We bailed out banks. Should we bail out restaurants?

We bailed out banks. Should we bail out restaurants?
Posted at 5:00 PM, Jun 20, 2020
and last updated 2020-06-20 19:00:29-04

A bipartisan coalition of lawmakers on Thursday introduced legislation to bail out restaurants, which have been battered by economic shutdowns around the U.S. caused by the coronavirus pandemic.

More than 8 of 10 independent restaurants could close permanently, according to an analysis from the Independent Restaurant Coalition (IRC), a group formed to save afflicted restaurants, and Compass Lexecon, an economic consulting firm.

"Restaurants will disappear if we don't do something," said Naomi Pomeroy, a James Beard award-winning chef and one of the IRC's founders. "It's pretty scary to think that the fabric of our social lives and economy could crumble if we don't pay attention to this quickly."

Thousands of restaurants were forced to shut down in mid-March to stem the spread of COVID-19. Although many have since reopened, their prospects are uncertain given ongoing concerns about people congregating in restaurants and other indoor spaces.

"We are only three months into this pandemic, and I think it's going to be a very long haul for us all," said Pomeroy, who owns Beast restaurant in Portland, Oregon. "This problem will last for a long time whether it's because there is a virus that's active or consumer confidence or other economic factors."

The legislation — introduced by Mississippi Republican Roger Wicker in the Senate and Oregon Democrat Earl Blumenauer in the House and dubbed the "Real Economic Support That Acknowledges Unique Restaurant Assistance Needed to Survive (RESTAURANTS) Act of 2020" — would provide $120 billion in grants to non-chain restaurants through Dec. 31.

Wicker said in a press call Thursday that the White House supports the legislation. Other lawmakers behind the bill include senators Lindsey Graham, R-South Carolina, Kyrsten Sinema, D-Arizona, Christopher Coons, D-Delaware, and Doug Jones, D-Alabama. The measure is expected to be considered as lawmakers debate a potential fourth round of federal stimulus spending to ease the coronavirus's economic impact.

The pandemic has threatened the jobs of some 11 million people who work in independent restaurants and also imperiled the livelihoods of the 5 million farmers, florists, vintners and other suppliers that work closely with the industry.

The IRC estimates that the grants would more than pay for themselves, generating at least $271 billion from saved unemployment benefits, additional payroll taxes and higher consumer spending due to restaurant employees having disposable income.

'We needed the money yesterday.'

Restaurants' profit margins are notoriously thin even when they are running at full capacity. Add social-distancing requirements that reduce their dining capacity and many don't stand a chance at turning a profit.

Take Pomeroy's 800-square-foot fine dining restaurant, which before the pandemic featured two communal dining tables. She'll need to make extensive changes to its interior before reopening to maintain proper distance between patrons, and that takes money.

"I am a creative person, but I can't be creative if I don't have the tools. These grants will give me the ability to do that," she said, adding that "we needed the money yesterday."

Paycheck program not designed for restaurants

The Small Business Administration's Paycheck Protection Program, aimed at helping employers keep workers on the payroll, failed to meet many restaurant owners' needs.

In order to qualify for forgiveness, loan recipients were required to achieve pre-pandemic staffing levels after laying off workers — many of whom preferred to continue receiving unemployment benefits. It made little sense to rehire workers and pay them while their establishments remained closed.

It also overwhelmingly excluded minority business owners, the vast majority of whom came up empty after applying because they either didn't qualify or the funds had already been exhausted by the time their applications were processed. The revitalization fund would prioritize access for women and minorities, who have historically had a harder time accessing capital.

Karl Franz Williams, who owns cocktail bars in Manhattan's Harlem neighborhood and in New Haven, Connecticut, acknowledged this reality. "As an entrepreneur of color, it's definitely made it harder to access capital," he said.

While he received PPP loans for both establishments, they aren't well-suited to his needs. "My payrolls aren't huge. It's not like the funding I got was a windfall that's going to last forever," he said.

While many businesses are struggling to regain their footing, restaurants face a unique challenge: Their margins are low, and they depend on packing many customers into tight quarters.

"It's all about volume. It makes sense, both culturally and financially, to have your restaurant packed. We need to stay full to generate the kinds of margins we need to be successful," Williams said.

"We didn't screw up"

Jeffery Bank, who runs the Alicart Restaurant Group, with establishments in The Bahamas, New Jersey, Nevada, New York and Washington, D.C., also favors an industry-wide rescue effort. Just don't call it a bailout.

"It's an unfair term. We didn't screw up. Our industry stepped up and fed people who were forced to stay home and quarantine," Banks said.

He also thinks restaurants deserve a cash infusion that is direct, immediate and commensurate with the blow the pandemic has dealt the sector.

"The government shut down our industry, which I completely understand and support for public safety. But what isn't rational is not planning for the ramifications of restaurants having to lay off workers," Banks said.

Andrew Rigie, executive director of the New York City Hospitality Alliance, also wants the government to step up on behalf of restaurants.

"Restaurants have been incredible soldiers. They have tried to do everything they can to support their workers and communities throughout the year," he said. "That's what we do. We serve the public. It's time for public officials to serve us."