Owners or employees? Bloomington city council’s planned $2-million COVID-19 relief gets scrutiny

At its meeting on Wednesday, Bloomington’s city council took the next procedural step towards getting $2 million worth of already-collected food and beverage tax revenue, into the hands of the private sector.

The goal is to provide bridge funding for local employers and employees who have been impacted by the COVID-19 viral epidemic.

The bridge is supposed to span the time it will take for more robust federal aid to land in local hands.

The step taken by the city council on Wednesday was to hear a first reading of a $2 million appropriation ordinance, made possible by the positive recommendation of the food and beverage tax commission at a meeting convened last Friday.

Based on the timeline sketched out on Wednesday by city controller Jeff Underwood, the money could be ready for distribution as soon as the end of next week, April 10.

The steps involved would include a city council approval of the appropriation at its second reading at a Tuesday, April 7 meeting.

The appropriation would then need a final sign-off by the Indiana Department Local Government Finance, which Underwood hopes to get by April 10. At that point, the money would be available, Underwood said at Wednesday’s meeting.

To whom should that money be available?

That was a point of friction raised during the public commentary portion of the meeting: Should it be employers or their employees who benefit directly from the distribution of funds?

There is probably a general consensus that the food service sector deserves focus. But support for idea of helping businesses directly, so that they can indirectly provide benefit to their employees, was not uniform on the side of public commenters.

Daniel Bingham and Vauhxx Booker weighed in, from their un-muted windows on the Zoom video conferencing platform, in favor of employees, not businesses.

On the city council, the idea that the end result should focus on the needs of individual employees found a champion in Matt Flaherty. His advocacy did not amount to a rejection of recommendations made by an economic stability and recovery (ESR) working group. The working group, formed by Mayor John Hamilton, is recommending three different loan products for businesses, backed in some form by the city of Bloomington, using food and beverage tax money.

Bingham objected to the contention that business owners should “get to walk away with the profits based on the idea that they’re taking all the risk.” He pointed to restaurant owners who have already laid off their employees. He said that those owners were not, in fact, taking a risk, when they could have maintained their payroll longer.

Booker told the city council said he was a big fan of “bailing out people rather than entities.” He appreciated their effort to move quickly, but asked councilmembers to make sure they did their due diligence with respect to the effort to help employees. About the idea of distributing money to businesses, Booker said, “We should be doing it because we want to help their employees.”

Booker also pointed to an additional principle that’s included in the now-circulating draft of the ESR working group’s report—a commitment to include consideration of “underserved constituencies including minority- and women-owned businesses and businesses/individuals with disability limitations.”

Booker said it’s an often-included sentiment in such documents, but rarely has any “teeth.” Would there be any minority representation on the panel of financial experts who evaluate the applications for loans, he wondered.

Randy Paul weighed in saying that the money should go to those business that would fail, but for the support that they would get from the city.

At previous meetings, Flaherty has reported what he’s heard from constituents about using food and beverage tax proceeds to help out businesses: His constituents are keen to see the benefit of the food and beverage tax money go to individuals. On Wednesday, Flaherty mention the same sentiment.

Flaherty said he understands the idea that if a business goes under there are no jobs to which employees could return. That means the city should try to make sure that businesses are pursuing every resource they can, Flaherty said, with navigational help from the city, so that they can tap into the more robust support that’s available through the Corona Virus Aid Relief and Economic Security (CARES) Act.

At Wednesday’s meeting, Bloomington’s director of economic and sustainable development, Alex Crowley, described the thought behind focusing on businesses not individual employees. Crowley pointed to the size of the gap between now and the time when federal relief is in hand, and not just in the application queue.

Crowley said the main gap the working group has identified in the Small Business Administration’s COVID-19 emergency relief package is one of timing. Funds will not be available from the SBA for 8 to 12 weeks, Crowley said. Sooner than that, Crowley said, the [$1,200] checks from the CARES Act would be arriving to individuals. The timing gap for businesses is longer that the timing gap for individuals, Crowley said, so that’s where the working group decided to focus.

Flaherty pointed out that for individuals, there is also an important timing gap that needs to be acknowledged. That day’s date was April 1, the first day of the month, when rent is due, Flaherty noted.

