COVID-19 Implications for Small Businesses and Workers

FASKIANOS: Good afternoon and welcome to the Council on Foreign Relations State and Local Officials Conference Call Series. I’m Irina Faskianos, vice president for the National Program and Outreach here at CFR. We’re delighted to have participants from forty-nine states across the country joining for today’s discussions which, as a reminder, is on the record.

As you know, CFR is an independent and nonpartisan organization and think tank focusing on U.S. foreign policy. Through our State and Local Officials Initiative, we serve as a resource on international issues affecting the priorities and agendas of state and local governments by providing analysis on a wide range of policy topics. We also are the publisher of Foreign Affairs magazine.

We recognize that many of you are on the front lines of responding to COVID-19 in your communities. Thank you for all that you are doing: your service and for taking the time to be with us today.

We are pleased to have Diana Farrell with us. Let me just give you a few highlights of her distinguished career, although we did send out her bio in advance of this call. She is the founding president and chief executive officer of the JPMorgan Chase Institute. Previously, she was a senior partner at McKinsey & Company where she was global head of the McKinsey Center for Government and the McKinsey Global Institute.

From 2009 to 2010, she served in the White House as deputy director of the National Economic Policy—oh, sorry—National Economic Council deputy assistant to the president on economic policy. Diana Farrell is also a member of the Council on Foreign Relations.

So as a reminder, the call will be on the record. We will share the audio and transcript on our website, CFR.ORG, after the fact. And we will first have a conversation and then open up to questions.

So Diana, just to kick things off—thank you very much for being with us—let’s just begin with having you give us an overview and your analysis of the economic implications of COVID-19 on small businesses and workers as you see it today. We know this is changing fast and the numbers are growing, but what’s the forecast that you can give us?

FARRELL: Irina, thank you so much for hosting this, and thank you all for joining us on a Friday afternoon when too many things are going on.

I want to underscore a point that you made, which is that I really commend the leadership at the state and local levels right now. It is extraordinary what everyone is doing across the board. And so hopefully we can share some of the insights of the JPMorgan Chase Institute that can be of help here.

Just to ground it for one second, we are an institute that was launched five years ago, and what’s unique about what we do is that we are mining the bank’s transactions—think of credit card, debit card, loan, et cetera—as a way of understanding what’s happening in the economy on a much more high-frequency, near-real-time, granular basis, and have been conducting that kind of research at the city and local level, and state level for the last five years.

And so what I’m going to share with you now for a few minutes before we open it up for discussion is less a prediction of what this is all about but what we think we’ve learned up until this point that can be really valuable information as we walk into this unprecedented situation.

And what I’d like to do is just spend a couple of minutes talking about families and what we see as important aspects of the economic and financial well-being of families, and then turn to small businesses. And I will recognize that, first and foremost, the COVID-19 is a healthcare crisis, but very quickly on the heels of it, it is an economic crisis. And most of my comments of course are going to be focused on the economic and financial implications of this.

Let me start by sharing one of the most important overarching themes of the work that the institute has done over the past five years. This is before we found ourselves in this situation and after the Great Recession work, so think about the years 2012 through the beginning of this year. One of the things that became apparent through the lens that we have, which is this high-frequency, granular data, is the very significant levels of income volatility that are a way of life for most Americans. Again, this is during a time of relatively stable economic growth, very low unemployment, and even there we saw the median family experiencing month-on-month percentage changes of 30 percent, 33 percent very typically. And this was just one of the things that was very difficult to see unless you had the kind of high-frequency data that we have.

Now most of this has been a form of income swing. Typically five months of the year, a family will see a significant income swing. Sometimes it’s good news—bonuses; a lot of times it’s not. It’s real reductions in hours, it’s other income dips. And of course, not surprisingly, the income dips are primarily an issue for low-income families.

Now again, this is before we had this crisis. You can imagine in the context of this crisis—the unprecedented levels of unemployment, the unprecedented levels of hours cut, et cetera—how this volatility kind of plays into the economic and financial well-being of families. And on that score, what we really turned to sort of discuss as the most important issue that can be addressed is how to maintain liquidity for families.

Let me just quickly turn over to small business for one second. In some ways the small business situation is not that dissimilar. It is also a liquidity issue, but maybe even more stark. In previous work that we’ve published, we noted that 50 percent of small businesses in America, according to the view that we have, which is the small business accounts, have fewer than fifteen days of cash reserves to withstand any revenue disruption. And so if you think in the past, we had documented events like Hurricane Irma or Harvey, and noted just how dire the impact was on small businesses, we are in many places over a month now of very disrupted revenues, if not altogether evaporated revenues. And we know that the kind of incredible oversubscription of the PPP, as an example, is just an indication of how dire the situation is for small businesses today.

The most important finding on the small business front is that, you know, sadly, even before this crisis, it was more likely that a small business would go out of business than it would be to employ workers when you consider that so much of the small business sector is really microbusinesses that employ fewer than ten individuals. And most of those failures were retail restaurants, professional services. Again, those are the ones that are getting hit the hardest at this moment in time. And when you consider that all the employment and revenue that we—gains that we saw in the small business sector—again, under good conditions—were new firms starting up, we’re not likely to see very much in the way of new firms starting up now. And so we do think the small business sector understandably is—and correctly—the focus for concern.

I think, Irina, you shared with this group the quick insight that we sent out, but I just want to underscore—I don’t want to repeat what’s there. I encourage you to read it. We tried to mine some of the findings from Irma and Harvey to form some of our views, but in some senses, this question of income, spending, and liquidity is the central message. In that way, the CARES Act did do a lot of the right things, we think; importantly, efforts to boost incomes. In addition to those straight-out stipends that are coming through a stimulus, expanding paid sick and family leave are among high priorities. Expanding eligibility and unemployment insurance benefits, extending them—important. We’ve just seen that become, in effect, a completely different tool than it was in the past, but a very effective tool to get money out there very quickly.

