Small businesses in Palo Alto that have been rattled by the COVID-19 shutdown could be eligible for grants of up to $10,000 from the city under a program that the City Council approved Monday night.
The City Council voted 5-2, with council members Alison Cormack and Eric Filseth dissenting, to launch the new program with $500,000 in city funds. The grant program also will allow corporations and community members to contribute funding, much like the business-relief effort that Mountain View created in late March with Google's support.
Unlike other business relief programs, including the one in Mountain View, Palo Alto's will use a lottery to select grant recipients rather than a first-come, first-served approach. It will be restricted to businesses that have Palo Alto storefronts, that are participating in the city's business registry and that have between one and 50 employees.
In approving the program, council members characterized it as a positive gesture toward the business community, which has been in free fall since the economic shutdown began on March 17. Some downtown businesses, including Dan Gordon's, have permanently closed, while others have reported that they're barely hanging on.
"It's really hard to listen to what's happening in our community," said Councilwoman Liz Kniss, who participated in three roundtable discussions that included more than 50 business owners over the past week. "There's some heartbreak out there. And it's pretty clear everything is not going to reopen. That's one of the most difficult things that we're hearing."
Kniss said that during these events, business owners talked about their trouble getting funding from the federal Paycheck Protection Program and suggested that the city suspend its Residential Preferential Parking program, which limits how many employees can park in residential neighborhoods.
"They are also looking for guidance, looking for support. They are also looking for some hope at this point. It was very difficult to hear this," Kniss said.
Cormack, who also has been participating in the meetings with business leaders, said some businesses have adjusted their operations to survive, with restaurants now selling items out of their pantries and dentists talking about how to provide safe space for clients. The hardest hit area, she said, will be personal services such as physical therapists, hairdressers and nail salons.
"The changes that will need to occur for these to restart are really significant," Cormack said.
The downward spiral of the retail industry is reflected in the city's grim budget projections, which now estimate a revenue drop of about $38.8 million in fiscal year 2021, which begins on July 1. Sales taxes are expected to plummet by 43%, going from $36.1 million in the current budget to $20.5 million next year. Revenues from hotel taxes are expected to plunge by 44%, from $26.6 million to $14.9 million.
The business relief program aims to support cherished community institutions that are on the brink of closing down and stem the loss of revenues. The program will be limited to small businesses that have been in the city for at least 12 months and that have seen their revenues drop by more than 25% since the health emergency began. The city will partner with the Palo Alto Chamber of Commerce to collect contributions and distribute grants, which could be as high as $10,000.
While council members generally agreed that the program is worth launching, Filseth pointed to the city's budget crisis and the council's imperative to cut $38.8 million out of the budget — a painful exercise that the council will begin on May 11.
"We're going to be turning down worthy programs right and left going forward. That's what I'm struggling with," Filseth said. "On the one hand, it's a worthy program. On the other hand, it's going to make our problem 1% worse."
Cormack voted against the proposal because it explicitly excluded nonprofit groups. Her colleagues, however, concluded that including nonprofits would complicate the program and make it more difficult to administer.
The council also agreed that a lottery is the best way to determine who gets the funds. A report from Shikada notes that the first-come, first-served method used by Mountain View and by the federal Small Business Administration for loans may be easier to administer but it favors those businesses who are more sophisticated in completing financial applications. A lottery system in which an applicant receives a number and then the city randomly selects numbers will eliminate that advantage.
"Giving money away, I think, is not easy because the person who gets the money is delighted and the person who didn't get the money is not only not delighted but sometimes angry and very puzzled as to why they weren't selected," Kniss said. "That's why I'm so glad to see the lottery selection here."
Recipients of the city's grants also will have broad discretion on how to spend the money. Unlike in other cities, which restrict the use of grant funding to payroll or lease payments, Palo Alto plans to let business owners spend the money however they deem necessary to remain in operation. This could mean spending it on operating expenses to sustain the businesses and reopen after the stay-at-home order ends, according to Shikada's report.
The council also agreed to set the maximum grant amount at $10,000, reasoning that this is roughly what will be required to support expenses for a small business for two months. While Mayor Adrian Fine said he'd prefer to see more grant recipients, even if it means smaller grants, he voted with the council majority to support the proposal.
"Although this is limited and certainly not enough, I think it's the right thing to do — to support some of our businesses," Fine said.
Find comprehensive coverage on the Midpeninsula's response to the new coronavirus by Palo Alto Online, the Mountain View Voice and the Almanac here.