Legislature(2019 - 2020)Anch LIO Lg Conf Rm
05/08/2020 11:00 AM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Small Business Relief During the Covid-19 Pandemic | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
Anchorage, Alaska
May 8, 2020
11:05 a.m.
MEMBERS PRESENT
Representative Ivy Spohnholz, Chair
Representative Louise Stutes (via teleconference)
Representative Zack Fields (via teleconference)
Representative Sara Hannan (via teleconference)
Representative Andi Story (via teleconference)
Representative Mel Gillis (via teleconference)
Representative Sara Rasmussen (via teleconference)
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Mike Prax (via teleconference)
Representative Dan Ortiz (via teleconference)
Representative Bart LeBon (via teleconference)
Representative Sharon Jackson
COMMITTEE CALENDAR
PRESENTATION(S): SMALL BUSINESS RELIEF DURING THE COVID-19
PANDEMIC
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JON BITTNER, Executive Director
Alaska Small Business Development Center
Anchorage, Alaska
POSITION STATEMENT: Offered testimony on small business relief
during the COVID-19 pandemic.
MARISA SHARRAH, President/Chief Executive Officer
Great Fairbanks Chamber of Commerce
Fairbanks, Alaska
POSITION STATEMENT: Offered testimony on small business relief
during the COVID-19 pandemic.
JONATHAN WHITE, Owner
SteamDot Coffee Company
Anchorage, Alaska
POSITION STATEMENT: Offered testimony on small business relief
during the COVID-19 pandemic.
SARAH LEONARD, President/Chief Executive Officer
Alaska Travel Industry Association
Anchorage, Alaska
POSITION STATEMENT: Offered testimony on small business relief
during the COVID-19 pandemic.
SERENE HUTCHINSON, General Manager
Juneau Tours and Whale Watch
Juneau, Alaska
POSITION STATEMENT: Offered testimony on small business relief
during the COVID-19 pandemic.
KIRK ROSE, Chief Executive Officer
Anchorage Community Land Trust
Anchorage, Alaska
POSITION STATEMENT: Offered testimony on small business relief
during the COVID-19 pandemic.
JEREMY PLANK, Chief Financial Officer
Allen Marine
Sitka, Alaska
POSITION STATEMENT: Offered testimony on small business relief
during the COVID-19 pandemic.
SARAH OATES, President/Chief Executive Officer
Alaska Cabaret, Hotel, Restaurant and Retail Association
Anchorage, Alaska
POSITION STATEMENT: Offered testimony on small business relief
during the COVID-19 pandemic.
ACTION NARRATIVE
11:05:16 AM
CHAIR IVY SPOHNHOLZ called the House Labor and Commerce Standing
Committee meeting to order at 11:05 a.m. Representatives Stutes
(via teleconference), Fields (via teleconference), Hannan (via
teleconference), Story (via teleconference), Gillis (via
teleconference), Rasmussen (via teleconference), and Spohnholz
were present at the call to order.
^PRESENTATION(S): Small Business Relief During the COVID-19
Pandemic
PRESENTATION(S): Small Business Relief During the COVID-19
Pandemic
11:07:45 AM
CHAIR SPOHNHOLZ announced that the only order of business would
be a series of presentations on small business relief during the
COVID-19 pandemic.
11:07:57 AM
JON BITTNER, Executive Director, Alaska Small Business
Development Center, said he would provide an update on CARES Act
funding allocations for Alaska, and discuss current statewide
small businesses trends. He reported that the CARES Act
initially distributed $364 billion for the Paycheck Protection
Program (PPP), followed by an additional relief bill that
included another $310 billion for the PPP. To date, he said,
Alaskan companies have received over 9,000 PPP loans totaling
$1.2 billion. He further noted that eight Economic Injury
Disaster Loans (EIDLs) were distributed to Alaskans for a total
of $3.1 million. Regarding the EIDL advances, which are grants
of up to $10,000 based on the number of employees that
applicants have, Alaska received 2,700 grants for over $11
million. He stated that despite the allocation of federal aid
funding, the Alaska's economic outlook is still bleak. After
relaxing restrictions on businesses operations there continues
to be fewer consumers patronizing businesses at both a local and
national level, which he said will cause difficulties in the
long term. He added that this in conjunction with important
industries in Alaska taking a heavy hit, such as the oil sector,
the tourism industry, and several others, has resulted in
desperate economic times for businesses in this state. He said
smaller businesses in particular can only run on reserves and
cut costs for so long before being forced to shut their doors.
