States get creative to save small businesses

State legislatures allocating billions of dollars in pandemic relief funding are targeting restaurants, small businesses, artists and art venues with increasingly creative measures meant to keep them afloat in the months leading up to economic reopening.

New Mexico Gov. Michelle Lujan Grisham (D) last week signed legislation that will give restaurants, bars, breweries and wineries a four-month holiday from gross receipts taxes. Michigan legislators have proposed waiving fees for alcohol permits and health inspections. Texas lawmakers are considering slashing taxes on mixed drinks on a temporary basis. Maryland lawmakers approved a sales tax credit for small businesses worth up to $9,000 over three months.

At least 38 states have enacted grant programs specifically targeted at small businesses. In some cases, the grants are small — up to $5,000 in Connecticut and Montana, just $2,500 in Wisconsin. Others are larger: Massachusetts caps its grants at $75,000, and Delaware will provide up to $100,000 in funding.

“We’ve been seeing a lot of targeted grants, a lot of tax incentives,” said Edgar Velasco, who oversees budget and fiscal issues at Stateside, a Virginia-based lobbying firm that operates in state legislatures. “They’re doing the math, and the economics suggest that some of these small investments might have a very big overall return.”

One state, Wyoming, has set aside grants specifically for large businesses. The legislature is considering a measure that would offer stipends of up to $1.5 million for businesses that paid at least $1 million in taxes in 2019, in an effort to keep the state’s largest employers — mostly resource-extracting firms — from shutting down.

“They are really committed to keeping some of these big contributors to the state’s coffers in the state,” Velasco said.

But most of the programs are targeted at small businesses in general. States are taking a special interest in protecting restaurants, which have been particularly hard-hit as in-person dining restrictions hammer an industry that already operates on slim margins.

One in 5 restaurants across the country temporarily or permanently closed during the pandemic, according to the National Restaurant Association, the industry trade group. And at least 2 million restaurant workers remain unemployed.

But some restaurants have been able to stay open thanks in part to states and cities relaxing rules on alcohol sales. At the beginning of the pandemic, no state allowed bars and restaurants to sell alcoholic beverages to go. Now, 32 states and the District of Columbia allow to-go sales, and several states are considering legislation to codify the temporary rules.

Alcohol sales alone allowed restaurants to hire an additional one to two employees, the restaurant association estimates.

“For restauranteurs right now, every dollar matters,” said Mike Whatley, the restaurant association’s vice president for state and local affairs. “It’s going to be a long road ahead of restauranteurs.”

California’s massive relief package, signed into law last month by Gov. Gavin Newsom (D), includes $2.1 billion for small business grants. The bill waives fees for bars and restaurants for the next two years.

Arts venues that have almost completely shut down in the midst of the pandemic, and the performers who rely on them for their income, have also received special attention. Philadelphia has set up a special grant program for Black artists. In Moab, Utah, Indigenous artists sell their wares at a new outdoor market set up in front of City Hall.

Ohio lawmakers are considering a bill that would provide $184 million in three separate grant programs, one of which would be targeted at indoor entertainment venues.

For some businesses, getting grants has become a challenge in and of itself. Money from the federal Paycheck Protection Program, included in the first round of coronavirus relief funding approved by Congress last year, dried up before some businesses could access it. So cities like Chattanooga and Kansas City have crafted public-private partnerships with local banks, accountants and chambers of commerce to help businesses prepare the paperwork they need to qualify for the next round of funding.

“They looked at the first round of the paycheck protection program and they said that money didn’t get to the people we wanted it to,” said Jenn Steinfeld, director of entrepreneurship and economic development at the National League of Cities.

While states have competed for businesses in recent years, with increasingly elaborate and costly incentive packages, some areas are using the pandemic to woo employees of businesses who can suddenly work from home. 

In Northwest Arkansas, a program called Life Works Here offers residents who relocate from other parts of the country a $10,000 grant. New residents can also choose between a free mountain bike or a membership to the Crystal Bridges Museum of American Art.

“Technology doesn’t have to live in California and finance doesn’t have to live in New York,” Velasco said. “What you will see is a lot of states that are now thinking about new industries, new ways to attract businesses than they would in the past.”

The programs represent a substantial change in focus for city governments that are more used to reacting to a negative problem than to proactively supporting its residents, Steinfeld said.

“City governments are often oriented towards finding a problem and shutting it down, so this was a real shift,” she said.