First Steps toward Recovery: Saving Small Businesses

First Steps toward Recovery: Saving Small Businesses Report #254 | December 2020 Milton Marks Commission on California State Government Organization and Economy www.lhc.ca.gov LITTLE HOOVER COMMISSION Dedicated to Promoting Economy and Efficiency in California State Pedro Nava Government Chairman Sean Varner* The Little Hoover Commission, formally known as the Milton Marks “Little Hoover” Commission on California State Government Vice Chairman Organization and Economy, is an independent state oversight agency. David Beier* Dion Aroner By statute, the Commission is a bipartisan board composed of five public members appointed by the governor, four public Cynthia Buiza members appointed by the Legislature, two senators and two Bill Emmerson assemblymembers. Assemblymember Chad Mayes In creating the Commission in 1962, the Legislature declared its Senator Jim Nielsen purpose: Assemblymember Bill Quirk Senator Richard Roth ...to secure assistance for the Governor and itself in promoting economy, efficiency and improved services in the Cathy Schwamberger transaction of the public business in the various departments, Janna Sidley agencies and instrumentalities of the executive branch of *Served on study subcommittee the state government, and in making the operation of all state departments, agencies and instrumentalities, and COMMISSION STAFF all expenditures of public funds, more directly responsive Ethan Rarick to the wishes of the people as expressed by their elected Executive Director representatives... Tamar Foster The Commission fulfills this charge by listening to the public, Deputy Executive Director consulting with the experts and conferring with the wise. In the course of its investigations, the Commission typically empanels Krystal Beckham advisory committees, conducts public hearings and visits government Ashley Hurley operations in action. Rachel Mattioli Its conclusions are submitted to the Governor and the Legislature Sherry McAlister for their consideration. Recommendations often take the form of Tristan Stein legislation, which the Commission supports through the legislative process. Contacting the Commission All correspondence should be addressed to the Commission Office: Little Hoover Commission 925 L Street, Suite 805, Sacramento, CA 95814 (916) 445-2125 | LittleHoover@lhc.ca.gov This report is available from the Commission’s website at www.lhc.ca.gov. Table of Contents EXECUTIVE SUMMARY ......................................................................3 INTRODUCTION .................................................................................5 A DUAL CRISIS - THE ECONOMIC IMPACTS OF THE COVID-19 PANDEMIC ..........................................................................................6 Impact on Small Businesses ...........................................................................7 Impact on Marginalized Communities .........................................................8 Responding to the Pandemic-Induced Recession......................................10 Need for Partnership ....................................................................................11 SUPPORTING SMALL BUSINESSES .................................................12 The Challenges Facing Minority-Owned Small Businesses ......................12 The Importance of CDFIs ..............................................................................13 Impact of CDFIs: Infusion Partners 360 .............................................14 Small Business Loan Programs ....................................................................15 State Financial Support for Small Businesses............................................16 California Rebuilding Fund ...........................................................................16 Additional Public Private Partnership ........................................................17 RECOMMENDATIONS ......................................................................19 NOTES ...............................................................................................22 FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 1 Letter from the Chair December 7, 2020 The Honorable Gavin Newsom Governor of California The Honorable Toni Atkins The Honorable Shannon Grove Speaker pro Tempore of the Senate Senate Minority Leader and members of the Senate The Honorable Anthony Rendon The Honorable Marie Waldron Speaker of the Assembly Assembly Minority Leader and members of the Assembly DEAR GOVERNOR AND MEMBERS OF THE LEGISLATURE: Earlier this year the Little Hoover Commission initiated a review of the economic impacts of the COVID-19 pandemic to better understand the challenges facing the California economy and identify how state government can support those impacted by the pandemic-induced recession. The following report details our initial findings and recommendations for promoting an equitable recovery. The Commission found that in order to rebuild California’s economy, state government must work boldly to help small businesses survive and retool. The Commission also found, however, that even with an improving budgetary outlook, state government does not have the resources to address the enormous economic impacts of the pandemic on its own. In this report, we discuss how California can promote equitable recovery by leveraging private sector resources to support small businesses, especially those in underserved communities and communities of color. California has already taken important steps toward developing robust mechanisms to support small businesses, including the recent creation of the California Rebuilding Fund. The Commission recommends that state government build on this initial work by forging deeper public-private partnerships that expand existing initiatives to support small businesses and by taking additional steps to ensure that this support reaches underserved communities. Over the next several months, we will examine additional approaches for supporting those impacted by the pandemic-induced recession and for addressing the longer-term economic effects of the pandemic. We intend to issue subsequent work next year. The Commission respectfully submits this work and stands prepared to help you address the economic impacts of the COVID-19 pandemic. Sincerely, Pedro Nava, Chair Little Hoover Commission 2 | LITTLE HOOVER COMMISSION Executive Summary Letter from the Chair A Dual Crisis Impact on Marginalized Communities. The pandemic has hit minority- and women-owned The COVID-19 pandemic poses a dual crisis for businesses hardest. Job losses are concentrated California. The pandemic is a health crisis that has among lower-wage and less-educated workers, and cost the lives of more than 18,000 Californians. It is among workers from communities of color. also an economic crisis that has wreaked economic Need for Public-Private Partnership. State catastrophe. The pandemic-induced recession government must work boldly both to support has left millions of Californians unemployed and those impacted by the recession and to address brought countless small businesses to the edge of California’s structural inequalities. Yet California faces extinction. The impact has fallen disproportionately a fundamental challenge: even as COVID devastated on communities of color and on underserved the state’s economy, it also decimated the state communities, amplifying existing inequities in budget. Even with an improving budgetary outlook, California’s economy. California state government does not have the The Little Hoover Commission began studying the resources to fully address the enormous economic economic impacts of COVID in Summer 2020 to impacts of COVID. identify how state government can best support In order to put the state on a pathway to recovery, an equitable recovery. The Commission finds that state government must leverage private resources— the state must work in partnership with the private financial, institutional, and human talent—toward sector to support California’s small businesses, addressing the economic impact of COVID. especially those in underserved communities. California has already taken important steps in this Supporting Small Business direction. Additional state leadership and expanded action are required, however, to meet the scale of the In order to foster economic recovery, and address crisis confronting small businesses. the pandemic’s disparate economic impacts, state government must leverage public-private partnership The Economic Impacts of the to support small businesses, especially those Pandemic in underserved communities. Small businesses accounted for nearly half the state’s private The COVID pandemic produced the sharpest and sector workforce at the start of the pandemic. deepest economic contraction in California’s modern These enterprises are the cornerstones of vibrant history. communities. They provide livelihoods and jobs and drive local economies, supporting local tax bases and Impact on Employment. More than twice as many helping to maintain communities’ economic well- Californians lost their jobs between March and May being. The Commission finds that efforts to support 2020 as did during the Great Recession of 2008. small businesses must include two key elements: Unemployment in Spring 2020 reached levels not seen in California since the Great Depression. ◊ California must support the financial institutions that serve underserved communities, especially Impact on Small Business. As of early November, Community Development Financial Institutions more than 30 