Q&A: The Local and Federal Response to COVID-19’s Economic Impact

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Bruce Katz, co-founder and inaugural director of the Nowak Metro Finance Lab in Drexel University’s Lindy Institute for Urban Innovation, knows a thing or two about how governments can respond to economic crises enveloping cities and counties.

He co-led the housing and urban transition team for the Obama administration after the 2008 election and later served as a senior advisor to Secretary of Housing and Urban Development Secretary Shaun Donovan for the first 100 days. That means he was very involved in the formation and implementation of the American Recovery and Reinvestment Act passed in response to the Great Recession — so it’s no surprise that he’s been intently following, and impacting, the federal and local response to the small business crisis created by the COVID-19 pandemic.

Since early March, Katz has been working with colleagues to research new ways and adapt existing initiatives for individual cities, plus the whole country itself, suffering immensely under the novel coronavirus’ economic impact. He talked to DrexelNow about what cities stepped up in the beginning days of the crisis, who he’s been working with in the House and Senate for the next small business local relief program and what institutional changes he expects to come once the pandemic has lapsed.

Q: With your work, what was your immediate response to the pandemic?

A: What we have built at Drexel is a network of practitioners, researchers, elected officials, business chambers, philanthropies and universities all over the country. My colleagues and I have been in close contact with members of this network throughout the entire crisis period, which has given us a clear sense of what’s happening on the ground and how innovative responses invented in one city can inform other cities as well as state and federal policy.

Our goal at the Nowak Lab is to provide real-time guidance to decisionmakers. To that end, we have tried to act as a feedback loop between practitioners on the ground and decision makers at the national level in a constant and iterative way – week in and week out. In many respects, we are acting as a go-between between different levels of our federalist system, layers of government as well as different sectors in our economy. There is no formal institutional mechanism for doing this in the United States, so we are trying to fill the gap by providing practical, implementable and actionable advice on key elements of the crisis.

It was apparent fairly early in the crisis that a prolonged shut down would have dramatic implications for small businesses. Early in March, I began to work with a number of colleagues on looking at the precedent that the federal government has for dealing with the impact of a natural disaster on small businesses. The analogies are not perfect. A natural disaster like a hurricane or flood usually affects a contained geography in a time limited way. The COVID-19 crisis is like a hurricane happening everywhere with no clear end in sight. My colleagues and I thus began to examine the effectiveness of prior Small Business Administration disaster loans as well as the impact of the shutdown not only on individual businesses but on the places where they tend to concentrate and co-locate: main streets, commercial corridors and downtowns.

I co-authored an early piece around Erie’s downtown, showing the interplay of small businesses and business districts. To a large extent, Erie’s downtown is a proxy for the country; a decade of hard work has led to nascent revival, which the COVID-19 crisis has literally wiped out in weeks. After the Erie piece, my colleagues and I began to assess the federal government’s response: the new Paycheck Protection Program; the use of a more traditional tool, the Economic Injury Disaster Loan Emergency Advance program; and the new lending facilities established by the Federal Reserve Bank. We then began to chronicle the rise of local relief funds and in early April, we proposed our own legislative initiative — a Main Street Emergency Act — to provide $50 billion in direct assistance to cities, counties and states to expand the local relief efforts that are being established all over the country.  

Q: With this network, what cities were you looking at?

A: We were looking for first movers and cities on the leading edge of innovative practice. Before the federal government acted, cities were already establishing and standing up their own relief funds. Cities have learned the hard way that you can’t wait for the federal calvary to come, because even when it does, it often doesn’t come with the right set of tools.

Thus, by mid- and late March, a growing number of cities started to set up local relief funds to deal with the impact on these neighborhood-serving businesses that provide everyday life services. Birmingham set up a fund through its local government. Indianapolis set up a fund through its business chamber. Erie set up a fund through its public authority, a gaming authority that uses revenues from casinos. New Haven set up a fund through its community foundation.

