Governors Announce Small Business Aid Alongside Restrictions

By: - November 25, 2020 12:00 am

A sign advertising retail space available for lease is shown in Seattle. Washington Gov. Jay Inslee and other Democratic governors have announced new business closures and restrictions, as well as new aid to keep businesses afloat as the pandemic drags on. Ted S. Warren/The Associated Press

In the past six weeks governors of both parties have approved hundreds of millions of dollars in aid for small businesses, nonprofits and renters struggling through the coronavirus pandemic and recession.

The recent announcements are partly due to a looming deadline: If states don’t allocate federal aid they received in March by the end of the year, they have to return unspent funds to the U.S. Treasury. Most of the spending that governors have announced is federal dollars.

But the surge in COVID-19 cases also is a cause for the new spending. Several Democratic governors have announced aid alongside public health orders that will limit business activity, drawing criticism from some GOP lawmakers and business officials.

The governors are hoping to keep the economy afloat while also slowing the alarming uptick in infections.

After ordering non-essential businesses to stop providing in-person services, New Mexico Democratic Gov. Michelle Lujan Grisham convened the legislature this week to discuss spending some $300 million in federal aid on unemployment benefits, housing assistance and grants to small businesses.

She said during a news conference that she doesn’t want to make a false choice between protecting the economy and saving lives. “I’m trying to get us back to a place where we choose both,” she said.

The Democratic governors of Minnesota, Oregon and Washington also freed up millions of dollars in federal aid in recent weeks to help businesses and workers, including those who may lose money under new public health restrictions.

And Colorado Democratic Gov. Jared Polis last week announced new restrictions as well as a plan to convene the Democratic-led legislature to discuss spending around $200 million of excess tax revenue on assistance for small businesses and renters, and funding for broadband expansion.

Republican governors also have begun to issue new public health orders, such as mask-wearing requirements, as COVID-19 cases skyrocket and hospitals fill with patients. But they’re less inclined than Democratic governors to pair business aid with business restrictions.

Republican lawmakers, business groups and libertarian economists say that by shutting down parts of the economy and then using aid to fill the gap, governors are trying to solve a problem of their own creation.

“They’re both causing the shock, and they’re intending to mitigate the effect,” said Peter Earle, an economist and writer at the American Institute for Economic Research, a Massachusetts-based free-market think tank that opposes restricting business activity.

Critics also say states—which, unlike the federal government, must balance their budgets—are unlikely to scrape together enough money from federal and state sources to sustain businesses while they can’t operate normally.

“Yes, having more funding will certainly help, but that funding is only for a couple of months,” said Loren Furman, senior vice president of state and federal relations for the Colorado Chamber of Commerce, of the aid Colorado lawmakers are planning.

House Speaker KC Becker, a Democrat, said in a phone interview that lawmakers expect Coloradans to need help in the coming weeks and months regardless of whether the state orders businesses to close.

“Coronavirus is on the rise, and that’s going to prevent people from working—from businesses getting as much business,” she said. “It’s just going to put a strain, in various ways, on people’s lives across the state.”

But Colorado Senate Minority Whip Paul Lundeen, a Republican, said the state’s economic problems are “inextricably linked” to restrictive public health orders. “Public policy is causing other challenges that require more support from the state,” he said.

During the upcoming special session, Lundeen plans to propose a bill that would encourage opening schools and providing more aid to parents. He said GOP lawmakers also are drafting a bill that would help small businesses compete with big-box stores, including assurance that small businesses don’t face tougher COVID-19 rules.

The U.S. slipped into a recession in February, and economic output plummeted after governors imposed stay-at-home orders in March and April. But as those restrictions began to lift, business activity began to recover.

It helped that in March Congress boosted worker income and business cash reserves with trillions of dollars in emergency aid, including $659 billion in small-business loans. The Federal Reserve stabilized financial markets by slashing interest rates, among other actions to prevent the economy from going into a free fall.

Congress also gave states, counties and cities $150 billion to spend on coronavirus relief, money they’ve so far spent on everything from helping schools expand remote learning to holding down business taxes.

