The big freeze and beyond: Lansing copes with economic disaster

For Lansing area workers and employers, predicting the impact of the coronavirus shutdown is like trying to draw up a spreadsheet in the midst of a plague.

The near, middle and long-term phases of the crisis — the usual benchmarks for financial planning — are about as distinct as waves of locusts.

Perhaps bullet points would be more comforting. First, there’s the leading edge of the swarm, clearly visible 2 inches in front of your face, followed by an indistinct mass slightly further out, and void of total unpredictability beyond that.

The road ahead is unknown even to Amanda Hayhoe, owner of Hayhoe Asphalt in Holt, a third-generation, family-owned business. As a residential and commercial paving business, Hayhoe Asphalt and its 15 employees are idled for the time being.

“I’ve been talking to a lot of other business owners, and that’s almost half of the stress we are facing is, how do you plan for something when you have no idea what the possibilities are?” Hayhoe said. “We’re just trying to keep our heads above water and make sure our employees are safe and able to pay their own bills.”

For now, thousands of area businesses are scrambling to secure federal loans in hopes of keeping afloat for the next two months; state and federal unemployment benefits have started to roll out. Most people are trying not to peer too much further into the void, but some experts are already looking at the dangers and opportunities of the uncertain weeks and months ahead.

The big triage

The first wave of the crisis, from March to early June, is all about rescue.

With thousands of businesses closed or drastically curtailed, federal, state and local authorities are mobilizing to get cash into people’s hands on an unprecedented scale.

The damage is severe in all parts of Lansing and beyond.

“Folks are struggling in south Lansing,” Third Ward Councilman Adam Hussain said. Hussain said the impact is worst for businesses deemed nonessential under state closure orders.

“I’m thinking of Eric’s Cycle Shop, so many other businesses that have had to shut down completely,” Hussain said. As he walked down Washington Avenue in his mind, even the least likely candidates for the coveted “critical business” exemption got his sympathy. “Bullseye Axe Throwing just got started and gained a measure of traction,” he lamented.

Even many businesses deemed essential are seeing huge declines in revenue.

“I’ve talked to owners at 1910 Food Market, Center of the Plate Catering, some of those places,” Hussain said. “If this goes on too much longer, they don’t know how much longer they can keep the doors open, essential and non-essential alike. People are struggling over here.”

The big triage is underway, and on a huge scale, but no one knows if it will be enough.

The key is to keep as much cash flow as possible to people and businesses, according to Bob Trezise, president and CEO of the Lansing Economic Area Partnership.

“The goal is to keep people paying their rent, paying their utilities, maybe paying some employees, for two months, until we begin to somewhat emerge in mid-June,” Trezise said, “whether it’s unemployment insurance, Small Business Association loans and grant or our own loans and grants here at LEAP.”

The state reported Monday that over 1 million jobless claims have been filed in Michigan, a number not seen since the Great Depression.

The online unemployment system crashed twice already, once in late March and again
Monday, when self-employed workers, gig workers and low-wage workers became eligible to apply.

Workers on state unemployment were to start receiving weekly $600 checks this week of supplemental benefits as part of a $2.2 trillion federal relief package.

“I don’t have the resources or capacity to measure what is going on out there,” Trezise said. “Our information is anecdotal.”

The scale of the crisis hit Trezise’s team, in microcosm, in the hectic days leading up to April 7, when LEAP awarded $10,000 grants to 60 Lansing area small businesses of 50 or fewer employees.

Trezise is proud of the program, but admits it was “totally inadequate.”

“The true measure of the pain out there is that we received 1,875 applications, which were all heart-breaking to read,” Trezise said.

At the same time, hundreds of businesses scrambled to cover their expenses during the shutdown by applying for federal Small Business Administration loans under the Paycheck Protection Program.

The plan offers small businesses low-interest loans to cover payroll and other expenses such as rent. If employers don’t lay off staff or cut payroll by more than 25 percent, the loan is forgiven. If they do make cuts, forgiveness is reduced in proportion to the cuts.

But it’s not yet known whether Congress appropriated enough money to handle the loans. By the end of the day April 3, the first day of the program, the Bank of America alone said it had received $22 billion in loan requests from 85,000 applicants.

As of early Monday afternoon, more than 4,600 lenders had been approved for more than $230 billion, according to U.S. Treasury Secretary Steven Mnuchin. The program is capped at $348 billion.

The application process has been problematic for many area businesses. Many banks are only processing applications from businesses they have already worked with.

Tim Daman, president and CEO of the Lansing Regional Chamber of Commerce, said he’s heard from several local businesses who have been approved for loans and several others who “have just had nothing but problems going through.”

“The dynamics of that program were changing very frequently last week,” Daman said. “Some folks thought they were ahead of the game but the applications changed.”
The scale and swiftness of the federal program is unprecedented.

“The SBA usually does about $2 billion in loans a year and now they’re doing over $350 billion in two weeks,” Daman said. “Everything’s been amped up, you’re making decisions on the fly.”

