News & Insights

Part 2 of 2

Music venues, motion picture theaters and museums decimated by COVID-19 restrictions received a boost last month when the American Rescue Plan Act of 2021 was signed into law by President Joe Biden. The new aid package includes $1.2 billion for closed museum and entertainment venues, with funds available through Dec. 31, 2021. Following is a brief summary of the new grant program, which is in addition to the Paycheck Protection Program created by Congress last March.

Shuttered

Venue Grants

Section 324 of the Consolidated Appropriation Act of 2021 signed by President Donald Trump on Dec. 27, 2020, set aside approximately $15 billion for live venue operators, promoters, theaters, performing arts organizations, museum operators and motion picture theaters. Applications have not yet been made available. That bill prohibited any entity that applied for a PPP loan after Dec. 27, 2020, for qualifying for a grant. The current PPP loan program is set to close by May 31, 2021, so now the American Rescue Act sets aside an additional $1.25 billion for grants and provides that if an applicant accepts a new PPP loan, any amount received under the grant program will be reduced by the amount of PPP loan received on or after Dec. 27, 2020. On March 18, 2021, the Small Business Administration confirmed that grant recipients are entitled to PPP loans.

Eligibility

There are six categories potentially qualifying for shuttered venue Grants:

1. A live venue operator or promoter;
2. A theatrical producer;
3. A live performing arts organization operator;
4. A “relevant” museum operator;
5. A talent representative; and
6. A motion picture theater operator.

The venues for live events must meet prescribed minimum professional criteria — including a defined performance space, equipment, staff, marketing and, except for charitable events, must pay artists “fairly.” Even museums must have at least one auditorium with seating and regular programming. Nonprofits can qualify, but their events must be managed primarily by paid employees.

Live Venue Operators and Promoters

A live venue operator or promoter, theatrical producer or live performing arts organization operator must, as its primary business activity, organize, promote, produce, manage or host live concerts, comedy shows, theatrical productions or other events by performing artists and, for such activity, apply a cover charge and pay performers by formal agreement. Either (i) at least 70% of the “earned revenue” of the “individual” or entity, if for live events, must be generated through cover charges or ticket sales, production fees or production reimbursements, nonprofit educational initiatives or the sale of event beverages, food or merchandise or (ii) the “individual” or entity, as a principal business activity, must make tickets available for purchase by the public an average of not less than 60 days before the date of the event.

Motion Picture Theater Operator

A motion picture theater operator must, as its principal business activity, own or operate at least one place of public accommodation for the purpose of motion picture exhibition for a fee.

Relevant Museum

A relevant museum is a “museum” as defined in Section 273 of the Museum and Library Services Act (20 U.S.C. 9172) and shall not operate as a for-profit entity. In that statute, “museum” is defined as “A public, tribal or private nonprofit agency or institution organized on a permanent basis for essentially educational, cultural heritage or aesthetic purposes, that utilizes a professional staff, owns or utilizes tangible objects, cares for the tangible objects and exhibits the tangible objects to the public on a regular basis. Such term includes museums that have tangible and digital collections and includes aquariums, arboretums, botanical gardens, art museums, children’s museums, general museums, historic houses and sites, history museums, nature centers, natural history and anthropology museums, planetariums, science and technology centers, specialized museums and zoological parks.”

Nonprofits

Except for relevant museums, which cannot be for-profit, qualifying grantees can operate for profit, be nonprofit or government owned. Nonprofit means federally tax-exempt under Section 501(c) of the Internal Revenue Code of 1986.

Grant Amounts

The amount of each grant for each eligible person or entity can be up to the lesser of

1. $10 million or
2. (i) if such person or entity was in operation as of Jan. 1, 2019, 45% of its “gross earned revenue” in 2019, or (ii) if such person or entity was not in operation until after Jan. 1, 2019, the amount equal to the average monthly “gross earned revenue” for each full month the grantee was in operation during 2019, multiplied by six.
   1. A relevant museum operator may not receive a grant that is more than $10 million with respect to all museums operated by that operator.
   2. The total amount of grants received by any eligible person or entity cannot be more than $10 million.
   3. Not more than five business entities of an eligible person or entity that would be considered affiliates under SBA affiliation rules may receive a grant. Each qualifying entity is treated as an “independent, non-affiliated entity.”