Because of our network, we were able to quickly get in touch with the people leading the different local refunds. We asked them a series of series of pointed questions: “What’s your target? How are you defining small business? What were the terms and conditions of your products? Were they grants? Were they certain kinds of loans? How did you decide how to allocate the funds?”

There are now dozens of cities that have set up these funds, but we were able to find the first movers, quickly codify what they were doing and create a typology of local relief funds so then more cities could come to us and say, “Hey, we’re doing this, too. We need to learn about the best practices that are already being invented.”  

Ultimately, when the federal government began to act, we were able to compare and contrast the flexibility of the local funds with the products and distribution channels used by the federal response. We particularly noted that the federal government’s reliance on large financial institutions meant that a large portion of very small businesses, those with fewer with 20 employees, were not receiving the resources they needed.

My work during this period has built upon “The New Localism,” the book that Jeremy Nowak and I co-authored in 2018. Jeremy and I observed that cities are networks of public, private and civic institutions, not merely governments. This enables them to solve problems in interdisciplinary ways and move quickly to customize solutions to the challenges at hand. As networks, they’re also able to be quite nimble and change what they are doing based on what’s working and what’s not working; the federal government tends to work in much more siloed and constricted ways. As Jeremy and I also observed, innovation travels fast across cities as fast followers quickly absorb the lessons from first movers.  

Q: How do you distribute your work?

A: I send out a newsletter weekly to about 5,000 plus subscribers. They tend to reflect the broader network of urban stakeholders: mayors, philanthropy heads, business and chamber heads, university researchers, community practitioners, investors and banks. It’s a pretty eclectic network, and it tends to grow on its own. The Philadelphia Citizen also re-posts each of my newsletters.

I also have a partnership with Accelerator for America, an intermediary that was co-founded by Eric Garcetti, the mayor of Los Angeles. Accelerator for America reposts most of what we write, either through my newsletter or report-like products on the Nowak Lab website. We co-brand our reports with Accelerator for America and they distribute them widely across a broad network of mayors and cities. They have also created a highly accessible COVID-19 toolkit, building from our research.

Distribution of our content tends to move very fast. Within a week of creating a typology of local relief funds, we had a Zoom call with dozens of mayors hosted by Rick Jacobs, the CEO of Accelerator for America. I heard from a member of Senator Cory Booker’s staff the same day I posted a newsletter calling for a Main Street Emergency Act. We live in a world where impact doesn’t occur just by writing an op-ed in The New York Times. Our audience tends to be practitioners and decision makers — a class of “do-ers” — as much as opinion makers. The network has been able to catalyze action at the local level, state and federal levels and across government, private, civic and university sectors.

Q: Can you give any examples of something you recommended that a mayor or city ended up doing?

A: Many cities have established local relief funds, realizing that the federal response will inevitably be imperfect. In a country the size of ours, with so much variance in market structures and market conditions, it’s impossible to have the perfect response.

The tool that Congress has used to provide relief to small businesses has definitely favored large small businesses with established banking relationships. The local relief funds have had more success in reaching very small businesses as well as black- and Latino-owned businesses, which tend to be underbanked, underserved and overlooked. Small businesses in many rural communities also tend to be outside the mainstream financial system.

My colleagues and I get feedback all the time from practitioners on the front lines who say, “Your typology of funds and description of product terms and allocation criteria were of immediate use to us as we designed our funds.” We find that very rewarding.

Q: Have you been involved with or are looking at any future responses of the federal government?

A: My colleagues and I been working closely with Senator Cory Booker on using our idea for a Main Street Emergency Act as the basis for federal legislation. Last week, Senator Booker introduced the $50 billion RELIEF for Main Street Act. Significantly, he co-sponsored the legislation with Republican Senator Steve Daines from Montana, exhibiting not just bipartisanship but also an important urban-rural connection. We also have worked closely with Congressman Dan Kildee, a Democrat from Michigan, to introduce the same legislation on the House side, also with Republican co-sponsors. I worked with Senator Booker when he was the Mayor of Newark and with Congressman Kildee when he was the county treasurer of Genesee County, Michigan (where Flint is located) and, later, when he was the head of the Center for Community Progress.

