COVID-19 & The Economy: Clawback Subsidies, Redirect Them To Small Businesses

Even before the COVID-19 pandemic, DC’s iconic small businesses, like the Black-owned bookstore Sankofa and the Salvadorian restaurant Judy’s, were struggling to hold on against the tide of gentrification that has forced hundreds of locally owned businesses to close. Skyrocketing property taxes and commercial rents have proven to be too steep for many longtime small businesses, and when they close, huge chains step in to fill their spaces.  

Without significant government intervention, the COVID-19 business shutdown will accelerate the displacement of local businesses in favor of corporate chains. Just like rent-poor Washingtonians with no savings to fall back on, ultra-high commercial rent is the biggest strain on small businesses now, and relief money is scarce. The Federal government allocated less than 20% of its relief money to fund the Small Business Administration’s Paycheck Protection Program. This fund was depleted in just thirteen days, leaving more than 300,000 small businesses out in the cold. Much of this money was used to cover commercial rent. We’ve been told that an estimated 30% of small businesses in DC will not reopen after the crisis, and those that do will be forced to operate with a skeleton staff. DC needs an aggressive small business recovery plan to protect these critical institutions and create new jobs for laid off workers. The DC Government must establish a Small Business Recovery Agency to oversee direct capital injections and commercial lease renegotiation.

The District must streamline the provision of relief money – direct subsidies, not loans – to small business owners immediately. Already we have heard complaints that the small business grant process is overly burdensome and leaves many questions unanswered. Furthermore, the $25M fund that DC created for the Small Business Relief Microgrants Program stopped taking new applications on April 1st, mirroring what happened at the Federal level. Small businesses also need rent relief from DC’s artificially expensive housing market, which is fueled by public land giveaways to developers. The District should institute mandatory mediation before any  commercial eviction proceeding can be filed and work with the DC Bar Association to ensure  legal representation for small businesses to incentivize landlords to fairly renegotiate tenant leases. 

Further, any development project which received a District subsidy should be required to forgive the non-payment of rent during the state of emergency and for one month afterward. Those costs should be carried by the multimillion-dollar development companies which have already received multimillion-dollar tax subsidies from the District and, thanks to their lobbyist on Capitol Hill, received a windfall tax break as part of the federal stimulus. As with residential rent forgiveness, the burden for working out repayment should fall on large developers and their financial institutions. Small businesses simply cannot afford to bear the economic burden of this pandemic and they shouldn’t be asked to: large corporations continue to receive millions in government money to cover their losses.

To pay for small business relief programs, the District should open up a new revenue stream by initiating an aggressive clawback program targeting developers who have received public subsidies or tax abatements and failed to deliver on community benefit requirements. The historic lack of accountability for benefit requirements has encouraged bad behavior by developers. For example, the DC Line Hotel was granted a $46M tax abatement, then failed to hire and train the requisite number of DC workers. The Mayor proposed a $600,000 remedy – just 1.3% of the overall tax abatement – which was rejected by Attorney General Karl Racine. This is just one example of a common practice: without full legal forfeiture of subsidies and tax benefits, there is no reason to think this behavior will change. The District doesn’t have a money problem: it has a corporate fraud, waste and abuse problem. DC should reclaim those millions and redirect them to small businesses.

A New Path Forward

The extraordinarily high rent in DC, combined with the fact that commercial leases are largely held by huge corporations, make small businesses vulnerable to disruption. This disruption will result in permanent job loss: even the businesses that reopen will not be able to rehire their full staff. These factors are a function of how the District has decided to invest in development, but it doesn’t have to stay that way. As we rebuild from this pandemic, let’s make sure the future we build is better than the past by investing in a sustainable Green New Deal-style Recovery Plan centered on the construction of thousands of units of permanently affordable social housing

This major infrastructure project would be powered by a WPA-like jobs guarantee program, employing laid off workers to build sustainable public assets in their communities. Ground floor retail space in social housing buildings will be reserved for local businesses , providing a permanently affordable home for the local small businesses and contributing to the self-sufficient funding model that ensures permanent affordability. Everyone – tenants, workers, artists, and small business owners – will have extra money in their pockets to spend in their communities, reinvigorating the local economy. It is obvious to everyone that running development through profit-driven corporations has created a city that only works for the rich. It’s time to build a city that works for everyone.