It’s no secret that small businesses were hit hard by the COVID-19 pandemic. But Kennedy Smith of the nonprofit Institute for Local Self-Reliance sees opportunity amid the pain. Will it be seized?
Smith is an optimist. In her new report, Small Business’s Big Moment, Smith contends that last year’s $1.9 trillion “American Rescue Plan Act”—known by policy wonks and activists as “ARPA”—gives states, tribal governments, territories, and localities a “once-in-a-lifetime opportunity to fundamentally change their economic development strategies.”
Passed in March 2021, the ARPA bill is the last major tranche of federal coronavirus relief funds. Some funds were disbursed quickly, such as the $1,400 relief checks to individuals (total cost: $410 billion); an estimated $200 billion for unemployment insurance; and an estimated $140 billion for the child tax credit, which lowered childhood poverty in 2021 by 40 percent (but expired at the end of last year).
One unique feature of ARPA is that unlike earlier rounds of federal spending, ARPA also provided $350 billion in flexible funding for tribal, state, territorial, and local governments. These funds must be allocated by 2024 and spent by 2026, which means that in many places there is still the chance to advocate for some of those funds to be dedicated to supporting economic justice goals. The idea behind these funds is to ensure that state, tribal, territorial, and local governments recover financially and avoid a repeat of the recession hangover that occurred after the Great Recession of 2007-2009.
To understand what is at stake, it is helpful to review the long-lasting impact of the Great Recession. Although the Great Recession technically ended in June 2009, recovery was famously slow. In fact, state and local financial support for higher education, K-12 education, and infrastructure in 2018—that is, nine years later—remained lower in inflation-adjusted dollars than a decade before. Simply put, tax revenue shortfalls resulting from the Great Recession created a fiscal hole that eviscerated local capacity to meet core social needs in health, education, and elsewhere for an entire decade.
To avoid a repeat of this pattern after the pandemic shutdown, ARPA allocated $195.3 billion to the 50 states and the District of Columbia, $45.6 billion to large cities, $19.5 billion to small cities, $65.1 billion to counties, $20 billion to tribal governments, and $4.5 billion to territories. These funds are now being distributed. Of course, much of the money has been used in utterly unimaginative ways. For instance, Alabama committed $400 million of its $2.1 billion ARPA allocation to help finance the building of two new 4,000-bed prisons. This, in state whose incarceration level exceeds the national rate by 40 percent and which, the Prison Policy Initiative reports, “released fewer people on parole in 2020 than they had in 2019.”
But, as Smith details, there are many examples of communities using ARPA funds to jump-start initiatives that support broad-based community ownership, as well as to rebuild a small business sector that has suffered major damage over the past two years.
Surveying the Damage: What Happened to Small Business Amid COVID-19?
A lot of data on small business activity since the March 2020 economic shutdown has yet to come in, but the information that is available speaks to its dramatic effects. A recent Federal Reserve study indicates that about 150,000 more firms and 200,000 more business establishments closed in the 12 months following the March 2020 shutdown than which close in a normal year. While this decline was less than was once feared, it still marks roughly a 33 percent rise in the normal rate of business closure. Moreover, as Smith points out in her report, the aggregate data misses a lot. Chain stores benefitted, for instance, even as “mom-and-pop” small businesses suffered.
One telling statistic ironically appears in business start-up data. One might think that business start-up data would tell a tale about the revival of community-based businesses. But what is the fastest growing segment of business startups? Well, in retail at least, the answer is “dollar store” franchises. As Brad Tuttle explains in Money, out of an estimated 7,300 stores that opened in 2020 or 2021, 3,150 of them—or 43 percent—are dollar stores. (Meanwhile, 9,000 retail stores closed those two years.)
But dollar stores are just one sign of corporate consolidation. Big box stores also gained market share, with many benefitting since large box stores that sold food items stayed open during the shutdown period, even as comparable smaller businesses lacking grocery sections had to close their doors. Private equity has, Smith notes, acquired significant commercial real estate during the pandemic. And this period has also witnessed the rapid expansion of sales online, such as at Amazon. The pandemic, as Smith points out, boosted delivery services like Uber Eats, Grubhub, and Door Dash, which typically take a 30 percent cut out of every local restaurant sale.
Meanwhile, while US Small Business Administration business numbers from 2020 are not yet available, industry sources confirm the shift in economic power from small businesses to large corporations. In one business survey from January 2022, 22 percent of small business owners reported that the pandemic had a “major negative effect” and another 44 percent reported a “moderate negative effect,” while fewer than 10 percent reported that their businesses benefitted from the pandemic. By contrast, corporate America has seen boom times, reflected in a stock market whose Standard & Poor’s (S&P) 500 index rose 16 percent in 2020 and by an additional 26.9 percent in 2021.