But the recovery is fragile, and potentially threatened by rising COVID-19 cases. Federal Reserve Chair Jerome Powell, who has long called for additional federal aid, told an association of economists last month that it would be better for Congress to do too much to support the economy than too little.

“There is a risk that the rapid initial gains from reopening may transition to a longer than expected slog back to full recovery,” Powell said, “as some segments struggle with the pandemic’s continued fallout.”

Governors from both parties say more must be done to help businesses, particularly small businesses such as mom-and-pop shops, that have been hit hard by the pandemic. They’re frustrated that Congress hasn’t stepped in with more assistance.

“The failure of Washington to provide additional stimulus relief for our small businesses, struggling families, and to the states for economic recovery is having a devastating impact,” Maryland Gov. Larry Hogan, a Republican, said during a news conference in late October.

States still have federal aid dollars left to spend, although it’s unclear exactly how much, said Emily Maher, a policy associate for the National Conference of State Legislatures, a Denver-based group that advises state lawmakers.

Governors and legislatures in many states decided to parcel out the money in stages, to respond to evolving needs on the ground, she said. There also were delays throughout the year as states waited for the U.S. Treasury to clarify how the money can be spent.

Hogan and several other Republican governors announced new economic relief packages last month, paid for with a mix of state and federal dollars, without imposing new restrictions on business activity.

Hogan said he was pulling $250 million from Maryland’s rainy day fund to help businesses, workers and arts organizations. Massachusetts Gov. Charlie Baker announced $774 million in aid for businesses and renters, although some of the money must be approved by the legislature. And Ohio Gov. Mike DeWine announced plans to spend some $420 million on small business grants, housing assistance and aid for certain hospitals and colleges.

The Ohio package will be funded with federal aid dollars and was announced with an eye on the looming deadline for spending that money, Daniel Tierney, DeWine’s press secretary, said in an email to Stateline.

Democratic governors who have paired business restrictions and new aid have faced pushback from Republican lawmakers and business groups.

Oregon Gov. Kate Brown, for instance, said last week she would restrict restaurants to take-out orders, set limits on social gatherings and close businesses such as gyms, pools and museums. She also announced plans to spend $55 million in federal relief dollars on aid for businesses, including those hurt by the latest restrictions.

The new aid didn’t mollify the Oregon Restaurant & Lodging Association, a business group that immediately sued to block Brown’s public health order.

Brown’s office “generally doesn’t comment on active litigation,” said Liz Merah, Brown’s press secretary, in an email. She pointed Stateline to the $55 million aid announcement.

In both Oregon and Colorado, business groups say restrictions on restaurant, bar and store operations are unfair, as many people are catching COVID-19 from friends and family at home.

“They want to be able to stay open,” Furman of the Colorado Chamber of Commerce said of business owners. “And I think they’re very frustrated because they’re getting targeted for these kinds of restrictions.”

Left-leaning economists say that surging COVID-19 cases will hurt the economy no matter what, as many people will limit their activities and spending to avoid getting sick even without government mandates. From that point of view, there’s less of a conflict between controlling the spread of the virus and protecting the economy.

“That’s not the trade-off we should be worried about,” said Heather Boushey, president and CEO of the Washington Center for Equitable Growth, a left-leaning think tank in Washington, D.C. She said policymakers should treat the pandemic like a natural disaster and pair measures that will save lives with aid to help businesses and families.

Many governors who ordered residents to stay at home in the spring, including Polis and DeWine, have said they’re not going to do it again because they don’t want to bring economic activity to a halt.

But a new federal relief package could change those calculations. Polis and other Colorado lawmakers have said it would be easier for them to announce public health restrictions if Congress were to approve new aid.

“It’s unfair to ask people not to be able to pay rent and put food on the table,” Polis told the Denver Post. “That’s not a reasonable ask of Coloradans.”

Read Stateline coverage of the latest state action on coronavirus

Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our web site. Please see our republishing guidelines for use of photos and graphics.

Sophie Quinton

Sophie Quinton writes about fiscal and economic policy for Stateline. Previously, she wrote for National Journal.