percent of California’s small businesses (CDFIs). CDFIs are uniquely positioned to support remained closed. Thousands of small businesses businesses in underserved communities, but they have shut-down permanently. need affordable capital to do so. FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 3 ◊ California must develop a loan program that have the benefit of creating a one-stop shop for can help small businesses survive the current business owners around the state looking to identify downturn and retool for a changed economic potential sources of financial or technical support. landscape. Small business loan programs that Recommendations provide subsidized financing have a track record of increasing small business profitability and State government has taken important steps employment. They also carry a multiplier effect, to support California’s small businesses. Bold increasing economic growth and expanding leadership and close collaboration between the government revenues, benefiting the economy public and private sectors are needed to build on and communities as well as the immediate loan this initial work. The report concludes with five recipients. recommendations for supporting small businesses in California has taken the first steps toward developing underserved communities: a robust mechanism to support small businesses and CDFIs, and encourage broader economic recovery, Recommendation 1: California should develop and with the creation of the California Rebuilding Fund. execute a strategy for maximizing participation in the California Rebuilding Fund among California’s California Rebuilding Fund. The Rebuilding financial institutions. Fund supports small businesses by aggregating funding from the state, CDFIs, major banks, and Recommendation 2: California should report philanthropies. The state appropriated $25 million demographic and geographic data on the small toward the fund as first-loss capital to help attract businesses receiving support from the Rebuilding additional funding from private sources. The goal is Fund to demonstrate that funding from the to leverage state dollars to create a Rebuilding Fund Rebuilding Fund reaches small businesses in of $250-$500 million, which will be made available to underserved communities. Where needed, California CDFIs to provide low interest small business loans. should work with city and county governments and with community-based organizations to improve Given the scale of the crisis facing small businesses, access to the Rebuilding Fund. state government needs to work to expand the Rebuilding Fund and maximize private participation, Recommendation 3: California should develop a while also ensuring that funding reaches small strategy for expanding the size of the Rebuilding businesses in underserved communities and Fund, with an aspirational goal of creating a communities of color. fund of one billion dollars. California should also consider making the Rebuilding Fund permanent by Coordinating Information and Resources. establishing an annual, recurring state contribution. California state government also needs to work in partnership with the private sector and with local Recommendation 4: California should design and government to make information more readily execute a campaign to raise awareness of CDFIs available to small businesses. Foundations, civic and other mission-based lenders, especially among organizations, nonprofit entities, and city and county grantmakers and impact investors. governments, as well as state government, are Recommendation 5: State government should all supplying small businesses with financial and partner with the technology sector to make technical assistance. Aggregating information by informational resources more broadly accessible to developing a single web portal for resources would California’s small business owners. 4 | LITTLE HOOVER COMMISSION Introduction The impact of the COVID-19 pandemic on California and identify opportunities to work in collaboration has been devastating. The human toll of COVID is with the private sector to mitigate the pandemic’s enormous, with more than 18,000 deaths attributed impact and foster recovery. By leveraging private to the disease and more than a million confirmed resources—financial, institutional, and human cases in California. The pandemic has also led to talent—to address the impact of COVID, state the sharpest and deepest economic contraction in government can partially compensate for a difficult California’s modern history. More than twice as many budgetary environment. Moreover, by collaborating Californians lost their jobs as a result of the pandemic strategically with private entities, both for-profit as did at the depth of the Great Recession of 2008. and non-profit, state government may be able to Unemployment in Spring 2020 reached levels not more effectively support and encourage equitable seen in California since the Great Depression of 1929. recovery. In addition to posing a healthcare crisis and an Supporting small businesses is economic crisis, COVID has also exacerbated a third crisis: a crisis of long-term inequity and critical both for addressing the inequality. Both the economic and health effects pandemic’s immediate impact of the pandemic have fallen disproportionately on Californians from underserved communities. and for rebuilding California’s The pandemic has had a disastrous impact on economy. small businesses, and it has hit minority- and women-owned businesses hardest. Job losses are concentrated among lower-wage and less-educated This report first surveys the economic impact of workers, and among workers from communities of COVID-19 and then focuses on how state government color. In seeking to build back from this downturn, can work with the private sector to support small state government must work intentionally to address businesses impacted by the pandemic. Supporting both the disparate impact of the pandemic and the small businesses is critical both for addressing the structural inequities it has exposed. pandemic’s immediate impact and for rebuilding California’s economy. State government can foster The Commission launched its review of the economic recovery by partnering with the private economic impacts of the COVID-19 pandemic in sector to help small businesses remain open, return June 2020, to better understand the challenges to profitability, and increase employment. Public- facing the California economy and identify how state private partnerships have already emerged that government can support those impacted by the aim to provide small businesses with the financial pandemic. The Commission found that California and technical assistance they require to survive faces a fundamental challenge: even as COVID has and to retool for a changing economic landscape. devastated the state’s economy, it has also decimated With greater state leadership, there is considerable the state budget and constrained short-term policy potential to scale and coordinate these emerging making. State government currently has limited initiatives and to promote and sustain small business resources on its own to support recovery. recovery. State government does not, however, need to In addressing small business recovery, this report work on its own to support those impacted by the focuses on the immediate economic effects of the pandemic. The state of California must also explore pandemic. The Commission intends to issue further FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 5 reports that study the longer-term economic impacts about 15 percent.4 A large portion of workers also of COVID and that examine additional approaches for remain underemployed. The Public Policy Institute supporting those impacted by the pandemic, such as of California estimates that 9 percent of workers job training and reskilling, steps to bridge the digital between May and July were working part-time but divide, and strategies to mitigate the pandemic’s would have preferred to be working full-time.5 long-term implications for intergenerational social The pandemic has most impacted employment in mobility. the service sector. Jobs in leisure, entertainment, A Dual Crisis - The Economic hospitality, and retail tend to be human-facing and were thus vulnerable both to mandatory closures Impacts of the COVID-19 and to measures designed to reduce the risk of Pandemic disease transmission. These industries were further affected by declines in in-person consumption, as The COVID pandemic poses a dual crisis for well as by declines in travel and tourism.6 From California. The pandemic is a health crisis. As of mid- February to May, there was a 44 percent decline in November 2020, more than 18,000 Californians have employment in accommodation and food services; died as a result of COVID and there have been more these two industries accounted for nearly half of than a million confirmed COVID cases in California. job losses during that period. There was also a 17 The pandemic is also an economic crisis. In addition percent decline in retail employment; in contrast, to human tragedy, COVID has wreaked economic healthcare, manufacturing, and construction all catastrophe. Between March and May 2020, as the experienced declines of 8 to 10 percent.7 As of pandemic spread worldwide and state, national, late September, unemployment in leisure and and global closures brought economies to a halt, hospitality remained 30 percent below January levels; California lost more than 2.6 million jobs in just two conversely, overall unemployment was down by months.1 This was twice the number of