Trezise said LEAP’s modest grant program was a back-breaker, compressing four months of work into two weeks, but the SBA loan rollout is infinitely bigger.

“The feds are changing the rules every day,” Trezise said “Creating a response a crisis no one has comprehended, involving hundreds of billions of dollars, in a matter of days is impossible.”

Trezise said the money might take “a few days to a few weeks” to arrive. “People have to understand that,” he said. “They are moving enormous amounts of money in an impossibly fast time frame.”

Amanda Hayhoe submitted her Paycheck Protection Program loan application April 3, the day the program opened. Five days later, her lender, Dart Bank, notified that her application was approved by the Small Business Association.

For Hayhoe, the process was greased by 30 years of doing business with Dart.

“It was the smoothest process I’ve ever had getting a loan,” she said.

She said the loan would be “significantly helpful” in keeping the business going this year.

“It’s going to be a life saver,” she said. “I have no income coming in.”

But other local businesses are struggling to get help, and they are in no position to wait long.

Chase Bank processed Kathy Holcomb’s Small Business Administration loan when she opened Old Town’s Absolute Gallery in 2003.

“Now they are one of the first creditors calling me to tell me I am five days late on my payment when we’d already been closed for a couple of weeks,” Holcomb said.

Like many businesses, Absolute Gallery is going into its fourth week with closed doors. Unable to afford an accountant, Holcomb is still working on her Paycheck Protection Program application after a time-consuming glitch over applying for unemployment. She was denied because she owns the business and pays herself – “not enough,” she said.

“I have no income,” she said. “It’s just frustrating. It feels like to me that it’s the bigger people who are going to come out of this in pretty good financial health. They’re bailing out cruise lines. I have a lot of emotions and they’re running strong now. I’m going to take up demolition.”

As of 2019, there were about 30.7 million small businesses in the United States, employing 60 million people, or about half of the private sector workforce, according to the U.S. Small Business Administration.

But the numbers only tell part of the story.

“In small stores, you’re dealing with local people, you’re seeing what the community is like,” Holcomb said. “My biggest fear is that we’ll just lose all of that. We’re not going to have a culture. We’ll just have a great big anonymous — I don’t know what.”

Ripple effect

It’s hard to overstate the importance of getting cash into people’s hands fast, according to Lisa Cook, a professor of economics at MSU.

Cook, a senior adviser at the Treasury Department under the Clinton and Bush administrations and an adviser to President Obama, is worried about the ripple effect of mass business closures.

“This could escalate very quickly, especially when 10 million people lose their jobs in two weeks,” Cook said. “It’s unprecedented. A lot of people can default on cable bills, cell phone bills, car payments, student loans, and that could collapse the entire economy.”

Cook has seen economic triage first hand. She led the Harvard team that negotiated the first International Monetary Fund program to help Rwanda get back on its feet after the horrific genocide.

“This is what I saw: We had an emergency,” Cook said. “It’s not comparable to a pandemic, but lots of people died, they were traumatized and a lot of people were out of work.”

Except for three or four large businesses, IMF help went mostly to “mom and pop shops” in Rwanda, Cook said.

“What I saw in Rwanda, that applies just as much to Michigan, is that getting money in people’s hands, fast, gives them confidence. Something is coming. Something is on the way.”

Cook has advocated the use of mobile phone apps to get money to people who need it, especially lower-income and gig-economy workers faster.

“There is definitely dignity in work, and we want to get people back to work as quickly as possible, but there’s also dignity in just having the money to pay for things, and not having to figure out where is the nearest food bank or getting anxious thinking about moving to a homeless shelter, getting thrown out,” she said.

Restarting what?

Workers and employers are desperate for certainty about what will follow the current rescue phase, and when, but there is no such thing yet. As the statewide shutdown drags on, the push to re-open the economy is growing stronger by the day. Tim Daman said many businesses have contacted his office, fearing that if statewide closures are extended to June 10, they would never recover.

“Let’s just look at getting through the next two weeks, through April 30, and then look at how to bring certain aspects of our economy on line,” he urged.

To start with, Daman suggested said that bringing back the construction industry would pull many sole proprietors and contractors back into the workforce.

“You could practice good social distancing while pursuing some of the home projects and new builds,” Daman said.

Hayhoe’s asphalt business would be a good candidate for early re-opening.

“We’re outside all day,” she said. “Everybody is able to socially distance. We don’t have to share hand tools.”

She said asphalt companies have already started back up in Lansing, but only to supply pavers of state roads and highways, which are considered to be critical businesses by the state. Hayhoe is eager to get back to work on residential and commercial accounts.

“With about 98 percent of the traffic off the road, it’s the perfect time, for sure,” she said.

The delicate dance of keeping the population safe from new outbreaks of COVID-19 without crashing the economy will be the most pressing and hotly debated question of the summer.

Cook cautioned that opening things up too fast could backfire. The coronavirus may be as eager to restart as the economy.

“I agree with the epidemiologists,” Cook said. “This is a health crisis first. If we get the economy back up and running, if we get people back into barber shops, McDonald’s and Starbucks and have them get sick, they’ll never want to go back. It’s tainted. They’ll say, those places put me in danger.”

