When it was approved, the federal Paycheck Protection Program was billed as a lifeline for drowning small businesses in need of an infusion of cash to prevent layoffs amid the COVID-19 pandemic.
But data released this week by the federal government detailing the program’s recipients revealed an unexpected group collecting some of the biggest loans offered by the subsidy: elite private schools.
In Maryland, nearly 200 schools have received loans so far from the more than $600 billion program — about a third of them for amounts upward of $1 million. The loans, which don’t need to be paid back if a certain portion is spent on payroll, total at least $110 million. (The exact sum is not known because the recipients were listed with ranges of loans, not by specific amounts.)
McDonogh School, a coed preparatory school on a sprawling campus in Owings Mills, received the largest of the loans to schools in Maryland. Federal officials awarded $5.75 million to the school, which Dave Farace, McDonogh’s head of school, said would be used to support staff.
“We are extremely grateful to have qualified for a PPP loan,” Farace said in a statement. “The loan proceeds, which were based on the [Small Business Administration] formula, have enabled us to retain and support all of our valued employees in the midst of financial pressures that include declining revenue sources, increased demand for financial aid, and unexpected costs related to operating during the pandemic.”
Private schools like McDonough are funded by a combination of tuition revenue and endowment funds, a collection of donations made to the schools that grow via investment and are drawn on in small amounts. McDonogh’s endowment is about $74 million, according to its most recent filing with the Internal Revenue Service as a nonprofit organization from 2017.
In central Maryland, nearly all of the schools with the largest endowments accepted Paycheck Protection Program funding.
Gilman School in North Baltimore, an elite boys school with a $134 million endowment as of 2017, received $2 million to $5 million from the program. So did Roland Park Country School, the girls’ school across Roland Avenue, which had a $61 million endowment as of its last federal filing.
Also receiving loans in the $2 million to $5 million range were Boys’ Latin School of Maryland, Garrison Forest School, Bryn Mawr School for Girls, and Friends School of Baltimore, all of which had endowments between $33 million and $47 million, according to IRS filings.
Officials of the six schools did not respond to requests for comment.
Maryland state Sen. Paul Pinsky said he sees no reason for any private school, whether it has a sizable endowment or not, to accept Paycheck Protection Program funds. The schools are still operating, he argued, and tuition is still being paid, often to the tune of $15,000 to $25,000 per pupil.
“I don’t understand the profit loss here,” he said. “If there’s no loss, why should they get governmental support? It just doesn’t add up to me.”
Pinsky argued the schools should be saving money on expenses needed to maintain their properties as they offer distance learning.
The opposite is true, said Peter Baily, executive director of the Association of Independent Maryland & D.C. Schools. It represents 120 private schools in the region and assisted numerous area schools with their applications for the funds. He said the schools have maintained their buildings and grounds while drastically increasing their remote learning offerings, a change that comes with greater expense.
Faculty have remained employed and professional development costs have continued during the pandemic, Baily said, and “insofar as possible” member schools have also kept their custodians, kitchen staff and bus drivers on the payroll. Baily argued that continuity was critical to maintaining the sense of community the schools use to market themselves.
“Part of community life is the person who takes your order in the cafeteria knows your name. The person who drives your bus knows your name and probably your dog’s name,” he said. “Our schools wanted to retain and support their employees as much as possible.”
Private schools have also seen increased need for financial aid as parents of students find themselves in a more difficult economic position during the pandemic, Baily said.
While some schools do have large endowments, many do not, he said. And those that do often have restrictions on how the endowment can be spent, such as funds dedicated to a specific position or purpose. The principal of the endowment is frequently restricted. A school may spend only an average annual draw, which might be 3% or 4% of the fund’s value, Baily said.
Not every private school applied. The Calvert School, a private school in northern Baltimore that serves students through eighth grade, passed. Headmaster Andrew Holmgren said his board of trustees considered the option after seeing revenue losses from after-school care and summer camps the school would typically offer.
“Ultimately, our board decided it wasn’t meant for a school that had the access to resources that we have,” Holmgren said.
The Calvert School had a $59 million endowment as of its last available IRS filing from 2016.
Holmgren said his teaching staff for the coming year was secured by February with contracts, which he said is part of a schedule that’s standard for most private schools.
Baily confirmed that such a timetable exists, meaning teachers were not in danger of layoffs. They could have been furloughed, he said, but the more critical issue with staffing was hourly employees.
“Custodial staff, grounds and maintenance staff, kitchen staff, housekeeping staff — those employees are less likely to be on an annual employment agreement,” he said.
While accepting the funds may be viewed as distasteful, even by the administrators of the Paycheck Protection Program, it was legal. Schools that applied for the program and demonstrated revenue losses were approved.
Still, U.S. Treasury Secretary Steven Mnuchin, whose children attend a private school that accepted program funds, in May tweeted his disapproval. “It has come to our attention that some private schools with significant endowments have taken #PPP loans. They should return them,” he wrote.
Pinsky accused the Trump administration of pandering to working Americans by criticizing the payments to private schools while taking no action to stop them.
“I just think there’s a question of morality, unfortunately,” he said. “We don’t have laws on the books of the state limiting it or prohibiting it.”