He stated that money needs to be deployed to small businesses as
quickly and broadly as possible and with fewer barriers attached
to receiving the funds. Nonetheless, he opined that whatever
funding is deployed, regardless of the program, it won't be "the
silver bullet solution. He said that regardless of which
action is taken, it will only be "a stopgap measure" to get
businesses through the next few months until consumers are ready
to patronize them again. He pointed out that businesses were
asked to make a heavy sacrifice by closing their doors and
laying off employees and all of them did it. He said now it's
time to support the businesses that put their livelihoods on the
line for Alaskans.
11:13:42 AM
REPRESENTATIVE HANNAN asked for the volume of businesses that
would need the available assistance; further, what hurtles stand
in the way of making it as streamlined as possible.
MR. BITTNER said it would be easier to define the businesses
that aren't hurting, as most businesses need some form of
assistance; however, the most immediate need is in small
businesses because they have fewer reserves and avenues of
funding. He added that if a funding mechanism has more
criteria, it will require more time to process the applications.
Some companies are savvier than others and have more resources
to hire professional assistance for their relief funding
applications, whereas it's more difficult for small mom and pop
business. He recommended making [the funding mechanism] as easy
and streamlined as possible while still maintaining appropriate
oversite over the funds.
11:15:36 AM
REPRESENTATIVE FIELDS asked Mr. Bittner to address why small
businesses need access to grants in addition to loans. He also
asked for an appropriate breakdown of the $300 million of CARES
Act relief funds for businesses in terms of grants versus loans.
MR. BITTNER suggested focusing on a number of businesses within
any given size range; for example, businesses with under 25
employees. He added that focusing on businesses that were not
able to receive the PPP and EIDL funding would narrow it down
even further. He explained that grants should be part of the
conversation because not all businesses have the same access or
ability to apply for loans. Furthermore, there is a different
set of criteria that is involved in a grant program compared to
that of a loan program. He reiterated that the key is to
rapidly deploy the funds.
11:17:54 AM
CHAIR SPOHNHOLZ asked for recommendations on the distinction in
criteria for a grant program versus a loan program.
MR. BITTNER explained that the ability to pay back a loan should
be considered, which would be a difficult proposition for
industries, such as the tourism industry, as there are many
economic "unknowns" right now. He reiterated that grants have
different criteria than even forgivable loans.
CHAIR SPOHNHOLZ pointed out that there have been different
discussions about the potential funding distribution structure.
She said the governor has proposed distributing the funds
through Alaska Industrial Development and Export Authority
(AIDEA), while others have proposed administering them through
the Department of Commerce, Community & Economic Development
(DCCED). She asked which organization could execute rapid
deployment and implement an appropriate evaluation of program
eligibility.
MR. BITTNER answered no. He said he does not know enough about
the internal workings of those organizations to make a
recommendation.
11:20:41 AM
MARISA SHARRAH, President/Chief Executive Officer, Great
Fairbanks Chamber of Commerce, paraphrased from the following
written remarks [original punctuation provided]:
I want to recognize the challenge presented to any
individual, business, or government entity in their
desire to balance social responsibilities of
protecting human health and protecting the livelihood
of so many Alaskans. There are no perfect answers here
and while it's possible I will say or suggest
something that you or others may disagree with, I'm
thankful the chance to dialogue in this sticky
situation. The questions are messy, so the answers
will also inevitably be messy. Also most of my
testimony is coming straight from my members.
Impacts from Health Mandates:
A group of economic development organizations,
including my Chamber, rolled out a business survey a
few days ago.
? Of the 87 business that have responded as of this
morning, 90% of the businesses indicated their
business has been negatively impacted by the presence
of and response to COVID and have seen significant
decreases in revenue.
? Almost 40% of those respondents so far have reported
decreases of 50% or more and 30% of those employers
have had to make employment reductions so far. Many
businesses have been closed for up to 50 days with no
income due to lack of ability to operate under the
health mandates as they were rolled out.
? Many businesses that have not had to alter their
operations due to health mandates have still been
negatively impacted because their client's businesses
have been impacted making their services unnecessary.
Two examples of this are a food supply company and a
graphic design company.
