The financial downturn brought on by the COVID-19 pandemic has taken a painful toll on small companies nationwide. State policymakers and financial growth organizations discover themselves on the entrance line in serving to them climate difficult instances, however present incentive and finance applications might not be acceptable to deal with what these companies face at present.
Ellen Harpel is the founding father of Smart Incentives, a consulting agency that helps state and native governments make sound selections all through the financial growth incentives course of. With a Ph.D. in regional economics from George Mason College’s Schar College of Coverage and Authorities, Harpel brings a long time of expertise to her work. She additionally serves as a senior analysis fellow with the Center for Regional Economic Competitiveness (CREC), based mostly in Arlington, Virginia.
Good Incentives works with communities to design and handle incentive applications which can be efficient and accountable. The agency is on the forefront of efforts to develop higher processes for monitoring compliance and evaluating the effectiveness of incentive applications. Harpel is below contract with The Pew Charitable Trusts to assist its analysis on state fiscal well being. This interview has been edited for readability and size.
Q. What does the distinctive nature of this recession imply for states attempting to assist small companies?
A. The final recession hit the construction and manufacturing sectors hardest, with males disproportionately affected by job loss. This recession is completely different. The influence has been borne primarily by service businesses, particularly restaurants and retail, personal services, tourism, and health care establishments. Women workers and women business house owners are typically overrepresented in these sectors.
There are additionally lots of small companies and microenterprises inside these classes. Each usually have much less income and fewer staff. They’re additionally less likely to have established banking relationships by which they’ve financed development. In consequence, many had difficulty participating within the early rounds of help supplied by the federal authorities, such because the Paycheck Safety and Financial Damage Catastrophe Loans applications. Their expertise magnifies a long-standing, well-documented drawback: Many small businesses, particularly these with African American, Hispanic, or female owners, should not have equal entry to monetary assets.
So small companies have been disproportionately affected, and the applications meant to assist them were not designed well to satisfy their wants. Which means that states attempting to assist these companies have to fill this hole, and they should method help otherwise than they’ve up to now.
Q. What ought to states be enthusiastic about as they develop methods to assist small companies throughout this time?
A. There are 4 major questions that state policymakers and financial growth officers ought to contemplate:
- What goal are you attempting to attain?
- Which small enterprise problem are you attempting to deal with?
- Is monetary help essentially the most urgent unmet want?
- Are initiatives being applied in an equitable method?
The primary is the toughest to reply. With out clear route, how will states know how you can allocate scarce assets? How will they know if their actions have been profitable? Everybody needs to assist small companies, however states have to be clear in regards to the desired consequence. Program design modifications ought to align with particular coverage goals. At Good Incentives and CREC, we’re listening to a need amongst state officers to maintain companies in enterprise, to develop and protect jobs, and to deal with obtrusive financial and well being inequities inside our communities. The problem might be wanting to attain all of those goals whereas recognizing the necessity for near-term trade-offs. For instance, serving to companies survive might imply short-term job cuts, whereas preserving the utmost variety of jobs might require directing assets towards the healthiest small companies, slightly than these struggling essentially the most.
Q. What comes after defining the target?
The second query is which small enterprise problem are you attempting to deal with? Companies have many wants proper now. Do they want quick entry to small quantities of money to remain open, preserve their staff, or adapt operations? Or, do they want longer-term financing to adapt and maintain operations in a brand new, ongoing working setting? After contemplating the solutions, policymakers ought to discover the state’s financial growth toolbox to find out one of the best ways to offer that help in an environment friendly and well timed method.
Thirdly, is monetary help essentially the most urgent unmet want? Companies produce other considerations that states and financial growth companions could also be properly positioned to deal with. These embody steerage round protected working procedures, technical help on establishing a web based presence or implementing new distribution procedures, subsidizing new bills to adjust to evolving well being rules, or networking and enterprise growth help by way of state small enterprise and entrepreneur assist organizations.
Fourth, are initiatives being applied in an equitable method? Have you ever thought of how outreach efforts, program eligibility guidelines, utility procedures, and reporting necessities might inadvertently exclude important segments of the small enterprise group?
Q. Can states use present applications, or ought to they design new ones to assist small companies?
A. If the present applications are aligned properly with the state’s small enterprise assist goals, then it is sensible to adapt them. Usually, states do that in two methods: by streamlining procedures and increasing outreach.
Good Incentives’ analysis on incentives for small companies and entrepreneurial corporations exhibits that procedural particulars, slightly than program design or intent, are sometimes the largest roadblocks to small enterprise participation. States ought to look at eligibility guidelines, utility procedures, overview or underwriting processes, and reporting necessities by this lens.
In addition they can do higher outreach to make sure that companies are conscious of the applications. Making a program with out first partaking group companions and ensuring companies know how you can entry it may possibly result in issues. That is very true for the smallest companies that may not have established banking relationships or skilled advisers guiding them by the method.
Nonetheless, states might discover that their present financing and incentive choices are usually not a very good match for small companies or service industries. For instance, many financial growth applications have minimal job creation or funding requirements that find yourself excluding most small companies.
These applications might have been designed to attain a distinct goal: to develop a state’s economic system by bringing new cash to a group. This implies they’re set as much as assist develop export-oriented sectors or tech/innovation corporations however not most of the companies harm by the present downturn, reminiscent of eating places or little one care facilities that present companies inside a group.
Q. How will states know if their efforts are profitable?
A. States ought to contemplate how outcomes might be measured, what the related reporting necessities from program contributors might be, and the way information might be collected and analyzed. Maintain this course of so simple as doable, emphasizing just one or two core consequence metrics based mostly on information simply obtained and reported.
The essential component is reporting on outcomes associated to the preliminary goal. It might be simpler to report on inputs, reminiscent of how a lot cash was spent, and outputs, for instance what number of companies have been assisted. After all, you will need to gather this info and report it to stakeholders. However program metrics also needs to embody one or two consequence measures that point out how efficient the efforts have been in reaching the desired goal, whether or not it’s enterprise survival, job preservation, or one other coverage purpose.
Lastly, put together now for scrutiny later. Extra states are conducting common financial growth and incentive program evaluations to find out whether or not insurance policies are having the meant impact at an affordable value. The entire motive states have interaction in financial growth is as a result of they imagine these actions profit their communities and residents. Put together to inform that story. Having an outlined course of with clear goals, procedures, and reporting mechanisms will help policymakers try this.