jobs lost about 9 percent (See Chart 1).8 during the Great Recession. Between mid-March and September, 7.5 million unique Californians The disproportionate and enduring impact on filed for unemployment insurance benefits.2 At the service sector underscores that the pace of the downturn’s deepest point in April, the officially recovery and length of the recession are likely reported unemployment rate exceeded 16 percent, to be closely tied to the course of the pandemic. four percentage points higher than at the depth of Although mandatory closures and stay-home the Great Recession.3 orders substantially curtailed consumer spending, economists testifying before the Commission A fuller picture of the scale of unemployment comes emphasized that the decline in economic activity from the California Forecast at UC Santa Barbara, remains the result also of individuals’ concern for which since the beginning of the pandemic has safety. To illustrate the impact of fear on consumer calculated an estimated weekly unemployment rate demand, Jerry Nickelsburg, Director of the UCLA that captures unemployed workers not included in Anderson Forecast, observed that following the official figures. According to the California Forecast, terrorist attacks of September 11, 2001, it took 31 the weekly unemployment rate in California months before US airline travel returned to pre-9/11 exceeded 22 percent in April 2020, the highest levels.9 Even in states that have reopened more fully level of unemployment seen in California since than California, health concerns continue to depress the Great Depression. As of mid-September, the consumer demand and economic activity.10 estimated weekly unemployment rate remained at 6 | LITTLE HOOVER COMMISSION According to Nickelsburg and Mark Schniepp, April at a 45 percent decrease in the number of Director of the UC Santa Barbara California Forecast, small businesses that were open as compared to California is in the early stages of an uneven and as January 2020; as of early November, the number of yet only partial recovery. As of September, California small businesses that were open remained more had recovered only a third of the jobs lost in March than 30 percent below the January level (See Chart and April.11 The Anderson Forecast suggests that 2).14 Yelp reports that as of the end of August 2020, California will not see a full recovery until the end California had the second highest rate of small of 2022; even then unemployment would remain business closures among the states; of the ten U.S. at around 6 percent.12 This forecast is predicated, metro areas with the highest rates of small business moreover, on the emergence of effective vaccines closure, six were in California—San Francisco, and an end to pandemic-induced shutdowns in 2021, San Diego, San Jose, Riverside, Los Angeles, and as well as the provision of additional federal stimulus. Sacramento.15 IMPACT ON SMALL BUSINESSES It is unclear how many small business closures The pandemic’s impact on California’s small are permanent. The failure of small businesses businesses has been devastating. In April 2020, often goes uncounted because of insufficient real- a Small Business Majority survey found that 44 time data and because small businesses often do percent of small businesses in California had closed not go through formal bankruptcy proceedings.16 or were planning to do so.13 The Opportunity The pandemic’s impact appears, however, to Insights Economic Tracker shows comparable be catastrophic.17 Nationally, small business impact. According to Opportunity Insights’ data, bankruptcies between February and July were up small business closures in California bottomed in 36 percent from 2019.18 Yelp reports that as of FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 7 the end of August almost 40,000 California small businesses owned by men: 25 percent of women- businesses appearing on that site had closed since owned businesses had closed in April and 10 percent March 1; nearly half of those closures (more than remained closed in June, in both cases higher than 19,000) were permanent, with restaurants and retail the numbers for male-owned businesses.22 establishments representing the most severely IMPACT ON MARGINALIZED COMMUNITIES affected.19 The COVID pandemic has touched all Californians. The impact of COVID has been most severe on Across the state and across communities, minority-owned businesses, which tend to be Californians have had their lives upended as schools concentrated in the sectors most affected by the went virtual and work went remote. Job losses pandemic.20 According to one study of national impacted all sectors of the economy. Californians small business closures, 41 percent of Black- who did not lose their jobs or businesses faced pay owned businesses and 31 percent of Latino-owned cuts, declines in revenue, and fear that they may lose businesses nationally had shut down at least their job. Individuals have been cut off from friends temporarily in April.21 In comparison, only 17 percent and extended family. Surveys suggest that anxiety of White-owned businesses had closed. and depression are widespread.23 “Loss of life among friends and loved ones, fear of contracting the virus, This disparate impact has continued even as concern about economic security, and the effects of economic conditions have partially recovered. In isolation and loneliness have all taken a toll on the June, 5 percent of White-owned small businesses mental health of the population.”24 remained closed; in contrast, 19 percent of Black- owned businesses and 10 percent of Latino-owned Yet the impact of the pandemic and of the businesses remained closed. Women-owned pandemic-induced recession have fallen unevenly businesses have been more severely impacted than on Californians, amplifying existing inequities in Chart 2: Small Business Closures In California, as of November 9, 2020, the number of small businesses open decreased by 31.8% compared to January 2020. Nov 9, 2020 -31.8% Total Source: Opportunity Insights, Economic Tracker, https://www.tracktherecovery.org/. Accessed 11/19/2020. 8 | LITTLE HOOVER COMMISSION California’s economy. Higher wage workers in many the COVID pandemic falls disproportionately on sectors have the opportunity to work remotely, thus lower income communities and on communities maintaining their employment and reducing their risk of color. The COVID death rate is twice as high for of illness. Jobs losses, conversely, have been borne Black Californians as it is for White Californians.29 In overwhelmingly by communities of color and by addition, the Los Angeles Times reported in August lower-income and less-educated workers: that neighborhoods in Los Angeles County with the highest poverty rates experienced infection rates ◊ According to the California Budget and Policy almost five times higher than those areas with the Center, the unemployment rate for summer 2020, lowest poverty rates.30 UC Merced’s Community and adjusted for likely misclassified workers, stood Labor Center similarly found that counties with high at 19 percent for Black Californians, 16 percent levels of low wage work also tended to show higher for Asian Californians, and 15 percent for Latino COVID positive test rates than counties with less low Californians. The adjusted unemployment rate for wage work.31 White Californians was 13 percent.25 These disparities in health effects are tied to ◊ Initial job losses were significantly higher for structural inequality. Communities of color tend to less-educated workers than for those with have higher percentages of essential workers and baccalaureate degrees. Fifty-five percent of higher densities of occupants sharing dwellings.32 workers who do not hold a degree higher Obesity and diabetes, conditions that tend to be than a high school diploma or GED filed initial more prevalent in communities of color as a result unemployment claims between March and June of higher poverty rates and lower access to care, are 2020. Conversely, only 10 percent of workers risk factors that can lead to complications of COVID.33 holding a baccalaureate degree or higher filed an Moreover, lower-income individuals also tend to wait initial unemployment claim in that period.26 longer to seek treatment for COVID out of concern of ◊ Employment rates for low-wage workers fell their ability to pay for healthcare.34 significantly more than they did for high-wage workers. Low-wage workers have also seen Disparities in the impact of the pandemic fall less recovery in employment. According to data especially heavily on immigrant communities and compiled by Opportunity Insights, employment undocumented Californians. A study by UC Merced’s among California’s low-wage workers (those Community and Labor Center from May 2020 earning less than $27,000 annually) fell by 36 found that pandemic-related job loss was highest percent in April, and remained 28.2 percent below among non-citizens.35 Undocumented workers are, pre-pandemic levels in September. In contrast, however, ineligible for unemployment insurance employment among high-wage workers (those and for federally funded relief, meaning they were earning $60,000 or more annually) fell by 15 unable to benefit from the temporary expansion in percent in April, and, as of September, was only unemployment benefits or from federal stimulus 2.3 percent below pre-pandemic levels (See Chart payments. 