? Getting employees back into the workforce has been
difficult due to some very specific challenges ranging
from lack of childcare options or employee discomfort
with returning to work, however, the robust
Unemployment Insurance program is currently acting as
a disincentive to return to work as many people are
making as much or more on unemployment than they would
going back to work once their employer received
Paycheck Protection Program funding.
? Examples
o One employer - 50% of employees opted not to
come back to work because the UI system was so
attractive. Especially frustrating for her right now
as her business will be opening up today in accordance
with the state mandates that also increase the
required staffing for each shift. This business used
to only need 1 employee per shift, but now, in order
to comply with monitoring the limited capacity
requirements and the sanitizing and disinfecting
portion of the mandate she needs to have twice the
amount of staff at one time with 50% less employees to
pull from. This business is having to limit the hours
of their operation order to balance these challenges
related to staffing.
o Other challenges are created from the way the
roll out of mandates is being handled. The piecemeal
approach to rolling out the overall plan is making it
impossible to plan for both the near or long term.
There is no clear timeline for when our community
could expected to reach the next phase in the plan,
and the parament of each future phase are not
published so businesses can't take a forward look with
any insight on what that plan is going to look like.
o There are obviously devastating impacts to our
tourism sector and that sector was one of our
communities best performing sectors prior to COVID.
Will defer to Sarah for more context.
PPP/EIDL:
? Many businesses in the Interior were very fortunate
to have great lenders and accountants that helped get
PPP funding. Very worried those funds will have to
paid back since the forgiveness criteria is not
currently understood or clearly published at this
time. According to early results from survey, 60% of
our businesses applied for PPP, EIDL or some other
grant/loan funding.
? Other businesses had challenges finding a lender
that would work with them. An example was very small
business whose bank declined to process their
application, so they had to go to a different
institution and start a new banking relationship in
the middle of a business crisis.
? Local businesses were discouraged by the SBA process
for EIDL loans and describe the process as clumsy and
rapidly changing up to an including the application
that you could find online at any given time. There
was little to no communication or status updates. 4
weeks after applying, money mysteriously showed up
with no announcement or follow up.
Grants vs. Loans:
? Many business owners believe legislators and our
state's administration have a vested interest in
taking the steps they can take to boost the economy in
whatever way they can. If loans were made available,
many business owners would not take them because of
uncertainty. But many businesses would accept grants
if made available.
? All business owners and executives I spoke with
agreed there should be oversight as to where grant
funds go or what they could be used for.
? The Fairbanks Chamber believes the private sector
should be used to the degree possible. Alaska's banks
and credit unions have demonstrated they are the right
sector to turn to in the processing of loans and
government backed grants.
? We do need to determine which groups qualify based
on a simple formula like number of employees or last
year's revenue or some sort of broad-based criteria
that any non-profit or business has immediately
available. Funds should be distributed based on a pro-
rata base for whatever criteria is established.
Banking industry is concerned about the current
proposal from AIDEA as written. If it were rewritten,
restructured and simplified, the industry would be
more excited about take a second look and possibly
jump in and process grants given by the state.
? Local entities that might be trusted to develop the
program for local businesses to apply for state backed
grants or loans would be any community Economic
Development Corporation.
? The Fairbanks Chamber do encourages legislators and
administration to find ways to address the gaps that
were created by health mandates early on to allow
businesses to reasonably function going forward and
deploy any available funds to businesses in a way that
protects our economy and our employers.
As we're responding to this situation, the Fairbanks
Chamber's collective desire is to move people back
into the workforce and that we protect our healthcare
infrastructure system.
11:32:20 AM
CHAIR SPOHNHOLZ asked Ms. Sharrah to describe the concerns
expressed by the banking industry about the governor's proposal
to use the Alaska Industrial Development and Export Authority
(AIDEA) for small business funding.
MS. SHARRAH explained that the banking industry is concerned
about the current written proposal from ADIEA. According to the
banking industry, the proposal is overly complicated and would
be difficult to execute. She said that the industry would be
more comfortable if the proposal were rewritten, restructured,
and simplified in a way that streamlines the application and
distribution process to help banks and businesses.
11:33:45 AM
REPRESENTATIVE STORY asked if the banking industry is planning
to give their feedback to AIDEA regarding the application
process and loan eligibility.
MS. SHARRAH was unsure and offered to follow up with the
requested information.