But it’s not the only social program that matters. There are other social insurance programs that can become the vehicles through which money gets out, particularly for those who are hardest hit and who are going to need it the most. And so you think about the number of people who already have some kind of transfer through the various other social insurance programs. Our view is that more should go through those, as well, because UI and some of the others may not as easily get to people who are underbanked or have not filed for taxes, et cetera.

Similarly, there are a set of expenses that are a real opportunity to alleviate pain. One of the things we’ve done quite a bit of work on and are concerned about is, even for those who have insurance—healthcare insurance—the out-of-pocket healthcare costs of any sorts of things can normally get a household in a lot of trouble. Today it could prevent people from getting the care they need to ensure that they’re less vulnerable. And some of the companies and some of the efforts now to try and make COVID-related treatments or testing not subject to the deductible we think are really important.

The next wave is really going to be forbearance or payment reduction on any number of debts: mortgage debt modifications, credit card modifications, you name it. Debt on those is going to be the next frontier to do even more. And we do think there’s an opportunity in addition to the kind of PPP type of loans to find ways to reduce small business expenses, whether they are taxes, or public utility payments, or otherwise.

One of the most important liquidity events in a family for Americans every year is the tax refund, and of course, this is around tax refund time. And in the past we have noted that, when tax refunds come in, people spend that money right away. They may need to do that more so than ever, but for those who have the flexibility, this is a time to build that liquid asset buffer for times when they will need it more. We have some other ideas in this regard—mortgage savings accounts and others—that I think are really important, but if I were to leave you with one message, it is really around liquidity to kind of bridge the situation, hopefully in a period of time that won’t go on too much longer.

Irina, let me—let me pause there because I know we will learn a lot from the questions or even comments that people want to make, and I’m keen to hear from you. But those would be my framing remarks.

FASKIANOS: Wonderful. Thank you very much for that great overview—and sobering overview.

So let’s turn it now to the group, and we invite you to ask questions to your best practices. So, Kaysie, over to you to the first question. And please, if Kaysie doesn’t announce your name and state, please do so. We would really appreciate it. It gives us context.

Q: Hi, there. My name is Sophie Barnhorst, and I’m calling from the city of San Diego.

My question is how can a local government best support small businesses in these times? Thank you.

FARRELL: Thank you. Again, I come back to the critical point. At some level, the most important thing, I think, federal and local efforts have to focus on is this sort of short-term liquidity to maintain as much of the small business capacity as possible active.

I think you all know that the difference between having a small business that, under normal circumstances, would be operating at 80 percent or 90 percent asset utilization of any sort, down to even 20 or 30 percent—so think about a restaurant that can at least do some takeout and maintain some of that capacity versus the destruction of that capacity altogether; the complete elimination of it because no rent payment can be made, or absolutely all employment has to be laid off, et cetera—is night and day in terms of what we can expect the recovery to be.

So number one is kind of bridge-gapping—whether it’s funds in the form of PPP, or whether it’s forbearance in the form of public utilities, or other expenses that can be managed in such a way so that we maintain as much of the capacity in existence even if it’s at lower utilization, then it can ramp up a lot faster. I think that’s the most important aspect of this.

FASKIANOS: Great. Next question.

OPERATOR: (Gives queuing instructions.)

We’ll take our next question from Susan Hairston with the city of Summit.

Q: Thank you. Thank you very much.

I’m very much interested in this fund you mentioned about mortgage savings accounts. And can you share how that data matched with mortgage holders and renters? What is—you know, is there some reason it’s so much more—the mortgage holding is more than the renters?

Thank you.

FARRELL: Thank you. That’s a great question. Let me just say that, in some senses, the interventions that can be put in place for mortgage holders, in some ways if we’re talking about speed, are more easily done than for renters. And that is a very, very big problem because the people who most need help right now are actually not mortgage holders; they are people who are more likely to be renting.

But let me answer the mortgage sort of savings question first, and then I’ll turn to the renter issue to the extent that I can form it. On the mortgage savings, you know, the idea behind—there are many versions of this idea, but the core notion is a little bit of what we learned in the ’08-’09 crisis in a very painful way of what were good structures for modifying mortgages, and what does and doesn’t work in order to provide relief for families immediately, and also to reduce the likelihood of foreclosures. And without question, just payment reduction as soon as possible because most of these liquidity events just require short-term relief. And if you already have a mortgage in place, then the modification can take the form of a front-end payment reduction where the debt then is increased on the back end, or extended, or something else. So the facility is there to be able to modify—in some ways not very easily because those things can’t be done automatically, but at least the vehicle is in place.

There are other forms of mortgage savings programs where, instead of having high loan down payments—so, you know—you can imagine lower down payments that are coupled with a (bounded ?) saving account. And, you know, that, I think, will be a solution for the future. We just probably don’t have time to do it now, but some people are already starting to experiment with that. I think that, in the long run, will be a good mechanism.

The point that you make, though, underlying the question on renters, is just of extreme importance because, in some ways, for those who are fortunate to own a home with a mortgage, they are probably in a better-off position than the vast majority of people who are renting. And there I think the question really comes down to both supporting the renters and, to some degree, the landlords who are—who just have a few properties on which they make their livelihood, and so forbearance on both those fronts. I’ve just seen fewer direct mechanisms, other than just cash payments, that can address that directly, so I think the most immediately valuable intervention is in the form of the kind of stimulus payments that even were added into the CARES Act.

Q: Thank you.

FASKIANOS: Thank you. Next question.

OPERATOR: Our next question comes from Lynette Lee Eng with city council member of Los Altos.

Q: Hi, thank you so much for putting this together. I greatly appreciate it.