She urged that more money be allotted for random testing to provide more information on managed re-opening of the economy.

“See what happens when China, Italy, Germany, Australia slowly open things,” she said. “We’re going to have to monitor the rest of the world. It’s going to take time and we’re going to have to have patience.”

And then there is the long term.

Contemplating the period from October 2020 into 2021, Trezise emitted a sound that resembled “aarrggh.”

“We know the virus will still be very active and around, and yet agencies like mine need to start thinking about looking around the corner and rebuilding, not just stabilizing,” he said.

He hesitantly dropped the word “opportunity” into the discussion.

“In late fall, we begin to rebuild our local economy, based on the new world we’ve inherited,” Trezise said.

Most observers agree that businesses or organizations that rely on crowds are going to be in for a tough two years until there is a vaccine.

The outlook for sports, live theater, music, conference centers and other institutions that aggregate human bodies is terrifying to contemplate. It’s hard to believe that for much of 2019, dozens of Lansing’s cultural leaders strategized about how to bring a performing arts center to Lansing.

“It seems like ancient history,” Trezise said.

A few sectors of the regional economy look ripe for growth. Six months ago, LEAP put together a medical technology advisory group bringing together the area’s hospitals, MSU and private sector biotechnology companies. The project now looks almost prophetic. “We think that med tech could a huge growth area,” Trezise said. “We want to unify that ecosystem, expand manufacturing and make it one of the top 20 in America.”

It’s likely, however, that no sector of the economy will come out of the spring and summer unchanged.

“The landscape will be vastly different when we come out of here,” Daman said. “Businesses will be re-evaluating. Do I need a 50,000-square-foot building with 100 people working inside, or can I have a 10,000-square-foot office space, maybe with only 15 people working inside, and the rest of my team working remotely? Those are the sorts of questions that will be raised in the world beyond COVID.”

There are much bigger concerns on the horizon than office space. Despite some arguable bright spots, a long-term nightmare vision is shared by economists around the country: the looming collapse of state and municipal budgets in the face of mushrooming outlays and drastic drops in revenue.

“State government essentially eliminated most of its different pots of taxes and basically collects sales and income taxes now,” Trezise said. “Those are the two most volatile taxes you can be dependent on.”

Any local government that depends on income taxes, in an unprecedented period when incomes are vaporizing, will struggle the most.

“There’s going to have to be a massive federal bailout of both state and local budgets,” Trezise said. “There’s nothing left to cut. It’s something that hasn’t been discussed at all yet but it might be catastrophic.”

House Democrats want aid to state and local governments to be a part of the second federal coronavirus relief bill, but Senate Republicans are blocking that part of the measure.

Start the steamrollers

Perhaps we’ve looked too far into the void for one day’s reading in April.

A fitting room session with longtime Lansing clothier David Kositchek has brightened up many a rough day. Even if you can’t afford Kositchek’s high-end vines, it’s worth a minute of your time to bask in his rock-solid equanimity.

The owner of Kositchek’s men’s clothing store in downtown Lansing talks like the always upbeat pilot of a plane, even when he’s gliding on the thermals, with the engines cut.

“I don’t think I have blinders on, but I’m very optimistic that this will come back, and people will come back out and support local businesses,” Kositchek said.

Kositchek’s business model is the antithesis of social distancing. He measures your inseam, listens to your troubles and rejoices in your successes, more like a bartender or a therapist, and his staff of 30 years is trained the same way.

“We do not have an online presence as far as selling things on line,” he said. “We are a very personalized business. I don’t operate that way.”

Kositchek said his team is “intact” and he’s looking forward to opening his doors again. He declined to specify what mix of resources is keeping the plane aloft, whether it’s a rainy-day stash of capital, SBA loans or unemployment, except to say that the current situation is “mind-boggling.”

In the new closed economy, the ground is edging closer for everyone, but Kositchek is not looking down.

“I would just tell people to hang in there,” he said. “We will get through this. Some of the newer businesses may have a more difficult time, and I understand that, but I hope as many come through it as possible.”

Kositchek’s has pulled through two world wars, a Great Depression and some truly frightening expansions of lapel width in its 150 years as a mainstay of downtown Lansing’s business district.

“We weathered hard times before, and we’ll weather this,” he said. “When you’re in business, you have to remain optimistic. It doesn’t mean you’re naïve. I couldn’t live any other way.”

Amanda Hayhoe of Hayhoe Asphalt is just as eager to climb back on her steamroller.

Hayhoe has spent the last few days putting together a plan for safe procedures to put in place when her business re-opens. She’s triangulating new distancing guidelines for job sites and lining up buckets of bleach water for workers to sterilize their tools between jobs.

“I know a lot of other small business owners are doing the same thing I am,” she said. “We want to make sure that when we are able to go back to work, we have the employees and we have the processes already in place. We’re not looking for a gradual ramp-up. We want to be able to make the most impact on the economy and hit the ground running.”