11:35:00 AM
JONATHAN WHITE, Owner, SteamDot Coffee Company, provided
perspective from a small business's standpoint, particularly one
that is on the frontlines trying to work through the myriad of
challenges presented [by COVID-19] during this unprecedented
time. He recounted that as the pandemic started to unfold, many
businesses were asked to make severe changes to their business
to help stop the spread. He opined that the low number of cases
across the state is due, in large part, to how the business
community responded. He explained that businesses like SteamDot
were faced with the difficult decision of trying to stay open
while complying with state and municipal guidelines and weighing
that decision against the health and safety of their employees
and customers. The result was the closure of many businesses,
including SteamDot Coffee Company. He said that in the early
days, he used the company's on-hand cash to continue paying his
employees until the available cash was depleted, which lasted
under two payroll cycles. Nonetheless, it allowed him to keep
over 40 retail employees on payroll despite the business's doors
being closed. He reported that SteamDot received a PPP loan;
however, it is a short-term fix to keep his employees off
unemployment. He noted that in early June the loan will be
depleted. He said if revenues don't return by that time, his
business will face the same cost-benefit analysis of remaining
open with limited service capacity, potentially resulting in
laying off or furloughing employees or closing its doors
entirely. He stated that as the economy reopens, there is still
tremendous trepidation from customers. SteamDot's revenues are
30 percent of what they would normally be after 10 days of
reopening, he said. He offered his belief that businesses will
perform better if they can operate safely and follow the
government mandates. He remarked, "Businesses stepped up, they
responded, and now they need help."
11:40:45 AM
MR. WHITE opined that it's not the government's role to bail out
businesses; however, it is the government's responsibility to
ensure a healthy economy for its citizens. He stated that it
does not matter which mechanism is used to distribute the CARES
Act funds. He said as long as its done quickly, businesses are
"agnostic." He added that the longer those funds remain in
limbo, the more businesses will suffer. Regarding the grants
versus loans discussion, he offered his belief that grants
should be the only method worth consideration based on the
uncertainty and confusion surrounding the PPP loans and the
restrictive nature of the EIDL program. He explained that
businesses need cash flow for operations not related to payroll
and rent, which are both narrowly prescribed in the PPP loans.
Cash in the hands of businesses would go a long way towards
keeping them afloat until the economy begins to reset under some
assemblance of normalcy. He approximated that under AIDEA's
proposal, the $200 million that was set aside for small
businesses by the governor would only reach around 2,000
entities at an average loan of $144,000 each. However, if the
funding were modeled after the EIDL program with grants in the
amount of $10,000, it could reach upwards of 29,000 businesses.
He suggested that the state quickly deploy the CARES Act funding
to as many small businesses as possible.
11:44:55 AM
REPRESENTATIVE FIELDS asked what mandates regarding face masks
or other recommended practices would give customers reassurance
that the risk of contracting the coronavirus while patronizing
businesses is being minimized.
MR. WHITE expressed his disappointment at the lack of face
coverings worn by both customers and employees. He opined that
wearing a mask has become a political symbol for some.
Nonetheless, he explained that SteamDot has a mask policy in
their cafes and that overall, their customers are appreciative
of the business's safety precautions. He stated that it's been
a struggle to operate with the current health mandates in
addition to customers who are weary of venturing out of
quarantine to spend money.
11:48:43 AM
CHAIR SPOHNHOLZ shared an anecdotal example of an asymptomatic
carrier who tested positive for COVID-19. She addressed the
importance of masks and social distancing to control the spread
of the virus and to help support the reopening of Alaska's
economy. She asked if additional funding with more flexibility
is necessary and whether businesses that have already received
loans from other programs should be excluded.