I know that we have—if our goal is to help the small businesses, I believe governors could possibly provide some sort of tax credit for property owners who own properties with small businesses (on) them and can allow them to get a tax credit. And then they could allow small businesses to forgive a period or portion of the time that they are renting so that they can help them, as well. It’s about passing on the help to—you know, down the line. So how would we all get our governors to possibly be open to doing something like that? Thank you.

FARRELL: Yeah, I think you’re right. There is a whole set of possible creative ideas that can be done through the delaying or forbearing of certain tax payments, and I think that’s true at the state level and also at the city level. And so I know there are some cities, like Seattle for example, that have deferred business and occupation tax collections in order to provide some kind of relief. Also in term of payments to public utilities, I think that is equivalently effective as just income boosts of some sort or another.

How we get governors and mayors to be able to do that or to choose to do that is a political economy question that is a little bit harder, but I think just demonstrating that that is precisely the most important types of interventions that matter right now, which are really reducing payments or boosting inflows. And we are encouraged that there are some cities that are starting to—that we’ve been tracking that are starting to do some of that.

FASKIANOS: Thank you. Next question.

OPERATOR: Our next question comes from Merissa Sachs with town of Christiansburg, Virginia.

Q: Yes, thank you so much.

My question is, we as a town are trying to do as much as we can to support small businesses and the citizens while watching our own budget. Is there any recommendations for something that a town can do to satisfy that goal? I realize everybody is kind of in the same boat. We’re trying to defer payments on water bills. We don’t control the power.

Does anybody else have—(audio break)?

FARRELL: You know, I’m happy to have others pipe in if they want to, and then I’ll make just one comment on that. And since you were addressing it to the group, I’m sure we have something to teach each other.

OPERATOR: It looks like we may have lost Merissa’s line here.

FARRELL: Oh.

OPERATOR: We will take our next question.

FARRELL: I’ll make a—OK, I’ll make a quick point, though, that is germane to that question which I should have mentioned before.

One of the concerns that I would have, even about the very good initiatives that are embedded in the CARES Act and some of the Fed actions today, is that as a virtue of just sheer organization, and capability, and others, a lot of those are most quickly going to the larger-sized small businesses, and in some ways those are probably already in stronger shape than what is the more typical aspect of the small business sector, which is really small, micro firms.

So one way to—one thing that local jurisdictions can do and should do is to make sure that, in the federal programs that are already getting oversubscribed, will more likely go to the larger small businesses, and are there ways to carve out whatever relief is going to make sure it makes it to the smaller-scale businesses. That’s where you see many more of the most challenged businesses and most challenged families will be at much, much smaller dollar volumes. And that’s a hard nut to crack, but it’s probably a better place to be solving for that at the local level.

FASKIANOS: Thank you. Next question.

OPERATOR: Our next question comes from Jewel Edson with city of Solana Beach.

Q: Hello. This is Kelly Harless. I’m actually with Mayor Edson. I’m a council member in Solana Beach.

Some of the solutions you had discussed and going back—excuse me—going back to what local governments can do, what sort of concerns are there in terms interference with third-party contracts? And I’m thinking of the legal ramifications, for example, of putting a moratorium on evictions for commercial tenants, et cetera.

FARRELL: Thank you for that question. That is a very large question, and many sort of vectors to that because there are so many different kinds of contracts and so many different ways in which those could be valid.

I actually am not really in a position to inform exactly what happens across the multiple jurisdictions that are represented, even on this call, but I do know from the time that we were dealing with the ’08,’09 crisis, and even the GSE-backed loans, that this issue of contract violation kind of really stood in the way of many, many very good and creative ideas. So I think you are right to focus on it. I wish I had a better answer than I have on that.

Q: Well, thank you for stepping out of your scope a little bit and providing that information.

FASKIANOS: Thank you. Next question.

OPERATOR: Our next question comes from Cynthia Johnson, a representative.

Q: Good afternoon. Hi, everybody.

Q: Hi. I’m Cynthia A. Johnson—

FASKIANOS: Hello, go ahead.

Q: OK, I’m Cynthia A. Johnson, state representative, and I have a question for our speaker—a couple of questions if you don’t mind.

Was there any—I understand that when the small business loans were talked about that Chase Bank was one of those banks who would not be a part of that. Is that true? And if it’s not true, how many small business loans were allocated to Detroit? How many people applied? And how many people received?

FARRELL: Thank you for that question. Let me just say that Chase was very much a participant in that program, as were many other banks, and worked very actively to get a platform up and running as soon as possible, and has been very, very active trying to get as much of this money out on the field as possible.

I am actually not—I don’t know what the exact numbers are, and I’m sure that we could work other channels to try and see if we can find that information. But I’m not privy to any information directly.

Q: Thank you.

FASKIANOS: Thank you. Next—

Q: But if there—

FASKIANOS: Go ahead.

Q: I was about to say, thank you, but if there is anybody who is on this line who can get that information for me, I can definitely give you my email address.

FARRELL: Thank you.

FASKIANOS: Great. Next question.

Q: Thank you.

OPERATOR: We’ll take our next question from Kathy Stegenga with Orange County government.

Q: Hi. Good afternoon. Thank you for doing this.

I hold multiple hats. I’m an Orange County legislator in New York, so we are completely shut down, being probably the epicenter of this virus. And I also hold a chamber president for the small businesses. And you did state earlier that most of the loans, and the grants, and so forth—or forgiveness—have been going to a larger avenue of small businesses.

And I’m wondering how we can actually protect and help the real small businesses that are the backbone of our villages, and towns, and our little communities. They don’t have more than three to five employees, and they don’t qualify for anything that is going to save them. We’re going to be in ghost towns, and we’re not going to have any revenues coming in to any of these little, small governments because they don’t qualify for anything.

FARRELL: Yeah, you know, as I mentioned before, I share your concern. As you know, these programs are set up as first come, first served; not so much that they didn’t qualify, but more that they done often have the infrastructure to respond as quickly as some of the larger small businesses and otherwise.

