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In America, Business Profits Come First Over the Pandemic

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Los Angeles, California, is now considered one of the worst COVID-19 hotspots in the nation. LA mayor Eric Garcetti assessed grimly that there is one new infection every six seconds and a death every 10 minutes from the virus. Hospitals are turning away ambulances, and health facilities in LA County are quite literally running out of oxygen. But last spring, as the pandemic was first declared, the city was an early adopter of mandated mask wearing and benefitted from California enacting the first statewide shelter-in-place order that helped curb the worst spread of the virus. So, what happened?

There is a possibility that the deadly surge in cases may be a result of a new, more transmissible strain of the virus circulating in the area. But more likely the spread is the result of the message that authorities are sending of a premature return to normalcy. As social media platforms are filled with angry Angelenos blaming and shaming one another for brazenly vacationing and flouting social distancing guidelines, in truth, the burst of infections is the price that officials are willing to pay for ensuring that corporate profits are protected.

California’s latest shelter-in-place order is quite different from its first one. Whereas in March 2020 the state ordered all non-essential businesses to remain closed, in early December, at the peak of the holiday shopping season, all retail stores were allowed to remain open, even as outdoor parks were closed. So outraged were Californians by the obvious double standards that state officials caved and reopened parks—instead of shutting down retail stores.

Predictably, infections at malls soared as shoppers, eager to salvage Christmas, rubbed elbows with one another in their rush to fulfill holiday wishes. After all, authorities had okayed such actions, so they must be safe, right? Rather than enact strict rules to prevent such congregating, some Californians rightfully terrified of the disease simply blamed the shoppers. Even LA County health services director Dr. Christina Ghaly told the Los Angeles Times, “If you’re still out there shopping for your loved ones for this holiday season… then you are missing the gravity of the situation that is affecting hospitals across LA County. Though they may seem benign, these actions are extremely high-risk.” LA County Public Health Director Barbara Ferrer said to Angelenos, “stay home,” but has refused to consider shutting down non-essential businesses.

In other words, officials kept retail stores open but then chastised residents for shopping. There are two ways to interpret the muddled messaging. If authorities are allowing all businesses to remain open, surely it must be safe to frequent them. Or, authorities are being driven by financial stakes, not public health, so surely it is not possible to trust them.

Hollywood is another exercise in contradictions. While new films and TV shows were not considered essential last year, production has now resumed. Why? Simply put, “there is too much money at stake,” in the words of one TV producer. State and local authorities have the power to stop production in the interest of public health, but rather than exercise that power, they asked companies to volunteer to halt their projects. Now that the virus has spread so far and has caused so much suffering and death, even Hollywood has decided maybe it is not a good idea to continue filming. But is it too late?

American society is ruled by the right of businesses to make money above all else. And while for a few months in 2020 it seemed as though we prioritized public health and well-being by shutting down large swaths of the country and passing the modest CARES Act, that did not last. Lost in the horrifying surge of cases and mounting death toll is the stark fact that authorities have chosen to sacrifice human life at the altar of corporate profits. By their logic, if anyone is to blame, it is the individual American who has brought the disease upon themselves by simply making the wrong choices. It is the American way.

Take John Mackey, CEO of Whole Foods, an elite grocery chain favored by wealthy and health-conscious Americans. According to Mackey, there is no need for health care services. “The best solution is to change the way people eat, the way they live, the lifestyle, and diet,” he said in a recent interview. He added, “There’s no reason why people shouldn’t be healthy and have a longer health span. A bunch of drugs is not going to solve the problem.” Tell that to the seemingly healthy people among us who contract dangerous diseases like cancer and need the kind of chemotherapy drugs that do precisely that—help “solve the problem” of cancer.

Mackey’s logic is consistent with that of the new pro-business “shelter-in-place” orders in California, which effectively send the message that if you catch COVID-19, it is your fault, not the fault of the indoor mall that was allowed to remain open.

Businesses do need to continue operating if they want to make money. But large corporations have amassed so much wealth through the Republican Party’s tax giveaways that surely those in non-essential industries can survive for a year or two while remaining closed and dip into their assets without threatening their bottom line.

The situation is of course far different for small businesses that operate on razor-thin margins and are easily plunged into bankruptcy with just a few months of forced closures. But surely the world’s richest government can pay such businesses to remain closed so that they can reopen safely once the danger is over. European nations have paid workers to stay at home—an obvious solution to curbing the virus.

An NBC News article compared the U.S. response to other nations, making the point that “unlike Western Europe and Canada, the U.S. is asking citizens to face the COVID-19 pandemic without any additional financial cushion from the government.” One epidemiologist told the outlet, “I know multiple industries have been lobbying governors to stay open because closing means a huge loss of income to business owners and employees, even if it would be the best thing to do from a public health perspective.”

Indeed, California has allowed businesses to remain open in part because of a dangerous decline in tax revenues and a lack of federal government funding to states to make up for pandemic-related losses. Again, authorities have chosen the sink-or-swim approach to business and public health. Why pay people to stay at home and remain safe when those individuals can simply risk their lives in the service of profit? After all, it is the same logic that has driven the relentless shredding of the pre-pandemic safety net programs for economically struggling Americans.

There is much hand wringing, blaming and shaming the individual, and general confusion over why COVID-19 is continuing to claim so many lives. But to understand the real reason for the ever-increasing death toll, look no further than the American way of leaving citizens to fend for themselves in the service of capitalism.

This blog originally appeared at Independent Media Institute on January 8, 2020. Reprinted with permission.

About the Author: Sonali Kolhatkar is the founder, host and executive producer of “Rising Up With Sonali,” a television and radio show that airs on Free Speech TV and Pacifica stations.