MR. WHITE addressed the restrictive nature of the EIDL program
and said it would seem unfair to restrict certain applicants
from more assistance because of the SBA guidelines. He said
it's strange that the state would model the funding distribution
after the PPP, despite the forgivable aspect of that program
being "mired in mystery." He opined that $290 million for small
businesses is not nearly enough. He echoed Mr. Bittner's
sentiments about small businesses being the backbone of the
communities
11:54:49 AM
SARAH LEONARD, President/Chief Executive Officer, Alaska Travel
Industry Association, informed the committee that Alaska Travel
Industry Association (ATIA) is the statewide voice for tourism
businesses in the state and markets Alaska as the premier
traveler's destination. She stated that the COVID-19 pandemic
is decimating Alaska's tourism industry. She shared several
personal anecdotes from tourism businesses owners across the
state. She conveyed that the travel restrictions have impacted
every tourism sector entry point from cruise cancellations to
air travel limitations to restricted road access from the
Canadian border closure. She reported that many of ATIA's 650
member businesses have had to lay off employees due to the
impacts of COVID-19. Tourism businesses and nonprofit community
members are facing the devastating decision of whether to endure
this summer and try to capture revenue from potential in-state
travel or to close entirely. The main concern that tourism
businesses have expressed is the urgent need for liquidity. She
explained that tourism businesses looked to the federal CARES
Act program for help; however, both the PPP loan and the EIDL
grants were either too restrictive or came far short of their
actual need. Furthermore, the federal programs did not take
into consideration the seasonality of many tourism businesses in
Alaska and included complicated formulas in their applications.
She noted that smaller tourism businesses often lack sufficient
formal documentation to meet traditional loan requirements. She
explained that the loan programs have provided some businesses
with a two to three-month pause; however, collateral
requirements and personal guarantees only add to a business
owner's financial burden when any incoming revenue is uncertain.
She stated that changing loans to grants may help tourism
businesses stabilize and be ready to recover when it is safe to
travel again. She suggested that a direct program for tourism
businesses administered by ATIA would provide the help that they
need to survive and would fill the gap between additional
federal and state assistance. She explained that if ATIA were
to work with the Department of Commerce, Community & Economic
Development (DCCED), they could distribute $10 million to 500
struggling businesses with individual grants of $20,000 for
basic operating costs that would help them maintain until next
year when travelers can potentially return. Such a grant
program could provide Alaska tourism businesses the critical
help them need from a familiar organization to maintain a
minimal level of operations. She related that ATIA has
extensive experience managing grants and contracts for the state
of Alaska through DCCED. She informed the committee that ATIA's
board of directors put together a working group with
representation from their partners at the state to formulate
tourism protocols to allow for a safe path towards recovery.
12:02:38 PM
CHAIR SPOHNHOLZ commented on Ms. Leonard's proposal for the ATIA
to administer a grant program. She said it makes sense for a
program like that to be administered by an organization that
knows the industry and has a good track record and relationship
with the government. She asked Ms. Leonard to submit the
information about the proposal so it can be distributed to the
committee.
12:03:57 PM
SERENE HUTCHINSON, General Manager, Juneau Tours and Whale
Watch, stated that 90 percent of Juneau Tours and Whale Watch's
guests are from the summer cruise ships. She noted that her
company is independent and relies on online bookings and Juneau
dock vendors rather than cruise line contracts. She recalled
seeing refunds coming in at an alarming rate on March 9, 2020,
which set in motion plans to lay off all twelve of the company's
winter staff in case they had to pay back the $500,000 in
presales. She said the refunds kept pouring in, adding that she
is currently refunding $10,000 per day. She explained that the
business had to lie dormant to survive, prioritizing only
essential payments like mortgages. She reported spending $1,000
to secure help with the challenging PPP loan application from a
local accounting firm. She said it paid off, as her business
was awarded a large PPP loan. She addressed the technicalities
of using the PPP loan correctly, which has resulted in rehiring
12 employees who are performing 8 weeks of work that isn't
necessarily essential. Furthermore, eight months is not enough
time to use even one-third of their PPP loan. Nonetheless, she
said they must use the PPP funds as they were intended. She
further noted that two of her skilled mechanics did not want to
return to work because of how much they were earning from
unemployment. She said had to guarantee them four months of
work, despite the PPP only covering two. She stated that as an
entrepreneur, she is not looking for a free ride; however, she
is looking for clarification and consideration. She added that
grants could be the savior for small businesses whereas loans
only delay the inevitable, especially for seasonal businesses
that are potentially looking at no revenue until spring 2021.
She reiterated that grants are essential if the legislature and
the government truly want to rescue small businesses, otherwise
there will be waves of bankruptcies.
