants.
Most people are aware that the COVID-19 pandemic created a huge backlog and supply chain problem in U.S. meatpacking plants. A group of bipartisan representatives in the House recently proposed the
Requiring Assistance to Meat Processors for Upgrading Plants Act, or RAMP-UP Act. The bill would provide grants up to $100,000 to meat and poultry processing plants so the plants could make improvements in order to avoid the kind of problems caused by the pandemic in the future. The plants would have to provide their own matching funds for the improvements. You can find the bill here.
Revisiting the Paycheck Protection Program, again. In a refreshing display of non-partisanship, Congress passed legislation in late June to extend the Paycheck Protection Program (PPP). Employers who haven’t taken advantage of PPP now have until August 8, 2020 to apply for PPP funds to cover payroll and certain other expenses. Several senators also introduced the Paycheck Protection Program Small Business Forgiveness Act, a proposal to streamline an automatic approval process for forgiveness of PPP loans under $150,000, but there’s been little action on the bill to date. Meanwhile, the American Farm Bureau Federation is in discussion with the Senate on its proposal for other changes to PPP that would expand access to PPP for agriculture.
More clarification for bioengineered food disclosure. You may recall that the National Bioengineered Food Law was passed by Congress in 2016. The legislation tasked USDA with creating a national mandatory standard for disclosing bioengineered foods. The standard was implemented at the beginning of 2020, but USDA still needed to publish guidance on validating a refining process and selecting an acceptable testing method. On July 8, 2020, that guidance was published. The guidance provides steps for industry to take when validating a food refining process under the rule. A lot of food refining processes remove traces of modified genetic material. So, if a refining process is validated, there is no further need to test for bioengineered material to disclose. The guidance also contains instructions on testing methods. Basically, “any regulated entity that is using a food on the AMS List of Bioengineered Foods and does not want to include a bioengineered food disclosure because the food or ingredient is highly refined and does not include detectable modified genetic material” should follow these testing instructions. Therefore, any entity with highly refined foods that do “not include detectable modified genetic material” should follow the recently published guidance.
Bayer settlement proposal under scrutiny. Last month, Bayer, the owner of Roundup, announced that it would settle around 9,500 lawsuits related to alleged injuries caused by using the product. Not only was the proposal supposed to settle previous lawsuits, but it was also meant to address any future lawsuits stemming from purported injuries caused by Roundup. A judge from the United States District Court for the Northern District of California recently pumped the breaks on this plan, stating that any settlement that would resolve “all future claims” against Roundup must first be approved by the court. A hearing will be held on July 24, where the court will decide whether or not to “grant preliminary approval of the settlement.”
Written by Peggy Kirk Hall and Barry Ward, Leader, Production Business Management
Many farmers have utilized the CARES Act’s Paycheck Protection Program (PPP) to obtain federal funds to help with payroll and certain non-payroll expenses in the wake of COVID-19. As we’ve discussed on our Farm Office Live webinars here, Congress revised the PPP with the passage of the Paycheck Protection Program Flexibility Act earlier this month. As a result of the new legislation, the Small Business Administration released a series of Interim Final Rules (IFRs) and a new forgiveness application. The IFRs, available here, clarify certain points contained in the bill and provide revisions to previous IFRs. All of these changes affect how farmers can use the funds and how much of the funds can be forgiven from loan repayment requirements.
The new PPP provisions
- The “covered period” that applies to the issuance and use of PPP loan expenditures was to end on June 30, 2020, but the law now extends that date to December 31, 2020. This means that borrowers now have until December 31 to spend PPP loan proceeds.
- The “covered period” for loan forgiveness has also changed. Borrowers will now be able to have up to 24 weeks of costs forgiven and not subject to repayment. But borrowers who received loans prior to June 5, 2020 may choose to use the 8-week period provided in the original PPP. A borrower need not wait until the end of the covered period to apply for forgiveness if the borrower has expended the loan funds prior to the end of the covered period.
- The requirement that 75% of loan proceeds be used for payroll costs in order to receive full forgiveness has been reduced to 60%. This means that forgiveness is not applicable for any portion of non-payroll costs that exceed the 40% maximum for non-payroll. Under the original law, forgivable non-payroll costs could not exceed 25%.
- The amount eligible for forgiveness can equal the full loan amount plus accrued interest, and the IFR revises the eligible costs for both the 8-week and 24-week covered periods as follows:
- Payroll costs for 24 weeks at a maximum of $46,154 per employee and for 8-weeks at a maximum of $15,385 per employee, as well as benefits such as health care costs, state payroll taxes paid by the employer, and retirement contributions. Note that there are limitations to including health insurance contributions made on behalf of self-employed persons, general partners and owner-employees of S-corporations and to including employer retirement payments on behalf of self-employed persons or general partners.
