Coronavirus and Small Business Issues

As Iowa's small businesses reach the one month shutdown mark, the economic toll is building. We dig into the many issues confronting Iowa's business community during the coronavirus outbreak on this special hour-long edition of Iowa Press.

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Celebrating nearly 50 years of public affairs coverage on statewide Iowa PBS, this is an Iowa Press special edition on the coronavirus pandemic. Here is David Yepsen.

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Yepsen: When many businesses in Iowa were forced to shut down nearly a month ago, uncertainty over its potential duration weighed on management, employees and patrons alike. In just a few short weeks the pandemic's economic toll is staggering. Unemployment claims have shattered records and a massive $350 billion federal program with financial lifelines for small businesses received heavy use and already ran out of money in less than 2 weeks.

Yepsen: To discuss how Iowa's business community is confronting the crisis, we're joined by a trio of guests. Debi Durham is Director of both the Iowa Economic Development Authority and the Iowa Finance Authority. Mike Ralston is President of the Iowa Association of Business and Industry. And Jessica Dunker is President of the Iowa Restaurant Association. I want all our viewers to know that our set looks a little different today because we are practicing social distancing. And I also want our viewers to know that we're taping this on Friday afternoon.

Yepsen: Also joining us is Kay Henderson, News Director for Radio Iowa.

Henderson: Jessica, let's start with you and talk about what you know to be the current impact on Iowa's restaurant industry.

Dunker: Well, currently Iowa's restaurant and bar industries are completely decimated. We just received our most recent economic impact data and one month into this crisis we're looking at 80% decrease in revenues from one month a year ago to this past month, about 70% of the bars are completely closed. If we open May 1st as we expect we expect 10% won't open. If that moves to June 1st we're expecting 18% to not open. And if that is pushed out to July 1st we expect 25% will not reopen. So we are absolutely in crisis. Today if we were to open today only 45% of our restaurants and bars would be able to rehire everyone that they have furloughed. Over 90% of restaurants and bars have furloughed people. And the unemployment claims in our sector are tremendous. 

Henderson: Mike Ralston, you represent the Iowa Association of Business and Industry. How many businesses and what is the range in sizes?

Ralston: Oh gosh, about 1,500 member businesses. We have members in all 99 counties that range from just a few employees to thousands.

Henderson: So what has been the impact for your membership?

Ralston: Our organization is primarily a manufacturing organization, Kay, and for the most part Iowa manufacturers have been very fortunate. They have been able to stay in operation, not all but most, and they have been able to take care of their existing customers. Many of them have switched to manufacturing personal protective equipment. So definitely a trying time but not as serious as it has been for the restaurants and bars.

Henderson: Debi Durham, from the Iowa Economic Development Authority perspective, will Iowa see the impact of this in the first and second quarter of the year? Or is this going to drag out? You look at all the analytics that are out there. What can you tell Iowans as to how long the economic impact of this may last?

Durham: Well, first of all, it really does depend on when we can start opening things back up. So we're looking at several different scenarios. We're looking at a V-shaped recovery, we're looking at the U-shape recovery, we're looking at even now the new one, the W-shaped recovery. And so but you look at it based on depending on how long these businesses stay shuttered. So I think you're going to really start feeling the effect as early as the second quarter, for sure. I think it will last through the year because even as people come back they're going to come back, it's going to look different. It's not going to come back at the same level because you also have that consumer confidence that you have to raise at the same time. So we're looking at all scenarios, why the Governor has put together this recovery task force. We've got the state economists that we're working with to say if it looks like this what does that mean? And we're looking at it from every sector, from ag all the way down to our consumer facing businesses like Jessica represents.

Yepsen: The Small Business Administration had a loan program, $3.5 billion, ran out of money. So what is the effect of that here in Iowa?

Durham: Well, let me tell you because I think this is interesting. It was a question I posed to our state economists the other day. If you look back about other times where we've seen recessions, the 9/11 event that forced us into some recessionary pressures, you look at the '08, '09, I can tell you in all of my years of doing this, and I've been in this business a long time, I have never seen the amount of liquidity and cash flowing as quickly as it has now. And you look at these SBA programs. It is remarkable, that paycheck protection program. First of all, I think it's good public policy to work with your local financial institutions. But what our banks and our credit unions have been giving out the door and then you look at the individual checks that are flowing, the additional paycheck or the unemployment that is coming, so all of that has to be factored in. And again, if we are able to open sooner than later, even if it's in a staggered way, a thoughtful way, that's going to have a huge impact.

Yepsen: A lot of businesses though will tell you they didn't get in line in time, that that money went ot banks that took care of their own customers first. So how much more do you need here in Iowa to meet the demand? Congress is trying to come to some agreement.

Durham: And I hope they do because certainly at first I think we did hear some criticism, they worked with their existing customer base, but that has changed. And I think we're seeing new, first of all look at the number of banks that applied. Many of them were not SBA lenders. And when you look at what is it, $3.7 billion that was actually lended out, yes we do know we have unmet need and we need more capacity and we hope Congress acts.

Henderson: And that $3.7 billion is just in Iowa, correct?

Durham: That's just in Iowa.

Henderson: By the time it ran out --

Durham: Correct.

Yepsen: Jessica?

Dunker: There is a really fundamental problem, however, with the SBA programs. We have been as the restaurant industry, the paycheck protection program gives payroll forgiveness to people who are working.

Durham: Good point.

