To members of the battered restaurant industry, which has seen its revenue plummet $130 billion compared with last year’s numbers, the statement provided some hope that Congress had not abandoned the mom-and-pops of the hospitality sector, even if lawmakers opted not to include the Restaurants Act in the relief deal. The act, introduced by Rep. Earl Blumenauer (D-Ore.), would have earmarked $120 billion specifically to help restaurants and bars with fewer than 20 locations, with priority given to minority- and women-owned establishments.
When it became clear the Restaurants Act had little chance in Congress, some lawmakers, as well as lobbyists representing the National Restaurant Association and the Independent Restaurant Coalition, pushed for modifications to the Paycheck Protection Program that they thought would provide partial relief to the hospitality industry, although it wouldn’t be as targeted as the $45 billion set aside for the transportation sector. The text for the stimulus bill was published just hours before Congress passed it Monday night.
The bill would allow restaurants applying for a PPP loan to use a new-and-improved formula. Previously, the amount that a restaurant could borrow was based on a formula in which its average monthly payroll costs were multiplied by 2.5, up to a maximum loan of $10 million. The new bill will change the multiplier to 3.5, but only for restaurants and hotels, up to a maximum loan of $2 million.
The formula change, said Sean Kennedy, executive vice president of public affairs for the National Restaurant Association, “reflects that the food service industry, the restaurant industry, has been uniquely and obviously affected by this pandemic.”
Other changes include greater flexibility on how small-business owners can spend their PPP loans (all or some of which can be forgiven depending on how closely operators follow the spending guidelines). Sixty percent of the loan still must be devoted to payroll, but the remaining 40 percent will now be available to spend on personal protective equipment, training protocols, modifications to the business property to protect customers and even perishable items. The ability to purchase perishable items was particularly important to the restaurant industry, Kennedy said, because when state and local governments order shutdowns, “our product doesn’t sit well on a back-room shelf. It perishes.”
But lobbyists for the restaurant sector also fought for tax deductions on business expenses covered by PPP money. This was a huge victory for small businesses, Kennedy said, that would have found themselves stuck with an increased tax bill at the end of the year. “We do not need a surprise tax bill,” he said.
What’s more, the bill will allow businesses that secured money in the first round of PPP to reapply to the program that has been extended to March 31. But whether they’re applying for the first time or doubling down, businesses will need to meet certain conditions. They must have 300 employees or less (down from 500 in the first round), and show they have had a 25 percent drop in revenue during at least one quarter in 2020 compared with 2019. They also cannot be a publicly traded company.
Experts say these caveats should help prevent larger companies from getting their hands on PPP money designed for small business. According to a Washington Post investigation, more than half of the $522 billion paid out by August went to larger companies, including chains such as Legal Sea Foods, Boston Market and Cava Mezze Grill. The Counter also conducted an investigation and found that franchisees of America’s largest fast-food chains ― including those connected to McDonald’s, Wendy’s and Taco Bell ― secured more than $1 billion in PPP loans. In its recent earnings report, McDonald’s noted that sales at its U.S. stores grew 4.6 percent in the third quarter compared to last year.
Despite the modifications to the Paycheck Protection Program, some argue the relief won’t be enough to save a restaurant industry that’s facing government shutdowns as coronavirus cases and hospitalizations spike during the winter. For starters, the PPP funds would still route through banks, where some small restaurant owners may not have a financial history or the connections to secure a loan. Some of the country’s largest banks, including Bank of America and Wells Fargo, told the New York Times that they’re ready to participate in the second round of the program, though some loans will also go through smaller community banks and credit unions.
The Restaurants Act, by contrast, would have been run through the Treasury Department.
“As long as a bank is involved, that’s going to be a problem for a lot of people,” said one observer of the stimulus negotiations who spoke on the condition of anonymity because he was not authorized to speak on the record.
But more than that, many of the PPP changes are not specific to the independent restaurant community, which, according to the National Restaurant Association, represents 70 percent of the industry. The loans are available to all sectors of America’s small-business community affected by the pandemic.
“Make no mistake, [the] modest changes we secured to PPP will help, but they won’t remedy enough deficiencies in the program to meet the desperate needs facing local restaurants,” Blumenauer said in a statement to The Post. “These half a million restaurants, diners, coffee shops, and bars employ 11 million Americans and are the cornerstones of communities large and small. It is as irresponsible as it is heartless that Republicans rejected this targeted aid. We need to immediately take this up with the new Congress and the Biden administration to deal with the serious shortcomings of this bill and save our restaurants.”
The Independent Restaurant Coalition, which was created this year to lobby for the segment of the dining community hit hardest by the pandemic, was equally unimpressed with the provisions in the new stimulus bill. The coalition released a statement Sunday, laying out its concerns.
“This bill falls woefully short of giving 11 million independent restaurant workers the job security they need before the holidays,” the statement read. “Congress understands that dining restrictions, a surging pandemic and winter weather are a perfect storm for a restaurant employment crisis that is disproportionately impacting single mothers, people of color, immigrants, the formerly incarcerated and young people. When we’ve been asked by the government to change the way we do business, our elected officials need to help us stay in business. It’s clear Congress wants to help us and we gave them a plan to do that. This legislation isn’t it.”
Bobby Stuckey, a partner with Frasca Food and Wine in Boulder, Colo., and a member of the IRC advisory committee, sent The Post a statement that indicated the bill “just isn’t enough to give us the security we need this winter. The PPP changes do make it clear that Congress is taking our needs seriously and we are going to continue advocating for a direct relief package in the weeks ahead.”
Kennedy, the public affairs executive with the National Restaurant Association, viewed the stimulus deal as a strong first step toward helping the decimated industry, a far more tangible and pragmatic step than the three-martini tax break found in the bill.
“Once we realized the Restaurants Act was unlikely to be in this package, we focused on the art of the possible and we switched to being pragmatic,” Kennedy said. “We need the Restaurants Act, but equally important, we need something before the end of the year. We were not going to take it as the Restaurants Act or nothing.”
The new stimulus “is going to help tens of thousands of restaurants survive winter, survive perhaps into spring,” he added. “Is it going to be a long-term solution? No. But it is a really strong way for Congress to end 2020 on behalf of the nation’s second largest private-sector employer.”
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