- Owner compensation replacement is calculated according to 2019 net profit. The forgiveness limit for an 8-week covered period is 8/52 of the 2019 net profit, up to $15,385 and for a 24-week covered period, is restricted to two and a half months or 2.5/12 of 2019 net profit, up to $20,833.
- Mortgage interest, rent payments on lease agreements, and utility payment costs are eligible to the extent that they would be deductible as business mortgage, rent and utility payments on Form 1040 Schedule F or Schedule C. Note that although this language defines the forgivable portions of these non-payroll costs, such costs are not actually deductible if forgiven.
- Employers will have a longer period to rehire employees and restore salaries without reducing the forgiveness amount. This “safe harbor” date for rehiring employees is extended to December 31, 2020.
- An employer who isn’t able to rehire employees by the end of the “safe harbor” period may qualify for an exemption from a corresponding forgiveness reduction that would occur if the employer can document that:
- The employer is unable to rehire persons who were employees on February 15, 2020 or to rehire similarly qualified persons, or
- The employer is unable to return to the same level of business activity it was at before February 15 due to COVID-19 standards and requirements.
- For new loans taken out after June 5, loan proceeds that are not forgiven may be repaid in five years rather than two years. Loans prior to June 5 remain at a two-year repayment term, unless the lender agrees otherwise.
- Borrowers can defer repayment of the loan until the date that the lender receives the borrower’s forgiveness amount, or until 10 months from the end of the borrower’s forgiveness period if not applying for forgiveness.
- The original law prohibited borrowers from using the CARES Act provision that allows employers to defer payroll taxes once they received loan forgiveness, but the new law allows borrowers who receive forgiveness to also defer payroll taxes under the CARES Act.
The forgiveness application and process
A new forgiveness application was also released to correspond with the changes in the new PPP Flexibility Act. As laid out in the application instructions, borrowers are eligible to use a shorter “EZ application” for loan forgiveness if they meet one of these criteria:
- Borrower is self-employed and has no employees or
- Borrower didn’t reduce salaries or wages for employees by more than 25% and didn’t reduce numbers or hours of employees or
- Borrower experienced reductions in business activity as the result of health directives related to COVID-19 and did not reduce salaries or wages of employees by more than 25%.
The forgiveness process could take up to five months. It begins with a borrower submitting the application to the lender that provided the loan, who will have 60 days to review the application and send the approved application on to the SBA. The SBA will have up to 90 days to review the application, confirm the amount to be forgiven and remit to the lender the forgivable amount and any accrued interest, less any advance payments made to the borrower under the Economic Injury Disaster Loan program.
Despite the recent changes to PPP, several gray areas and uncertainties remain, such as:
- PPP Loans received prior to June 5, 2020 allow the borrower to choose between an 8 week and a 24 week covered period. Farmers with a loan based on owner compensation replacement and no employees will likely benefit from choosing the 24 week covered period to meet the criteria for full loan forgiveness. One possible downside with choosing the 24 week covered period might be further rule changes that might be unfavorable to the borrower, although this is unlikely. There is still uncertainty as to whether a self-employed person needs to write a check to themselves to qualify for forgiveness based on the owner compensation replacement portion of the PPP Loan. The safe alternative would be to write this check even if the check is deposited back into the same account.
- According to some sources there is ongoing discussion regarding legislation that would grant forgiveness to all PPP loans under $150,000. This discussion of a safe harbor based on the size of the PPP loan is apparently being advanced by certain banks.
We encourage employers who obtained a PPP loan to talk with their lenders and accountants to capitalize on and comply with the PPP changes and make decisions about the forgiveness options. For those who have not yet applied for a PPP loan, the deadline is soon approaching —applicants have until June 30, 2020 to apply for a loan.
Read more about the PPP’s original provisions in our blog post here.
Written by Ellen Essman and Peggy Kirk Hall
Many people are still working from home, but that hasn’t stopped legal activity in Washington, D.C. Bills have been proposed, federal rules are being finalized, and new lawsuits are in process. Here’s our gathering of the latest ag law news.
SBA posts Paycheck Protection Program (PPP) loan forgiveness application. We’ve been waiting to hear more about how and to what extent the SBA will forgive loans made under the CARES Act’s PPP that many farm businesses have utilized. The SBA recently posted the forgiveness application and instructions for applicants here. But there are still unanswered questions for agricultural applicants as well as talk in Congress about changing some of the forgiveness provisions, suggesting that loan recipients should sit tight rather than apply now. Watch for our future blog post and a discussion on the forgiveness provisions in our next Farm Office Live webinar.