Crowley said the decision to focus on businesses is also matter of how much funding is available. “To be frank, we just don’t have the capacity or the ability to cover individuals to the extent that would be required,” Crowley said.

During their turns at public commentary, leaders of business institutions on the ESR working group responded to the call to focus on support of individuals.

Erin Predmore, CEO of the Greater Bloomington Chamber of Commerce pointed to the application form that the working group is proposing, which asks if the applicant business is planning to use the money to cover payroll. The application form tries to discern if the employer has made a good faith effort to keep their employees on, she said.

Responding to Booker’s mention of prioritizing minority-owned businesses, Predmore said that question is asked on the application.

Jen Pearl, who is CEO of the Bloomington Economic Development Corp. (BEDC), said, “When we look at economic development, it’s people first.”

Legal use of funds

A lingering question about the legal use of the food and beverage tax proceeds for economic relief appears now to have received a positive answer from the State Board of Accounts (SBOA), in a letter dated March 31, 2020.

The SBOA policy guidance is not specific to the food and beverage tax. It covers dedicated funds generally: “If the expenditures are from a dedicated fund source, there also must be a determination that the particular fund has a closer connection to the government purpose to be fulfilled than general fund money.”

The “determination” mentioned in the SBOA letter is something that Bloomington’s corporation counsel, Philippa Guthrie, told councilmembers on Wednesday could be added as an amendment to the appropriation ordinance as a “whereas” clause.

Guthrie stressed that the use of the food and beverage tax money should go to businesses that are related to tourism, which are vital to the success of the proposed convention center expansion.

The food and beverage tax was enacted to pay for an expansion of the convention center, but the statute governing the tax includes a provision for economic development and tourism. The State Board of Accounts letter is not specific to food and beverage tax revenue. It appears to rest more on an emergency order issued by the governor than on a specific interpretation of the food and beverage tax statute.

On Tuesday this week, Indiana’s governor Eric Holcomb extended his order for restaurants to remain closed to all but dine-in take-out and delivery service through April 6. Now the restaurant order matches the same timespan as the governor’s stay-at-home order, which could also be extended.

Bloomington’s city council is placing on hold the project for which the 1-percent tax was enacted in late 2017—a $44 million expansion of the existing convention center. The $2 million the council is looking to tap comes from about $5 million in already collected tax, over which the city of Bloomington has control. A previous appropriation by the council of slightly over $6 million to cover architectural fees will eventually need to be reconciled to the current effort to provide some rapid economic relief.

Three loan products

Here’s a summary of the three different financial products in the working group draft report.

A COVID-19 Small Business Bridge Loan is designed for a small business or 501(c)(3) nonprofit corporation with under 250 employees. The amounts to be lent under the draft proposal would be $1,500 to $50,000 at zero interest and an amortization period of two years, allowing for three months before the first payment is due.

Smaller amounts would be provided by a COVID-19 Micro Business Loan, designed for businesses with at least two, but fewer than 10 employees. Amounts to be lent under the draft version of this product would be $1,000 to $5,000 with zero interest and a one-year amortization period, with the possibility of deferring all payments for the entire one-year period with a balloon payment due at the end.

A third product is designed to support small businesses and nonprofits in the medium term, in the event of a prolonged pandemic, according to the draft description. A COVID-19 Blended CDFI Loan would be offered by a CDFI (Community Development Financial Institution) lender, with the city of Bloomington’s contribution coming in the form of loan loss reserves. The loss reserves would help offset risk and to encourage CDFIs or participating lenders to participate, according to the draft.

Common to all three financial products under consideration by the ESR working group are some constraints:

• Borrowers must comply with Bloomington’s living wage ordinance.
• Borrowers must be physically located within the City of Bloomington.
• Borrowers must demonstrate a significant decrease in revenue due to COVID-19. A 25-percent decrease in revenue automatically qualifies, but is not required.
• Borrowers must guarantee that funds will go to support capital expenses: including but not limited to wages, payroll costs, rent or utilities, debt service, property maintenance, and/or other immediate, essential expenses. Funds may not be distributed to equity investors or owners