So we’ve been helping Congressional staff draft and re-draft legislative language for the past several weeks that would provide $50 billion dollars in direct assistance to cities, counties and states so that they could both provide direct relief to very small businesses that have been missed by the federal programs, but also provide support for business districts, commercial corridors and downtowns that are all going to re-open after this crisis with many businesses having not just temporarily shuttered their doors, but closed for good.

As the crisis moves from an emergency to re-start phase, we are also examining the potential for special purpose organizations — what we call Main Street Regenerators — to provide common services to businesses as they try to grapple with new health protocols and the imperative of using internet services to sell their goods and services.

Q: Do you have any idea when that’s going to go through?

A: It is expected that Congress will pass the next COVID-19 recovery package sometime in June. The RELIEF for Main Street Act has the benefit of being introduced in both the House and Senate by a bipartisan group of Members. It also is flexible enough to bridge between products and places — that is, between the immediate rescue of small businesses and the longer-term recovery of commercial business districts. Significantly, by allocating resources directly to cities, counties and states, it is also able to address similar challenges that are being faced by urban downtowns, suburban commercial corridors rural Main Streets.  

My colleagues and I continue to monitor the crisis closely because the impacts of the economic contraction change literally on a daily or weekly basis. We’re in touch with dozens of practitioners across the country because they’re ultimately the people who are closest to the challenges and the best situated to give advice as to what will work on the ground.

Q: What are your next steps? Or, what else are you looking at, especially now that states are reopening?

A: My colleagues and I are beginning to focus on a series of countercyclical tools to deploy in the next phase of the crisis. We learned quite a bit during the Great Recession about the positive benefits of federal investments in infrastructure (to stimulate business demand) as well as workforce development (to give millions of people out of work the ability to upgrade their skills and gain new credentials). 

I recently co-authored a piece, “Skilling the Post COVID-19 Economy,” with several colleagues from Seattle. We particularly called for a substantial increase in federal support for community colleges, through the Trade Adjustment Assistance Community College and Career Training (TAACCCT) program. This program was successfully used during the Great Recession and could be a major vehicle for dislocated workers, as well as recent high school graduates, to obtain credentials that enable them to master next generation technologies (like artificial intelligence) that are now sweeping through our economy.  

So that’s the next thing I’m working on, though I’m still very much focused on the next rescue- and-recovery package for small business and business districts because that’s going to be with us for quite some time.

Q: Did you have anything else that you wanted to bring up?

A: The only thing I would add is that crises tend to transform economies and societies for long periods of time in predictable and unpredictable ways. This crisis has shown the unbelievably frayed safety net of the United States, with tens of millions of people living paycheck to paycheck. It has exacerbated deep and long-standing racial and ethnic disparities in health, income and wealth. And it has exposed structural deficiencies in how small businesses, particularly businesses owned by people of color, access quality capital that is fit to their needs.

I am working with two colleagues — Professor Luise Noring of the Copenhagen Business School and Andrew Petrisin of the professional services firm WSP — to tease out the institutional changes that might occur as a result of this crisis. History teaches us that crises lead to institutional transformation. During the New Deal, we created a multitude of new agencies, including the Social Security Administration. After 9/11, we created the Department of Homeland Security. After the Great Recession, we created a Consumer Financial Protection Bureau. I think this time around, we’ll create more than just new federal agencies; institutional change will occur at all levels of our society, to strengthen cities and networks of cities, to enhance greater coordination across the layers of our federalist system and to remake the federal approach to small businesses, among other things.

I believe we are entering a period of extraordinary institutional innovation, which I wrote about with some of my colleagues. But that’s what we do in the U.S.: we tend to constantly reinvent ourselves as people and as a country. This time it won’t be sufficient to consolidate agencies and move bureaucratic boxes around in Washington; what we must conceive and demand is a full-fledged national response that remakes our federalism and empowers our localism.