3).27 As both a health and as an economic crisis, COVID Lower-income workers and workers from has fallen hardest on traditionally marginalized communities of color who maintained employment communities. The pandemic feeds on and as essential workers have often done so at exacerbates underlying social and economic increased risk to their own health and to the inequities. In June, as California began to reopen, health of their families.28 The health impact of FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 9 Chart 3: Percent Change in Employment – High Wage vs. Low Wage Workers In California, as of September 24, 2020, employment rates decreased by 9.1% compared to January 2020 (not seasonally adjusted). Sep 24, 2020 -2.3% High Wage (>$60K) -9.1% Total -28.2% Low Wage (>$60K) Source: Opportunity Insights, Economic Tracker, https://www.tracktherecovery.org/. Accessed 11/12/2020. economists testifying before the Commission jobs tended to feature lower wages than those warned that California was likely to see an “L-shaped” lost during that downturn.36 The state’s workforce recovery, characterized by a slow recovery. What increasingly splits between high-skill, high-wage emerged in the following months has instead been and low-skill, low-wage jobs. The New America described by some researchers as a “K-shaped” Foundation captured this polarization when it quoted recovery as higher wage workers, affluent one Bay Area workforce development professional communities, and many major corporations have as saying, “We’re living in a Jetsons economy and seen a relatively rapid rebound propelled by low- a Downton Abbey society.”37 It is an aphorism that interest rates and rapid recovery in asset prices. describes California well beyond the San Francisco On the other hand, more vulnerable communities Bay Area. bore the brunt of the pandemic’s initial impact and The pandemic has also exposed weaknesses in continue to wait for recovery. California’s safety net. The recession overwhelmed RESPONDING TO THE PANDEMIC-INDUCED the Economic Development Department (EDD) RECESSION and the state’s unemployment insurance system. The COVID pandemic has amplified the long-term The EDD had yet to process more than 1.5 million crisis of inequity facing California. Income inequality unemployment claims as of the end of September. and issues of housing affordability have intensified Although delays in processing occurred in large COVID’s impact. Meanwhile, the pandemic’s part as the result of the sheer number of claims, disproportionate impact on low-wage earners the California State Auditor and California Assembly highlights occupational polarization in California. Insurance Committee have previously highlighted Most job creation in California following the Great shortcomings in EDD’s efforts to modernize its Recession occurred in the service sector and those technology system.38 A strike team established by 10 | LITTLE HOOVER COMMISSION Governor Newsom to address backlogged claims reserves to help smooth the boom-and-bust cycles further found that administrative and organizational of California state finance.42 Yet the pandemic still problems at EDD contributed to delays in individuals cut deeply into the current year’s budget and will receiving unemployment.39 weigh on future budgets. The failure of the federal government to provide additional relief for state Witnesses emphasized the need for the state to work governments by October 15 triggered a new round boldly to rebuild and to address California’s structural of $11 billion in state spending reductions, largely in inequities. Laura Tyson, Professor at the Haas School cuts to higher education and in deferrals to school of Business at UC Berkeley and former Chair of spending. the U.S. President’s Council of Economic Advisors, and Lenny Mendonca, former Chief Economic and The COVID pandemic has Business Advisor to Governor Newsom, suggested that creating a path toward equitable recovery could amplifed the long-term crisis of include: inequity facing California. ◊ Measures designed to address wage inequities, like expansion of the state’s Earned Income Despite some improvement in the state’s budgetary Tax Credit to bring low-wage workers up to a outlook, the absence of additional federal support minimum basic income, as well as steps to inject imposes limits both on how California state investment into the economy and enable greater government can support those impacted by the future growth, like expenditure on infrastructure; pandemic and on the steps California government ◊ Loans and grants for small businesses to help can take to put the state on a road to equitable them survive the downturn; recovery.43 Although witnesses identified approaches ◊ Place-based approaches to development that to strengthen California’s economic system and to take advantage of regional advantage to promote make it more equitable, much of this work is unlikely equitable development and boost California’s to occur in a timeframe that can help to address the competitiveness with regard to other states and immediate needs of Californians impacted by the foreign economies; and, pandemic. ◊ Training and reskilling opportunities that help NEED FOR PARTNERSHIP displaced workers move into careers with higher California state government does not have the wages and better prospects for advancement.40 resources to fully address the economic impacts Tyson and Mendonca also noted, however, that the of COVID or, on its own, to create a full pathway state’s ability to undertake these kinds of initiatives to equitable recovery. Yet California is also an would depend on an improved budget situation and enormously prosperous state with a wealth of financial relief from the federal government. In May, financial resources and human talent, and of the state confronted a $54 billion budget deficit as innovative businesses and nonprofit institutions. a result of fallen revenues and new expenditures There are notable instances where the private sector, aimed at responding to the pandemic.41 The state both for-profit and nonprofit, has already contributed entered this crisis better prepared compared to significantly and innovatively to helping California previous recessions. Witnesses commended the address the impact of COVID. Building on these foresight of Governors Brown and Newsom and of initiatives and more fully leveraging private resources the Legislature in building more than $20 billion in are critical to the state moving forward. FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 11 The Commission finds that state government can In the face of difficult conditions, small businesses start California on a road to recovery by encouraging have interrelated financial and technical needs. and leveraging public-private partnership to support Susan Mac Cormac, a law partner in the San small businesses. Small businesses, especially Francisco Bay Area who has helped to spearhead minority-owned businesses, have borne the brunt initiatives to support small businesses, explained, of impact of the pandemic and pandemic-induced “Small business owners need access to resources— recession. In order to promote recovery, the state grants and affordable credit—and tailored advice on of California must help these enterprises survive how to navigate this period of extreme uncertainty.”47 the continuing downturn and build back strongly as According to Mac Cormac and other witnesses, the economy revives. State government will most small businesses need financial support to help effectively support small businesses by working them survive the current downturn and retool for a in concert with the private sector and promoting changed business environment. They also require coordination between the public sector and private culturally competent technical assistance to navigate entities, both nonprofit and for-profit. loan processes and relief programs, to make sense of changing orders and regulations regarding reopening Supporting Small Businesses and safe operation, and to adjust to a new business climate, especially increased reliance on e-commerce. The COVID pandemic pushed small businesses to the edge of extinction. Rebuilding California’s The urgency of this moment has catalyzed people economy depends on their survival and recovery. and organizations from the private and public Businesses with fewer than 500 employees sectors to come together in new partnerships to accounted for roughly half the state’s workforce at address the crisis facing California’s small businesses the start of the pandemic. These small businesses and respond to small business needs. The state of are the cornerstones of vibrant communities. California can leverage these initiatives by providing They provide livelihoods and jobs and drive local coordination and leadership and by identifying economies, supporting local tax bases and helping those private efforts that have the most potential for to maintain communities’ economic well-being.44 impact if supported and scaled. Failing to support small businesses will likely result THE CHALLENGES FACING MINORITY- in more closures and bankruptcies, hollowing-out OWNED SMALL BUSINESSES communities, depriving cities and towns of revenue, In addition to being more exposed to the effects and making the pathway to recovery steeper and of the pandemic, minority-owned businesses were more arduous.45 also in a weaker position to withstand it. Minority- Supporting small businesses is also critical for owned businesses tended to have less cash on hand mitigating the pandemic’s disparate impact on than non-minority-owned businesses going into underserved communities and communities of the pandemic and thus less cushion to withstand color. Small businesses are more likely than larger a prolonged decline in activity.48 According to a businesses to be owned by women and non-White JP Morgan Chase Institute study from 2019, most Californians; prior to the pandemic, approximately businesses in Black- and Latino-neighborhoods 40 percent of small businesses in California were reported having less than 14-days’ worth of cash on minority owned.46 The pandemic has impacted these hand.49 Minority-owned businesses are also about minority-owned businesses most heavily and they two times more likely to be “at risk” or “distressed”— must be a focus of state government’s efforts to based on profitability, credit scores, and ability to promote recovery. 