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Union urges Small Business Administration to take a close look at hotel chain’s post-PPP layoffs

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The Paycheck Protection Program (PPP) was supposed to keep small businesses from laying off workers during the coronavirus pandemic. (Disclosure: Kos Media received a Paycheck Protection Program loan.) It hasn’t always worked out that way. Trump and Kushner businesses got loans, as did predatory payday lenders, but many of the businesses that needed the loans most were left out

UNITE HERE, the union representing hospitality workers, has set its sights on a major hotel chain that got tens of millions of dollars in PPP loans but laid off the workers at many of its hotels. In a letter to the Small Business Administration (SBA), the union calls on the SBA to “closely scrutinize” the hotels and the lending banks.

Omni hotel affiliates got a whopping $76 million across 32 PPP loans, according to UNITE HERE. But in the cases for which the union has “direct knowledge,” five hotels got nearly $15 million in loans. Despite that, “Three of them—Omni Providence, Omni San Francisco and Omni William Penn—are temporarily closed, and none of our members have been rehired or paid by the hotel. The Omni New Haven and Omni Parker House only recently reopened without all of their facilities, and the hotels have failed to recall more than 80% of our members who work at the hotels.”

This is not what the PPP was supposed to do, and it’s directly harmful to the workers. “The failure of these hotels to rehire their employees has financially harmed our members and created great uncertainty for them and their families. So far, we have not received commitments from Omni to use the loans to fully rehire the workers we represent.”

The union also sent letters to the managers of the hotels in question, noting that they appear not to be in compliance with the PPP’s terms and calling on them to rehire workers, along with letters to the banks responsible for most of the loans, calling on them to take a very close look at whether the hotels qualify for forgiveness.

“It is time for the SBA to step up and ensure that money intended to help American workers actually benefits them,” said UNITE HERE Executive Vice President Carlos Aramayo. “It is unfathomable that massive corporations like Omni have access to millions of tax-payer backed loans, while hundreds of their workers remain without a paycheck heading into the holidays.”

Rep. Katie Porter previously called for an investigation into hotel layoffs in and around her California congressional district after those hotels received PPP loans.

This blog originally appeared at Daily Kos on December 15, 2020. Reprinted with permission.

About the Author: Laura Clawson has been a contributing editor since December 2006. Clawson has been full-time staff since 2011, and is currently assistant managing editor at the Daily Kos.


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The next blow for businesses: Tax hikes that threaten more layoffs

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Businesses across the nation could soon face state tax increases to pay for the surge in Americans filing for unemployment benefits this year, further straining employers at a time when many are fighting for survival.

Massachusetts, New Jersey and Alabama are among the states looking at tax hikes that could cost employers billions of dollars. It would be a gut punch for businesses struggling because of the pandemic — and some fear it could trigger even more layoffs or prevent new hires.

Governors have been pressing the federal government to come through with more funds, but talks between House Speaker Nancy Pelosi and the White House over a new economic relief package have dragged on for months with no deal in sight, and state aid is one of the major sticking points.

“We’re in a situation where we’re trying to actually get employers to bring people back to work,” said Rachelle Bernstein, vice president and tax counsel at the National Retail Federation. “You certainly don’t want to increase the taxes on employment, which is in essence what’s happening here.”

Both the federal government and states tax the wagesbusinesses pay in order to build up a store of funds in case of mass unemployment. Yet the extraordinary increase in the number of workers filing jobless claims since the pandemic hit in March caught the states by surprise, and the scale of layoffs sparked by the crisis already dwarfs those lost in the Great Recession, which lasted more than twice as long.

As a result, 21 states and the Virgin Islands have already exhausted the money in their accounts that pays for jobless benefits and are tapping into the U.S. Treasury-managed Unemployment Trust Fund for billions of dollars in federal loans to stay afloat. Congress waived interest on these loans in March for all states until the end of the year.

Once a state’s unemployment account dips into the red, it has little choice but to borrow from the Treasury or from private entities, because they are required under federal law to pay unemployment benefits.

Many states will need to cut benefit levels or raise taxes on employers to replenish those funds. The process is fairly routine: 27 states have a tax in place that automatically kicks in when the unemployment fund drops below a certain amount, according to the Tax Foundation. Thirteen of the states that are borrowing from the Treasury have laws on the books that call for an automatic tax hike. They include New York, New Jersey, Illinois, Pennsylvania, Texas and Massachusetts.

“It’s going to take many years for states to pay this back,” said Jared Walczak, vice president of state projects at the right-leaning Tax Foundation. “It’s going to mean higher [unemployment insurance] taxes for a very long time; it’s going to mean all of the costs associated with borrowing will be a fiscal constraint on states for many years to come.”

Glenn Spencer, executive vice president of employment policy at the U.S. Chamber of Commerce, said tax increases are inevitable given that more than 20 states are already borrowing tens of billions of dollars.

“That number is only going to go up,” he said. “So the potential tax burden on businesses across the board is only going to go up.”

In Massachusetts, businesses are staring down a tax hike of nearly 60 percent for 2021.

The state had a healthy balance in its unemployment trust fund in February, but job losses from the pandemic dried it up by July. The state now projects that the unemployment fund will have a nearly $2.5 billion deficit by the end of 2020.

Businesses will have to set aside on average $858 per employee in 2021, compared to $539 now. The costs will continue to rise, albeit at a slower pace, until 2024.

Christopher Carlozzi, the state director of the National Federation of Independent Business, said Massachusetts is hurting the job creators at the worst possible time.

“The state is looking to these small businesses to create jobs, but in the same breath, you’re making it more expensive to create that job,” said Carlozzi, whose group represents small businesses.

