Amid COVID-19, Local Governments Are Coming Through for Local Businesses

We’ve said it before and we’ll say it again: change that comes from the top down tends to be orderly but dumb. Change that comes from the bottom up tends to be chaotic but smart.

This rule is certainly on display in the response of communities across America to the COVID-19 pandemic, and in particular to the hardships faced by small, locally-owned businesses on account of it. Despite a lack of resources, local and state governments have stepped in to fill the gap in aid for these businesses where the federal response was either too slow, too small, or not tailored to the right needs.

In May, we reported on a study by our friends at the Institute for Local Self-Reliance which demonstrated the important role of community banks in the COVID-19 aid response. Specifically, ILSR found that the effectiveness of the federal Paycheck Protection Program (PPP) established by Congress varied dramatically from state to state, and one of the best predictors of whether a state actually saw a lot of PPP money get into the hands of its small businesses was the presence of a healthy local banking sector. While large national banks, used to operating at bigger scales with bigger corporate borrowers, were slow and hesitant to make PPP loans, the real heroes were local banks, which are “immersed in their communities and have a rich trove of “soft” information to draw from in assessing the likelihood that an entrepreneur will succeed in a particular market.”

Now, ILSR is back on our radar with a new policy brief by researcher Kennedy Smith, this time on small business relief programs at the local and state levels. They report that these sub-national governments have already marshaled $9.27 billion for small business relief, but that far more is needed to prevent mass business closures, especially heading into winter with rising infection rates.

Although local and state governments—which must balance their budgets and are themselves in difficult fiscal straits—have far fewer funds on hand for a COVID response than the federal government does, they are capable of spending it in far more creative, responsive, and effective ways. This is because of their intimate knowledge of local needs and key community players.

Local programs were consistently tailored to immediate local needs, from helping businesses pay immediate costs like their rent, to helping them safely reopen, establish online sales, reconfigure their store or office space, or buy personal protective equipment.

Local governments responded faster than the federal government to the evolving crisis, sometimes within days. For just one example cited by ILSR, after states began acknowledging the scope of the emergency in mid-March, “Ohio’s Department of Commerce immediately offered a liquor buy-back program for bars and restaurants that had stocked up in preparation for St. Patrick’s Day,” only days away.

Local governments also moved to assist businesses that were particularly under-served by federal aid, including minority-owned businesses which tend to have disproportionately less access to or relationships with the mainstream banking system. ILSR also cites examples of aid programs specifically for artists and musicians.

Local programs, however, were often quickly overwhelmed by demand. The ILSR finds that the gap between the need and the capacity of local entities to help has often been staggering, as in these examples:

Demand for grants has been crushing. Hillsboro, Ore., began accepting applications for its $500,000 Small Business Emergency Relief Program on March 23. The response was so overwhelming that the program was depleted within a few hours. The City found another $500,000 and reopened the program—and that was also gone within a day. In Hawaii, Kaua’i County’s Small Business Boost grant program received 886 applications the day it opened, exhausting the program’s $5 million funding allocation. Bexar County, Texas, received nearly 650 grant and loan applications in the first week of its $5.25 million program, totaling $42 million in requests.

The fact remains that the federal government has the power to borrow and print money at scales that are far, far beyond anything available locally—and this is unavoidable in a crisis on the level of a worldwide pandemic.

However, when aid is actually administered at the federal level, the response can end up being sluggish and unresponsive to nuanced local conditions or feedback. And it tends to favor already well-connected players. So, while we can discuss the best ways to get resources into the hands of local players for emergency relief, what ILSR keeps demonstrating is just how important it is that the people assessing the most urgent needs and making the loan or grant decisions be local, connected with their communities, and always have their ear to the ground. We are far more effective and innovative with whatever resources we have when we build prosperity—or rebuild it— from the bottom up.

Cover image via Unsplash.

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