12 | LITTLE HOOVER COMMISSION use retained earnings as a funding source—than minority-owned businesses dependent on firms non-minority-owned small businesses. The Federal that are comparatively unregulated and that tend to Reserve has found that distressed businesses are provide less favorable interest rates and repayment three times more likely to close due to a two-month schedules than traditional banks.53 revenue shock than non-distressed businesses.50 These challenges to securing federal funding are substantially rooted in minority-owned businesses’ Small businesses, especially historical lack of access to the financial system. The minority-owned businesses, banking institutions that processed the applications for PPP loans often required that applicants have have borne the brunt of impact a preexisting relationship with them or prioritized of the pandemic and pandemic- existing customers.54 As a result of lower collateral and lower net worth, minority business owners induced recession. and the owners of microbusinesses are much less likely to obtain bank funding than White business Although minority-owned businesses are owners and the owners of larger businesses, putting disproportionately impacted by the pandemic, they minority-owned businesses at a disadvantage in appear to have been underserved by federal relief obtaining PPP loans.55 Loans were also awarded on a programs. A national survey of minority business first-come, first-served basis, giving better resourced owners who applied for first round Payment firms an advantage in securing funding, especially Protection Program (PPP) funding found that during the first round of funding. only 12 percent received the PPP loan assistance they requested, compared to 38 percent of small Moreover, researchers have found evidence of racial business owners overall.51 Access to funds seems bias in the provision of PPP loans; matched-pair to have improved following the release of a tests, where White and Black applicants with similar second tranche of PPP funding in May 2020, but characteristics apply to a lender in the same time disparities remained. Based on a review of national period, show notable disparities in how financial data, the Brookings Institution finds that small institutions treated PPP applicants.56 businesses with paid employees in majority-Black THE IMPORTANCE OF CDFIS neighborhoods on average waited 31 days to receive Although California’s small businesses—especially PPP loans, seven days longer than businesses in those in underserved communities—face severe majority-White neighborhoods. Non-employer challenges, in the course of this study the firms (which constitute more than 90 percent of Commission learned that the state does not need California’s minority-owned small businesses) in to create a new infrastructure to support these minority neighborhoods waited on average for businesses. The state should explore how to better about two months to receive PPP loans, about three support the institutions serving small businesses that weeks longer than non-employer firms in White are already in place.57 neighborhoods.52 Uneven access to financial relief and capital Minority-owned businesses were also far more underscores the importance of Community likely to receive loans from Fintech and online Development Financial Institutions (CDFIs) lending companies than were non-minority-owned in providing support for small businesses in firms. This dependence on Fintech may leave underserved communities. CDFIs are private FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 13 institutions that focus on community development and on serving underserved communities—both Impact of CDFIs: Infusion urban and rural—by providing credit and other Partners 360 financial services. These institutions first emerged in the 1970s as a response to redlining and other The Commission received testimony from discriminatory lending practices and the resulting Kenya Blane, CEO of Infusion Partners lack of access to credit in many lower-income 360, a nurse registry, that highlighted the communities. In the words of Hilda Kennedy, important role of CDFIs in helping small Founder and President of AmPac Business Capital, businesses both to survive the pandemic and a CDFI located in the Inland Empire, CDFIs are the to become bankable. Ms. Blane related, “The “‘National Guard for small businesses,’ dispatched pandemic has caused my company to have to fill a void that banks are unable to fill.”58 As of to pivot strategically and make adjustments 2018, there were 95 CDFIs active in California, which as we rethink and reimagine how we would provided about $11 billion in lending that year, do business in order to survive.” Infusion both for financing affordable housing and for small Partners was able to retool successfully in the businesses.59 face of COVID by virtue of receiving federal financial support, including a PPP loan. Ms. As community institutions, CDFIs may establish Blane explained that prior mentoring and greater trust with small businesses in underserved support from a CDFI helped put her business communities than traditional banks. CDFIs have in a position to secure that loan: “Our ability experience working with businesses in underserved to sustain would not have been possible communities and supporting businesses perceived without those in our professional network,” as “risky” by traditional banks.60 Loan applicants including AmPac Business Capital, business generally have a much greater rate of success at coach, peer mentors, and CPA. “We would CDFIs than at other credit sources.61 In serving these not have been able to survive the pandemic businesses, CDFIs report loan loss rates comparable without this support.” Ms. Blane emphasized to or lower than those of conventional financial the importance of technical assistance and institutions, in part because of their commitment peer mentoring, as well as financial resources, to borrowers’ success and because they provide in making it possible for small businesses to technical assistance as needed.62 endure a crisis like the COVID pandemic. CDFIs often work closely with mainstream financial institutions, with which they partner to direct capital coaching from the perspective of a lender.” CDFIs to underserved communities. Banks and other work with businesses to make them bankable, raising financial institutions meet obligations under the the financial acumen and credit rating of owners and federal Community Reinvestment Act by investing in providing advice to help them access other funding and through CDFIs, while CDFIs have the specialized sources. knowledge and relationships of trust to deploy that capital effectively. At the same time, CDFIs work The pandemic has heightened the critical role that with small businesses and help them gain access CDFIs play in supporting businesses in underserved to mainstream sources of funding. Hilda Kennedy communities. Witnesses reported that CDFIs helped explained, “Where CDFIs’s provide the greatest to fill a gap left by mainstream banks. Susan Mac value to small businesses is technical assistance and Cormac related that when she reached out to Pacific 14 | LITTLE HOOVER COMMISSION Community Ventures (a CDFI) in mid-March to offer underserved communities, California’s CDFIs need assistance, staff at that institution informed her that funding that is orders of magnitude greater than where they normally received 30 loan applications a what they have received thus far from their usual week, they then faced 600 applications a day.63 Hilda partners. According to Hilda Kennedy, CDFIs need Kennedy reported: “Our office took more than 200 the state’s assistance in obtaining affordable capital, calls a day, remotely, in March when the Governor grants, and liquidity. issued the Executive Stay Home order. Our clients SMALL BUSINESS LOAN PROGRAMS and small businesses in the community were looking Small business loan guarantee programs provide for help and they could not get help from their bank a demonstrated approach for supporting small of 10, 20 or 30 years. They were frustrated; they were businesses and CDFIs by making low-interest credit scared, and they were looking for solutions.”64 Many available to them. Both national governments CDFIs faced a similar surge in requests for assistance worldwide and U.S. state governments, including and support.65 California’s, manage programs that provide affordable loans to small businesses. These “Small business owners need programs usually take the form of credit guarantee access to resources - grants and schemes that provide a state guarantee for a portion of a business loan, thereby reducing the lender’s affordable credit - and tailored risk and enabling them to loan to businesses that advice on how to navigate this otherwise might be deemed too risky, as well as to provide credit at a lower interest rate.70 period of extreme uncertainty.” - Susan Mac Cormac, Co- Programs that provide subsidized