12:12:24 PM
CHAIR SPOHNHOLZ noted that Alaska's unemployment benefits are
amongst the lowest in the nation in terms of wage replacement
value. She added that the maximum earnings per week for
unemployment in the state of Alaska is $370 plus a per-dependent
benefit of $75. She explained that the additional $600 per week
from the federal CARES Act supplement has allowed people on the
lower end of the income spectrum to make more on unemployment
than they ever earned from a wage; however, those benefits will
expire in July 2020. She acknowledged that rehiring employees
who are on unemployment has been difficult for some businesses
due to a combination of higher earnings from UI and fear of the
health risks associated with returning to work.
MS. HUTCHINSON explained that her mechanics wanted to stay on
unemployment to make decent money for three months instead of
good money for two. She suggested extending the PPP's 8-week
period to 16 or 20 weeks to allow for her and others to use the
entirety of their loans the way they were intended. Otherwise,
she said, she will have to return two-thirds of the funding she
was awarded from the program.
12:16:19 PM
KIRK ROSE, Chief Executive Officer, Anchorage Community Land
Trust, explained that Anchorage Community Land Trust (ACLT) is a
nonprofit organization working to disrupt concentrated poverty
in Anchorage. He said he would provide the committee with the
perspective from business corridors that they don't often hear
from, as many of his business owners are not from traditional
groups. He said that 70 percent of ACLT's clients are women-
owned businesses, and roughly 80 percent of their business
owners and entrepreneurs are people of color. Additionally,
close to 92 percent of ACLT's business owners and entrepreneurs
are considered low income. He stated that businesses are
closing, entrepreneurs are deferring their dreams, upstarts are
in hibernation, and shifting operations is not easy. He added
that there is a huge risk of a generational loss of businesses.
MR. ROSE said support needs to be immediate and provided to as
many as possible. He conveyed that small mom and pop businesses
had a very difficult time with the PPP. He opined that the
program would prove to be extremely unequitable overall and most
importantly, that the PPP was never intended to be a solve-all.
He offered his belief that the PPP reaffirms a system of have
and have nots. He said the program is unnecessarily complex,
slow to arrive, and difficult to spend correctly. Most
importantly, it did not help all Alaskan businesses. He pointed
out that the PPP has injected necessary capital into the economy
and undoubtedly saved jobs; however, it has been a disaster in
terms of equity, communication, and expectation. He said the
intended recipients of the PPP were small businesses who, for
all the right reasons, shut down or operated at severely limited
capacity to help flatten the curve. He emphasized that the
errors of the PPP should not be recreated. He continued to
explain that the exclusivity of the PPP served bigger businesses
with sophisticated books and established banking relationships,
which is not characteristic of many small Alaskan businesses.
The program excluded mom and pop businesses, seasonal shops,
sole proprietors, and minority business owners, and those that
did no not have large finance departments or the ability to hire
technical assistance to help with their applications.
MR. ROSE expounded that the "mad dash" for funds was also a
challenge, adding that the first-come/first-served criteria was
problematic and established a system where prioritization was
based on highest loan volume clients. He reiterated that almost
none of his business affiliates received first-round PPP
funding, because it didn't work for businesses lacking
sophisticated book-keeping, the mom and pops who weren't
immediately prepared or businesses that had to try and create a
new relationship with a bank or financial institution.
Consequently, immigrant-owned businesses, minority-owned
businesses and seasonal businesses did not receive a
proportionate share of the PPP funding, if any at all. He
stated that these businesses suffered from a large information
gap and felt extremely dejected. He said that because the
relief did not reach all Alaskan businesses, the state funds
should attempt to correct that. He opined that the state of
Alaska has done nothing for businesses that did not receive the
PPP or EIDL. He addressed the confusion surrounding the
forgiveness aspect of the PPP, adding that asking small
businesses to take on debt after nearly two months of closures
puts them in a precarious position. In closing, he highlighted
some "bright spots," including the launch of several businesses.
He articulated that for a new wave of businesses to come to
fruition, they require support and an access to capital.
12:26:59 PM
JEREMY PLANK, Chief Financial Officer, Allen Marine, provided a
brief description of his company, Allen Marine, which
encompasses day tours, an overnight cruise brand, and a shipyard
in Sitka that services all of their vessels. He noted that
Allen Marine employs 150 year-round employees in addition to
upwards of 550 seasonal employees during the months of April
through September. In March, they were forced to lay off 76
percent of their workforce as a result of the pandemic. He
stated that COVID-19 has had a catastrophic impact on his
business. He reported that they are forecasting upwards of 90-
95 percent loss of revenue for the 2020 season, all at a time
when they have already spent a large part of their annual budget
in preparation for guests that, now, will not be arriving. He
recalled how the travel restrictions and cruise cancellations
impacted his company, beginning in January. Since then, Allen
Marine applied for both the PPP and the EIDL and received PPP
funds; however, those funds are in question as to how much can
be used if they are to be forgivable. Furthermore, after laying
off so many employees, the ability to use the funds they
received while complying with the grant guidelines is difficult.