And, you know, there is this question of what can be done to ensure that some of this money is sort of blocked for smaller—or somehow goes through a different mechanism—CDFIs, others—that are more likely to get to these smaller venues.

I think the efforts to make this first come, first served was just an attempt to just get the money out as soon as possible, which I think does serve an important function in its own right, but I think the next wave of things that have to be part of the solution is finding other vehicles that are more likely venues to the smaller folks which—as you know and you point out—is really what most of the small-business sector really is. It’s really micro employers; it’s not the larger ones. And so I’m hoping that some of the discussions that are being had now about CDFIs being part of the venue channel, and other mechanisms like that, will be part of the solution. But I share your concern.

FASKIANOS: Thank you. Next question.

Q: OK, thank you so much.

OPERATOR: Our next question comes from Wengay Newton with Florida House of Representatives.

Q: Thank you. Can you hear me?

FARRELL: Yes.

Q: OK. My question—I’m State Representative Newton, Florida House of Representatives District 70.

My question is where are you with the call to open these cities and towns, you know, rapidly or quickly? The reason I ask that, with not having a hundred percent or 50 percent of the population tested, and someone that has—that may be asymptomatic—because of the coronavirus may be able to spread it and put us back to where we are. So where are we from a business perspective as it concerns to opening too quick and not being able to contain another outbreak?

FARRELL: Well, I think you will have seen the news earlier this week around kind of some of the businesses expressing their concern that this has to be done very carefully; that paramount has to be the health and safety of workers, and the health and safety of the communities. And so I think most people who are figuring this out are likely to recognize that this won’t be an easy switch on or off, but it’s likely to be a phased thing. But the specifics of it are going to be determined very much by what U.S. state and local leaders kind of begin to recognize are the realities in your own communities. And I know, at least in our case—our business—but many other businesses are really working very closely with local jurisdictions to make the right and safest choices possible.

Q: And if I could follow up, my last question is that I was on a conference call last night with national Black Chamber of Commerce, and the overtone about the stimulus money—and you were right; it was first come, first served—but it was—not a lot of it going to, you know, minority businesses that—and small businesses that are the backbone of some of these communities—and also, some of the gig economy individuals who contribute.

But I’m just wondering—and you said that there would be some conversation on that the next time around. I know the urgency was—you’re right—to get the money on the street, get people to spend it to keep money flowing. However, by being first come, first served, most of the small people got squished out. So is the banks—are they in any position to try to maybe target at that population, and set aside something, and—now that we got all the money out, would that be a possibility?

FARRELL: You know, once again, so much of this is kind of in the court of Congress, and other state legislatures, and otherwise, but I do think that we and other banks are working very hard to try to figure out, you know, what are the various mechanisms by which this money can continue to get out quickly and continue to get out to those who are most in need. And I do share your concern and so, too, with the legislator from Orange County, New York, that it won’t be enough just to have first come, first served through one vehicle. We’ll probably have to go through various vehicles that are more likely to target smaller businesses who will need the help—the truly small businesses who will need the help to apply successfully to these programs.

Q: Thank you for all you guys are doing, and hopefully you’ll stay safe, and stay in—(laughs)—let this thing pass.

FARRELL: Same to you. Same to you.

FASKIANOS: OK, thank you. Next question.

OPERATOR: Our next question comes from Robert Worley with the city of Sealy, Texas.

Q: Good afternoon, and thank you for the opportunity.

First I have a comment from the lady—for the lady from Orange Country, New York, as something you could do. We’re a very small city in Texas; seven thousand people, fifty miles from Houston. The Economic Development Corporation in the city are partnering to provide a $250,000 grant fund for very small businesses in Sealy. And if a city of seven thousand can provide $250,000, larger cities can do more.

My question is this for the main speaker. What is your best estimate as to how long the nation at large is going to have to operate on a reduced business environment?

FARRELL: (Laughs.) Oh, my goodness. If I knew the answer to that, I would be over the moon. I mean, I think that at this point you—you know, the only thing I would come back to is what I said: it probably is going to look different in different parts of the country, and it’s probably going to be guided more by the health dynamic in this than anything else. So I really do not feel comfortable providing a specific estimate of this. But I think we need to do everything in our power to try and make it as short as possible, to do the economic interventions that will allow this to be bridged as soon as possible, but no sooner than is safe and the right things to do for our people and our community.

Q: Well, that’s a very common sense answer. Thank you.

FASKIANOS: Thank you. Next question.

OPERATOR: Our next question comes from Stephen Gorden with Cumberland County Commission.

Q: Well, good afternoon.

I have a question for you based on your data mining. How are the major differences between urban and rural areas’ small businesses exhibited, and what are the categories?

FARRELL: Yeah, thank you for that question. I should have mentioned as I started that the lens that we have, as I mentioned, is bank transactions, and we probably have a much better lens on urban small businesses than we do on rural, although I would say we do have some of that.

I suspect that, you know, in general, the rural small businesses will be smaller and therefore subject to the same dynamic of being particularly hard hit are going to face more of these liquidity issues I mentioned that are true for all small businesses but probably more so for smaller small businesses which are more typical of rural areas. But most of the work that we do is on the foundation of the small businesses that are customers of JPMorgan Chase and therefore the platform is a little more heavily weighted toward urban.

We have not been able to do a direct rural-urban divide—to answer the question directly.

FASKIANOS: Thank you. Next question.

Q: Thank you.

OPERATOR: Our next question comes from Michael Burdick with California State Assembly.

Q: Hello. Thank you for doing this call.

As we—I’m a legislative staffer for the California State Assembly, and as we hear from constituents who were lucky enough to be able to get the PPP loan, we’ve also heard concerns that they may not be able to fulfill the requirement to keep people on payroll and that those loans will ultimately not be forgiven.