financing have a track record both of supporting small businesses in Founder of the California Small need of financing and of increasing small business Enterprise Task Force profitability. A study of the Canada Small Business Financing Program, which provides partial credit guarantees for small and medium-sized businesses, To serve the great number of small businesses in finds that businesses receiving financing through that need of financial assistance, CDFIs themselves need program saw 12 percent higher revenues, realized additional support. Even before the economic crisis, 14 percent greater profits, and paid out 6 percent many CDFIs had limited capacity for additional higher total wages than comparable firms that did lending and often struggled to raise affordable not participate in the program.71 A separate study of capital.66 CDFIs’ efforts to support small businesses this same program found that between two-thirds have strained their operational capacity and their and three-quarters of businesses receiving funding balance sheets.67 Banks and financial institutions through it would not have received credit otherwise.72 have stepped in and extended grants and low- interest loans to CDFIs. Wells Fargo Bank, for These programs can also increase employment, example, committed to providing $400 million in with studies showing some increasing employment PPP fees to CDFIs nationally to support lending and by approximately 10-to-25 percent, or more.73 technical assistance for small businesses.68 Bank of Reviews of loan guarantee schemes in the United the West invested $3.5 million in California-based States further suggest that these programs support CDFIs through long-term, low-interest loans.69 Yet employment growth more efficiently than federal given the scale of the crisis facing businesses in FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 15 jobs programs. One study estimated that federal ◊ $50 million for IBank’s Small Business Loan Small Business Administration-guaranteed loans Guarantee Program. For this program, IBank’s supported job creation at a cost of $9,200 to $18,800 Small Business Finance Center partners with per job; in contrast, the cost to create one job Financial Development Corporations, which through the federal New Jobs Tax Credit was $37,500- process the loan guarantees for qualifying $75,000, while it cost over $158,000 to create a single businesses and provide technical assistance. job through the stimulus measures included in the This additional funding will add to the program’s American Recovery and Reinvestment Act.74 existing reserve account of approximately $95 million, allowing it to substantially increase the These increases in profitability and employment number of loans it guarantees. further point to a multiplier effect. Loan guarantee ◊ $25 million to IBank to provide capital to CDFIs programs providing small businesses with subsidized and other mission-based lenders serving financing appear to increase economic growth overall underbanked communities.78 and to expand government revenues, benefiting the economy and communities as well as those Of this state funding for small businesses, the enterprises directly receiving loans.75 most significant may prove to be the $25 million to support CDFIs. This funding provides the basis for an STATE FINANCIAL SUPPORT FOR SMALL ambitious and innovative public-private partnership BUSINESSES that will leverage state dollars to attract substantial The State of California has responded to the private investment in small businesses: the California pandemic by expanding its existing small business Rebuilding Fund. loan guarantee programs and by initiating a new loan fund designed to support small businesses CALIFORNIA REBUILDING FUND and CDFIs. The state budget for 2020-21 provided The California Rebuilding Fund is an initiative that $125 million in additional funding for the California emerged out of the California Small Enterprise (CASE) Infrastructure and Economic Development Bank Task Force, a consortium of legal, financial, and (IBank) to help address gaps in federal relief and nonprofit professionals in the San Francisco Bay Area recovery programs: working to support small businesses impacted by the pandemic. Susan Mac Cormac, one of the task force’s ◊ $50 million for IBank’s Disaster Relief Loan leaders, explained that early in the pandemic CASE Guarantee program, which provides loan members realized, “no parties in California were guarantees to support and encourage lending to working to bring the CDFIs together to secure the small businesses impacted by natural disasters.76 philanthropic and bank financing that they needed.”79 This additional funding is specifically intended to Members of CASE stepped in to design a loan expand this program to support small businesses program that could aggregate private funding and impacted by COVID and to provide support direct it toward CDFIs, with the goal of enabling those for small businesses that were not eligible for institutions to on lend at scale to small businesses. federal funding, including business owners who They presented a proposal for the planned program are undocumented and those who do not meet to the Governor’s Task Force on Business and Jobs credit criteria for federal programs. Eighty percent Recovery in summer 2020; statutory language was of loans have gone to low-to-moderate income then included in the 2020-21 budget authorizing businesses or women-owned businesses.77 IBank to implement the program. IBank received Board approval to proceed with the program in September 2020. 16 | LITTLE HOOVER COMMISSION The Rebuilding Fund aggregates funding from public, Structurally, the fund is constituted as a Public private, and philanthropic sources to support small Benefit LLC to be managed by Kiva Capital businesses. The $25 million provided to IBank in Management, an impact asset manager. After the 2020-21 budget to support CDFIs serves as loans have been made by CDFIs, they will then first-loss capital to help attract additional funding be transferred to a special purpose vehicle (SPV) from both philanthropic organizations and for-profit established to hold the loans. The SPV will serve to lenders—state money bears the brunt of anticipated remove loans from CDFI balance sheets and ensure defaults, limiting the risk to commercial lenders and that those loans do not constrain the ability of CDFIs incentivizing them to contribute to the fund. The goal to continue lending. Based on testimony that the is to leverage state dollars to create a Rebuilding Commission received, which noted the importance Fund totaling $250-$500 million, which will be made of enhancing the liquidity of CDFIs, the use of a SPV available to CDFIs to provide low interest small appears to be a critically important feature of the business loans.80 The Commission received testimony Rebuilding Fund. suggesting that the use of state money to provide ADDITIONAL PUBLIC-PRIVATE first-loss capital has high potential for attracting PARTNERSHIP investment from financial institutions: Bank of the The Small Business Rebuilding Fund illustrates the West suggested that first-loss guarantees are a useful role of state government in encouraging, directing, incentive to encourage investment in CDFIs.81 and coordinating private resources toward small businesses. Isabel Guzman, Director of the Office Failing to support small of the Small Business Advocate (OSBA), explained the importance of such coordination in supporting businesses will likely result in small enterprises, “Small businesses are facing more closures and bankruptcies, unprecedented challenges in how they operate, hollowing-out communities, connect to clients and neighborhoods, maintain compliance and innovate to grow and scale. A depriving cities and towns strong collaborative effort to strengthen and amplify of revenue, and making the resources and connect small businesses to networks and communities for support will help small pathway to recovery steeper businesses recover, build resilience and survive these and more arduous. historic times.”82 California has instituted initiatives to provide The Rebuilding Fund is designed to provide capital technical assistance and to help businesses navigate for CDFIs and other mission-based lenders, which a radically changed business environment: otherwise would be constrained in their ability to make additional small business loans. Unlike IBank’s ◊ Shop Safe, Shop Local – A campaign launched by existing loan guarantee programs, which requires the Governor’s Task Force on Business and Jobs that lenders have sufficient capital to make loans, the Recovery and spearheaded by OSBA. In addition Rebuilding Fund will provide CDFIs and other lenders to encouraging Californians to support local with capital for lending. The program is open to small businesses, this initiative, in partnership with a businesses with under 50 employees and provides number of large companies (including Google and loans of up to $100,000. UPS), aims to provide small business owners with digital tools and resources to help them engage FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 17 in e-commerce.83 Since the start of the pandemic, to support small businesses. OSBA’s webpage for more than half of small businesses reported the Shop Safe, Shop Local initiative, for example, increasing online interaction with customers.84 The links to state guidance on safely reopening and to Shop Safe, Shop Local initiative aims to ensure the specific resources provided by industry partners. that small businesses have access to online It does