In New Jersey, unemployment insurance tax rates for employers could increase on average from 0.7 percent of payroll to 1.1 percent in July 2021. In total, businesses would see a hit of $919 million, according to an analysis by the state’s nonpartisan Office of Legislative Services.

A bill that’s working through the state Legislature would spread out the increase over a few years.

At a September hearing on unemployment issues, the state’s Labor Commissioner, Robert Asaro-Angelo, said what New Jersey really needs is help from the federal government in the form of cash assistance and extending the interest free loans that it’s getting from Treasuryinto next year.

“We are hopeful that there’s going to be relief for trust funds; we’re not the only state requesting this,” he said. “We hope that there will be direct funding for unemployment trust funds because that will ease the burden on employers in New Jersey and across the country.”

New Jersey is not alone. States across the country are seeking a life preserver from Washington with another aid package that could be used to bolster the unemployment trust funds. But President Donald Trump and Republican leaders are balking at giving money to Democratic-governed states like New York, California and Illinois, which they say are mismanaged.

Conservatives also argue that Washington shouldn’t give more money when states haven’t even spent all of the $150 billion that Congress set aside for them in March in the CARES Act to shore up their dwindling trust funds.

“There are a lot of states still sitting on coronavirus relief fund money that they’re allowed to be spending on unemployment compensation benefits right now and are not,” said Walczak of the Tax Foundation. He argues that states have been holding onto the CARES Act funds hoping Congress will pass another aid package that would forgive the loans or provide more flexibility for them to use the money for other priorities.

The New Jersey Business & Industry Association and other business groups have been lobbying for the state to put CARES Act money into the unemployment fund, but to no avail.

“The quicker the fund returns to good health, the more likely it is that the worst of the automatic tax increases can be avoided,” Christopher Emigholz, vice president of government affairs for NJBIA, said in testimony before the Legislature this month.

However, more than three-quarters of state and local governments recently surveyed by the Government Finance Officers Association said they have plans for the money and anticipated spending their share of the aid before the end-of-the-year deadline to use it.

At least a dozen states, including Georgia and Tennessee, used CARES Act funds to replenish their unemployment accounts.

But in some states, the aid wasn’t enough to stave off tax hikes. In Alabama, corporations are still staring at a 200 percent tax increase, even after Republican Gov. Kay Ivey put $300 million in CARES Act dollars into the fund.

Still, this tax rise will be much less severe than it would have been without the money. Alabama’s unemployment insurance tax rate was scheduled to go up from 0.65 percent to 3.95 percent, a more than 500 percent increase. Instead, the rate will increase to 1.95 percent.

“Without this infusion, employers could be facing an unemployment insurance tax increase of more than 500 percent, which could very well force many businesses to close their doors forever, resulting in even more job losses in Alabama,” Alabama Labor Secretary Fitzgerald Washington said in a statement.

On top of the increase in state taxes, businesses could be hit with a tax hike from the federal side as well.

States with dried-up unemployment funds have already borrowed more than $38 billion in interest free loans from the federal government. But the decision to eliminate interest on the loans was a temporary one, and starting next year, states will start accruing interest on what they borrow.

If they haven’t paid back the cash they owe by 2022, businesses in those locations will see a .06 percent increase in their base federal unemployment tax.

In the aftermath of the Great Recession of 2007-2009, 26 of the states and territories that borrowed from the federal government saw their federal unemployment tax go up because they didn’t pay back their loans in time, according to an analysis by the Urban Institute’s Wayne Vroman.

“Many states had debts for multiyear periods, and 11 programs were still making debt repayments in April 2016,” he wrote.

In a letter to congressional leaders earlier this month, the National Association of State Workforce Agencies urged lawmakers to extend the interest moratorium on unemployment insurance trust fund loans through 2021.

“With extreme claim loads, many states are borrowing in order to make UI payments,” the group, which represents unemployment agencies in every state and territory, wrote. “Given the continued economic stress, all state workforce agencies agree that a continued moratorium on interest accrual and payments is critical in order to avoid significant increased taxes and assessments on employers.”

This blog originally appeared at Politico on October 30, 2020. Reprinted with permission.

About the Author: Rebecca Rainey is an employment and immigration reporter with POLITICO Pro and the author of the Morning Shift newsletter.


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‘A tale of 2 recessions’: As rich Americans get richer, the bottom half struggles

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The path toward economic recovery in the U.S. has become sharply divided, with wealthier Americans earning and saving at record levels while the poorest struggle to pay their bills and put food on the table.

The result is a splintered economic picture characterized by high highs — the stock market has hit record levels — and incongruous low lows: Nearly 30 million Americans are receiving unemployment benefits, and the jobless rate stands at 8.4 percent. And that dichotomy, economists fear, could obscure the need for an additional economic stimulus that most say is sorely needed.

The trend is on track to exacerbate dramatic wealth and income gaps in the U.S., where divides are already wider than any other nation in the G-7, a group of major developed countries. Spiraling inequality can also contribute to political and financial instability, fuel social unrest and extend any economic recession.

The growing divide could also have damaging implications for President Donald Trump’s reelection bid. Economic downturns historically have been harmful if not fatal for incumbent presidents, and Trump’s base of working-class, blue-collar voters in the Midwest are among the demographics hurting the most. The White House has worked to highlight a rapid economic recovery as a primary reason to reelect the president, but his support on the issue is slipping: Nearly 3 in 5 people say the economy is on the wrong track, a recent Reuters/Ipsos poll found.

Democrats are now seizing on what they see as an opportunity to hit the president on what had been one of his strongest reelection arguments.

“The economic inequities that began before the downturn have only worsened under this failed presidency,” Democratic presidential nominee Joe Biden said Friday. “No one thought they’d lose their job for good or see small businesses shut down en masse. But that kind of recovery requires leadership — leadership we didn’t have, and still don’t have.”