Dunker: We're an industry that has been mandated closed and so while restaurants and bars have the ability to apply for those PPP loans, we won't get them forgiven, we're going to be taking on debt as an industry in a time we are least able to repay it. Meanwhile, other businesses that receive the PPP loans are open for business, they're fully employed, they will have 100% forgiveness of their payroll at a time that they don't necessarily need this. And the problem is there was no dress test done with this. And so it was assumed that if you were in business you were going to be hurt so it was opened up to everyone. So businesses like ours, we will take on debt with that program, but we won't receive forgiveness, and that is a fundamental flaw.

Yepsen: Is that something that can be tweaked in this new bill that Congress is mulling?

Dunker: It could be tweaked. Will it be tweaked I think is the real question. And I do want to just take a minute and applaud the state of Iowa. The state of Iowa operated probably faster than any of the other 50 states when it came to our industry and helping small business. We wish the federal government would have listened a little closer to our state.

Yepsen: Debi Durham?

Durham: Let me pick on what Jessica said about the PPP. She is absolutely right. One of the things that was not anticipated was these force closures. And if we could have only delayed the loan, still let them make the reservation but let them delay it until they're opened up, we are hopeful that there is a way to remedy that and then there's a way to remedy that for the restaurants. I think it was simply an oversight quite frankly.

Dunker: Right.

Henderson: Jessica, the Governor's current closure order for your business and many small businesses runs through April 30th, you mentioned May 1st as a hopeful date for you. How much lead time do you need in case that order is extended? How much time does a restaurant or a bar need in terms of flipping the light switch and reopening?

Dunker: Well, there's a couple of things that you have to think about. One of course is product. We need to be able to get products, fresh product in to produce meals. The other is to recall our staff. And again, while we have approaching 40,000 restaurant and accommodation workers that are on unemployment right now, that doesn't take into account the high school ,students, the part-time staff, the folks that have been laid off but aren't receiving unemployment benefits. So we really think that number in our industry could be approaching 70,000, 75,000 people. We've got to go back and find them. We have to hope that they haven't found jobs. So minimum three days but we sure would like to push for open on May 1st. We're just continuing to be hopeful that with social distancing we might be able to have some level of openings May 1st.

Henderson: But how do you expect customers to be comfortable coming into that setting where you're eating essentially in a communal way?

Dunker: And one of the things today actually the Iowa Restaurant Association board of directors met to take our five recommendations that we'll send up to the Governor's office for our industry. And we feel like we can do social distancing protocols within restaurants and even if it means that we don't have as many bodies. Certainly if we were all eating in the seating scenario that we're looking at right now or this distance from a party of folks that had come in we feel like we could certainly safely accommodate that in most of our restaurants and bars. Additionally, we're going to continue to offer those carryout and delivery services so that if people are in a vulnerable population or they're not comfortable coming in, we don't want them to feel like that have to. So we'll serve them in whatever capacity they're comfortable in. But we're ready to be open for business.

Henderson: Mike Ralston, people talk about the supply chain. Are manufacturers truly operating at 100%? Or has there been a big disruption of the supply chain and the parts and the stuff that people need to make things?

Ralston: Kay, there have been big disruptions in the supply chain. I'll give you an example. There's a manufacturer in Northeast Iowa who has had problems getting all the parts they need and that is because they come from states that have been shut down or they come from countries overseas that have been shut down. And so those are real problems. Our members for the most part have been able to ,work around that but it's a real issue and no one knows how long it will be an issue. I don't know of a manufacturer in this state that is operating at full capacity.

Henderson: One of things that people don't realize is that a lot of that supply chain is from overseas comes by airplane and since there's so little air travel what is the impact of that?

Ralston: That too is a problem and again, manufacturers when they can they've worked around it by some of them have chartered their own aircraft and found a way to get it here, but most of them have worked with other vendors. And some just haven't had those parts and so they've had to not make that original equipment.

Yepsen: I'd like to get a comment from each of you about this. How long will it take Iowa to recover? Debi Durham?

Durham: I think it will take, again, depending on how long it goes, but I think a year.

Yepsen: And will some businesses not make it?

Durham: There's no doubt some of the consumer facing businesses will not make it.

Dunker: As the restaurant and bar industry we believe we have already lost 10% of the businesses across the state. The areas that will never recover, to be honest, or it will take a decade, are the rural Main Streets where there just aren't people to come in and fill in the backfill where the restaurants and bars once stood. In the metro markets, we will also see closures that are permanent. But I would guess in 24 months you would see the larger market segments would recover.

Yepsen: Mike Ralston?

Ralston: I'm not running for anything but I'm going to give you a longer answer. But a year I think that's a good estimate. We're really fortunate in this state that when it comes to manufacturers they're pretty conservative in the way they manage their business. I don't mean politically conservative, I mean things like they have a very healthy balance sheet, they don't have a lot of debt, they don't have a lot of inventory, they're able to weather these storms. But liquidity, as Debi mentioned earlier, is the real key. Most of the manufacturers in this state are in a pretty decent position. But if it goes on much longer then some of the dates we've talked about it will take longer than a year.

