On the latest episode of Policy Outsider, the podcast of the Rockefeller Institute of Government, guest Laura Schultz, director of fiscal analysis and senior economist at the Institute, discusses the outlook of the economy and steps federal, state, and local governments are taking to support businesses and individuals in the face of the COVID-19 pandemic.
Schultz discusses how some state governments are providing assistance to businesses by delaying tax deadlines and placing moratoriums on evictions and utility shutdowns. Local governments and organizations, like economic development councils and chambers of commerce, are supporting small businesses as they work through guidance from the federal government to receive loans through the CARES Act.
Guest:
Laura Schultz, Director of Fiscal Analysis and Senior Economist, Rockefeller Institute of Government
Transcript was generated using AI software and may contain errors.
Alexander Morse 00:04
We know the economy is taking a huge hit right now from the coronavirus pandemic. But who’s most affected? This is Policy Outsider. I’m your host, Alex Morse. Today, we’re going to talk to Laura Schultz, director of fiscal policy and senior economist at the Rockefeller Institute about which sectors of the economy are most at risk. We’ll also discuss specific provisions from the US Cares Act to learn more about who’s getting what from the $2 trillion federal relief bill, as well as what additional support state and local governments are providing. And a brief aside, since we are currently under a work-from-home directive, Laura and I used Zoom, a web-based video conferencing software, to talk. There may be the occasional glitch in the audio, but hopefully that doesn’t distract from the conversation. Thanks.
Alexander Morse 01:13
Laura, thank you for joining me today. How are you doing?
Laura Schultz 01:16
I am good, thank you for having me. It’s an important conversation we need to have today.
Alexander Morse 01:21
Right. Despite the circumstances, at least we’re able to work from home and bring to light some of the things that we’re talking about in regards to the economy, the US Cares Act. To get right into it, according to the US Labor Department, there have been nearly 17 million unemployment claims since the middle of March. That’s putting us in unprecedented territory. What industries have the highest concentration of job losses?
Laura Schultz 01:45
The first round that we’re seeing are the businesses that have been shut down by stay-at-home or shelter-in-place orders. You’re seeing real hits in restaurants, leisure, and hospitality. You’re seeing hits in retail. We’ve seen growth in some retail, but any nonessential retail, it has been shuttered. We’re seeing a lot of layoffs and furloughs in that sector. Personal services, so childcare centers have been shut down. We can’t go to our hairdressers anymore. All of those kinds of people in the economy are currently without work. Healthcare, while hospitals are hiring, all nonessential medical needs have been shut down. Dental offices are closed. You’re not getting your braces checked, you’re not getting your eyes checked anymore. A lot of those places have all shut down. The transportation sectors’ being hit. Anything that transports people are seeing losses, so that’s the airline industry, rails, transit. Construction has been shut down. Those are all the first line effects. If you look at the Labor Department layoff notices, that’s where the vast majority of them are. Now, you’re beginning to see the secondary hits. The companies that supply restaurants. Manufacturers are being disrupted, because no one’s buying their goods anymore, are getting hit. The first line is happening, we’re going to likely see that go up, and then the second line is going to start falling.
Alexander Morse 03:31
It’s really an upstream/downstream problem. There’s really no immune industry except I guess you’d said a little bit of healthcare.
Laura Schultz 03:40
The hospital emergency care are doing all right. But hospitals are laying people off because they can’t perform any nonessential services right now. Things like imaging, blood tests, things like that, we don’t need to go to right now. As a result, they are furloughing people. Other sectors that are doing good. The retail that is allowed to stay open is doing really well—grocery stores, Walmart, Target, convenience stores, home improvement stores are all hiring right now. Many are offering higher wages and bonuses to get employees to work hours. They are paying hazard pay. Online retail trade is booming. Amazon’s going to bring on 100,000 workers. Then you’ve got the delivery services that are hiring to actually get those shipments out to people.
Alexander Morse 04:35
So a lot of those retailers that you just alluded to, those sound like the big businesses, the ones that have existing capital that can survive these kinds of economic downturns.
Laura Schultz 04:44
Yes and have the capital that allows them to take advantage of the opportunity.
Alexander Morse 04:48
Focusing on small business, which is taking a huge hit right now, what support is being offered from all levels of government?
Laura Schultz 04:54
At the federal level, small businesses were specifically addressed in the Cares Act. There were forgivable loans. The Payroll Protection Program offers loans to small businesses that cover two and a half months of payroll and that cash can be used to pay payroll for their employees, help pay utilities, and fixed costs associated with their business. That loan will be forgiven, assuming when we get out of this that their payroll hasn’t dropped or their workers haven’t dropped. Assuming that the business retains its workers through the crisis, the debt that they owe will be forgiven. Even if they don’t, it’s a relatively low-interest rate loan. It’s supposed to be fast tracked so that this money can get out relatively quickly. Now, from my understanding from boots on the ground, it’s just a massive program with a lot of questions. You’re asking banks across the country to vet these small businesses, write checks, and it could just be really challenging to get a program of that magnitude up and running. That’s what’s happening at the federal level. The state level, state governments and local governments have done things that would help these businesses have some cash liquidity. Its delayed tax deadlines, so they don’t necessarily have to write a check to state and local governments immediately. There have been a moratorium in some jurisdictions on evictions, so the business can’t be shut out of its space for not paying its rent for the next couple of months. There have been moratoriums on utility shutdowns, so businesses can’t lose the power and other utilities in the event that they don’t pay those bills right away. Things like that allow for a little more cash liquidity, so a business may say we’re going to pay our workers now. Then once we’re done with this and we get some more revenue in the door, we will then pay the backlog of bills that we owe.
