TDAs Eligible for PPPs

Published for Coates' Canons on March 17, 2021.

Translation: Tourism Development Authorities Now Authorized to Borrow Money Through the Federal Paycheck Protection Program

A Tourism Development Authority (TDA) is a local government entity that is typically created by a county or municipality to administer and expend local occupancy tax proceeds to promote tourism in the local government or region. There is no general law authority to create a TDA. Instead, that authority has been given to several counties and municipalities through local acts, almost always in conjunction with the authorization of a local occupancy tax. A TDA is a separate legal entity from the county or municipality that established it, although it may be reported as a component unit of the local government for financial reporting purposes. Although the general purpose of TDAs across the state is the same, the specific powers and authorities of individual TDAs vary and are prescribed by the respective local acts that authorize their creation.

As discussed in a previous post, TDAs may not borrow money, because that authority may not be conferred by the General Assembly by local act. The NC Constitution requires the General Assembly to authorize a local government entity to borrow money only through a general law enactment. (A general law is defined in Sect. 3 of Art. XIV of the NC Constitution.) The lack of borrowing authority presented a difficulty for TDAs looking to take advantage of a COVID-19 related federal stimulus program, known popularly as the Paycheck Protection Program or PPP. The General Assembly recently enacted a general law granting TDAs borrowing authority for the limited purpose of applying for PPP loans. See Section 2.19 of S.L. 2021-3, effective March 11, 2021.

Federal PPP Loans

The Economic Aid Act to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Title III) of the Consolidated Appropriations Act, 2021, P.L. 116-260 (Economic Aid Act), signed into law on December 27, 2020, expanded the previously established federal Paycheck Protection Program eligibility to certain Destination Marketing Organizations (DMO). Significantly, a DMO is defined to include NC TDAs. That means that at least some NC TDAs may be eligible to receive these federal loans. (Note that there are other eligibility requirements for a DMO to receive a PPP loan. For information on the implementation of the expanded PPP, eligibility requirements, and deadlines see the US Small Business Administration: Department of the US Treasury Interim Final Rule. Additional guidance is also available on the US Department of the Treasury’s website.) But TDAs needed state law authority to borrow money in order to participate.

State Law Authority for TDAs to Enter into PPP Loans

The General Assembly responded by granting general law borrowing authority to all TDAs for the limited purpose of participating in the PPP loan program.

To give this authority, the General Assembly enacted new, parallel Articles in Chapter 160A (for TDAs established by municipalities) and Chapter 153A (for TDAs established by counties), that explicitly allow a TDA to enter into a PPP loan and to comply with all of the requirements and limitations of the federal loan program. The state law also directs the TDA to apply for loan forgiveness in a timely manner, as authorized by the PPP. A TDA does not need permission from its establishing local government to participate in the PPP, but it must provide written notice to the municipality or county within 30 days of accepting a PPP loan. The TDA may not in any way obligate the State, municipality, or county to repay a PPP loan or otherwise pledge the credit of the State or a local government. The law envisions that most, if not all, TDAs will qualify for full loan forgiveness according to the federal program parameters. However, if a TDA must repay any portion of the loan, the new law authorizes the TDA to make those payments from occupancy tax proceeds remitted to the TDA on or after receipt of the PPP loan proceeds.

The state law authority sunsets on January 1, 2022.

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Topics - Local and State Government