not, however, connect to private resource marketing and commerce tools. compilations or to the range of municipal and local initiatives that have emerged to support small ◊ Safely Making California – A partnership between businesses. Witnesses suggested that it would be the California Manufacturers & Technology helpful for businesses seeking assistance to have a Association (CMTA) and state government single portal that can aggregate information about (through the Office of Emergency Services) that available resources and connect small business connects California manufacturers of non-medical owners directly with CDFIs or with local relief grade personal protective equipment (PPE) (face programs.88 masks, gowns, gloves, sanitizer) with employers who require such equipment to reopen and remain open. This initiative, in collaboration with “A strong collaborative effort Intel, created an online site to match producers to strengthen and amplify with purchasers of non-medical grade PPE.85 It is also an example of how state government resources and connect small can help to translate growing interest in “on- businesses to networks and shoring” into concrete actions that support small communities for support will businesses. These initiatives demonstrate notable government help small businesses recover, leadership in partnering with private companies build resilience and survive and organizations to connect small businesses with these historic times.” - Isabel resources. Yet awareness of these initiatives may be too limited. It appears that city officials working with Guzman, Director of the Office small businesses, as well as business organization of the Small Business Advocate leaders, may not be aware of the Shop Safe, Shop Local program and have thus not been able to direct business owners to the associated resources.86 CMTA There are notable local and private initiatives similarly reports that although the Safely Making that have worked to support small businesses. California interface is helping to connect some The CASE Task Force that designed and pushed businesses with California manufacturers of PPE, this for the California Rebuilding Fund, for example, initiative too could benefit from broader awareness began as an initiative to provide guidance to small among businesses looking to purchase PPE.87 Since businesses looking to navigate the pandemic and OSBA received funding in the most recent budget for initial shutdowns. CASE organized business and additional staff to assist with regional outreach, the law students to provide pro bono advice to small Commission expects awareness of state initiatives to business owners, and further compiled a resource support small businesses to improve. guide that responds to common questions and identifies resources available to small business There also appears to be opportunity to enhance owners by county. The CASE Task Force reports coordination and collaboration within state initiatives that, as of September 2020, more than 200,000 18 | LITTLE HOOVER COMMISSION small businesses across the state have accessed bolder action, many more small businesses may the resource guide and nearly 1,000 businesses had fail, with likely disproportionate impact on already attended “office hours” sessions.89 underserved communities. Even if additional federal small business relief becomes available and even Cities and counties have organized relief funds if that relief is better targeted toward minority- for small businesses. The City of Los Angeles and owned businesses, small businesses in underserved County of Los Angeles, for example, have partnered communities will likely still need additional with philanthropic organizations to create the Los support to help overcome historical inequities and Angeles Regional COVID-19 Recover Fund, which has longstanding barriers to capital. The state should administered five rounds of funding for Los Angeles take an even bolder leadership role in encouraging small businesses and nonprofit organizations.90 private support for small businesses and in establishing broader public-private partnership to Foundations, civic organizations, and other nonprofit advance small enterprises. entities have also created relief funds for small businesses. The Silicon Valley Community Foundation Recommendation 1: GO-Biz and IBank should has partnered with Opportunity Fund, a Bay Area develop and execute a strategy for maximizing CDFI and nonprofit microlender, to host a small participation in the California Rebuilding Fund business relief fund that has provided more than among California financial institutions. In the view $3.5 million to small businesses.91 Across the state, of the Commission, maximizing private participation the Sierra Business Council led regional stakeholders in the Rebuilding Fund is vital to enabling businesses in aggregating philanthropic and private donations, in underserved communities to survive and recover. funding from local municipalities, and money from local investors to create The Resilience Fund – Sierra, The state needs to use its megaphone to make which provides low interest loans and consulting financial institutions, private investors, and services to regional small businesses with fewer than philanthropic donors aware of the Rebuilding 25 employees.92 Fund and to encourage high-net-worth individuals, impact investors, and major corporations to lend Aggregating information about these various and/or donate to the Rebuilding Fund. This may initiatives on a single site would have the benefit of include working with regional business councils creating a one-stop shop for business owners around to disseminate information about the Rebuilding the state looking to identify potential sources of Fund and explain why it is vital to support small financial or technical support. It would also help to businesses, especially those in underserved raise awareness of these initiatives among potential communities. It may also include fully leveraging funders. existing state investment networks, like the Department of Insurance’s California Organized Recommendations Investment Network (COIN) program, which works to increase insurance industry investment in Governor Newsom, GO-Biz, and the Office of the underserved communities in California.93 Small Business Advocate have demonstrated notable initiative in responding to the crisis facing California’s In order to encourage investment, GO-Biz and small businesses. Yet the Commission believes that IBank should also develop a strategy for publicly the initial work done thus far represents a first step recognizing institutional investors and explore toward broader public-private partnership. The scale additional means for incentivizing participation. of the crisis facing small businesses is great; without FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 19 Recommendation 2: In addition to developing portion of small business need. PPP loans provided a strategy for maximizing participation in the by AmPac Business Capital averaged $13,000.94 Rebuilding Fund, IBank should take steps to Based on this loan size, a Rebuilding Fund of $250 ensure that funding equitably reaches small million would only support about 19,200 businesses. businesses in underserved communities and The Rebuilding Fund’s designers originally aimed to communities of color. The Rebuilding Fund create a billion dollar fund.95 In the opinion of the helps direct private capital to small businesses in Commission, this is a level more comparable with the underserved communities and must demonstrate scale of the crisis facing small businesses. that it is achieving this goal. The Rebuilding Fund will As the state’s budget allows, the Commission partner with economists from UC Berkeley’s Haas recommends that the Governor and Legislature School of Business to study the impact of the fund. consider increasing the state’s contribution to the The Rebuilding Fund/IBank should also publicly Rebuilding Fund. In addition, IBank and GO-Biz report demographic and geographic data on the should further encourage foundations, philanthropic small businesses receiving support and work with institutions, and high-net-worth individuals to match researchers to ensure loans reach underserved and and build on the state’s contribution of first-loss underbanked communities. Where necessary, IBank, capital. In expanding the size of the fund, IBank GO-Biz, and participating CDFIs should work with city should also expand the number of CDFIs formally or county governments and with community-based participating in the initiative and expand participation organizations to improve access in underserved in the initiative to other mission-based lenders communities. with strong records of supporting underserved IBank should also take steps to ensure that the communities. Rebuilding Fund serves CDFIs equitably. CDFIs Moreover, promoting and sustaining recovery vary considerably in size and service area. IBank following the end of the pandemic and pandemic- should publicly report on which CDFIs receive induced recession will likely require sustained capital through the Rebuilding Fund, and work with action on the part of the state. A permanent small researchers and CDFIs to identify and address any business investment fund could help underserved barriers to participation. communities recover and help to address the Recommendation 3: IBank should develop a historical barriers to capital facing small businesses strategy for expanding the size of the Rebuilding in those communities. Since the Rebuilding Fund Fund, with an aspirational goal of creating expects