No one really knows how to deal with this unprecedented coronavirus crisis that every one of us is going through. What is the right balance between lessening the health aspects and how many of us get sick, with the catastrophic repercussions of shutting down nearly all of our economy and having millions unemployed and small businesses not able to survive? As an elected official and a small-business owner, I have several perspectives. There are at least three issues right now that are going to be real problems if they are not addressed.
The first is that individuals who have either lost their job or have been laid off for a period of time. In the past four weeks, about 22 million people have lost jobs; that’s more than one person out of every 10. They have applied for unemployment from their respective states and generally will receive an additional $600 from the federal government as a supplement. Unemployment benefits are extended in most places for an additional 13 weeks for a total of 26 weeks’ worth of benefits. While this should replace most of their income, it will have long-term consequences. When the Federal government starts printing trillions of dollars, the repercussions of this amount of debt will be felt for years to come.
The second, as an alternative to a business laying off their employees, the Coronavirus Aid Relief and Economic Security Act, (CARES) includes U.S. Small Business Administration loans/grants to small businesses. There are two programs for which to apply. The Economic Injury Disaster Loan is a program of up to $10,000 of immediate cash. Unfortunately, because of the massive number of requests, it has taken much longer to distribute these funds. Something unexpected for small businesses also changed with the EIDL, and they have now limited the amount, so if you were expecting $10,000, you can only receive $1000 per employee.
The Paycheck Protection Program is a loan that might convert to a grant, if you use 75% of it for payroll. This program runs for eight weeks. This sounds like a good idea until you really dig into the requirements. A business pays its employees and can then use 25% of the loan amount for other fixed expenses like rent and utilities. Understanding that the intent of the program is to keep employees from having to file unemployment, what if payroll does not make up 75% of your expenses? This is problematic because for many businesses, it does not, so for them, the loan is a loan and will not be forgiven.
Where does that leave a small business trying to make the difficult decision of whether to incur the risk of taking out a loan that may not be forgiven, lay their employees off and let them collect unemployment or have no alternative but to close their business? Incidentally, it may be less beneficial for the employees, who could possibly get more than their regular weekly payroll once the additional $600 from the Federal government is added to their Maryland unemployment.
If the money received under either of the programs does ultimately turn into a loan, many retailers and restaurants won’t be able to make it up later in additional sales. It is simply lost revenue. Even if it is a 30-year long term, low interest loan, how can the government really expect them to pay it back? Another ongoing struggle is with commercial rent, which is one of the larger expenses that landlords expect to be paid. Many Governors have now included these leases in their emergency orders that businesses cannot be evicted for non-payment, but when those orders are lifted, rent will be required to be paid back per the terms of your lease. Deferring that expense, along with utilities is not truly helpful. It’s pay now or pay later, but bottom line is it lowers the bottom line. If there is even a bottom line left when this is all over.
On top of that, it was just announced that this very program has now run out of money. For those businesses for which it does make sense, they are out of luck right now. Until Congress acts, there are no more funds to keep their business going.
In my role as an elected official, a big concern is how to pay to keep government running at the local level. Billions of dollars have been set aside to go to the State and those jurisdictions with more than half a million people to pay for COVID-19 response expenses. However, that is not going to make up for lost revenues that we receive from income tax. Local government should run like a business and by law, we must have a balanced budget. If revenues decrease, then expenses must also decrease, or we have to subsidize them by using our reserves (savings). Generally, this is a bad idea and should only be used in times of emergency, which this definitely is, but these funds will only stretch so far and only for a limited period of time.
One part of the CARES package that hasn’t been approved yet is aid to local government for lost revenues, not just COVID expenses. The National Governors Association and the National Association of Counties (NACo) are advocating for an additional $500 billion to flow down to state and local government. There are differences of opinion about this funding and some feel this could be used as a bailout to governments who have used poor judgment in how they spent the citizens money. However, this should not be the focus and any funding should simply be to reimburse at least a portion of what is lost in revenue, especially to the local governments. We, like small businesses who are closed or nearly out of business, did not make these decisions. How are we supposed to keep government running to provide the services that our citizens rely on?
And because so many individuals are unemployed, they won’t be paying as much in income taxes. They also aren’t spending as much money in general, so sales tax revenue will take a hit, which affects the State primarily. It also affects the small business with reduced sales, leading to being less profitable and possibly not being able to survive. This is a vicious circle that one problem just leads to the next. This is why it won’t end quickly and the long-term effects on individuals, small businesses and government revenues will continue.
Laura Price is 2nd Vice President on the Executive Board of Directors of MACo, Chair of Budget and Tax, Talbot’s legislative liaison and member of the Talbot County Council.