Covid-19’s ‘Monumental’ Effects on Small Businesses: A Q&A with Urban Scholar Rachel Meltzer

 
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An Associate Professor of Urban Policy, Meltzer chairs the MS Public and Urban Policy program at The New School’s Milano School of Policy, Management, and Environment. Her research is broadly concerned with urban economies and how market and policy forces can shape disparate outcomes across neighborhoods. Recently, she has studied how market-based, natural disaster, and policy “shocks” impact neighborhood retail and commercial activity.

Urban Matters: There are almost a quarter-million businesses with fewer than 100 employees in New York City, spanning a broad range of the economy: manufacturing, construction, retailing, services, entertainment, and so on. Which are in the best shape today, and which are in the worst?

Rachel Meltzer: First, I think it’s important to emphasize that running and sustaining a small business in “normal” times is incredibly challenging; there are not many systems in place to support them in weathering even minor bumps. So, this disruption from Covid is truly monumental and will no doubt make it impossible for many businesses to stay open. While we won’t know the full impacts for some time, some estimates expect 60 percent of business closures now will be permanent. Therefore, even those that are faring relatively better or are getting by are likely still struggling.

The businesses, however, that are being hit particularly hard are those without the ability to adapt to a new reality where people are more fearful about going out, occupancy of spaces is limited, and lingering in a space with others for longer periods of time is unsafe. These circumstances don’t hit all types of businesses the same. Those that can move to online operations or services will fare better. Those with business models that rely on in-person patronage and gathering are struggling much more. Therefore, the hospitality, leisure, restaurant, and particular service sectors are being hit the hardest (these are also, by the way, sectors with a predominance of small businesses). Retailers that can pivot online will buffer some of the blow, but that’s a big feat if the business model until now was entirely locationally bound. Retailers that provide neighborhood services, like groceries or pharmacies, might be faring OK, since lifestyles are more localized now.

Geography also matters. Areas of the city with large concentrations of office workers, like Midtown Manhattan, have emptied out. This has had severe impacts on the businesses that rely on those customers for their livelihood. It is going to be very hard for these kinds of enterprises to adjust, when their business model was based on the in-person patronage of workers that largely commuted in. And the volume of those workers might never return to what it was pre-Covid.

UM: The principal Federal program intended to relieve small businesses during the pandemic has been the Paycheck Protection Program (PPP). It was supposed to help them meet payrolls and cover utility bills, rent, and other expenses. How well has it worked in New York City? Critics said it failed to reach a lot of hard-hit minority- and women-owned businesses; is that accurate?

Meltzer: It appears to have helped. But it’s hard to tease out PPP’s effect from other auspicious features of the past few months – namely, the warmer weather and low Covid case rates. And, again, its utility likely varies by sector. The most vulnerable businesses, like restaurants and bars, were able to operate outside, helping to keep the money coming in. People were out and about, consuming services and buying things. This will likely change as the weather gets colder, and if cases continue to rise. We already see a tightening of restrictions with the recently imposed 10 pm curfews on bars and restaurants, which will cut into whatever gains in revenues these establishments had achieved over the past few months. However, some preliminary research has shown that much of what’s driving movement and behavior are voluntary decisions based on comfort or fear, rather than policies that restrict or encourage opening up. Therefore, if conditions continue to feel safe, consumers will be out patronizing businesses and increasing their chances of surviving.

Minority- and women-owned businesses are more vulnerable even in good times, due to a number of structural disadvantages (for example in the lending and capital markets that support the formation and running of businesses). Therefore, this crisis, with interruptions completely out of their control and insurmountable in the short run, will surely hit them harder. We also know that minority communities have been hit harder by the virus; if small, minority-owned businesses are located in or tend to serve those communities, they will feel the disruption disproportionately more than other businesses as well.

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UM: How about other government programs? What do you make of the City’s new “open storefronts” program, which seems designed to support neighborhood retailers during the holiday shopping season? What about the State’s “forward loan fund” for helping businesses that are reopening? Should State and local government be doing anything else? And the Federal PPP expired on June 30th; what should follow-up help look like?

Meltzer: The open storefronts program and other regulatory reliefs are welcome and can make a difference at the margin. These are initiatives that should continue beyond Covid, as they make it easier and less costly for businesses to operate. However, with the winter months coming and the persistent threat of the virus, the only thing that will really save these small businesses is some kind of financial bailout. The forward loan fund and PPP are in this spirit. Businesses are struggling due to no fault of their own and they simply need revenue replacement until the crisis is over and they can resume regular business. Some have suggested paying high-exposure businesses to stay closed during the winter months, to both avoid the health repercussions of gathering there and keep them solvent. As long as these programs do not create unnecessary administrative burdens or capital requirements on the businesses, they can only help. However, the amount of funds that are needed to make an impact can only come from the Federal government. Local and State governments cannot absorb this cost without Federal aid.

Next Week: We discuss commercial rent regulation, property tax relief for small business landlords, the outlook for starting new small businesses, and more.


Photos by Allan Bealy.