The New Hampshire tourism sector of the economy is the second largest industry and source of revenue to fund state government. It must rebound strongly or there will be severe effects on the state’s economic health for years.
Dramatic sustained drops in collections of the rooms and meals tax, which are driven by restaurants and lodging facilities, will cascade through state and local budgets long after the pandemic has been tamed with a vaccine or reduced to a treatable condition.
How do you bring back a part of the economy that has been completely shut down, like hotels or restaurants running on a miniscule percentage of business? How do you bring back an industry when the public is reluctant to travel at all, much less sit in a cozy little café or bakery with others around them? How do you keep the very small operations – like the two-person concern that runs that small gourmet bakery, the quaint inn or bed and breakfast that anchors a small town – viable?
Congress and the administration have taken many steps to help workers, families and businesses. But these efforts do not fit well in the hospitality sector. The paycheck protection program is only in effect through June 30 and few expect substantial travel by tourists or restaurant dining by then.
Any worker who makes less than $22 per hour is actually financially harmed by being forced to come back to work before Aug. 1 due to the combination of unemployment pay and the federal supplement. The Small Business Administration Economic Injury and Disaster loan program is excellent. But it is rolling out too slowly with not enough money for hotels and restaurants already at risk.
The Federal Reserve Bank is about to start its Main Street Lending Program, which shows promise because it allows local lenders to make the loans. This will help with speed, but the terms are too short and the rates too high to help all but the strongest.
The state of New Hampshire is now deciding how best to spend and invest the money provided in the first economic rescue program. Substantial support should be provided to businesses that generate a large part of the state’s budget. Other worthy organizations, like hospitals, will see further federal support. Very large-scale businesses and publicly traded companies have access to other capital sources. But if small and mid-size New Hampshire owned and operated tourism and hospitality businesses cannot avail themselves of the federal programs, they will be in deep jeopardy. There must be access to capital locally in New Hampshire.
This past week I testified on behalf of the hotel part of the tourism economy before the governor’s committee that will decide how to invest the $1.3 billion of funds the state was allocated in the rescue package. Here is a plan I put forward.
Step1: Allocate $250 million to a tourism loan fund for lodging, restaurants and tourist attractions.
Step 2: Make the loans available only to businesses headquartered in New Hampshire, with a majority ownership with N.H. citizens as of Jan. 1, 2020. They would not be available to any publicly traded company or any company with revenues above a certain size. A real estate trust headquartered in New York or Chicago, for example, will have access to similar funds allotted to those states. If all N.H.-based business needs are met and there is additional capacity it would be acceptable to consider applications from those businesses.
Step 3: Start with the smallest viable businesses first so they don’t get cut out of funding. The business should have been profitable in 2019 as it was one of the best years for New Hampshire tourism. Any business needing a loan for $25,000 would apply by the first deadline, with subsequent deadlines for increasing loan size. The program would provide exception provisions for businesses with good reasons, such as a fire or owner illness, that were not profitable in 2019.
Step 5: Make the loans seven-year loans. This fills the gap that federal programs aren’t hitting and consistent with most experts’ dire views on how long it will take before the hospitality industry recovers to 2019 levels. These loans would have no interest or payments due the first year and then become amortizing loans for the remaining six years.
Step 6: If a borrower makes all the payments, again starting with the smallest businesses, forgive a generous part of the loan. Assuming that a $50,000 loan to a coffee shop pays on time, the state could forgive 50% or 75% of the loan and turn it into a grant. The larger the business, the smaller the percentage of forgiveness, if any. Many very small businesses are reluctant to take on more debt and will instead fold. These businesses are also more likely to be involved in the communities they serve than large remotely owned corporations. They deserve to be well supported.
Step 7: Take these repaid loans and turn them into grants for arts and cultural nonprofits in New Hampshire. Many people come to New Hampshire to ski, camp, hike, hunt and fish. However, many also come because of the cultural events here.
Visitors and natives alike can see great summer theater, world-class art or attend the nationally renowned League of N.H. Craftsmen summer fair, to name a few.
Nonprofits are hurting as badly or worse than the direct tourism sector of restaurants and lodging. Most do not have the financial strength to pay back big loans. If the $250 million loan pool were created, it would yield about $42 million a year for six years in repayments from commercial businesses. That could be granted to get these cultural and arts organizations back on solid ground. We need them also if overall tourism is to recover.
The state should dramatically increase its tourism advertising to a scale of $25 million a year for at least the first year. We are fortunate that a large percentage of the country’s population lies within a one-day drive of New Hampshire. Travelers who are not going to want to fly or distance travel will be seeking wide open spaces with fresh air. If New Hampshire goes big, far beyond historical levels, with advertising and marketing, we can capture an outsized share of the market.
The N.H. Business Finance Authority has the acumen and track record to run the program. This kind of economic development support and financing is what they do, and they are bringing a myriad of programs to the local banks to jump-start rescue efforts. Assigning them the task of administrating this kind of program would ensure that it is well and soundly operated. New Hampshire taxpayers will be protected and businesses will quickly get back on their feet.
This kind of direct, quickly implemented loan program that focuses on New Hampshire owned and run businesses beginning with the smallest companies will have the greatest impact in the shortest time. The bipartisan committee understands the critical need to get rooms and meals tax revenues to rebound quickly and strongly. A robust program, with some of these elements, will hopefully emerge from their deliberations.
(Steve Duprey lives in Concord.)