Durham: And if I may add to that because we've seen all this money coming in, stimulus money responding. It really is this emergency kind of infusion. What we have to really be focused on is what does that recovery look like from that longer-term liquidity? I think there's some things that we could do that the federal government could do much like what you saw in '08, '09 or even with some of the big flood events that we've seen over the years, opening up bonding capacity so recapitalization of your larger industries because I had told the Governor, and I think this is important, that we are entering this with really a position of strength. And there were certainly some soft spots in our economy, I'm not going to deny that. But we were positioned to what I told her in December, we are positioned to have one of the best years that we have had for economic development and a large part that was propping up was the group that had been soft and that was that manufacturing sector. So we went into it strong, we went into it strong fiscally with big reserves, which is great and I think we're doing things wisely. So I think that is why the recovery could be shorter as long as it doesn't delay much longer.

Henderson: Jessica mentioned the small business grant program that was run by the state. You handed out $24 million. And you said we're not going to reopen this. Will that money be taxed if I'm a small business?

Durham: So actually we worked with Director Paulsen, Department of Revenue, and he is going to ask the legislature that it not be taxed. And let me also say it is the intention of Governor Reynolds that she will use a portion of the CARES money that will come directly to her to backfill so that we can take care of the entire applicant pool because as you realize the need was excessive of $148 million.

Henderson: And you had 14,000 apply, correct?

Durham: Yes, we had nearly 14,000, it's a little less once we ran through the numbers on the duplications, but right. And we believe that we can take care of all of them that were eligible. I think there's probably about 2,000 out of that that truly are not eligible for the program. That is her intention. The only thing we're waiting on is direction from the Treasury because if we would upfront this money and then the Treasury gives us rules later to say we're not going to reimburse you, that would create a problem for our treasury. So we're hopeful we can take care of that group.

Yepsen: Jessica, you're nodding your head.

Dunker: I just was, again, props to the state here. And no matter what anybody does it's never enough. And in this situation nothing is really enough. But I sit every other day on a call with all 50 state restaurant association presidents and the proactive steps that the state of Iowa took really should be applauded from the standpoint of what Iowa Workforce Development did with helping employers and employees, from the tax deferrals done by the Department of Revenue, to the grant program done by the IEDA. These were programs -- oh and the Alcoholic Beverage Division and the relaxed rules that they gave --

Ralston: And public health and IEDA, you're right, Jessica. It has been terrific.

Dunker: From the standpoint of state agencies really we are a model that other states looked at and I just know this from talking to my counterparts that other states looked at and tried to model things after what we were doing. Even with all those proactive measures I'm sitting on an industry that is collapsing, even with all that help we have to have federal assistance and it has to be in the form of grants, not loans, to our industry. And health care workers they're the tip of the spear, they are the front lines of the health care crisis, but the restaurant and bar industry, we were the first ones to be shut down, we are the front lines of the economic crisis and as go we, all the rest will go with us.

Yepsen: Debi Durham, statewide audience here, there's invariably a group of people of business who are sitting there watching us saying, I didn't get in on this, I need help. So are there numbers or websites? What do you say to a viewer who has a small business, maybe just a mom and pop operation that needs some help?

Durham: Well, first of all we did set up, it's www.iowabusinessrecovery.com. Everything that really touches business that has a line of sight to business of some kind of relief whether it's our agency, a state agency or even private, they can go there and we keep everything updated. Listen, I answered every single email that was sent to me, every single one personally. It was not a canned response of people saying I'm disappointed I didn't get money, I want you to hear my story, it was heart wrenching. Now, you have to understand from my team this is not a population of the economy that we provide programs to, right. So we're doing triage and that is exactly what it is, a review process when people are just at their, it's devastating what people are facing and there's, so we're listening to them and saying look, we're going to at least try to take care of the applicants we had, in the meantime we'll continue to look to the future of those things that we could do to help you.

Yepsen: What is that website again?

Durham: It's www.iowabusinessrecovery.com.

Yepsen: Jessica, how about your association? Any help?

Dunker: Well, we are in the process, yes, so we have tried to take all of the state resources like the Iowa Economic Development Authority has and put them together in one spot. We have also tried to reach out and help workers and we actually have an employee relief fund that we're raising money for that will make it possible for employees of restaurants that perhaps haven't had the unemployment come as quickly as possible to get some cash grants out to them. So our website is restaurantiowa.com. So in addition, but our role as an advocacy group is to try to find all the resources we possibly can and pull them together.

Yepsen: Mike, is your association able to help your members get the capital that they might need or any help that they need?

Ralston: Yeah, we've sure tried, David. We're like everybody else, we have a webpage, iowaabi.org. The COVID page is the first link there. We link to a lot of resources and we have done a lot of different things to connect with members to connect them to sources for capital and all sorts of, supply chain, all sorts of things.

Henderson: Debi, you mentioned that small businesses aren't typically your customer base at the Iowa Economic Development Authority. Are you rethinking that, reorienting state programs to help buttress small businesses? Because we look at the numbers of people who have filed for unemployment, it's clearly a huge segment of the Iowa employment pool.

Durham: Actually we are. We are looking at, when we reopen what we have learned during this pandemic is that we have to operate differently. We absolutely have to have online presence, all of us. Now we, at government we're already in the preparation of working remotely because of disaster preparedness that we have to be responsible for and without missing a beat. We're going to be working with our Main Street and small communities on getting them that online presence. I'm going to propose to the legislature that we do a revolving loan fund for Main Street businesses. Absolutely you're going to see us step up in a bigger way than we have before because as you know we tend to play with the high quality jobs is a big business initiative. And we've had our Main Street and we've had our targeted small businesses but they're very small in comparison. So you're going to see us really have a totally different focus coming out of that and I think we have some pretty exciting things we're going to propose to the legislature.