MR. PLANK said that according to the current grant guidelines,
75 percent of the funds must be used for payroll related
expenses; however, Allen Marine is a capital-intensive business,
so deciding how to allocate the PPP funds has been difficult.
Additionally, recounted trying to source EIDL funds from the
SBA. He explained that Allen Marine received the initial grant
of $10,000, albeit with no further communication. He remarked
that the PPP worked as a stopgap for the short-term, but
companies like Allen Marine are in need of additional funds, as
many of them rely on the months of May through September to
provide their revenue for the season. He further opined that
grants are the preferable mechanism of funding because loans
require a debt service and the ability for companies to service
those debts is in jeopardy given the COVID-19 restrictions and
the lack of 2020 revenue. He acknowledged that AIDEA is a
viable method for distributing funds, as is private banks. He
emphasized that the main concern is timeliness and the ability
to deploy the money to Alaskan businesses as quickly as
possible.
MR. PLANK responding to a question from Representative Story,
said roughly 97-98 percent of his business is direct tourism
from other states and other regions. He added that in 2019,
Allen Marine carried 335,000 passengers off the large cruise
brand. He explained that with cruise ship cancellations, his
company will have to source passengers from independent travel,
which is not part of their typical business model and won't be
substantial enough to generate meaningful revenue for the
business. He stated that there are also still questions
revolving around the COVID-19 restrictions and whether guests
will be allowed to fly from other regions and board Allen Marine
vessels in Alaska.
12:36:30 PM
REPRESENTATIVE JACKSON asked if Allen Marine's liability
insurance will cover any losses this year.
MR. PLANK answered no. He explained that Allen Marine has a
substantial insurance program; however, the company does not
carry loss of revenue insurance due to its high deductibles.
CHAIR SPOHNHOLZ asked if Mr. Plank had to lay off any employees.
MR. PLANK answered yes. He said Allen Marine initially
furloughed 130 employees, 90 of which have been converted to
full-time layoffs. He expressed his hope that a late season
would allow the roughly 40 employees that are still on furlough
to return to work in July, August, or September.
12:39:21 PM
SARAH OATES, President/Chief Executive Officer, Alaska Cabaret,
Hotel, Restaurant and Retail Association, paraphrased from the
following written remarks [original punctuation provided]:
Dear Honorable Members of the House Labor & Commerce
Committee:
The Alaska Cabaret, Hotel, Restaurant, and Retailers
Association (Alaska CHARR) represents over 800 members
statewide over 85% of which are small businesses.
The economic impacts of COVID-19 have reverberated
throughout the state, with few industries being hit
harder than tourism and hospitality. These are the
places you celebrate your birthdays, sports victories,
anniversaries, personal losses, and even just the
places you go to get away from the stresses of life.
They are the heart of every community across our great
state and right now, many are struggling to survive.
This is the worst tourism season Alaska has ever seen,
which has been and will be detrimental to the
hospitality industry. The majority of our industry
temporarily closed their establishments or never
opened them for the season in compliance with health
mandates and for the protection of public health and
safety. Survey results of the economic impact to the
Alaska hospitality industry are dire: 22% of
respondents who own restaurants have indicated that
they will not recover from this their doors are
shuttered permanently. April survey results of the
hospitality industry (which includes other businesses
like bars, hotels, and liquor stores) also show the
following alarming statistics:
? Over 50% of respondents temporarily closed their
establishments
? 60% laid off employees
? 26% changed their business models to remain semi-
operational
? 54% of respondents reported same store sales in
early April to be down more than 70% from this time
last year
? 83% of respondents expect their year-end sales to be
down over 50% from last year
The number one necessity for small businesses right
now is immediate cash flow. The only options thus far
have been to apply for Economic Injury Disaster Loan
(EIDL) assistance through the SBA or for a Payroll
Protection Program (PPP) loan through lending
institutions. There have been countless issues with
these options, and considering the circumstances, the
3.75% interest rate for EIDL is high. Aside from the
$10,000 advance, many of our businesses have been
reluctant to apply for new loans and incur new debts
while they have little to no current revenue, and
unknown future revenue.
