The Small Business Administration has proposed new rules that would permanently allow religious businesses to receive taxpayer-backed small-business loans, forcing the Biden administration into a politically sensitive debate that raises questions about separation of church and state.
If the rule were finalized, it would open up seven SBA loan programs to a range of religious-affiliated businesses, such as Christian publishers and for-profit schools affiliated with religious organizations. The new rule would also apply to tax-exempt, nonprofit places of worship, an SBA spokeswoman confirmed.
Outgoing SBA administrator Jovita Carranza characterized the regulation as an effort to give religious businesses the same rights as other businesses.
“America’s faith-based small businesses and organizations play a vital role in providing employment opportunities, products, and essential educational, training and youth social services that benefit both our local communities and the overall national economy,” Carranza said.
The proposed rule “would ensure that these businesses and organizations are not forced to choose between their faith and the SBA financial assistance that they need to continue serving the public and employing our neighbors,” she said.
The proposed rule still faces a lengthy approval process, starting with a public comment period ending Feb. 18. Even when that process concludes, it will fall to an SBA headed by Biden-appointed administrator Isabel Guzman, a former small-business owner who was SBA chief of staff in the Obama administration, to decide whether and how to move forward.
Even so, the last-minute regulation effectively forces the Biden administration into a thorny debate that is sure to elicit strong feelings within religious communities that have seen barriers to public funding as a violation of their First Amendment rights to religious expression and freedom. Conversely, it will also stir activism among those who will see the subsidies as a threat to the First Amendment’s ban on government-established religion. The Supreme Court has said the government is banned from favoring one religious view over another or favoring religion over nonreligion.
The regulation mirrors a separate policy from the Education Department that would make religious-affiliated charter schools eligible for certain grant programs.
Both proposals rely heavily on two recent Supreme Court decisions, from 2017 and 2020, that determined that religious organizations should not be excluded from government programs solely on the basis of their status as a religious group.
John Inazu, a professor of law and religion at Washington University in St. Louis, said the Supreme Court has been gradually lessening restrictions on funding for religious organizations over the past decade. But he added that the Trump administration used an “aggressive” interpretation of recent court decisions and pushed new policies favored by religious conservatives.
“The Trump administration has been signaling these kinds of policy moves as an appeal to evangelicals,” Inazu said.
The new SBA regulation would also institutionalize a key aspect of the Paycheck Protection Program, a massive coronavirus relief program that offered well over $500 billion in loans to a range of business and nonprofits.
The Treasury Department under Trump waived the religious-affiliation rules when it implemented the PPP, allowing not only religious-affiliated businesses but also churches to receive help.
Churches, mosques and other faith-based organizations have benefited widely from SBA loans as the PPP has been implemented over the past year. All told, more than $7 billion went to roughly 90,000 religious organizations through the program last year.
At least 5,000 Catholic organizations received a total of $828 million through the PPP, about 13 percent of it going to Catholic schools, according to a Washington Post analysis of data made public by the SBA. At least, 10,000 Baptist organizations received PPP loans, for a total of $735 million. Jewish organizations received at least $124 million, and Muslim-affiliated groups received at least $20 million.
Some megachurches and large Catholic organizations received multimillion-dollar loans individually. Harvest Christian Fellowship Church in Riverside, Calif., received $2.9 million to pay several hundred employees. In a typical year, Harvest Riverside employs about 370 people, including pastors, teachers, video production staffers, maintenance workers and phone counselors.
In an email forwarded by a representative, Harvest Riverside pastor John Collins praised the SBA’s support of religious organizations, which he said helped avert “a more severe pandemic of despair and hopelessness” throughout the coronavirus crisis.
“I think our politicians — Democrats and Republicans — ought to be very proud that they were able to create such an unprecedented program,” Collins said. “I also am grateful they recognized the indispensable role that faith based, not-for-profit organizations and places of worship have in serving their communities during a crisis.”
Alyssa Fowers and Andrew Van Dam contributed to this report.