Henderson: Jessica, you mentioned that rural Iowa restaurants and bars are having a more difficult time perhaps than urban settings. Are there regulations that would help rural Iowa restaurants? For instance, should this curbside sale of alcohol, cocktails, continue?

Dunker: Well, it's interesting. There are a couple of economic realities that most Iowans don't realize related to the restaurant industry. The food service and beverage industry employs 155,000 Iowans. We are the second largest private sector employer after health care in the state of Iowa. So when we are underwater we're taking a lot of the economy with us. Two-thirds of Iowa's restaurants are independently owned restaurants. And so despite that, the chains that you see everywhere, two-thirds of Iowa is Iowa when it comes to the hospitality business. So the problem with our industry is a couple of things. One is that we only have about 14 days of reserve funds on average in our industry. And we have net profits of 5%. So when you look at a 5% net profit, you average that out for an Iowa restaurant or bar, that's about $100 a day of net profit when times are good. You shut us off for a month and it's pretty hard to come back from. So what we're concerned about is in rural Iowa families own these businesses and a lot of them are owning those businesses because it's just a great way to be in their community. They're really sustaining themselves to have a job for themselves and their families. So when they call, the calls I get are should I mortgage my house to keep my business? That's the calls that we're trying to say, maybe not, or this grant didn't work for me or why do you suppose this grant didn't work for me. At this point there's no regulation that is going to help us. The only thing that is going to help us is a federal cash infusion into our state in the form of grants because we're committed to the culture of hospitality in Iowa's rural communities and on their Main Streets. Beyond that no.

Henderson: Mike, earlier in the century you were the Iowa Department of Revenue Director, so I think I can ask you a tax question and you'll give an authoritative answer.

Ralston: I'll give an answer.

Henderson: The Iowa Workforce Development agency when initial claims came in said this is not going to affect the tax, the unemployment tax that businesses pay. That may change. Could you explain how significant that decision was and what your association is urging the state to do in that regard?

Ralston: I will. Kay, thank you. And first I'll say the folks at Iowa Workforce Development are working overtime from the top on down to serve Iowans. It's important we don't take it for granted. We're very grateful. Here's the issue with the unemployment insurance trust fund, which is what you're talking about. There are a series of tables that employers are assigned when it comes to unemployment assistance for Iowans. Every single dollar in that fund is paid by employers, as it should be. Even the federal money comes from employers. The fund is set up in such a way that it is self-healing and so what the state has proposed is a trigger that if the fund reaches a certain level, it's going down pretty quickly because of all the claims being filed, if it hits that trigger then there will be an extra payment to employers. And that's okay, they're trying to preserve the solvency of the trust fund, and that's a terrific goal, we certainly support that. But the fund will stay solvent anyway, it doesn't need an artificial trigger. Here's the other problem with the trigger, it treats employers differently. If you lay off people in advance of the trigger you won't be charged for that experience, if you lay off people after the trigger you will be. Again, that's not fair, the fund doesn't need it. But we're working with IWD, it's a great relationship, and I think we'll come together on it.

Yepsen: Is that something that the legislature needs to tweak?

Ralston: Oh, I don't think so, David, I think it's something we can all work together and fix.

Yepsen: I want to go back, Debi, you mentioned the idea of a revolving loan fund. Why wait? Politicians are being criticized for being slow here. The legislature is not in session. They won't be back formally until January. If you got language for a revolving loan fund, why aren't we seeing it? Why don't we get something in front of the legislature, get some of these ideas out there right now for them to deal with?

Durham: Well, it is absolutely ready to go. We've already tested it with the bankers, we're going to use the bankers as our vehicle to get the money out into these Main Street, rural communities. We think that's the best way to do it because they have the relationship. It's ready. So it's just a matter of when the legislature convenes, presenting something to them and because right now we just don't have the funding or the authorization, I can't create programs, we did create one under the small business relief but that was under emergency orders. But it is ready to go.

Yepsen: Jessica, specifically to you the restaurant industry, is there specific language, legislation that you folks need in order to get going again?

Dunker: There absolutely is. One of the things that we've been frustrated about, because the legislature isn't together they can't vote on anything and we are very hopeful to get some actual tax forgiveness. We have been very fortunate in that we've been able to get state payroll and state unemployment, state tax, I'm sorry, my mind went blank, but state tax is deferred. And it would be great if we could get some of those things just forgiven for a time period. And it can't be just okay restaurant industry, you get to have this forgiven, because honestly there are some restaurants that had drive-thru models that are fine. They don't need that kind of forgiveness. It really has to be what SBA forgot to do which is businesses that are in duress should have a method to apply based on that duress for that forgiveness. It doesn't exist and it can't without the legislature.

Yepsen: And I gather this is not something we want to wait until January --

Dunker: We can't. I mean, not if we want to have these businesses start back up.

Yepsen: Debi, is there a danger in restarting things early? We're all anxious for, to get out for a good night on the town, to get a haircut. Is there a danger in restarting too quickly? We've flooded the economy with all this money. Now, if you start too quickly and it sags again, what do you do for an encore? What does the government do for an encore?

Durham: Absolutely, it is and we have to be so careful of that. But I have complete confidence in the leadership of Governor Reynolds and the way that she has made very measured decisions based on data, it's not based on emotion, because she's got 101 people telling her every day what she should do, but she's not going to open the economy before those metrics have been met. But yes, we do have to be very careful of that because what that will do from consumer confidence and just a trust factor would have more of a devastating effect than just making, waiting another week or two, to do this.