Many hospitality businesses applied for and received
PPP funding which could be forgivable, but that
requires 75% of the funds to be paid toward payroll
expenses, which do not include employer-paid taxes. A
huge percentage of our businesses have been closed for
eight weeks and some will continue to be with
thousands of employees being laid off who are now
receiving huge unemployment insurance benefits with
the added federal contributions. Businesses are now
reopening, all of whom are actively attempting to
rehire staff or hire a new workforce. Many of those
employees are refusing to return to work for various
reasons. Many of our businesses will be unable to meet
the 75% payroll threshold over the eight-week period
following the loan origination date, in order to
receive loan forgiveness. Those businesses may now be
facing having to repay six-figure loans within the
next two years with unknown income.
I implore you to support the Alaska hospitality
industry when it needs you the most by taking action
that will allow small businesses and nonprofits to
apply for and receive grants from the State of Alaska
and to do so expeditiously so that we might
collectively return our attention to surviving this
economic crisis. As noted earlier, the overwhelming
feedback I've received from businesses in our industry
is that they are reluctant to apply for loans because
of continued unknows around revenue streams.
There must be oversight for any grant distribution.
Criteria should include how many (or what percentage
of) staff were laid off, and consideration of the
percentage of decreased revenue from March through May
as compared to 2019. Funds should be made available
expeditiously and to as many businesses as possible in
order to prevent more businesses from closing
permanently.
I will also briefly note that Alaska CHARR is a
501(c)(6) nonprofit corporation which like many
other nonprofits in Alaska does not qualify for the
PPP loan. Nearly half of our annual revenue comes in
between March and June, from membership dues and
training fees. That revenue stream came to a
screeching halt when the industry that we represent
had to shut down nearly completely in order to protect
the public. Alaska CHARR has had to make staff layoffs
and significant cuts to wage staff hours during a time
when the industry that we represent has needed us more
than ever before. These cuts were not due to a lack of
work they were due to a lack of financial certainty
and support for our nonprofit. With very few options
for relief right now, the future of our nonprofit is
uncertain.
Thank you for your consideration and for all that you
are doing in these challenging times.
12:45:43 PM
CHAIR SPOHNHOLZ offered her understanding that most nonprofits
are eligible for the PPP.
MS. OATES clarified that qualifying nonprofits are charitable
organizations, 501(c)(3), and veterans' organizations, 501
(c)(19).
CHAIR SPOHNHOLZ further pointed out that if an individual turns
down an offer of employment and he or she does not have an
underlying health condition or children at home, then that
person is committing unemployment fraud and would lose
unemployment benefits. She emphasized that unemployment fraud
is punishable by law. She highlighted points from today's
testimony, beginning with the PPP. She stated that the PPP is
well intentioned; however, it is complicated and largely
inaccessible. She added that the EIDL is also inaccessible, as
only eight Alaskan businesses have been eligible. She observed
that as businesses are completely retooling their operations to
comply with public health mandates, they are taking on
additional expenses, which additional relief funds could help
finance. She further summarized that small businesses would
prefer grants instead of loans. She addressed Alaska's diverse
economy and said it would be terrible to lose the diversity of
the state's small businesses [to this pandemic].
12:51:19 PM
REPRESENTATIVE STUTES noted that employees who return to work
part time are still eligible for federal unemployment benefits.
CHAIR SPOHNHOLZ acknowledged that HB 308 allows Alaskans who are
underemployed to be eligible for unemployment benefits. She
offered her belief that it creates an additional incentive for
Alaskans to return to work - if only for a few hours per week.
12:53:25 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
[12:53] p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Topics and Questions for HL&C Presenters 05.08.2020.pdf |
HL&C 5/8/2020 11:00:00 AM |
Small Business Relief |
| Comments by Sarah Oates, Alaska CHARR, before HL&C 05.08.2020.pdf |
HL&C 5/8/2020 11:00:00 AM |
|
| Comments by Marisa Sharrah, Fairbanks Chamber of Commerce, before HL&C 05.08.2020.pdf |
HL&C 5/8/2020 11:00:00 AM |