Recent economic data and surveys have laid bare the growing divide. Americans saved a stunning $3.2 trillion in July, the same month that more than 1 in 7 households with children told the U.S. Census Bureau they sometimes or often didn’t have enough food. More than a quarter of adults surveyed have reported paying down debt faster than usual, according to a new AP-NORC poll, while the same proportion said they have been unable to make rent or mortgage payments or pay a bill.

A historic House vote on marijuana legalization will take place later this month. We break down why Democrats are voting on the bill despite the fact that it’ll be dead upon arrival in the Senate.

And while the employment rate for high-wage workers has almost entirely recovered — by mid-July it was down just 1 percent from January — it remains down 15.4 percent for low-wage workers, according to Harvard’s Opportunity Insights economic tracker.

“What that’s created is this tale of two recessions,” said Beth Akers, a labor economist with the Manhattan Institute who worked on the Council of Economic Advisers under President George W. Bush. “There are so obviously complete communities that have been almost entirely unscathed by Covid, while others are entirely devastated.”

Trump and his allies have seized on the strength of the stock market and positive growth in areas like manufacturing and retail sales as evidence of what they have been calling a “V-shaped recovery”: a sharp drop-off followed by rapid growth.

But economists say that argument fails to see the larger picture, one where roughly a million laid-off workers are filing for unemployment benefits each week, millions more have seen their pay and hours cut, and permanent job losses are rising. The economy gained 1.4 million jobs in August, the Labor Department reported Friday, but the pace of job growth has slowed at a time when less than half of the jobs lost earlier this year have been recovered.

Some economists have begun to refer to the recovery as “K-shaped,” because while some households and communities have mostly recovered, others are continuing to struggle — or even seeing their situation deteriorate further.

“If you just look at the top of the K, it’s a V — but you can’t just look at what’s above water,” said Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth. “There could be a whole iceberg underneath it that you’re going to plow into.”

The burden is falling heavily on the poorest Americans, who are more likely to be out of work and less likely to have savings to lean on to weather the crisis. While recessions are always hardest on the poor, the coronavirus downturn has amplified those effects because shutdowns and widespread closures have wiped out low-wage jobs in industries like leisure and hospitality.

Highly touted gains in the stock market, meanwhile, help only the wealthiest 10 percent or so of households, as most others own little or no stock.

The disconnect between the stock market and the broader economy has been stark. On the same day in late August that MGM Resorts announced it would be laying off a quarter of its workforce, throwing some 18,000 workers into unemployment, its stock price jumped more than 6 percent, reaching its highest closing price since the start of March.

“The haves and the have-nots, there’s always been a distinction,” Sahm said. But now, she added, “we are widening this in a way I don’t think people have really wrapped their head around.”

A store going out of business
A customer leaves a retail store, which is going out of business, during the coronavirus pandemic. | Lynne Sladky/AP Photo

Without further stimulus, the situation appears poised to get worse. Economic growth until now had been led by increasing levels of consumer spending, buoyed by stimulus checks and enhanced unemployment benefits that gave many people, including jobless workers, more money to spend.

Low-income consumers have led the way, and they spent slightly more in August than they did in January, according to the Opportunity Insights tracker — even as middle- and high-income consumers are still spending less.

But those low-income consumers were also the most dependent on the extra $600 per week in boosted unemployment benefits, which expired in July. Since that lapsed — and since Congress appears unlikely to extend it any time soon, if at all — “we’re likely to see other macroeconomic numbers really fall off a cliff in the coming weeks,” Akers said.

The expected drop in spending, paired with the expiration of economic relief initiatives like the Paycheck Protection Program, could also spell trouble for businesses in the coming months. Many economists expect a wave of bankruptcies and business closures in the fall, contributing to further layoffs.

In that sector, too, owners are feeling disparate impacts. More than 1 in 5 small business owners reported that sales are still 50 percent or less than where they were before the pandemic, according to a recent survey from the National Federation of Independent Business, and the same proportion say they will need to close their doors if current economic conditions do not improve within six months.

At the same time, however, half said they are nearly back to where they were before, and approximately 1 in 7 owners say they are doing better now than they were before the pandemic, the survey showed.

Those diverging narratives could be understating the need for further stimulus by smoothing over some of the deeper weaknesses in the labor market and the economy, experts say.

“This is a case where the averages tell a different story than the underlying data itself,” said Peter Atwater, an adjunct economics professor at William & Mary.

While Republicans appear to be embracing the idea of further “targeted” aid, they are also touting what Trump has called a “rocket-ship” economic recovery and emphasizing record-breaking growth while downplaying the record-breaking losses that preceded it.

“There’s no question the recovery has beat expectations,” said Rep. Kevin Brady (R-Texas), the top Republican on the House Ways and Means Committee, this week on a press call with reporters.

Talks between the White House and Democratic leaders, meanwhile, have been stalled for weeks. The Senate is set to return from its summer recess next week with no clear path forward on a relief package.

“People are in these bubbles,” Atwater said. “And if people aren’t leaving their homes, are not really getting out, it’s unlikely that they’re seeing the magnitude of the downside of this K-shaped recovery.”

This article originally appeared at Politico on September 7, 2020. Reprinted with permission.

About the Author: Megan Cassella is a trade reporter for POLITICO Pro. Before joining the trade team in June 2016, Megan worked for Reuters based out of Washington, covering the economy, domestic politics and the 2016 presidential campaign. It was in that role that she first began covering trade, including Donald Trump’s rise as the populist candidate vowing to renegotiate NAFTA and Hillary Clinton’s careful sidestep of the Trans-Pacific Partnership.