How should we be thinking about the consequences defaulting on those loans since the small business owners did not need to place a personal guarantee? What are some of the long-term consequences that business owners should be aware of if they end up defaulting on a PPP loan?

FARRELL: Well, listen, I think this movie is going to play for a while, and we’ll learn a lot more as things go forward, but I think that one of the features of this is, as you say, that there are no direct, personal guarantees on those, and a lot of these loans will end up being purchased by the Federal Reserve, and therefore have a different set of conditions.

I don’t know exactly how they plan to match the payroll sort of targets that were kind of the presumed conditions of the loans with, you know, actual maintenance of those payrolls, but I think the view that—as I’ve come to understand it—is that many of these loans will in effect end up being grants in one form or another, and I think that that was sort of built in to this idea of just get the money out fast and worry about the details after the fact.

FASKIANOS: Thank you. Next question.

Q: Thank you. That’s very helpful.

OPERATOR: (Gives queuing instructions.)

Our next question comes from Karlito Almeda with New York—I’m sorry—New Jersey Senate.

Q: Hey, guys.

So one of the things that we’re hearing a lot is that, for small business owners who utilize business interruption insurance, a number of years ago a lot of insurers took out a pandemic as one of the conditions for getting those payments.

There is a bill in our legislature that would mandate that pandemic be reinstituted, but one of the things is that the state would end up picking up the tab for that. So I’m wondering, you know, what are some other options dealing with business interruption insurance while realizing the financial desperation of many of these states?

FARRELL: It’s a terrific question, and it sort of echoes the question that was asked earlier by a Solana Beach representative on this sort of third-party contracts. And, you know, I think we’re going to find many ideas that push the boundaries of what people have been comfortable in doing ex ante and ex post a contract being in place.

Unfortunately, I don’t have any direct insight or information about exactly how those insurance discussions are going, either in Congress or in local jurisdictions.

FASKIANOS: Thank you. Next question.

OPERATOR: Our next question will be taken. Caller, please state your name and your affiliation. Your line is live.

Q: Hello?

FASKIANOS: Yes, go ahead.

Q: Hi. J.T. Scott with the City of Somerville, Massachusetts.

I’ve got a question. First, some feedback on contract interference in terms of stopping evictions. Stopping evictions is one of the few things that we can do on a local level, and it’s something that we have already done. State law will pertain largely, but local action can be efficient. And in the end, if the landlords sue us later, then that’s something we’re prepared to deal with in order to protect our small businesses in the short run, although we are currently urging state-level action to suspend commercial mortgages and commercial rents in the meantime.

My question goes to something the O.C. legislator said very well when talking about, you know, micro businesses defined by less than ten employees. The PPP not being available to these small businesses, I would argue, is by no means a matter of not having the infrastructure to respond. Dozens of small businesses in my district applied for it, and their banks wouldn’t even accept applications by the time that the program had ended and run out of funds. Banks very prevalently preferenced their larger lending accounts and their larger businesses to get access to those funds.

So my question is what are we, as legislators—or what you, as part of the banking industry—doing to lobby—or able to do to lobby for a different set of programs with a far lower threshold to ensure that universal payments are available to micro businesses in the same way that we are making universal payments available to every U.S. citizen?

FARRELL: Right. I’ll iterate again I share this concern about making sure money gets down to the smaller scale businesses because that’s really so much of what the small business sector is, and where most of the hardest hit are.

All I can say is that there probably—the answer is going to take the shape of having multiple venues for doing this, including through the banks, but also through CDFIs and through others. And I know there are many, many conversations taking place, both in our bank and many others, about just how to do that, and trying to provide that guidance to legislators. Again, that’s as far as I can offer with them at this point.

FASKIANOS: Yeah, I would say this is uncharted territory, so there is going to be a lot of exploratory conversations, and trial and error on how to deal with this crisis.

So let’s go to the next question.

OPERATOR: Our next question comes from Joanna Prisiajniouk with city clerk, city of Prospect Heights, Illinois.

Q: Thank you so much.

You know, as you all know, the SBA had announced it ran out of money yesterday. I don’t know—I got on the call a little bit later, but that’s a huge concern, obviously, for the very, very small business. We’re talking about self-employed that have their own business under an S corporation. They are defined as self-employed. These are insurance agents, you know, who—they don’t have any employees, but they pay taxes under an S corp. They’re an employee of their own business.

So I also understood and read yesterday that there weren’t any guidelines to really put in force what defines a small business, and that’s been an argument for years. There are some very large businesses that have filed under as definition of a small business, so they kind of gobbled it all up, these funds.

And I also never heard this was a first-come, first-served basis, rush-to-the-application kind of a process, so that’s really concerning. And these same self-employed, they also fall into the PUA, the Pandemic Employment (sic; Unemployment) Assistance plan which, in many states, it doesn’t look like it has been implemented officially. In the state of Illinois, for example, Governor Pritzker just said that it will be fully implemented on May 11.

And then there’s a communication gap here, too—(laughs)—because the SBA ran out of money. So it’s kind of a mess-up for these self-employed, if you will, who are a part of this, you know, small business. So how do we fix this? Or what were the guidelines? How were these applications just gone in—you know how they say in that movie from—in twenty seconds—(laughs)—two weeks? And people are just in a mess as far as the self-employed who run so much of the small business arena here.

FARRELL: Yeah. I think, you know, I would just once again—we’re hearing this. I mean, I share it. I think many people on this call share this view. I think the—maybe my sort of parting words would be if we think about how quickly this pandemic hit us, and by the time we all realized how serious it was and started taking action, we do have to commend the amount of sheer creativity and doing something.

I don’t think a stimulus package of this size has ever, ever been put together in this kind of timing at all. But there is just still so much more work to be done. And I commend the Fed also for the amount of creativity it’s showing in trying to get money out the door and get things going.