House passes another COVID-19 relief bill. All predictions are that the bill will go nowhere in the Senate, but that didn’t stop the House from passing a $3 trillion COVID-19 relief package on May 15. The “HEROES Act” includes a number of provisions for agriculture, including an additional $16.5 billion in direct payments to producers of commodities, specialty crops and livestock, as well as funds for local agriculture markets, livestock depopulation losses, meat processing plants, expanded CRP, dairy production, other supply chain disruptions, and biofuel producers (discussed below). Read the bill here.
Proposed bipartisan bill designed to open cash market for cattle. Last week, Republican Senator Chuck Grassley and Democratic Senator Jon Tester introduced a bill that “would require large-scale meatpackers to increase the proportion of negotiable transactions that are cash, or ‘spot,’ to 50 percent of their total cattle purchases.” The senators hope this change would bring up formula prices and allow livestock producers to better negotiate prices and increase their profits. In addition, the sponsors claim ithe bill would provide more certainty to a sector hard hit by coronavirus. Livestock groups aren’t all in agreement about the proposal. You can read the bill here, Senator Grassley’s press release here and Senator Tester’s news release here.
New Senate and House bills want to reform the U.S. food system. Representative Ro Khanna from California has introduced the House companion bill to the Senate's Farm System Reform Act first introduced by Senator Cory Booker in January. The proposal intends to address underlying problems in the food system. The bill places an immediate moratorium on the creation or expansion of large concentrated animal feeding operations and requires such operations to cease by January 1, 2040. The proposal also claims to strengthen the Packers and Stockyards Act and requires country of origin labeling on beef, pork, and dairy products. The bill would also create new protections for livestock growers contracted by large meat companies, provide money for farmers to transition away from operating animal feeding facilities, strengthen the term “Product of the United States” to mean “derived from 1 or more animals exclusively born, raised, and slaughtered” in the U.S., and, similar to the Grassley/Tester bill above, require an increased percentage of meatpacker purchases to be “spot” transactions.
Lawmakers ask Trump to reimburse livestock producers through FEMA. In another move that seeks to help livestock producers affected by the pandemic, a bipartisan group of U.S. Representatives sent a letter to Donald Trump imploring him to issue national guidance to allow expenses of livestock depopulation and disposal to be reimbursed under FEMA's Public Assistance Program Category B. The lawmakers reason that FEMA has "been a valued Federal partner in responding to animal losses due to natural disasters," and that the COVID-19 epidemic should be treated "no differently." You can read the letter here.
More battling over biofuels. Attorneys General from Wyoming, Utah, Louisiana, Oklahoma, Texas, Arkansas and West Virginia have sent a request to EPA Administrator Andrew Wheeler to waive the Renewable Fuel Standard (RFS) because of COVID-19 impacts on the fuel economy. The letter states that reducing the national quantity of renewable fuel required would alleviate the regulatory cost of purchasing tradable credits for refiners, who use the credits to comply with biofuel-blending targets. Meanwhile, 70 mayors from across the U.S. wrote a letter urging the opposite, and criticizing any decisions not to uphold the RFS due to the impact that decision would have on local economies, farmers, workers, and families who depend on the biofuels industry. The House is also weighing in on the issue. In its recently passed HEROES Act, the House proposes a 45 cents per gallon direct payment to biofuel producers for fuels produced between Jan 1 and May 1, 2020 and a similar payment for those forced out of production during that time.
New USDA rule for genetically engineered crops. A final rule concerning genetically engineered organisms is set to be published this week. In the rule, USDA amends biotechnology regulations under the Plant Protection Act. Importantly, the new rule would exempt plants from regulation by the Animal and Plant Health Inspection Service (APHIS) if the plants are genetically engineered but the same outcome could have occurred using conventional breeding. For instance, gene deletions and simple genetic transfers from one compatible plant relative to another would be exempted. If new varieties of plants use a plant-trait mechanism of action combination that has been analyzed by APHIS, such plants would be exempt. You can read a draft of the final rule here.
Trump’s new WOTUS rule attacked from both sides of the spectrum. A few weeks ago, we wrote about the Trump Administration’s new “waters of the United States” or WOTUS rule. Well, it didn’t take too long for those who oppose the rule to make their voices heard. The New Mexico Cattle Growers Association (NMCGA) sued the administration, claiming that the new rule is still too strict and leaves cattle ranchers questioning whether waters on their land will be regulated. In their complaint, NMCGA argues that the new definition violates the Constitution, the Clean Water Act, and Supreme Court precedent. On the other side, the Natural Resources Defense Council (NRDC), along with other conservation groups, sued the administration, but argued that the new rule does not do enough to protect water and defines “WOTUS” too narrowly. Here we go again—will WOTUS ever truly be settled?