A grant applicant must also meet each of the following requirements:

1. The grantee was “fully operational” on Feb. 29, 2020;
2. The grantee’s “gross earned revenue” during a calendar quarter in 2020 fell by at least 25% from the same quarter in 2019;
3. The grantee has resumed or intends to resume its operations; and
4. The grantee must not itself be and (except for grantees owned by a state entity) must not be majority-owned or controlled by any of:
   1. a publicly traded company
   2. an entity that received more than 10% of its “gross revenue” from Federal Funding in 2019, excluding grants received under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (42 U.S.C. 5121 et seq.)
   3. an entity that has more than two of the following characteristics:
      1. Owns or operates businesses in more than one country
      2. Owns or operates venues or businesses in more than 10 states
      3. Employed more than 500 FTEs as of Feb. 29, 2020
      4. Has received a PPP loan on or after Dec. 27, 2020

Eligible Expenses

Grants may be used towards the following expenses:

1. Certain payroll costs;
2. Payments of rent, covered utilities, scheduled interest or principal on any covered mortgage obligation (excluding any prepayment of principal), scheduled interest or principal on any indebtedness or debt instrument (excluding any prepayment of principal) incurred in the ordinary course of business before Feb. 15, 2020;
3. Worker protection expenditures;
4. Payments made to independent contractors (not exceeding a total of $100,000 in annual compensation for any individual employee of an independent contractor);
5. Other ordinary and necessary business expenses, including maintenance expenses, administrative costs, state and local taxes and fees, operating leases in effect as of Feb. 15, 2020;
6. Payments for insurance; and
7. Grants may also be used, but not primarily used, for advertising, production transportation and capital expenditures relating to producing a live performance or exhibition.

Prohibited Expenses

An eligible person or entity may not use grants for any of:

1. Purchase of real estate;
2. Payments of interest or principal on loans originated after Feb. 15, 2020;
3. Investing or loaning funds;
4. Contributions or expenditures to, or on behalf of, any political party, party committee or candidate for elective office; and
5. Any other use as may be prohibited by the SBA.

Use of Funds

Grants may be used for costs incurred during the period beginning on March 1, 2020, and ending on Dec. 31, 2021, or, if a supplemental grant is awarded, June 30, 2022. Any non-supplemental grant amounts that are not expended on or before one year after disbursement must be returned to the SBA or, if a supplemental grant is awarded, the period is 18 months.

Grant Priority

Grants will be disbursed in the following priority:

1. First-Priority Grants: During the initial 14-day period in which the SBA awards grants, only eligible grantees with a 90% or more loss in “revenue” during the nine-month period beginning on April 1, 2020, and ending on Dec. 31, 2020, in comparison to the same period in 2019, are eligible to receive funds.
2. Second-Priority Grants: During the 14 days immediately after the initial 14-day period, only eligible grantees with a 70% or more revenue loss during the same nine-month period, are eligible to receive funds. The term “revenue” for this and the initial 14 days excludes amounts received under the CARES Act.
3. General: The above priority grants cannot exceed 80% of the initial $15 billion appropriated under the act. After the first 28 days of disbursement, the SBA may award a grant to any eligible person or entity.

Documentation

A grantee must make a “good faith certification” that the “uncertainty of current economic conditions makes necessary a grant to support the ongoing operations” of the grantee. Under the act, the SBA is to “increase oversight” and may require an eligible person or entity that receives any grants to retain records that document compliance with the grant requirements, such as employment records for the four-year period following receipt of each grant and other relevant compliance records for the three-year period following the receipt of each grant.

Conclusion

With this new grant program — along with significant progress on the vaccine front — much needed help is on the way for both entertainment venues and museums shuttered closed as a result of the pandemic.

Phil Jelsma is a partner and chair of the tax practice team at Crosbie Gliner Schiffman Southard & Swanson (CGS3) — a commercial real estate law firm. He is recognized as a leading joint venture and tax attorney with a 30-year background in real estate exchange transactions, syndications, nonprofit corporations and international tax planning. The full article can be read in the Daily Journal and in the Daily Transcript (subscription required).

Missed Part 1? The first article in this series, addressing federal assistance available to the restaurant industry, can be read here or in the Daily Journal here and in the Daily Transcript here (subscription required).