But one of the things that is really valuable, Irina, of you convening these groups of people is just to keep underscoring some of the messages as they hit the ground at the local and state level. And I think this point that we’re all raising around, yes, good, we understand to get the money out there fast, whatever we can, but this is so much the core infrastructure of our economy, small businesses in particular, that we have a lot more problem solving to do and a lot more creativity that has to be put in place.

So I look forward to learning more as we follow what all of you are doing and certainly trying to keep tracking what’s working and what’s not working through the lens that we have at the JPMorgan Chase Institute.

Q: Yeah, the definition of small business really has to be well marked out. It seems like too many were left out of this definition.

FASKIANOS: Right. We have about five more questions. Let’s see if we can get to them before we close.

Q: Thank you. I’m Joan (sp). I’m—

OPERATOR: We’ll take our next question from Tom Santelli with Boone County commissioner.

Q: Thank you for the opportunity to participate on such a knowledgeable panel and the work that you’re doing.

The question came, you know, how do we start back up? And in Boone County in Indiana, which is near Indianapolis, we have not shut down our government operations.

What we did do is put into effect some very strong protocol with regards to everybody is evaluated every morning and they get a wristband for the day that says they’re clear. And then with our police force and first responders, we are testing every person every thirty days, if not every fourteen days. And the cost of that is about $22,000 for the employees we have. But I think that as we start up, we have to be optimistic but very pragmatic is that we’ve got to test, and if we find somebody that has an elevated fever, then we’re going to send them to our county hospital and have them evaluated and tested.

The other part is that we have to treat and then track and trace. And this is a lot more involved than I think any of us are used to. I participated with the U.S. Postal Service, Fort Dietrich, CDC, and the Department of Defense when we had the weaponized anthrax leaked into the postal system in 2001. And there are protocol out there that we can get started back up. But if you look at what they’ve done in Taiwan, which is right next door to China, they have a 124-step protocol that they go through to mitigate the possibility of these pandemics or viruses coming into their communities.

So I think that we need to think outside the box, that this is not a small effort, that it is more complex than most of us would like to get involved with. And the other thing is we have a very competent accounting group that has looked at our projections, and we’re looking at a 25 to 30 percent longer-term impact on revenues.

And so I want to get back to the gentleman that mentioned, you know, how do we get started back up? We need to get started back up. One quarter loss is $15 trillion to our economy. And we’re only putting two trillion (dollars) in. So I think, to those points, we didn’t shut down, but we have some very strict protocol in testing and so on and so forth that we’re following.

So I would encourage everybody to, you know, take a look, you know, into the weeds of, you know, how you control a virus in your environment. And you can do that. But I don’t think the average person really understands the implications of that. And I would just encourage everybody to take a deeper look, a deeper dive, into that, because we can get started back up. We have to follow certain protocol and we have to do the testing. And it’s not—you know, if you’re running an Amazon warehouse, it’s not testing one person. It’s testing across the board and then addressing those that are bringing the virus into the environment, many times unknowingly.

So I’d add those comments, that we are really as collectively need to get the economy started back up and we need to have the protocol in place to do that.

FASKIANOS: Wonderful. Thank you very much. It’s really helpful to share best practices and to hear what different municipalities are doing to deal with this. So please—if others want to contribute, please feel free to do so.

Let’s go to the next question or comment.

OPERATOR: Our next question comes from Kevin Burns, city of Geneva, Illinois.

Q: Good afternoon, everyone. I too offer my thanks for this opportunity.

My first comments are more or less echoing what we heard with respect to the impact on small businesses. My second comment is also a question.

The vast majority of communities and the one I represent, less than twenty-five thousand people, is also a small business. Yet we are expected to provide extraordinary support for businesses that we simply can’t provide that support for. When do the panelists believe, or, based on your ears to the ground, that the federal government will likely provide support to communities directly to provide the support that businesses are looking for from us?

FARRELL: I wish I had a good answer for you. I mean, all I know is that everyone is furiously working through all kinds of creative solutions and ways. But I really would not venture to put a timing on it.

FASKIANOS: Thank you.

Next question.

Do you want to follow up?

Sorry. We’ll go to the next one.

OPERATOR: Our next question comes from Mehraan Keval with office of Mayor Michael Tubbs, Stockton, California.

Q: Hi. Thank you very much for holding this call and for having us on.

I was just curious, since we’re talking about liquidity, what you all are hearing and thinking about direct cash-transfer programs, like a universal basic income and expansion of the earned-income tax credit, as a means of increasing liquidity both in the immediate and in the long term coming out of this crisis. And then do you think that that’s best accomplished at the local or federal level, or if you’re aware of any advocacy around that happening?

FARRELL: Were you directing that to the group? I’ll let others answer if they want.

Q: Yeah, yeah—open question.

FARRELL: Well, you know, the other thought I would offer is that the basic universal income has a feature that is sort of an annual affair and what not, at least in some of its proposals. But I think that the stimulus payments that are provisioned in the CARES Act are going to be a first indication of how did this work, what did and didn’t work.

And although these are such unprecedented times that we can’t necessarily derive too many lessons from what happens under these conditions, the regard—I think one of—what has been difficult about a lot of those proposals is that there’s just so little information about how they would work, how they might or might work.

We’ll certainly have a lot more information, because in many ways both the stimulus payments directly and the expansion of the unemployment insurance and the reduction of kind of the requirements are mechanisms of doing that same thing, which is just getting cash into the hands of people as soon as possible. So I suspect we’ll learn a lot from this terrible experiment—terrible in the sense of terrible times; good experimentation.

FASKIANOS: Thank you.

Next question.

OPERATOR: Our next question comes from Shahid Shafi with city of South Lake, Texas.

Q: Hi, folks. Can you hear me?

FASKIANOS: We can. Go ahead.

Q: OK.