The true scale of the wealth shift is not yet fully apparent. What we know is that the combined value of the 500 large companies of the S&P index increased in value by $14 trillion, or 50 percent, between year-end 2019 and year-end 2021. Stocks go up and down for many reasons; for instance, right now, Russia’s invasion of Ukraine is lowering many stocks’ values. But even if only 10 percent of that $14 trillion increase reflected market shifts from small business to larger corporations, that would be a major redistribution of economic power.
Can ARPA Funds Even the Scales?
In short, the work ahead for those who, like Smith, wish to see a revival of local community economies, is staggering. But, as Smith details, there are many promising efforts. The ARPA money, of course, is one-time funding. This makes it a particularly useful tool for seeding initiatives—for example, land that is purchased with the intent of providing space for community-owned businesses stays community-owned once funding evaporates. Of course, the ARPA funds can also be used to support existing projects, but sustaining these efforts requires finding a substitute source of funding before the ARPA dollars run out.
At NPQ, we have covered some of the ways communities have made use of the ARPA infusion of federal dollars into states and localities. For instance, last year, NPQ published an article about a tenant group in the San Francisco Bay Area that raised $100,000 as a down payment to purchase their home at a foreclosure auction for $600,000 and place it in a community land trust. In July 2021, using ARPA funds, California passed legislation (SB 1079), which created a dedicated $500 million fund to support such tenant foreclosure acquisitions over the next five years. California’s legislation is easily the largest display of public support of its kind in US history. Another large-scale commitment is in Virginia, which committed $700 million of its $4.3 billion ARPA allocation to extend broadband throughout the state. According to Smith, total support in Virginia climbed to $920 million, up from $34 million the year before.
Some other examples that Smith lifts up are the following:
- In Roanoke, Virginia, $5 million of its $64.5 million allocation is dedicated to an initiative known as the Gainsboro Neighborhood Hub, which will include a business incubator to support business development and a local community health clinic.
- In Ingham County, Michigan—whose county seat is the state capital of Lansing—$11 million out of its $56.8 million ARPA allocation has been committed to its Sunrise Grant Program, which is being used to support a revolving loan fund, business incubators, small business succession planning, and childcare facility expansion—with a focus on supporting “socially disadvantaged populations and the areas of greatest need.” Reportedly, $8.25 million in grants were awarded in the program’s first year.
- In Stanislaus County, California—whose county seat is the Central Valley city of Modesto—$5 million out of its $90 million ARPA allocation has been committed to “support the establishment of Community Development Corporations … to connect low-income families to financial products to purchase affordable homes and to provide business services to underserved communities.”
Smith notes that ARPA funds can support a democratic economy in many additional ways, such as financing employee ownership, boosting community-owned delivery services that reduce the fees that local restaurants are having to provide firms like Grubhub, and providing seed funding for community-owned grocery stores. Even seed funding for public banks that finance long-term community reinvestment, Smith explains, falls well within the scope of the legislation.
Smith’s report offers many examples, but it says little about how to accomplish the vision outlined. For the latter, an article in Abundant Community by April Donner offers some suggestions. Donner reports on a presentation offered by SpiritHouse and Back in the Black—two Black-led organizations based in Durham, North Carolina—to the Southern Movement Assembly last fall. The two groups have campaigned to have 45 percent of ARPA funds in Durham, a 38-percent African American city, go to Black-led projects.
As to how to achieve a shift in funding to community-backed causes, among the suggestions offered by the organizers in Durham are the following: 1) build a broad coalition, 2) collect data, 3) highlight the need for an equitable distribution of funds, 4) be knowledgeable about past funding decisions, and 5) insist on transparency. They also offer a warning—in the absence of community organizing, the presenters from Durham cautioned, the most likely outcome is that ARPA funds will be distributed to already existing programs that preserve the inequitable status quo.
In short, it is possible to use ARPA funds to advance equitable development and a democratic economy. And not every dollar has been distributed yet. But shifting the direction of public funding is never easy.
Smith concludes her report with a call to convert the one-time funding pool that ARPA provides into transformative action. The opportunity exists, Smith contends, to “re-level the playing field … away from the past decade’s Amazon-take-all trajectory.” As always though, to seize that opportunity will require consistent vigilance, organizing, and action.