Much of the $290 million in federal coronavirus relief money the state has designated for small businesses will go out as cash grants instead of loans thanks to a last-minute revision to the proposed spending.
Under the revised program that Gov. Mike Dunleavy’s administration presented to and approved by the Legislature on Monday, Alaska businesses with 50 or fewer employees that haven’t received aid from the federal government would be eligible to receive between $5,000 and $100,000.
The state estimates there are more than 10,000 Alaska businesses that were unable to take advantage of the federal Payroll Protection Program before its first round of money infamously ran out on April 16. With a second round of federal PPP funding going out, the state estimates somewhere between 5,000 and 7,000 businesses would still have received no financial help to cope with the pandemic.
The state estimates the average need for those businesses is between about $30,000 and $50,000, according to documents provided to the Legislative Budget and Audit Committee. The program would also set guarantee a minimum of 20 percent of the funds go to businesses in communities with a population less than 5,000 people.
Businesses would need to apply with an application outlining coronavirus-related expenses and expenses for reshaping their business in the following months.
Marijuana businesses are not eligible for the funds, Department of Commerce, Community and Economic Development Commissioner Julie Anderson told the Legislature.
With many sectors of Alaska’s economy facing months if not years of uncertainty, there’s been a growing call for the state to deliver businesses much-needed cash to bridge the gap between now and when business can return to normal. Loans, businesses and legislators say, carry too much risk.
Rep. Ivy Spohnholz, D-Anchorage, chaired several legislative hearings that highlighted the cashflow needs for businesses. She said the situation facing businesses now is a matter of survival.
“What we heard from small business leaders and nonprofit executives is what they really needed was grants and not loans because they didn’t have a foreseeable way to make up their income,” she told The Midnight Sun. “What they needed instead were grants to be able to continue to pay their bills, keep employees and change the way they operate.”
She said she’s been particularly concerned about small businesses that were unable to beat the rush to the federal programs or weren’t eligible in the first place. Without help, she said the closures could continue and hamper the state’s economic recovery.
“We’ve made so much progress diversifying our economy that we really need to preserve them and keep them in business so in 2021 when things have hopefully got back to normal … those businesses will still be around to provide jobs and goods and services to Alaskans,” she said.
The need is particularly dire for businesses that relied on the tourism industry, and the Legislature has heard from industry officials that worry many businesses won’t survive without help. Carnival Corp. announced last week that it canceled the entirety of its Alaska cruise season, including sailings by subsidiaries Princess Cruise and Holland America Line. It’s estimated those cancelations will alone lead to nearly 1 million fewer visitors this season.
How we got here
The changes to the program came after several weeks of back and forth between the Legislature and the governor that culminated in a tense and at times emotional hearing on Monday night. The main issue facing the Legislature is the legality of moving the funds outside of the normal budgeting process but there has also been skepticism about how the money is being spent.
When it comes to the small business relief program, the administration had so far offered very little details about how the program would work, including whether the loans would ultimately be forgivable. That’s largely a product of how quickly the money is moving and uncertainty over the federal rules for the money.
The state is currently seeking a third-party vendor—likely an Alaska-based bank—to administer the program. As it currently stands,
there’s no stated timeline for when the small business grants would go out the state estimates the program would get underway by the end of the month.
Department of Commerce, Community and Economic Development Commissioner Julie Anderson told the committee that they’re continuing to hash out the details of the program but that the goal is to make sure the money goes to where it’s needed.
“The intent of this program is that we help as many small businesses as possible,” she told the committee on Monday. “If there’s some gaps that you’re aware of that need to be addressed, we’re definitely open to looking at those but we want to have enough guidelines around the program that people are clear that there’s not too much ambiguity whether they’re eligible or not.”
The change to a grant program marked a significant improvement for the program to many legislators, adding much-needed detail and efficacy to the program, but Spohnholz said it doesn’t erase the concerns over the legality of the program. She said, too, that many of the details of how the loan program will operate are still not entirely clear and said she plans to continue to be monitor both the needs of businesses and the operation of the program.
“The administration has responded to our feedback and concerns about loans versus grants and ensuring that nonprofits are eligible,” she said. “I think that that’s positive. There’s still concerns about making sure those grants get out as effectively and as efficiently as possible. There’s a lot of unknowns still as to how this program is going to be administered but there was agreement that we wanted to get the money out as quickly as possible.”