This is an historic event. Obviously, there’s no parallel to draw lessons from. But you did talk about the impact of Hurricane Irma and perhaps Katrina, which was on a smaller scale. So my question is, based on those events, they may give some indication. In those places like Irma and those affected by Katrina, how long did it take for those local economies to recover?

FARRELL: Yes, thank you for that question. In the paper that Irina sent, hopefully to all of you, we provide a little bit more information on that specifically. But kind of the top line that I can provide you right now is we saw very significant drops in revenues, say, for small businesses and very significant drops in liquid assets.

So if you take the Harvey and Irma examples, the week of landfall, revenues for small businesses dropped 60 percent. And they did recover over the matter of the next couple of months, but I think the difference was that it was a short-lived event. So as horrible as those twenty-four or forty-eight hours were of the experience, the sort of recovery started up, you know, almost immediately on the other side.

On the other hand, what’s really different is that in some of these instances—certainly in Harvey we had such a destruction of property, which we don’t really have here. So we have a much longer revenue disruption but a much less destruction of actual assets and buildings or otherwise.

What was surprising to us was in some ways how resourceful the small businesses were, because they were hit so high in reduction of revenues and they made up for it by having very dramatic cuts in their spending, and therefore were able to sort of recover in a matter of five, six weeks. But I think those—there’s something to be learned from there. But in ways—in some ways this is quite different, for the reasons I mentioned.

Q: And yes—

FASKIANOS: Yes, go ahead.

Q: (Inaudible)—and while we are all sort of—(inaudible)—we are—

FASKIANOS: I’m sorry. I’m sorry, we can’t—yeah. I’m sorry, we can’t—sir, we can’t hear you. There’s a lot of static interference.

Q: How about now? Can you hear me now?

FASKIANOS: Yes.

FARRELL: Much better. (Laughs.)

FASKIANOS: Much better.

Q: OK. Sorry about that. Sorry about that. I was trying to use my Bluetooth headset.

But in any case, you know, we all sort of see the images of hospitals that are completely overwhelmed and overtaken by COVID-19. But those hot spots are a very small part of the population. The rest of the 90 percent of the country is healthy, is not affected by that.

However, because of this pandemic, the entire health-care system has been shut down except for emergencies. There are mass layoffs that have happened in health care—nurses, doctors, and downstream workers. And health care is 20 percent of our economy. So my question specifically is on health-care sector. What would you—what do the experiences of Irma and Harvey and Katrina tell you? How long did it take for the health-care sector to ramp back up in those affected areas?

FARRELL: In the work that we did, we did not actually look at the health-care sector in its recovery or otherwise. We did look at health-care expenses by families at that time. And one of the very concerning things in a situation like a disaster of that sort is that, partially because of access issues, which are similar to the situation today, people’s out-of-pocket health-care expenses actually drop significantly, which are not necessarily a good thing. It means that people with health-care needs aren’t achieving those health-care needs.

We did see a rebound in that after the fact. But I just can’t address the question directly because we didn’t look at the health-care sector in either of those cases.

Q: Thank you very much for this session.

OPERATOR: And our next question comes from Commissioner Callier with Texas Department of Licensing and Regulations.

Q: Thanks for that. I appreciate it.

And I guess Texans think alike, because my question is along the lines of the gentleman from Southlake, Texas. So let me do this first, if I may. For the person speaking from the city of San Diego as to what cities can do, there are some best practices. If it’s any small businesses that have contracts with the city of San Diego, please explore how you can do prompt payments, collapse the time that you can pay those small businesses that are doing work for the city of San Diego as much as you can and where you can. So that helps from a liquidity standpoint. So that’ll be helpful.

So thanks. I understand that for Hurricane Harvey and Irma—and I’m more concerned about the impact of Harvey since I’m in Texas—that that appeared to be more a V-shape type of recovery. I am going to step to the Hurricane Katrina. And can you share with me, did you guys look at Hurricane Katrina at all? Because that would have been more U-shape and L-shape as it relates to those socially challenged firms.

FARRELL: Yes. What a great question. You’re absolutely right, especially as it relates—actually, both small business and families, the hurricane and Irma were very V-shaped. And so as steep as the drop was, we saw a significant recovery in spend and in revenues and otherwise.

Unfortunately, we did not do Katrina. We—the institute was established after the fact, and those data unfortunately are not available. But I suspect that much, much longer recovery there would just look much worse.

I mean, the only point I would make is that—something I wrestled through a little bit before—that this is such a unique situation, because, on the one hand, it does have similarities to these kinds of natural disasters in the sense of revenue disruptions, but in those cases there was so much destruction of the actual property and destruction of the facilities in a way that we don’t have in this instance. And so I think we’re going to see this recovery have a very different shape than any of these. And the best we can do is take the pieces that we do have and try to inform it as best we can. But unfortunately we did not look at Katrina.

Q: Sure. And I appreciate the comments there. I do note that the Department of Labor’s letter does specify the socially, economically challenged businesses. That was a part of the criteria for those PPP and other funds coming out of the CARES Act. So there just needs to be some compliance around that. Thanks for everything that you’re doing. I appreciate it.

FASKIANOS: Thank you.

FARRELL: Thank you.

FASKIANOS: Next question.

OPERATOR: Next question comes from Jacob Goldfinger with New York Assembly member Mathylde Frontus.

Q: Thank you.

(Pronouncing correctly.) Mathylde. She gets that a lot. I appreciate it.

I wanted to talk about the wisdom and the efficacy of extending more loans to already indebted individuals and businesses when the public-health reality is that the economy will not return to normal for at least a year, maybe two years; that even if we open up, there’s just a lot of the economy that will not be operating, and, in a perverse way, the fact that this is a global pandemic puts everyone in the same situation. And it’s an opportunity to genuinely pause, as much as possible, and, you know, rethink what needs to be done.

I think what a lot of people need at this moment is loan forgiveness and restructuring more than more loans, especially if there’s no realistic prospect of their businesses operating at the level they had been operating before.

