Swaths of New York City small businesses face extinction in the wake of coronavirus

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Swaths of New York City small businesses face extinction in the wake of coronavirus

A restaurant in the Bronx borough of New York | Mark Lennihan/AP Photo

New York

“Everyone loves small businesses,” said New York City Council Member Brad Lander.

NEW YORK — As New York City begins to emerge from the coronavirus shutdown, thousands of its small businesses — many already struggling before the pandemic hit — will face a near-impossible road to recovery.

From Brooklyn dive bars to Soho boutiques, small businesses are written into the city’s DNA. But even before the rise of Etsy and Amazon, they operated on tight margins. And while residential tenants have been able to organize their political power to bring about a sea change in Albany and New York City Hall, small business has never been a unified political force in the biggest U.S. city.

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“Everyone loves small businesses,” said New York City Council Member Brad Lander. “It’s the kind of thing that rhetorically brings right and left together, but it hasn’t converted into effective political power or leverage.”

Many businesses are facing months of missed rent payments, with little ability to pay off their arrears. Others are unsure if business will recover swiftly enough for them to be able to come back at all. The shift threatens to decimate commercial strips that rely on these businesses and upend a sector that generates upwards of 3 million jobs.

Yet the city’s answer to business owners pleading for relief has largely been that the problem is out of its hands. The solution, city officials have said, depends on a bailout from the Trump administration, which has thus far shown little urgency to bring New York out of its coronavirus-induced fiscal turmoil. And there is no clear backup plan if that aid doesn’t arrive.

“The scale of this crisis simply requires the resources of the federal government,” said Jonnel Doris, commissioner of the city’s Department of Small Business Services, at a recent City Council hearing.

“While we continue to hope that much of that need be met by the federal government … hope isn’t a plan,” said Council Member Daniel Dromm at the same hearing.

The domino effects of the damage are already becoming apparent — one recent survey of building owners said approximately 64 percent of ground-floor retail tenants didn’t pay rent in May, a loss of income they warn will hurt their own ability to make mortgage payments and keep up with property tax bills.

While several piecemeal solutions have been introduced — opening streets so restaurants have more space for customers, reversing funding cuts for a lease assistance program— there remains little clarity how to meet the scale of the problem.

A fix to save struggling small businesses has long eluded politicians, even as they’ve lamented the demise of beloved mom-and-pop shops. The sheer variety of small businesses means they come with disparate problems and often competing interests, defying a simple solution. The small business agency’s 3 million jobs number is based on businesses that have up to 125 employees, but a spokesperson said 62 percent of small businesses in the city have fewer than five.

Now, as the pandemic plunges many local stores into even worse straits, enacting a workable solution has only become more difficult.

“There is no silver bullet,” said former City Council Speaker Christine Quinn, who worked on various small business-related initiatives during her time in the Council. “It’s a great issue to be rhetorical on and it’ll get you cheers. It’s a harder issue to follow up on.”

The most pressing probelm for many businesses now is catching up with rent payments, which have often remained their largest fixed cost as sales have plunged. But the need for financial assistance for businesses is coming up against the city and state’s own budget woes.

While some business leaders have floated property tax reductions for landlords in exchange for commercial tenant relief, the city has shown little inclination to back a policy that would curb its tax revenue at a time when it’s facing steep shortfalls. And while state lawmakers have in recent years pushed tax hikes to fund various budget priorities, enacting such a measure to help small businesses has not been a prominent topic of discussion in Albany.

Even before the pandemic, small businesses were a fractured political bloc. Residential tenant groups organized for years around a series of changes to rent laws, enough to make their concerns a central issue in elections to the state Senate that turned the body from Republican to Democrat. Within months, the new tenant-friendly legislators overturned decades of laws that had favored landlords.

Small businesses haven’t had the same political agency.

“What’s ended up happening with small businesses is they’ve self-organized politically in their respective industries and more in their racial or ethnic groups where they’ve found common purpose, and oftentimes that’s geographic,” said Neal Kwatra, a Democratic operative who’s advised Gov. Andrew Cuomo, Mayor Bill de Blasio and prominent labor groups.