Yepsen: Mike, is your industry in a position to tough it out for a little longer?

Ralston: For a little longer, maybe, David. If you're going to ask me how long, I don't know, but for a little longer. I want to say too that our members are grateful to the Governor for her leadership and I know folks see the issue two different ways. But we sure support her approach of being measured and using the data and we're grateful that we never had an order to shut down in this state. I think it would have been devastating.

Yepsen: I expect people who work with the Governor to say that, I would expect a Governor appointee to say that. There are a lot of democrats though who are critical of her for not moving more quickly. What do you say to that group?

Ralston: To that I say, 80% of these businesses would remain open, 80% of the manufacturers are deemed essential and critical, they would stay open anyway, Iowans for the most part are pretty smart, they're staying home. We're flattening the curve which is the goal. The goal is not to end COVID, we're not going to do that without a vaccine, our goal is to flatten the curve and the data shows that is happening for the most part.

Henderson: Mike, you mentioned that some manufacturers are making PPE, which we all know now stands for personal protective equipment. Are they doing that as a gift? Or are they making money?

Ralston: Well, I know of folks who charge, they charge at cost. I don't know anybody who is charging for a profit. But I know of many who charge at cost and I know many manufacturers who are not charging anything.

Henderson: Debi Durham, is the state considering some sort of program that would give grants to businesses that do this? Or try to get ahead of this curve and encourage the development of businesses that may make testing supplies or those sorts of things?

Durham: We're talking about a reshoring initiative. I think if anything taught us that we have sent too much of our manufacturing overseas, manufacturing that we should bring back. The other thing is really, Kay, what we're going to suggest is we fund our bio platform study because if you think about what is in that, vaccines, immunotherapy, biomedical devices. We talked about that. Look at the work at the University of Northern Iowa in partnership with Mike's manufacturers to make shields that acted immediately. But we also as a country have to say how are we going to incentivize these things? If you're a pharmaceutical company and you're doing a cancer treatment, for example, there is a marketplace for that. You know you're going to return your cost. But if you're doing vaccines or something against a pandemic there is no economic model to do that. And so we have to as a country say we believe we have to fund that. And Iowa can play a key role in it. So again, what gets me so excited that no, this has been extraordinary and devastating, but there are huge opportunities for Iowa when we come out of this and I believe we're going to come out stronger because of all the things we've already done. Manufacturing 4.0 is another initiative that we're working on. Mike knows that. We have to help those smaller companies in that supply chain be ready for exactly this, being able to work when they aren't going to have enough people on the floor, all these things that we already have in place, we just need to fund them, and then we need some policy changes federally to help do that.

Ralston: May I add something onto that, I wouldn't be doing my job if people didn't understand, when companies do this, when they retool to manufacture this PPE it's not an easy thing. They have to tear down production lines, they have to get a whole different set of supply chain in place. I'm mindful of a company in Humboldt called Hy-Capacity, they manufacture heavy duty truck parts, work with metal, they refigured, they retooled and now they're making gown and other PPE. That's a big deal and we're really lucky in this state to have manufacturers that are not only willing but able to do that.

Dunker: But it's hard for any business to retool, right, think about being a restaurant that at 10:00 on March 17th was planning to have a full dining room and serve drinks and by noon you were told you had to be doing carry-out, delivery and curbside and that was it. And so having to turn on a dime is a very difficult thing for any business to be able to do. On the reopen dates I would like to add that certainty is better than hope. And for our industry even though this is really every single week that goes by means really the end of more establishments, we would much rather see a date where we're confident we're going to be able to continue whether it's in gradual social distancing practices or however it is, to be able to operate and bring our employees back than open, shut, open, shut, open, shut. That is really, really difficult for anybody to turn on a dime.

Yepsen: I want to go back to something we've noticed in this episode in our country's history, that the people who are most essential to us are some of the people who are paid the least. So, Mike Ralston, is it time for a higher minimum wage in Iowa?

Ralston: We don't have a position on that. In our organization everybody thinks we're opposed to it, we're not. We're big believers in the market, the marketplace sets the rates. I believe there's data that comes from Iowa State that shows wages are rising, albeit probably too slowly for some. And I don't know of an employer in this state who wants to be the lowest payer because they're not going to get folks. You need to pay according to what you want of the workforce and that means you've got to pay a little higher.

Yepsen: None of your members are paid minimum wage.

Ralston: We don't have a single member, and again we have about 1,500 members, we don't have a single member paying minimum wage unless it's somebody who employs high school students at grocery stores, something like that.

Yepsen: What about your industry?

Dunker: Yeah, even for us we're having a hard, I don't know any member that is paying minimum wage as well because the market is demanding much higher wages than that. One of the things to keep in mind about the restaurant industry is one in three people have their first job in our industry. We're two and a half times more likely to hire the re-entry population, we have a much higher immigrant population. We have jobs for people who don't speak English. I'm sure some of your manufacturers do as well. But for people that are coming into the country we train America's workforce. And so we are not opposed actually too much of anything related to wages because I can't imagine the minimum wage would be ever raised to a rate that we aren't already paying because the market demands that we do so.

Yepsen: Debi, I hear people in your line of work saying we've got to do more, we've got to get a bigger workforce, we've got to have more workers, we're going to have all kinds of new programs to train new workers. There's, to borrow a phrase, if you pay them they will come. So why isn't the cure to Iowa's labor shortage paying workers more money, particularly those people who I mentioned earlier, some of the most essential people in our society now are some of the most poorly paid? How about a higher minimum wage?