So, I mean, what this—the ABA, for example, has—they just recently released a model standstill agreement that I would encourage everyone to share with constituents as much as possible. We have constituents in our district—I spoke with one woman who has medical equipment at home, and over twenty years has accrued a $78,000 debt with the utility company. We’ve had to talk to her to keep the power on during this crisis.

And there just—I just think there needs to be a wholesale rethinking of outstanding debts and programs that pile on more loans when there’s no realistic prospect of those normal business operations for the immediate future. It only increases the pressure to open up before it’s safe to do so. That’s more of a comment than a question.

FARRELL: Thank you for your comments. I think you raise a good point in terms of indebtedness. I do think that a lot of the structure of this PPP use the SBA kind of loan mechanism as a way to get the money out, but it’s structured more in the form of a grant than a direct loan.

Now, having said, there are other things that are trying to take more of a loan quality, and for those things I think your point stands very well. As it is, many of these businesses will not be able to take—to deliver on the loans that already exist. But I think, in terms of at least this first tranche of PPP, most of that, I think, for all intents and purposes, is going to end up being a grant to the businesses, not an additional loan.

Q: Yes. But it’s a chance to look ahead to when we can operate in something resembling a normal environment. It gives us time, in a way, that we need to figure out how we can conduct business safely. You know, we have large portions of the state—even our district in Brooklyn, we have about a quarter of our constituents who don’t have internet access, which is dangerous in this environment. So, I mean, these are—

FARRELL: Yes.

Q: —investments that we could think about making that are going to be not just life-saving to people, but essential for conducting business going forward. And so we have time, in a perverse way, to plan for that.

FASKIANOS: Thank you—

FARRELL: We can only hope so. (Laughs.)

FASKIANOS: Yeah. OK, I’m going to try to squeeze in one or two more questions or comments before we close.

OPERATOR: We’ll take our next question from Hector Rodriguez (sp) with Office of Councilmember Enda Bynes (ph).

Q: Good day, everyone. Stay safe.

My question is with the SBA. Since the money’s gone at the SBA, what do you foresee as a practical time that that money can be financed in the SBA? And secondly, can we structure a small business or a microbusiness component to the program so that the very small businesses can be included here?

FARRELL: Yes, I hope that there are mechanisms to channel more funds to microbusinesses. I think that you’ll have heard that as the theme of our entire conversation this afternoon. And I would sort of share that.

I think the current disbursements have—I think first come, first served has had the function of channeling money out quickly, but maybe not to those microbusinesses as quickly. I do think there are other mechanisms, like CDFIs and others, that can play a role here. But again, here’s another area where we’ll need more creativity.

So I think it’s helpful to hear from all of you that this continues to be a pain point. And we’ll certainly take it back and try to keep that dialogue going.

FASKIANOS: I’m going to try for one last question.

OPERATOR: And we’ll take our next question from Shannon Burke (sp) with the state of Colorado.

Q: Hi. Thank you so much.

I guess I really just wanted—I have a comment more than anything. There was someone who had a very thoughtful statement about the role of testing in reopening the economy and how his state or his city was able to use a lot of testing to identify who was infected with the coronavirus and to enable them to reopen different parts of their economy. And I just want to say that in Colorado we would love to be able to do that. Not all states are similarly situated.

And I think the thought that came to mind is how important it is for all of us, as leaders within our respective communities and states, to understand how interconnected we all are so that, as we’re advocating, we’re advocating for the whole rather than just for our own communities, in light of how intertwined our economies are with one another. We’ll all rise and fall together. It’ll do no good for any of us if only, you know, a few of the states are able to do the kind of testing that was described.

So as we are advocating for business relief, I’m really advocating also for a collective relief and assistance with disability for all of us to be able to do that testing so we can more speedily open up all of our economies.

FARRELL: Thank you; very good comments.

FASKIANOS: Yes. And I think that seeing the governors on the West Coast and on the East Coast forming the coalition of states, I think there’s—the South is also doing the same, if I’m not mistaken, or it was just announced. I think that sort of cooperation amongst states to sort of leverage resources is so important.

Diana, thank you very much for today’s call. We really appreciate it.

FARRELL: Thank you, Irina, for—yeah, thank you for pulling this together. And I very humbly say there were so many good questions, many I couldn’t answer. But this is a time that I just commend all the efforts at the state and local level. And I hope that we can all continue to learn from each other. And just listening to your questions is helpful to us as we try to keep monitoring what’s happening real time.

FASKIANOS: Wonderful. And again, we did share out the report with the dial-in instructions. So we—if anybody needs it again, just email [email protected]. Clearly we need to continue to do a deeper dive on the economic effects of all this. You had specific questions that we need to look into. But also the science is important because the testing and capabilities to test, as well as the vaccination levels, or being able to produce a vaccine for this is really what’s going to get everybody back to work.

So we are—we put together another call for Tuesday, April 21, from 12:30 to 1:45 p.m. Eastern time. The invitation will be going out this evening. And we’re going to have the former commissioner of the FDA, Peggy Hamburg, and Cerevel Therapeutics CEO Tony Coles talk about—give us the latest on where things stand for vaccine development and regulation of one, et cetera, which I think will help inform some of the decisions that you all are facing in your communities, et cetera.

So, again, thank you to Diana Farrell. You can follow her on Twitter at @Farrell_Diana.

For more information and resources on the COVID-19 pandemic, please go to CFR.org/coronavirus. We also have resources on ForeignAffairs.com, which is the website of the magazine we publish, and ThinkGlobalHealth.org, which is devoted specifically to health issues.

Please let us know if there are other topics that you want us to explore or how we can support the work that you all are doing. You can email us at [email protected]. We look forward to continuing this conversation with you and talking again next week.

We hope you have a good weekend. Stay well. Stay safe. And we will touch base again soon.