States try to rescue small businesses as U.S. aid is snarled

With the economic recovery faltering and federal aid stalled in Washington, state governments are stepping in to try to help small businesses survive the pandemic winter.

The Colorado Legislature held a special session last week to pass an economic-aid package. Ohio is offering a new round of grants to restaurants, bars and other businesses affected by the pandemic. And in California, a new fund will use state money to backstop what could ultimately be hundreds of millions of dollars in private loans. Minnesota, among other states, led by both Republicans and Democrats, have announced or are considering similar measures.

But there is a limit to what states can do. The pandemic has ravaged budgets, driving up costs and eroding tax revenue. And unlike the federal government, most states cannot run budget deficits.

"From the jobs point of view and the economy point of view and the workers' point of view and small businesses, we've got to get that help from the federal government. That's the only place we can get it," said Gov. Mike DeWine of Ohio, a Republican.

Even if Congress reaches a deal, it could be weeks before money starts flowing. Many small businesses said they can't wait that long. A survey from the National Federation of Independent Business on Tuesday showed optimism falling and uncertainty rising as the nationwide surge in coronavirus cases leads governments to reimpose restrictions and consumers to pare their spending.

If that happens, it could be a disaster for both state economies and state budgets. Local businesses are major sources of tax revenue — both directly and through their employees — and major drivers of economic activity. If they fail in large numbers, it will slow the economic recovery once the pandemic is over.

"It becomes almost a death spiral if you can't keep these businesses running," said Tim Goodrich, executive director of state government relations for the National Federation of Independent Business.

Kirk Meurer was on track to have one of his best years ever in his business installing office furniture in the Cleveland area. But when companies began sending their workers home in the spring, his business dried up practically overnight.

"Even though we didn't have to shut down like the restaurants and bars and the travel industries, it didn't matter," he said. "The business wasn't there."

After some delays, Meurer got money through the federal Paycheck Protection Program, which he thought would be enough to sustain him until business rebounded. But as the pandemic dragged on and offices pushed back their reopening dates to the summer, then to the fall, then into next year, it became clear the company would need more help to survive.

"It's amazing how fast you can burn through money when you've got nothing coming in and all the overhead to maintain," Meurer said.

In recent weeks, his company, Modular Systems Technicians, received a $10,000 grant from a new state fund to help small businesses. He also got money under a program that refunded $8 billion from the state workers' compensation fund.

"It helped," Meurer he said. "It's not nearly enough, but they did what they could."

The money for the Ohio grant program, and from some other recent state-aid efforts, actually came from the federal government. As part of the $2.2 trillion coronavirus relief bill in the spring, Congress created a $150 billion fund that states could tap in responding to the virus. They were given wide latitude in using the money — as long as they did so before the end of the year.

As the pandemic has flared anew, however, it has become clear that the economic crisis will last well into next year, by which point the federal money will be gone, and state budgets will be unable to pick up the slack. So states are racing to use what's left of the coronavirus rescue package money to shore up their economies and build a buffer for the winter.

"I think they're terrified," said Joseph Parilla, a fellow at the Brookings Institution who has studied state responses to the pandemic. "If they're paying attention, they should be."