Durham: Well, first of all, I believe in the marketplace and I believe the marketplace will dictate what the wage is. But let me say this, that when we, if you look at our high quality job programs we only pay jobs that people can live in, those are the jobs that we incentivize through that. But let me talk to you about an industry that I do think we have to as collectively as Iowans have to figure out and that is daycare and child care. Absolutely. So we systemically have to change how we fund our daycare systems. And I do know that was a priority on the small business relief grant, I pulled out restaurants and bars first because after we triaged them we felt like they were the ones that were forced to close. The other one if you noticed in the group I funded all the for-profit daycares. But we have to figure the daycare situation out and I do think we can do that. And I do think that we have to look at the model differently. I do believe that we're going to have to look at a way of subsidizing it, not just government though, private/public partnerships. I've got manufacturing right now that don't want to run a daycare but they'll donate the land, they'll do payroll deduction, they'll even help pay slots. Those are the models we're going to have to look differently.

Yepsen: But doesn't that sort of have to happen right now? Shouldn't that happen right now? Isn't this, all right, how about a bill draft on that? Have you got something in mind for the legislature to deal with right away?

Durham: So there are some changes. First of all, we are working with the Department of Human Services because that's really more in their area, even though we have small amounts of funding we do at IEDA. But yes, we are actually working on that as part of our recovery plan. The Governor wants to see a proposal.

Ralston: That had started already too, the Governor started Future Ready Iowa, you're talking about the Yellow Iron Academy in Pella, it's a great public/private partnership. No state is on top of this but we're ahead of many and we need to keep it up.

Henderson: I want to talk about maybe what culture change may happen in Iowa business after this is over. I have an acquaintance who teaches in Taiwan and every class, every student in that class is wearing a mask. That's just part of their culture. Debi, do you see a culture change happening because of this situation, this pandemic, whereby wearing a mask will be part of our culture?

Durham: I don't know that I can speak to wearing a mask but absolutely the way we do business is going to change after this. I think we are learning and I think it also reinforces why that broadband deployment is so important, it's not just having access to broadband, that connectivity, it's really at a level where we can process big data and do manufacturing and I think whether it's telemedicine, look at telemedicine, we know that we needed to move there, we have to move there, this is kind of forcing that to happen now. So yeah, I think when we reopen we reopen with an entirely different mindset of how business is going to be conducted through education, medicine and just traditional business going forward.

Henderson: Jessica, is your industry thinking about that sort of a culture change to get people comfortable to come in the door?

Dunker: Well, obviously you have to have people in the door if you're going to be in hospitality. And we already had agreed to having a certified food protection manager in every single establishment. Every restaurant, there are people who are like is carryout and delivery safe? Well, every restaurant in the state of Iowa has a certified food protection manager by mandate through the state food code and we also have what is called a norovirus cleaning kit. Norovirus is something that sometimes happens in restaurants. That also cleans coronavirus. Anything that that kit will clean, coronavirus. So we are definitely wanting to continue to have people come in and do the things that we've been doing all along. We think people will get comfortable again with us.

Yepsen: Mike, are meat packing industries part of your association?

Ralston: Yes they are, David, not all but some.

Yepsen: What's going on there with these huge outbreaks?

Ralston: Well, it's a real issue. The good news is the companies and their management understand, if they didn't they do now that it's important they're doing everything they can, they're reconfiguring production stations where possible to get people farther apart, they're instituting masks, they're doing temperature screenings. They're trying to be responsive to this. We'll see if it's enough. I know they're doing everything they can.

Yepsen: Do you see changes happening in the regulatory climate toward the meat packing industry as a result of this?

Ralston: Could be, I don't know, David.

Yepsen: Anything happening here in Iowa?

Ralston: There isn't anything right now. A lot of talk about it and we'll see what happens.

Yepsen: Debi, what do you think?

Durham: Well, I've been in contact with many of the CEO's and the plant managers as I know the Governor's Office has as well and they are very concerned, they have asked for the rapid testing so they can test their folks. they're staggering when shifts start, they're staggering break times, they're providing PPE to all of their employees. So they are doing all of that. Now please keep in mind they have USDA inspectors at all these plants all the time. Most of them have an office there and they're in those plants. I do know that we're also looking, that OSHA is going to provide some more guidance, federal OSHA, of how you deal with those kind of businesses during this pandemic. So I think that our local, the labor department here in the state, OSHA offices, are waiting for that guidance. But I can tell you based on what I've heard talking to these CEO's and these companies, they're extremely concerned and they're doing what they can to keep their people safe but to still allow that supply chain, which we do feed the world, to continue to operate.

Yepsen: But do they understand how some people feel like they're closing the gate after the horse gets out? They've got a problem that they didn't, they weren't on top of, right?

Durham: I don't know that we can say that because let's be honest, we're just now seeing the kind of level of testing. None of us really know how much the plants have been infected. We've seen it besides other companies and plants besides just the packing plants. But I think they're all doing what they need to do and doing it responsibly. I can talk about Lennox has done the same thing, I know Lennox over in Marshalltown had an outbreak, the closed the plant, they did a deep cleaning, they set up new protocols in place. What I have seen from our manufacturing community regardless if it's in the food industry or not that they have been responsible for this, they have acted swiftly and they have reached out to us to say we need as much testing as we can so that we can protect our workforce.