“Those groups are pretty effective in their own districts, their own neighborhoods,” he added. “I think the challenge is where you have a citywide impact like this and all of them are affected.”

The de Blasio administration created a new role last month for former Small Business Services Commissioner Gregg Bishop, focused on seeking private and philanthropic sources for relief. A spokesperson said the agency has connected businesses to $65 million in assistance through lenders and philanthropic funding, but could not say how many businesses have received funding through this effort. Bishop said at a hearing earlier this year he estimated small businesses in the city will eventually need between $1.5 and $2 billion in relief.

Many city businesses have had some help from the federal Small Business Administration’s Paycheck Protection Program, but owners say it’s been difficult to navigate. Congress recently enacted changes that extend the length of time owners have to spend the funds and allow owners to spend a larger percentage on overhead costs. But the majority of the loan still has to go towards labor, and missed rent has continued to be a major issue.

“Even though there’s a moratorium for eviction proceedings, the rent bill is really accumulating,” said Randy Peers, president and CEO of the Brooklyn Chamber of Commerce. “This is going to be the big challenge, because even if you open your doors in the next few weeks, that’s three months worth of rent, that in itself can put businesses out of business.”

A recent survey from the Brooklyn Chamber of Commerce found 46 percent of businesses missed their May rent payments. A similar survey from the hospitality alliance found 87 percent of bars and restaurants couldn’t make rent last month.

Jagdish Shetty, owner of Samudra Restaurant in Jackson Heights, hasn’t been able to pay rent since the shutdown order went into effect. Takeout and delivery haven’t come close to the business the restaurant was bringing in before the pandemic, he said, but he hasn’t yet obtained relief through the federal program, and his landlord hasn’t cut him a break.

“A lot of people used to come here, people used to come from all over. Now, nobody comes,” he said. “But you still have to pay rent. They’re not lowering the rent or anything, so I’m going to have to close the restaurant.”

Lander, whose Park Slope district is overflowing with indie coffee shops and artisanal boutiques, said the majority of small businesses he’s spoken to haven’t been able to strike deals with their landlords, leaving them vulnerable to permanent closure and potentially sparking a surge in commercial vacancies.

He suggested the state look at creating new revenue sources through tax hikes and floated a long-term tax break for landlords who provide rent relief.

“There is not enough urgency … We have to move quickly if we’re going to save a set of existing small businesses,” said Lander. “Everyone’s waiting and hopefully the federal government will provide some money, but if they don’t, the state could plausibly take some steps.”

A coalition of progressive advocacy groups that have backed measures like commercial rent regulation agreed that tax hikes should be seriously considered, at a time when rent relief is so desperately needed and the availability of federal funding remains unclear.

But there hasn’t been a groundswell of support behind any one proposal that would accomplish this, and different groups have been pushing different priorities.

Jessica Walker, president of the Manhattan Chamber of Commerce, said her group wants state lawmakers to reform business interruption insurance, which for the most part does not currently cover pandemics but would be helpful to many struggling businesses if it were available.

When the pandemic first hit, she and other chambers of commerce were looking at proposals that would have the city or state play more of a role in providing relief funds.

“It just was too costly, the city and state just don’t have the money, so it’s definitely a tough issue,” said Walker. Insurance reforms, the group decided, were a “more realistic way to go,” she said.

Peers said all the players involved in missed rent payments — commercial tenants, but also their landlords, banks holding mortgages and government, which needs property tax revenue — should carry part of the weight.

“Some creative solution has got to involve a shared burden by all four of those actors because they all have a stake in the equation,” he said.

But it’s unclear such a shared solution will emerge in time to save many of the businesses devastated by the virus.

“We are definitely going to lose a lot of them, regardless of how much we do, because some were on thin ice during an era of prosperity,” said Kathy Wylde, head of the pro-business Partnership for New York City. “They are not going to survive, no matter what anybody does.”

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