A D.C.-area native, Megan headed south for a few years to earn her bachelor’s degree in business journalism and international politics at the University of North Carolina at Chapel Hill. Now settled back inside the Beltway, Megan’s on the hunt for the city’s best Carolina BBQ — and still rooting for the Heels.


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How the Trump Administration’s Small Business Protection Program Has Failed Communities of Color

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The Covid-19 pandemic has devastated businesses run by people of color. The Trump administration’s Small Business Administration isn’t helping.

In recent weeks, it’s become increasingly clear that the federal government has failed to protect minority-owned businesses from the pandemic’s economic fallout. According to data published by the National Bureau of Economic Research, the number of black-owned businesses decreased by 41% between February and April. For the businesses that have survived, their cash balances decreased by 26%, compared with a 12% decline overall. 

While Congress enacted two small business loan programs to be administered by the Small Business Administration (SBA), many entrepreneurs of color, who are facing disproportionate effects of the current economic crisis, did not receive emergency funding. Meanwhile, large and well-connected companies, some of which are owned by members of Congress, walked away with over $1 billion in loans from the SBA. 

Trump’s SBA not only failed to support businesses struggling the most in the midst of the pandemic, but it failed to fulfill its purpose as defined by Congress. When it first created the agency, Congress specifically outlined the SBA’s obligation to support entrepreneurs from socially disadvantaged groups, who faced (and continue to face) limited access to credit, lower credit scores, a lack of relationships with financial institutions and lower levels of personal wealth. 

In the Small Business Act of 1953, Congress wrote: “[T]he opportunity for full participation in our free enterprise system by socially and economically disadvantaged persons is essential if we are to obtain social and economic equality for such persons and improve the functioning of our national economy.” In Section 8(a) of the Small Business Act, Congress laid out the SBA’s particular responsibilities to aide “small business concerns owned and controlled by socially and economically disadvantaged individuals so that such concerns can compete on an equal basis in the American economy,” whether that meant a leg up in federal contracting, management assistance, or whatever else the SBA determined would aid entrepreneurs of color.

Structural disadvantage

Today, business owners of color continue to face the same structural challenges that put them at a financial disadvantage compared to white business owners when the SBA was created. A typical black entrepreneur receives a third of the startup capital the typical white entrepreneur receives. Business owners of color tend to have smaller businesses on average than white-owned small businesses. Moreover, 95% of businesses owned by Black Americans have no employees, compared with just 78% of white-owned businesses. 

These facts illustrate just how vital the SBA’s programs remain for minority-owned businesses. Yet, by all accounts, business owners of color have faced disproportionate financial suffering during this pandemic, despite the two small business loan programs administered by an agency with a specific mandate to assist them. 

Consider the larger of the two SBA loan programs: The Paycheck Protection Program (PPP). PPP uses private financial institutions to issue federal loans to small businesses that can later be forgiven, so long as the business spends 60% of the funds on payroll expenses. Since the program’s rollout, SBA failed to issue clear guidance to lenders, or conduct adequate oversight. As a result, banks prioritized larger, better-connected businesses. Plus, simply by the nature of the program’s first-come-first-served design, those bigger and better-connected businesses swallowed up most of PPP’s initial funds, leaving many minority-owned businesses to wait until the second round of funding was approved. By then, many businesses had already closed their doors for good.

For those business owners of color who actually got their hands on PPP money, the loans turned out to be less useful than imagined. Minority-owned small businesses are less likely to have employees but were still only permitted to use 40% of their PPP loans on non-payroll expenses. 

That’s where the SBA’s smaller program—the Economic Injury Disaster Loan Program (EIDL)—could have come in handy. EIDLs provide small businesses with more flexible capital that can be used for a variety of business expenses, not just payroll. Additionally, businesses that apply for EIDL are eligible to receive a $10,000 advance on the loan that does not need to be paid back. Unfortunately, the SBA arbitrarily limited the amount of money businesses could receive from the $10,000 grants, and long wait times have left many business owners without any funds months after Congress created the program. And if business owners of color didn’t apply months ago, they won’t qualify for EIDL now: Treasury Secretary Steven Mnuchin limited the program to allow only agricultural businesses in April.

The disparities in access to SBA loans for business owners of color are stark. In a recent report, UnidosUS and Color of Change found that only 1 in 10 Black or Latinx-owned small businesses received the PPP assistance they requested. Another reportfrom Goldman Sachs found that only 79% of Black business owners applied for a PPP loan, compared with 91% of small businesses overall—and that 26% of black business owners have less than one month of cash reserves compared with 17% overall. These disparities might have been reduced but for the SBA’s failure to instruct lenders to prioritize underserved businesses, including minority and women-owned businesses. 

Unfortunately, the SBA’s inaction in this crisis follows a decades-long tradition of failing to support its mandate to help business owners of color. The agency has not adequately provided small business owners of color with the support the Small Business Act calls for in nearly 70 years since the legislation’s passing.

8(a) program

Through the SBA’s 8(a) business development program, minority-owned businesses can compete for set-aside government contracts and receive management and technical training. Yet since its inception, opportunistic white entrepreneurs have defrauded and abused the program, while the SBA has failed to ensure money got in the right hands.

In 1977, the Washington Post reported that white-owned businesses were fraudulently applying to the program, procuring lucrative government contracts meant for minority-owned businesses. Meanwhile, actual business owners of color in the program reported that they lacked technical support and guidance from the SBA. One black small business owner reported that the SBA offered to let him split a contract with a company owned by the white brother-in-law of an SBA employee. Two Nixon officials received 8(a) contracts. One federal official received an 8(a) contract for his business that had no assets or employees and then subcontracted all the work to white-owned businesses.