Dunker: I think one of the things that is really concerning when you're in an industry is the assumption you weren't doing these things before. I can tell you that as a restaurant industry we have received food directly from purveyors into sanitized kitchens with gloved staff for years. This is nothing new for us. We have always done this. And so do you change protocols? Maybe. But more importantly, do you reinforce what you've been doing all along? I think that's true with the food production industry as well. This is not a food borne illness and so we are looking at our sanitation procedures but we've always done those things and there's no evidence that I've seen anyway that things that we have been doing if we're doing the procedures we've always done is a way things will get transmitted. That's our frustration in the industry is the assumption we weren't doing it, we've always been doing it, we're still doing it, it's why carryout and delivery is safe today.

Yepsen: But you know that one bad actor gives everybody a bad name. One lawyer gives all lawyers a bad name. And one bad reporter gives us all a bad name. But that is what happens, the result is the USDA has come in and is criticized for its role. And we're going to have a debate in the presidential campaign over whether that agency should be the one in charge of promoting agriculture and at the same time regulating it.

Durham: I think there will be many conversations in the next election cycle, yes.

Henderson: I'm sure you've already started having conversations about your agency's budget. I saw Moody's Analytics analysis of all 50 state budgets indicating that Iowa would have to at least cut its budget for the coming year by 5% or more. What is your plan? You've been talking about this effort to infuse more money into the economy through your agency. How are you going to do that when you're having budget constraints?

Durham: Well, first of all, we run pretty lean right now, as you know, and we'll certainly do our part. If there needs to be across-the-board budget cuts we will certainly absorb that and do what we can. I think it's a matter of prioritization, Kay, which is what we've done in every budget cut. Interesting to know, I've been doing this gig now through 2011, I have had a zero budget every single year and I will tell you what we're doing today compared to what we were doing at IEDA in 2011 is vastly different with so many more programs and it's all always been about prioritization. So we will do what we need to do to service our citizens.

Yepsen: Mike, put your old Department of Revenue hat on. What about Kay's question. How bad of a hit is this going to be on tax revenues?

Ralston: Well, it's going to be big. And it's not just the tax revenues themselves, David, but it's the timing. In this state we've done what the federal government does and we've extended the tax deadline. April was always the biggest, at least it was when I was at revenue, was always the biggest month for revenue in the state. I bet that doesn't happen this year. And so it becomes a cash flow issue for the state. What I was going to say is people think it's rhetoric but it's not, it's important this state had full cash reserves, something like $800 million, that allows us to at least weather the storm a little better than others.

Yepsen: When Kay brought up the Moody's thing we're talking about a 5% cut. Does that include having burned through the cash reserve? Or does that cash reserve sit there --

Ralston: I didn't see the report so I don't know. But we're using part of the cash reserve now, that's what it's there for, and we'll see how far we have to go.

Dunker: There is one thing we haven't addressed today that I think is important to not just our industry but too many industries and that is what is called business disruption or business interruption insurance. One of the greatest frustrations for our industry is many people were closed and when they were closed they said thank goodness I have a business disruption policy on my business. That would have given loss of sales revenue and key employee costs and that would have gone into the businesses.

Yepsen: What does it take?

Dunker: Nobody has been receiving any, it has all been denied and it has been denied for various reasons, some of which some people have pandemic listed in their policy as an exception. But even those who don't have that have been told that because it's virus related they are going to not, those policies are not going to be honored, even though people didn't have virus in their business, it's just virus related. So one of the things we're really pushing at the federal level as all of the state restaurant associations is we've got to do something about business disruption insurance, and I'm sure some of your members are facing this as well, that we have to have some level of coverage for some of these businesses. We've paid these policies for decades.

Yepsen: What about the Iowa Department of Insurance? Shouldn't those regulators be doing something?

Dunker: They have been very helpful to us. They are investigating the denied claims that are filed with the agency. So as an association what we've been doing is say go ahead, file your business disruption claim, we've seen almost every one of them denied, and then file a complaint and the insurance division is then investigating those.

Yepsen: Debi, one of the things that I hear from small business people is they're mad about who got closed. Somebody has a business that they have to close but then you can go to the big box stores and buy the same stuff, Wal-Mart is still open, Target, those stores, but yet some other vendors, small business, had to close. Is there some way proactively we can make sure that doesn't happen again?

Durham: Well, there is a metric that they have been using and I know there has been conversation with some of those big boxes that have been allowed to stay open to say look, you can only sell within your store essential services. Now I remember back to the Sunday laws where half the store was covered, taped off that you couldn't use, that tells you how old I am, and so kind of the same thing because I think that is a legitimate concern because if you can go to let's say a Sam's Club and buy jewelry but we closed our local jewelry stores you should not be able to buy jewelry during this and I do know that has been elevated to the Governor's group to say this is something we should look at depending if this goes on much longer.

Yepsen: There's another issue to add --

Durham: I think that is a legitimate concern.

Henderson: Debi mentioned testing earlier. Until testing is widely available and you know that the people who are coming into your manufacturing plant have had it and recovered and they're safe to be there, there's some discussion at the national level that businesses need some sort of liability protection if they've done as much as possible, made a good faith effort that then they don't open themselves to liability by continuing to be open. Is that something your association would like to see at the state and federal level?

Ralston: It is, Kay, and it's something we talk about all the time. If a business does absolutely everything it can given the situation, in this case we're talking about protecting workers, they send them home when they're sick, they make them stay home, they do all the things they can do, they do what they can with employee screenings and everything, boy there shouldn’t be any liability for them, they've done all they can. And so we have talked about it with both state legislators and the federal government.