Alexander Morse 07:20
So the bills do accumulate?
Laura Schultz 07:22
The bills will accumulate. But we also may have another federal stimulus bill that addresses some of that. So there’s a lot up in the air. The other thing happening at the local level is that a lot of economic development organizations, that’s your industrial development agencies in New York, your chambers of commerce, are stepping up to connect small businesses with these types of programs. If you own a restaurant or a relatively new business owner, you’re not quite sure how to prove your payroll, you might not be sure what types of business expenses are allowable under this, you’re not sure how to document, a lot of these organizations have been stepping up as first responders in their local business communities to help these companies weather this storm.
Alexander Morse 08:15
It’s great to hear the support that’s coming in from all levels. I’ve heard one of the concerns is that from the federal relief bill, is that there hasn’t been a lot of guidance issued with these policies. A lot of people are just kind of scrambling. An analogy I just heard recently for the small business loans is we’re in an auditorium with 20,000 people and one door, and everyone’s just trying to scramble and get this money as fast as they can because it’s, as of right now, only finite.
Laura Schultz 08:46
I think that’s a really good analogy. I think we should say the auditorium is dark too, so no one can figure out how to walk to the door. Because a lot of questions have been how do I file for this? What do I need to prove my income? These programs were designed to be flexible, but because there aren’t a lot of regulations, it seems vague, and businesses and then the people who are executing the loans aren’t necessarily sure what they need to be doing. Because it’s such a popular program in high demand and the money’s running out, it is a high priority for round four of the next stimulus.
Alexander Morse 09:27
Is there any insight into when round four will be?
Laura Schultz 09:30
We don’t really know. I know that the negotiations are starting but when that will be and what will be included isn’t really clear yet. Also, we don’t know how many rounds there are going to be. I think that the federal government is committed to maintaining stimulus throughout this and then they also need to plan for recovery. The bills to date have been to fill in holes, get payments out to people, make sure that people have cash that they need to survive this. The next phase, once we’ve reopened the economy, we will have a better understanding of what’s going to be required, and then more funding and additional programs will likely be implemented.
Alexander Morse 10:17
Finally, let’s talk about those direct checks that Congress is sending out—$1,200 for individuals, $2,400 for couples. When are they being distributed? Are they contingent upon anything such as income levels or family size?
Laura Schultz 10:33
Well, we’re not quite sure when the checks are going to show up. For people who have direct deposit with the IRS, I would expect to see it in the next couple of weeks. For people who aren’t, don’t have their bank account on file with the IRS, we’re not quite sure when those checks are going to arrive, then it does taper off with income level. If you’re above $75,000 as a single person, it starts to taper off until I think you reach about 100,000. Those are payments to almost everyone in the United States. In addition, acknowledging there are going to be a lot of people on unemployment in a very short period, they made some changes to unemployment on a temporary basis. Checks are going to increase by $600, which should cover most people’s income levels. In addition, they made more people eligible for unemployment. Traditionally, independent contractors and members of the gig economy have not been eligible for unemployment because they don’t pay unemployment insurance through an employer. These people are now eligible for unemployment. That could represent another 10 to 15 percent of workers who otherwise would have been without financial support and without a job. States have been working hard to try to enact that, but their systems haven’t really been designed to service those people, so there’s going to be some delays for those. But hopefully, eventually that money will start flowing to those workers.
Alexander Morse 12:10
You say the systems aren’t designed? What does that mean?
Laura Schultz 12:13
Unemployment insurance verifies your income based on what employers have reported. So there are questions about how do you verify your employment as a gig worker? How much you’re eligible for? A lot of those administrative questions have to be answered and answered in a really short period of time.
Alexander Morse 12:33
A short period of time and just the scope of the number of claims, I mean, we’re bound to see a bottleneck.
Laura Schultz 12:40
Yes. We’ve been under economic growth for so long, unemployment offices have scaled down. To all of a sudden be in a growth economy, doing well, and in a matter of weeks be facing record levels of claims, the infrastructure isn’t set up to support it.
Alexander Morse 13:13
Thanks to Laura Schultz, director of fiscal policy and senior economist at the Rockefeller Institute, for taking time to talk to us about the state of the economy and the response by federal, state, and local governments. Also, we here at the Rockefeller Institute want to express our deepest thanks to those on the frontlines—nurses, doctors, first responders, grocery store workers, restaurant workers, gas station attendants, everyone whose job is deemed essential. You are all playing a critical role and playing it so well. Your efforts are helping us push through these uncharted territories together. Thank you. I’m Alex Morse. Until next time.
Alexander Morse 13:58
Policy Outsider is presented by the Rockefeller Institute of Government, the public policy research arm of the State University of New York. The Institute conducts cutting edge nonpartisan public policy research and analysis to inform lasting solutions to the challenges facing New York State and the nation. Learn more at rockinst.org or by following RockefellerInst on social media. Have a question or comment or idea? Email us at communications.rock.suny.edu.
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