The Farm Office is Open! Join us for analysis of these and other legal and economic issues facing farmers in the Farm Office Team’s next session of “Farm Office Live” on Thursday, May 28 at 9:00 a.m. Go to this link to register in advance or to watch past recordings.
Economic relief measures in the CARES Act have proven difficult for farms, first due to confusion over which and how farmers qualify and also by soaring demand and depleted funding. But the recently enacted Paycheck Protection Program and Health Care Enhancement Act (HR 266) should help. The legislation injects more funds into both the Paycheck Protection Program (PPP) and Economic Injury Disaster Loans Program (EIDL) and clarifies that farmers can qualify for EIDL loans. The bill also came with a bonus: additional guidance from the USDA and SBA for farmers seeking to access the programs. Both programs are first-come, first-served, so farm businesses who haven’t applied for the funds should decide whether to do so right away.
Here’s how the new legislation affects agricultural businesses:
- Allocates another $310 billion for the PPP to provide payroll funding for eligible employers, which includes $60 billion in funding for smaller lending institutions working with PPP loan applicants.
- Doubles the EIDL program, adding another $10 billion to the SBA disaster loan program for eligible businesses.
- Clarifies that agricultural enterprises are eligible for EIDL loans.
Using the PPP: a few quick tips
The SBA will resume accepting applications for the PPP today. Information about the program is on SBA’s website, here. Generally, PPP gives loans of up to $10 million at 1% interest to keep employees employed, with a loan maturity of two years and generous forgiveness provisions.
Farm businesses, including cooperatives, with fewer than 500 employees or who fit within the definition of a “small business concern” may apply for a PPP loan through an approved lender. Lenders include local banks as well as agricultural lenders in the Farm Credit System. Farmers should talk first to the lenders with whom they ordinarily do business to see if the lenders are participating in the PPP. If not, SBA provides a lender locating tool here.
The PPP application is here. Employers may use the loan for payroll costs or owner compensation replacement, as well as for mortgage interest, rent, and utility payments and interest payment on other debts, but 75% of the expenditures must be for payroll costs. To determine the maximum loan amount, an employer must document and calculate aggregate payroll costs from the previous 12 months, from calendar year 2019, or from February to June of 2019 if a seasonal employer. The SBA provides assistance on how to calculate payroll costs, and finally addresses the requirements for self-employed farms who report income on Schedule F. Read the guidance here, and see question 3 if you’re reporting income on Schedule F.
Upon receiving a PPP loan, a lender will set up a separate account for the funds. Borrowers should carefully document loan expenditures. This is not only for compliance purposes, but also because the PPP loan program includes a forgiveness component that forgives an amount equal to the sum of eligible costs and payments made during the eight weeks following disbursement of loan funds. At least 75% of the amount forgiven has to be for payroll costs, and the amount may be reduced by reductions in total salary or wages. Borrowers will have to apply for forgiveness, and documentation of all expenditures will prove necessary to the forgiveness process. We’re awaiting additional guidance on the forgiveness provisions, so keep an eye out for more information on this important topic.
The EIDL program
Farm businesses and agricultural cooperatives with no more than 500 employees may also now apply for EIDL, which gives loans up to $2 million for businesses that suffer economic injuries due to COVID-19. Because the program ran out of funds, there is a backlog in EIDL applications and the SBA is not reopening the loan portal until it catches up with the backlog. If SBA does reopen the program, businesses apply directly through the SBA here.
Businesses may use an EIDL loan for fixed debt, payroll, accounts payable, and other operating expenses due to the pandemic, but can’t use the funds for the same purposes as the borrower’s PPP loan. The interest rate for EIDL is higher at 3.75% (2.75% for non-profits), but the term can be up to 30 years.
Important to note: EIDL also includes an “emergency advance” component that provides an employer up to $1,000 per employee or a maximum of $10,000 as a grant. A borrower doesn’t have to repay the advance, even if the borrower doesn’t ultimately qualify for a loan. But if the borrower also has a PPP loan, the PPP forgiveness is reduced by the $10,000 EIDL advance. The emergency advance can go towards paying sick leave, payroll, increased materials costs, rental or mortgage payments, or other obligations due to revenue losses, as long as the borrower hasn’t used PPP funds for those costs.
There's still more for farms to digest from the CARES Act. The Farm Office team is ready to help! Join us for "The Farm Office is Open" tonight at 8 p.m., when we'll discuss the CARES Act programs and other economic developments for agriculture. Register for the live webinar and access past webinar recordings here.