In 1979, in response to the abuse, the SBA Office of Inspector General (OIG) released a report that found that one in five 8(a) participants were defrauding the program. The Government Accountability Office (GAO) found the 8(a) program’s eligibility criteria were not applied uniformly, and the SBA failed to properly report data on participants.

Congress attempted to improve the 8(a) program in 1978, 1980, and 1988, but it continued to be mismanaged and plagued by fraud. According to GAO, most of the program’s dollars went to a small number of firms, and the program’s management training did not provide minority-owned businesses with the tools to become self-sufficient businesses, evident from their lack of non-8(a) clients after graduating from the program. The GAO also reported that the 8(a) program lacked resources and failed to properly record data on the participating firms – in other words, they conveniently were unable to track the improvement (or lack thereof) of participants. 

Even after continued reports of mismanagement and fraud, the SBA failed to effectively implement GAO’s recommendations. In 1996, the GAO reported that, while the SBA had made some progress, 8(a) was still not optimally supporting minority-owned businesses. The report criticized the program for only graduating three businesses. Again in 2000 and 2008, the GAO reported that the program was understaffed and under-resourced and had failed to implement recommendations to improve the program and reduce fraud. This lack of resources meant the SBA could not effectively support minority-owned firms participating in the program or ensure participants met eligibility requirements.

In 2009, after years of inaction, ProPublica revealed that the Department of Defense had awarded nearly $30 million in 8(a) contracts to companies under criminal investigation for falsely claiming to be small minority-owned businesses. In 2010, GAO discovered that 14 ineligible firms received $325 million in 8(a) contracts meant for minority-owned businesses, and in some cases, the SBA was aware of the firm’s ineligibility at the time it gave out the money. As recently as 2018, the SBA inspector general reported the agency failed to remove ineligible companies from the program. Ultimately, it is unclear just how much money has been pilfered from the intended minority business owners due to the SBA’s negligence over the years.

HUBZone

In 1997, the SBA created the HUBZone program, which set aside federal contracts for businesses located in “Historically Underutilized Business Zones.” While not directly providing support to minority-owned businesses, this program served low-income communities, many of which have disproportionate levels of racial and ethnic minorities. This program would help channel funds into these communities, providing much-needed economic opportunity and growth.

Yet, since its inception, HUBZone faced many of the same issues plaguing 8(a). The SBA inaccurately reported data on HUBZone participants, which led to errors in reported levels of growth and achievement, according to one GAO report. Another report criticized the SBA’s communication about program guidelines to participating firms.

Beyond mismanagement and data entry errors, the SBA used inaccurate maps to determine whether small businesses were located in economically distressed areas. A 2008 GAO report found that the SBA awarded HUBZone contracts to small businesses in wealthy communities due to inaccurate maps and failed to address these inaccuracies with regular monitoring required by SBA policy. 

Despite the numerous warnings from GAO and OIG, the SBA did not effectively improve HUBZone, and in 2019, the Washington Post reported that $800 million in HUBZone contract dollars went to just 11 businesses, many of which were located in Washington, D.C.’s wealthy neighborhoods, including Dupont Circle, Navy Yard and downtown. Meanwhile, business owners in poorer neighborhoods were left behind. In the program’s 20-plus-year history, it has never once met its goal of awarding 3% of federal contracts to HUBZone firms. 

Reimagining the SBA

The SBA’s consistent failure to adequately fulfill its congressional mandate, especially in the age of Covid-19, requires that we reimagine what the agency could look like. If future administrations provided the SBA with adequate funding and appointed a Small Business Administrator willing to invest in these defunct programs, the SBA might be able to help build a more inclusive, stronger economy.

Democratic nominee Joe Biden has reportedly begun hearing proposals for closing the racial wealth gap from his economic advisors. He’d do well to look at what tools would already be available to accomplish that ambitious goal should he become president in 2021—the SBA is one of them. 

Unfortunately, over the past several decades, presidents have cut the SBA’s budget while its own leaders have supported these cuts in the name of balanced budgets and efficiency. Decades of budget cuts have starved the SBA of the resources needed to conduct proper oversight and tracking of its minority lending programs and its PPP and EIDL programs. 

The SBA must do better. As Connie Evans of the Association for Enterprise Opportunity recently told the Senate Committee on Small Business and Entrepreneurship, the pandemic’s “economic consequences are projected to erase decades of minority enterprise growth in underserved markets.” But with a new administration and Small Business Administrator dedicated to uplifting communities of color, the SBA could finally accomplish its long-disregarded goals.

This blog originally appeared at In These Times on July 8, 2020. Reprinted with permission.

About the Author: Miranda Litwak is a researcher for the Revolving Door Project.


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What You Need To Know About The Michigan GOP’s ‘Right-To-Work’ Assault On Workers

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On Thursday, Michigan Gov. Rick Snyder (R) backtrackedon his commitment to avoid so-called “right-to-work” legislation and by the end of the day, both the Michigan House of Representatives and the Michigan state Senate had introduced and passed separate bills aimed at the state’s union workforce.

Michigan Republicans claim the state needs the measure to stay competitive with Indiana, where lawmakers passed “right-to-work” last year. In reality, though, such laws have negative effects on workers and little effect on economic growth. Here is what you need to know about the state GOP’s campaign:

THE LEGISLATION: Both the state House and state Senate passed legislation on Thursday that prohibits private sector unions from requiring members to pay dues. The Senate followed suit and passed a different but similar measure that extends the same prohibition for public sector unions, though firefighters and police officers are exempt. The state House included a budget appropriations provision that is intended to prevent the state’s voters from being able to legally challenge the law through a ballot referendum. Due to state law, both houses are prevented from voting on legislation passed by the other for five days, so neither will be able to fully pass the legislation until Tuesday at the earliest.

