Published in Economic Development
Gov. Gretchen Whitmer Gov. Gretchen Whitmer COURTESY PHOTO

State, federal policymakers take action to keep businesses and workers afloat

BY Sunday, March 29, 2020 07:00pm

Gov. Gretchen Whitmer and federal lawmakers have taken a variety of steps to help businesses and employees navigate the short-term harm posed by the coronavirus. 

Economists say additional long-term measures should remain in focus to avoid a prolonged recession and widespread business closures.

After partisan disputes this past week over a federal stimulus package, largely over the way large corporations and small businesses and their employees are treated, the U.S. Senate unanimously agreed on a historic $2 trillion stimulus package on March 25. The U.S. House passed the bill on Friday, with President Trump signing it the same day.

President Trump had already signed into law the Families First Coronavirus Response Act, which includes requiring small companies to provide limited paid-leave benefits, paid for through federal tax credits and payroll-tax relief.

The latest stimulus in the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides nearly $1 trillion in business aid, including more than $500 billion in business loans, loan guarantees and investments from the U.S. Treasury Department and nearly $400 billion for small businesses. It also expands unemployment insurance, providing an extra $600 a week to jobless workers on top of state benefits. (Benefits in Michigan are capped at $362 a week.) 

The stimulus package also includes protections against foreclosures and evictions, offers direct payments to individuals and suspends student loan payments — all actions economists say will be important to avoid severe economic effects from the pandemic.

The latest federal effort comes after Whitmer, through executive orders, freed up additional loans for small businesses and expanded unemployment benefits and programs for workers.

“The things I want to avoid are business failures,” said Michigan State University Economist Charles Ballard. “If you go out of business, the whole web of connections with your suppliers, workers, customers — all of that is broken. You want to keep businesses afloat even if they only have one nostril above the water. If they do, they’ll be OK.”

Small business

The Senate bill includes three programs and more than $375 billion in programs for small businesses. While all three have different criteria, each loan program also has mechanisms that would turn them into grants that would not need to be repaid.

“A small business can’t incur any more debt today when they don’t know how they’ll survive in the future. They need immediate help,” Sen. Ben Cardin, D-Maryland, said during a Senate session last week. 

The first program provides more than $350 billion of payroll relief for small businesses with fewer than 500 employees. Companies can apply to receive a loan equal to two-and-a-half months of its average payroll to cover future payroll and certain other expenses such as rent and utility bills.    

The loans, administered under the U.S. Small Business Administration’s 7(a) loan program, would be forgiven “if you follow the rules” and maintain workforce levels during the pandemic, Cardin said.    

The program is designed to “give you the ability to keep afloat — and rebound,” Cardin said.

A second loan program, which is new, provides $10 billion for small businesses that need emergency disaster relief loans if they’ve been adversely affected by the pandemic. The program provides direct loans from the SBA of up to $10,000. 

The third loan program in the Senate agreement provides a total of $17 billion in relief for companies that have existing 7(a) loans or 504 loans through the SBA. The program allows small businesses to defer payments for up to six months.

Susan Houseman, vice president and director of research at the W.E. Upjohn Institute for Employment Research in Kalamazoo, said the small-business assistance will be crucial in preventing companies from closing.

“They have low margins, and closing for any period of time will potentially just put them over,” she said. “Here’s where states or the federal government could step in and provide assistance to them and possibly cover their loans to help them ride out this current crisis. If lots of small businesses close, that could make recovery much more difficult.”

For workers, the stimulus bill creates a new pandemic unemployment assistance program that extends benefits to people partially unemployed or for the self-employed, contractors and “gig economy” workers. Houseman said these are key sectors that don’t qualify for traditional unemployment benefits.

The federal benefits come after Whitmer expanded unemployment benefits in Michigan, encouraged companies to be flexible on paid sick leave and received a disaster declaration from the Small Business Administration, allowing businesses to qualify for emergency loans up to $2 million. On March 26, Whitmer also requested President Trump issue a major disaster declaration to free up additional resources. 

“These are all basic things available to deal with the short-term crisis,” Houseman said.

Next steps

Over the past two weeks, Upjohn Institute researchers have released a series of short- and long-term policy recommendations to avoid the worst economic effects from the coronavirus pandemic.

In the longer term, economists have promoted more participation in work sharing, which spreads reduced hours among more employees to avoid layoffs, and “labor hoarding,” which maintains payrolls even with decreased demand.

Upjohn Institute Senior Economist Tim Bartik wrote recently that a labor hoarding proposal, adapted from a previous proposal in 2009, “would be a 15 percent credit against employer payroll taxes for payroll that exceeded 90 percent of the employer’s payroll in the corresponding quarter the prior fiscal year. The proposal would go into effect in quarter 2 of 2020 (April through June), and apply through quarter 4 of 2020 (October through December).”

Bartik notes the incentive is a cheaper alternative to eliminating payroll taxes for the rest of the year.

“The goal of this proposal is to encourage more employers to keep their workers on their payroll, by lowering the costs of doing so, even if those workers are not immediately needed,” Bartik wrote. “The proposal also helps set a norm for employers that they should try if at all possible to keep their current workers employed. Norms matter to how businesses and workers make decisions.”

MSU’s Ballard said he is concerned about the long-term effects of running up a multi-trillion-dollar deficit, and how services in the state of Michigan would fare with decreased revenue. 

Federal stimulus funding for states and local governments “would go a long way to help Michigan’s government keep going, because revenue is going to be way down,” Ballard said. “When we get to that May revenue estimating conference, it’s not going to be pretty.”

The Lansing-based Michigan League for Public Policy, a nonpartisan organization “dedicated to economic opportunity for all,” says steps taken to expand unemployment benefits are a good first start.

Alex Rossman, the League’s external affairs director, said state lawmakers could strengthen these benefits further by expanding who qualifies. Such policy action would be a reversal for the Republican-led state Legislature and major business groups, but he remains optimistic.

“This public health crisis has really underscored the importance of the safety net to Michigan residents, including unemployment, food access and child care,” Rossman said. “In some ways, that’s a potential silver lining in all of this.”

Read 1509 times Last modified on Friday, 27 March 2020 17:03
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