Yepsen: One of the problems we have with taping this show on Friday is we're not able ot take viewer questions. But I've got a couple from earlier shows that haven't been asked. Deb Brown, a small business owner says, what is going to be done to provide more support for small businesses after their doors are open? Debi, any thoughts about that?

Durham: Well, I think the support that we can show is I think what many of the chambers are doing and that is encouraging people to shop their small businesses and don't underestimate the power of that. To say we depend on them on our Main Street's and so many of them are shopping those campaigns to shop local, shop small, I think that is extremely important. The other thing again is the infrastructure thing, us working with those small businesses that do not have an online presence, they do not have an IT budget. I do think there is a role the state can play in helping them get to that so it just enhances them. So I think those are some of the things that we can do.

Yepsen: Jessica, do you have anything?

Dunker: The number one thing that we can do is get those PPP grants from the SBA that are loans to closed businesses turned into grants, just forgive them. That has to be a cash infusion, not a debt to our small businesses.

Yepsen: Mike, any thoughts?

Ralston: Nothing to add, David. Let's get them open as soon as we can.

Henderson: Debi was talking earlier about all the ideas for new businesses. I'm wondering as we near the end of this hour together, Mike Ralston, do you see on the horizon this sparking entrepreneurship among your membership?

Ralston: Oh I think so, I've already seen some things online and on Twitter where people have said I've had it working for someone else, they let me go and I'm going to start this or that business and I do think there will be a real entrepreneurial boost which will further exacerbate our workforce shortages, but all in all it's a good things. I do think that will happen.

Durham: We see that every time we have a downturn, the entrepreneurial activity goes way up, so we are absolutely anticipating that.

Yepsen: I see the epidemiologist at the University of Iowa is saying that everyone should wear a shield, that if you did that it would be the same as finding a vaccine. Kay asked about masks, but there's an example of something that could become an industry in Iowa.

Durham: We're seeing it already.

Ralston: We have folks making shields now, that sounds good, David.

Dunker: And you will see some transformation in the hospitality industry. After you have had a shut down like this and a business built on an on premise assumption of customers we were already seeing that carryout, delivery, that third party delivery grow and grow and I think you will see a greater emphasis on takeout and delivery from all Iowa restaurants because we can't be in this situation again.

Henderson: What is the culture in Iowa for delivery versus sitting down and eating a meal?

Dunker: 37% of restaurant food that is prepared in a restaurant is eaten in a restaurant and that predates this whole thing. So we were already moving at 63% was drive-thru, carryout or delivery. And so we were already moving in that model. That meant that 37% was fighting for a lot of dollars. And so I think that culture will continue to be, what you'll see is modified menus because the beautiful display that a fine dining restaurant might have that assumes timing of plates, the drinks that are paired with it, those folks are not going to give you that same experience when you do takeout and delivery. Some of the most interesting things we've seen are family packs from restaurants that we have never seen it before. I'm thinking about G Mig's down in Valley Junction. And every day there is one family pack. And you know what you get? If you want to buy from him you get what's on the family pack. And so it's meatloaf tonight, just like mom, just like home. And so we're seeing that creativity and that entrepreneurship. We've got a gentleman in the Council Bluffs area that has created a beer truck and he is out and he's selling beers, not opened, they're closed. But we're seeing that entrepreneurship and we will continue to see that because we are really the last bastion of that entrepreneurial place where you can come in, start the dishwasher and that's not going to change.

Henderson: The other part of the hospitality industry is the hotel industry. How hard hit are they?

Dunker: Well, for them it's the same thing, it's just they're being decimated by this and they have less options for creativity than the food service industry. So we worry for them as well.

Yepsen: Last question, I'd like to hear from each of you. What is the good news? Anything?

Ralston: There's always good news, David, and there is good news here too and that is that Iowans are coming together and helping each other like they always do. We're in a position to come out of this a little better than some other places, we just need to keep working together.

Dunker: I think we're reminded about how important those places that we can gather together are in our lives. We all miss it. And I think people are really coming out and supporting their local and independent places by supporting carryout and delivery, buying gift cards and just really doing everything the can to drive business to us where they are able.

Yepsen: Mike, do you see opportunities for Iowa businesses, I'm not asking for any trade secrets to be revealed here, but somebody who has caught an idea that is being spawned by this?

Ralston: Yeah, there's a couple of companies in the Mason City/Garner area that are working together to manufacture face shields and they've come up with a new product that is cheaper to make, more high quality. I wouldn't be surprised if they continue to make that and there are other examples of that too. That's another thing.

Durham: And I think I look forward to the new opportunities that are going to present itself from an economic growth perspective. I think from our existing companies growing and I do think we're going to see a major increase of entrepreneurship. So I'm encouraged by that.

Yepsen: Are there any specific examples that you're able to talk about of things you see that could be good news, new industries?

Durham: Well, certainly nothing we can talk about but I just say stay tuned.

Yepsen: Okay. Well thank all of you for taking time to be with us today to talk about this timely subject. We all sure hope the restaurants are open soon.

Dunker: Keep calm and carryout, that's what we tell everyone.

Yepsen: Thanks. And we'll be back next week on Iowa Press, Friday night at 7:30 with a rebroadcast at 11:30 on Sunday morning. For all of us here at Iowa PBS, I'm David Yepsen, thanks for joining us today.

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