THE PROCESS: Union leaders and Democrats claim that Republicans are pushing the legislation through in the lame-duck session to hide the intent of the measures from citizens, and because the legislation would face more trouble after the new House convenes in January. Michigan Republicans hold a 63-47 advantage in the state House, but Democrats narrowed the GOP majority to just eight seats in November. Six Republicans opposed the House measure; five of them won re-election in 2012 (the sixth retired). And Michigan Republicans have good reason to pursue the laws without public debate. Though the state’s voters are evenly split on whether it should become a right-to-work state, 78 percent of voters said the legislature “should focus on issues like creating jobs and improving education, and not changing state laws or rules that would impact unions or make further changes in collective bargaining.”

THE CONSEQUENCES: While Snyder and Republicans pitched “right-to-work” as a pro-worker move aimed at improving the economy, studies show such legislation can cost workers money. The Economic Policy Institute found that right-to-work laws cost all workers, union and otherwise, $1,500 a year in wages and that they make it harder for workers to obtain pensions and health coverage. “If benefits coverage in non-right-to-work states were lowered to the levels of states with these laws, 2 million fewer workers would receive health insurance and 3.8 million fewer workers would receive pensions nationwide,” David Madland and Karla Walter from the Center for American Progress wrote earlier this year. The decreases in union membership that result from right-to-work laws have a significant impact on the middle class and research “shows that there is no relationship between right-to-work laws and state unemployment rates, state per capita income, or state job growth,” EPI wrote in a recent report about Michigan. “Right-to-work” laws also decrease worker safety and can hurt small businesses.

Union leaders are, of course, aghast at Snyder and the GOP’s right-to-work push. “In a state that gave birth to the modern U.S. labor movement, it is unconscionable that Michigan legislators would seek to drive down living standards for Michigan workers and families with a law that will do nothing to improve either the state’s economic climate or the quality of life for Michigan residents,” RoseAnn DeMoro, the executive director of National Nurses United, said in a statement.

This post was originally posted on December 7, 2012 on Think Progress. Reprinted with Permission.

About the Author: Travis Waldron is is a reporter/blogger for ThinkProgress.org at the Center for American Progress Action Fund. Travis grew up in Louisville, Kentucky, and holds a BA in journalism and political science from the University of Kentucky. Before coming to ThinkProgress, he worked as a press aide at the Health Information Center and as a staffer on Kentucky Attorney General Jack Conway’s 2010 Senate campaign. He also interned at National Journal’s Hotline and was a sports writer and political columnist at the Kentucky Kernel, the University of Kentucky’s daily student newspaper.


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Poor Leaders Can Decrease Worker Productivity By Up to 40 Percent

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Mark Harkebe

As Newswise reports, based on employee engagement research by Florida State University business school professor Wayne Hochwarter,

recession-based uncertainty has encouraged many business leaders to pursue self-serving behaviors at the expense of those that are considered mutually beneficial or supportive of organizational goals.

This plays out in behaviors that Hochwarter’s team classified using the biblical Seven Deadly Sins as a framework.  While the percentages attached to each of those “behavioral sins,” based on feedback from more than 700 mid-level workers, is interesting, what appears further down in Newswise’s article caught my attention more from a productive workplace standpoint: FSU found that employees with leaders who committed any of these “sins” said they cut back on their contributions by 40%.  Notably, they were also:

  • 66% less likely to make creative suggestions, and
  • 75% more likely to pursue other job opportunities.

Hochwarter’s findings tell me that workplace qualities that some leaders might consider as soft (or at least far down on the totem pole of what they need to worry about day to day), such as trust, respect, and fairness, are not just “nice to do’s” – they have a real impact on product/service delivery and quality, and company spending on recruiting and retraining.

This is one of the reasons that Winning Workplaces revised our Top Small Company Workplaces award application for 2011 to take a more in-depth look at how things like rewards/recognition and employee leadership development strategies impact business results.  Year after year of our small workplace award program, we see that happier, more highly engaged employees lead to better outcomes, while the opposite lead to a path of lower profitability and competitiveness in the marketplace.

This post is cross-posted on the Winning Workplaces Blog.

About The Author: Mark Harbeke is Director of Content Development for Winning Workplace. He helps write and edit Winning Workplaces’ e-newsletter, IDEAS, and provides graphic design and marketing support. Mark holds a bachelor’s degree in journalism from Drake University.


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Companies That Care About Workers’ Rights: Apply Now to be Named a 2010 Top Small Company Workplace

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Inc. magazine and the nonprofit I work for, Winning Workplaces, have partnered to find and recognize exemplary workplaces; those that motivate, engage and reward people. A model workplace can offer a critical competitive edge, ultimately retaining employees and boosting the bottom line.

Together, Inc. and Winning Workplaces will identify and honor those benchmark small and mid-sized businesses that offer truly innovative, supportive environments, thus achieving significant, sustainable business results.

“Growing, privately held companies have always excelled at competing based on the people they employ,” states Jane Berentson, Editor of Inc. magazine. “Their innate ability to innovate is woven throughout their cultures, including the way they manage and motivate their employees. Inc.’s partnership with Winning Workplaces is a great opportunity to fully recognize private company excellence in supporting their human capital.”

Click to apply for Top Small Company Workplaces 2010“Winning Workplaces is thrilled to partner with Inc. as we honor truly exemplary organizations who have created workplaces that are better for people; better for business; and better for society,” said Gaye van den Hombergh, President, Winning Workplaces. “These organizations are an inspiration to business leaders looking for ways to leverage their people practices to create more profitable and sustainable companies.”

