November 16, 2023
Case Study: How the Mackinac Center Exposed PPP Fraud in Michigan
There are some things that—no matter the explanation—are just wrong.
When an organization doesn’t need the money, it’s simply wrong to take millions in government loans meant for small businesses.
But that’s what the Michigan Education Association (MEA) did.
In 2020, at the height of the COVID-19 pandemic, the MEA took over $6 million in Payment Protection Program (PPP) loans. It’s partner health insurance organization, MESSA, took an additional $6 million. When the MEA took these loans, they had tens of millions in their cash reserves and were receiving regular dues payments from Michigan teachers.
So instead of $12 million in PPP funds going to Michigan businesses struggling to stay afloat, it went to a union flush with cash.
When the Mackinac Center for Public Policy uncovered this, they knew it was just wrong. And they set out on a 2+ year battle to make it right.
In March 2020, the federal government passed The Coronavirus Aid, Relief, and Economic Security (CARES) Act which included the Payment Protection Program. PPP loans were intended to help small businesses and certain organizations get revenue to pay workers, rehire laid off workers, and keep their doors open. Only certain types of businesses were eligible for PPP loans.
Labor unions were not.
Even at the height of COVID shutdowns, Michigan lawmakers never hinted at teacher layoffs or furloughs. But the MEA still cited “uncertainty” around COVID as justification for their $12 million from the PPP.
The average Michigan business that received PPP funds got $126,000. This meant the MEA was in the top 0.001% of PPP loan recipients in Michigan.
Michigan’s first round of PPP funds ran out in just three weeks.
When the PPP application window first opened, countless businesses bemoaned the confusing rules and application processes. However, as we’ve now seen, scam artists, unscrupulous corporations, and organizations with legal teams and political connections (like the MEA) were able to cut through the red tape and make off with millions. All at the expense of the businesses the PPP was intended to help.
In July 2020, the federal government released data on who received PPP loans. When reviewing the list, the Mackinac team discovered how the MEA illegally received millions in PPP loans.
Mackinac went to the MEA first. According to Real Clear Education, “[Mackinac] confronted the MEA with evidence of its legal violation, and the union falsely claimed it had returned the PPP funds—only to do so four days after being apprised of its infraction.”
After (unsurprisingly) getting nowhere with the MEA, in May 2021, Mackinac partnered with a trusted local law firm and informed the U.S. Attorney of the MEA’s violation of the Federal False Claims Act. The Mackinac team worked with the Department of Justice as they began an extensive investigation into the MEA’s illegal loan application. However, when it became clear that more decisive action was needed to hold the MEA accountable, Mackinac filed a lawsuit against the union on January 11, 2022.
The odds were stacked against Mackinac. The state’s Democratic administration has close ties with teachers unions, giving it little reason to punish an ally. The MEA is a major political powerhouse in Michigan, with over 90% of its political contributions going straight into the coffers of Democrats. Even the U.S. Attorney for the Western District of Michigan, who heard Mackinac’s case, was a former top official for Gov. Gretchen Whitmer, and received campaign contributions from the MEA when he previously ran for statewide office.
Yet the Mackinac Center prevailed for taxpayers. When faced with the clarity and magnitude of the claims against the MEA, the Biden administration and the MEA chose to settle instead of risking added humiliation of a jury trial. The MEA and MESSA had already paid back their (illegal) loans, so as punishment, the Department of Justice fined them $225,887 and they had to pay Mackinac’s attorneys’ fees. Mackinac received a finder’s fee from the federal government for exposing the fraudulent activity.
Thanks to Mackinac, the MEA’s illegal scheme was exposed, and they were forced to pay for their wrongdoing. But that “justice” will likely bring little relief for the workers who lost jobs or the businesses who were forced to close because they couldn’t receive PPP funds.
Regardless of how anyone feels about unions or education policy, the MEA took millions in PPP loans at a time when they didn’t need the money. Even though that money’s been paid back, the people and businesses it could have helped won’t ever be made whole. But thanks to Mackinac, organizations like the MEA willing to take advantage of programs like the PPP will continue to be exposed and—hopefully—fraud like this will stop.
For their work to expose fraud and hold the MEA accountable, the Mackinac Center won State Policy Network’s Bob Williams Awards for Outstanding Policy Achievement—in the “Best State Based Litigation” category.