The application process is open through January 22, 2010. To apply, go to tsw.winningworkplaces.org. The Top Small Company Workplaces will be announced in a special issue of Inc., which will be available on newsstands June 8, 2010, and on Inc.com in June. An awards ceremony, honoring the finalists and winners, will be held at the national Inc. On Leadership Conference in October 2010.

About Inc. magazine
Founded in 1979 and acquired in 2005 by Mansueto Ventures, Inc. magazine (www.inc.com) is the only major business magazine dedicated exclusively to owners and managers of growing private companies that delivers real solutions for today’s innovative company builders. With a total paid circulation of 724,110, Inc. provides hands-on tools and market-tested strategies for managing people, finances, sales, marketing and technology.

About Winning Workplaces
Winning Workplaces (www.winningworkplaces.org) is an Evanston, IL-based not-for-profit, whose mission is to help the leaders of small and mid-sized organizations create great workplaces. Founded in 2001, Winning Workplaces serves as a clearinghouse of information on workplace best practices, provides seminars and workshops on workplace-related topics and inspires and awards top workplaces through its annual Top Small Company Workplaces initiative.

About the Author: Mark Harbeke ensures that content on Winning Workplaces’ website is up-to-date, accurate and engaging. He also writes and edits their monthly e-newsletter, Ideas, and provides graphic design and marketing support. His experience includes serving as editorial assistant for Meredith Corporation’s Midwest Living magazine title, publications editor for Visionation, Ltd., and proofreader for the National Association of Boards of Pharmacy. Mark holds a bachelor’s degree in journalism from Drake University. Winning Workplaces is a not-for-profit providing consulting, training and information to help small and midsize organizations create great workplaces. Too often, the information and resources needed to create a high-performance workplace are out of reach for all but the largest organizations. Winning Workplaces is changing that by offering employers affordable consulting, training and information.


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Why Today’s Workplace Readers Should Think About Attending The ROI of Great Workplaces Conference

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You found this blog, or return to it, because you’re interested in workplace rights and employers that follow the law to a tee, right?  Well, you’ll find the latest, best information on both and meet some dynamic business contacts to boot at Winning Workplaces’ 2009 annual event that will be held in Chicago on October 1-2.  We’re calling it the ROI of Great Workplaces Conference.

Click here to:

  • View event summary
  • Add event to your calendar
  • Watch a short highlights reel from our 2008 conference
  • View fees and agenda (note that the agenda is still coming together)
  • Learn about the location
  • Book your room at the event hotel at the special Winning Workplaces rate

Besides the short video of last year’s conference at the above link, you can get a sense of what attendees experienced by checking out my photo recaps on our blog here and here.

Here’s more incentive to attend: Be one of the first 100 people to register and get $100 off your registration.  Just click here and enter coupon code FRSTHUND when prompted.

Some of my favorite moments at this event happen when I meet new business people in between sessions.  This was the case last year when I was finally able to meet and sit down with your host on this blog, Paula Brantner.  I hope I’ll be able to do the same with you this year.

Register now for this event.

About the Author: Mark Harbeke ensures that content on Winning Workplaces’ website is up-to-date, accurate and engaging. He also writes and edits their monthly e-newsletter, Ideas, and provides graphic design and marketing support. His experience includes serving as editorial assistant for Meredith Corporation’s Midwest Living magazine title, publications editor for Visionation, Ltd., and proofreader for the National Association of Boards of Pharmacy. Mark holds a bachelor’s degree in journalism from Drake University. Winning Workplaces is a not-for-profit providing consulting, training and information to help small and midsize organizations create great workplaces. Too often, the information and resources needed to create a high-performance workplace are out of reach for all but the largest organizations. Winning Workplaces is changing that by offering employers affordable consulting, training and information.


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What’s Wrong with This Picture?

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The following is cross-posted on the Winning Workplaces blog. I thought it was appropriate for Today’s Workplace’s focus on taking back Labor Day. After all, this holiday should offer pause not just for workers, but for company leaders to reflect on how they can do more with less in this difficult economic environment. Enjoy, and feel free to drop a comment below.
– MH

According to two new, independent employer studies – this one and this one – while more than half of employers are planning to hire full-time employees over the next year, over half also don’t offer paid maternity leave (and those that do provide only around 50% pay, on average).

This recruiting/retention picture doesn’t add up for me.  Companies that believe they’re seeing light at the end of the economic tunnel should focus on pleasing their current workforce and getting employees engaged – especially if they’ve had to make some wage or other concessions since the beginning of the recession.  This is all part of sharing the recovery as well as the pain with workers.

This is not to say that companies that see more demand shouldn’t hire more talent to meet it.  But while they make plans to do so, they should use this time as an opportunity to ramp up their benefit packages and other methods for improving productivity and commitment so their existing knowledge base is fully on board for the increased workload – and so they can serve as better ambassadors to acclimate new hires to the organizational culture.

Do you agree or disagree with my assessment that the above-mentioned studies represent conflicting human capital strategies?

About the Author: Mark Harbeke ensures that content on Winning Workplaces’ website is up-to-date, accurate and engaging. He also writes and edits their monthly e-newsletter, Ideas, and provides graphic design and marketing support. His experience includes serving as editorial assistant for Meredith Corporation’s Midwest Living magazine title, publications editor for Visionation, Ltd., and proofreader for the National Association of Boards of Pharmacy. Mark holds a bachelor’s degree in journalism from Drake University. Winning Workplaces is a not-for-profit providing consulting, training and information to help small and midsize organizations create great workplaces. Too often, the information and resources needed to create a high-performance workplace are out of reach for all but the largest organizations. Winning Workplaces is changing that by offering employers affordable consulting, training and information.


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