that much or all of the state’s contribution a fund of one billion dollars. If initial results will ultimately serve to cover losses as a result of from the Rebuilding Fund are promising (in the failure of some small businesses, a recurring terms of private sector participation, CDFI contribution will be necessary to maintain the fund. uptake, outreach to underserved communities, Recommendation 4: In consultation and initial results of loans, etc.), the Governor and cooperation with relevant agencies and private Legislature should make the Rebuilding Fund partners, GO-Biz should design and execute permanent by establishing an annual, recurring a campaign to raise awareness of CDFIs and state contribution. other mission-based lenders, especially among Even if IBank reaches the current goal of building grantmakers and impact investors. Commission a fund of at least $250 million, this will only meet a staff have been advised in interviews that while 20 | LITTLE HOOVER COMMISSION CDFIs already work with and receive support from locate, and search resources and potential sources banks, they have greater difficulty connecting with of assistance. This may be modeled on the state’s grantmakers and with impact investors. “With their approach to the Safely Making California initiative, experience, track record, longevity, and structure wherein the state leveraged private technical for capital absorption, CDFIs are strong investment expertise and software systems to connect small candidates for impact investors interested in businesses to makers of PPE. community revitalization and similar strategies.”96 In support of the development of a “one-stop” Yet awareness of CDFIs outside the mainstream web portal for small business resources, GO-Biz banks and other financial institutions subject to and OSBA should determine and report on what the Community Reinvestment Act appears limited. would be required to make informational resources Philanthropic support and grants are especially more broadly available to small business owners, valuable for CDFIs since they can use this money including what additional staffing might be required to build out organizational capacity and expand to be able to coordinate with private initiatives and their ability to provide technical assistance. Since what technical and translation assistance would the Rebuilding Fund will make additional funding be required to aggregate existing small business available to CDFIs, it is critical CDFIs have the resources and make them more widely and readily operational capacity to fully deploy that funding. available. The Rebuilding Fund provides one avenue both for raising awareness of CDFIs and for directing impact investment towards CDFIs. GO-Biz and OSBA should also develop a public awareness strategy to further publicize the work of CDFIs and mission-based lenders, and to encourage investment in these institutions. This may include steps to integrate CDFIs and mission-based lenders more fully into existing flows of resources and to emphasize them within existing investment networks. The awareness strategy should further include consideration of how to direct investment toward smaller and more locally oriented CDFIs and community lenders in addition to larger institutions. Recommendation 5: With assistance from the Governor’s Office and relevant agencies, OSBA should partner with private entities to make informational resources more broadly accessible to California’s small business owners. To this end, OSBA should partner with California’s technology sector to develop a web portal that aggregates information about state, local, and private programs and initiatives that support small businesses and allows small business owners to easily identify, FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 21 Notes 1. Jerry Nickelsburg, Testimony to LHC, June 25, LHC, June 25, 2020. 2020. Alissa Anderson, “Women and People of 8. Data from Opportunity Insights, Economic Color Take Biggest Hits in California’s Job Loses,” Tracker, https://tracktherecovery.org/. Accessed California Budget & Policy Center, June 2020, November 12, 2020. https://calbudgetcenter.org/resources/women- poc-take-hits-in-californias-job-loss/. 9. Jerry Nickelsburg, Testimony to LHC, June 25, 2020. 2. The figure for Californians claiming unemployment insurance is substantially higher 10. Ben Casselman and Jim Tankersley, “Iowa Never than calculations for job losses because it Locked Down. Its Economy Is Struggling Anyway,” includes self-employed individuals, independent New York Times, October 22, 2020, https://www. contractors, and business owners claiming nytimes.com/2020/10/22/business/economy/ unemployment insurance under the federal economy-coronavirus-lockdown-iowa.html. Pandemic Unemployment Assistance program. Alex Bell, et al., An Analysis of Unemployment 11. Mark Schniepp, “Weekly Unemployment Remains Insurance Claims in California During the COVID-1 Stuck at 15 Percent,” California Forecast, Pandemic (California Policy Lab, September 15, September 18, 2020, https://californiaforecast. 2020). Retrieved from: https://www.capolicylab. com/covid-19-economic-analysis/. org/publications/september-15th-analysis-of- unemployment-insurance-claims-in-california- 12. “UCLA Anderson Forecast Cautiously Projects during-the-covid-19-pandemic/. ‘Better than Expected Outcome,” September 30, 2020, https://newsroom.ucla.edu/releases/ 3. Employment Development Department, ucla-anderson-forecast-better-than-expected- “California Unemployment Lowers Slightly to sept-2020. 16.3 Percent in May,” June 19, 2020, https://edd. ca.gov/newsroom/unemployment-june-2020. 13. Small Business Majority, California Small Business htm. Owners Report Devastating Impacts of COVID-19, Need Immediate Cash Assistance to Survive, April 4. Mark Schniepp, “Weekly Unemployment Remains 21, 2020, https://smallbusinessmajority.org/our- Stuck at 15 Percent,” California Forecast, research/entrepreneurship/ca-small-business- April 2 and September 18, 2020, https:// owners-report-devastating-impacts-covid-19- californiaforecast.com/covid-19-economic- need-immediate-cash-assistance. analysis/. 14. Data from Opportunity Insights, Economic 5. Sarah Bohn, Marisol Cuellar Mejia, and Tracker, https://tracktherecovery.org/. Accessed Julien Lafortune, “The Summer of Un- and November 19, 2020. Underemployment,” PPIC, August 28, 2020, https://www.ppic.org/blog/the-summer-of-un- 15. Yelp: Local Economic Impact Report, September and-underemployment/. 2020, https://www.yelpeconomicaverage.com/ business-closures-update-sep-2020.html. 6. Jerry Nickelsburg, Testimony to LHC, June 25, 2020. 16. Madeleine Ngo, “Small Businesses Are Dying by the Thousands – And No One Is Tracking the 7. Data contained in Mark Schniepp’s Testimony to Carnage,” The Washington Post, August 11, 2020, 22 | LITTLE HOOVER COMMISSION https://www.washingtonpost.com/business/ in the preceding paragraph: Fairlie uses different on-small-business/small-businesses-are-dying- data sources and a different methodology than by-the-thousands--and-no-one-is-tracking-the- Opportunity Insights. carnage/2020/08/11/660f9f52-dbda-11ea-b4f1- 22. Robert W. Fairlie, Research and Ongoing Data 25b762cdbbf4_story.html. on COVID-19 Impacts, https://people.ucsc. 17. Kevin Baxter, “About Half of all Small Businesses edu/~rfairlie/current/. Accessed September 1, in Danger of Failing during Pandemic, Survey 2020. Finds,” Los Angeles Times (May 16, 2020), https:// 23. Philip Reese, “Feeling Anxious and Depressed? www.latimes.com/california/story/2020-05-16/ In California, You’re Right at Home,” Los Angeles about-half-of-all-small-businesses-in-danger- Times, August 25, 2020, https://www.latimes.com/ of-failing-during-pandemic-new-report-says; science/story/2020-08-25/feeling-anxious-and- Leonardo Castañeda, “The Bay Area’s Small depressed-in-california-youre-right-at-home. Business Closure Crisis Is Already Here,” The Mercury News, September 22, 2020, https://www. 24. David M. Cutler and Lawrence H. Summers, mercurynews.com/2020/09/22/the-bay-areas- “The COVID-19 Pandemic and the $16 Trillion small-business-closure-crisis-is-already-here/. Virus,” Journal of the American Medical Association 324, no. 15 (2020): 1495-1496. Retrieved from: 18. Ngo, “Small Businesses Are Dying by the https://jamanetwork.com/journals/jama/ Thousands.” fullarticle/2771764?utm_source=twitter&utm_ 19. Yelp: Local Economic Impact Report, September campaign=content-shareicons&utm_ 2020; Andrew Van Dam, “If a Business Is Still content=article_engagement&utm_ Closed at this Point in the Crisis, It’s Probably medium=social&utm_term=101220#. Permanent,” The Washington Post, July 23, X4R1YylrEN8.twitter. 2020, https://www.washingtonpost.com/ 25. Alissa Anderson, “COVID-19 Recession at Six business/2020/07/23/permanent-business- Months: California’s Unemployment Remains closures-yelp/. High,” California Budget & Policy Center, 20. Claire Kramer Mills and Jessica Battisto, September 2020, https://calbudgetcenter.org/ Double Jeopardy: COVID-19’s Concentrated resources/californias-unemployment-remains- Health and Wealth Effects in Black Communities high/. (Federal Reserve Bank of New York, 26. Fernando Lozano, Testimony to LHC, July 9, 2020. August 2020). Retrieved from: https:// www.newyorkfed.org/medialibrary/ 27. Data from Opportunity Insights, Economic media/smallbusiness/DoubleJeopardy_ Tracker, https://tracktherecovery.org/. Accessed COVID19andBlackOwnedBusinesses November 12, 2020. 21. Robert W. Fairlie, “The Impact of COVID-19 on 28. Sarah Thomason and Annette Bernhardt, Small Business Owners: Early-Stages Losses from “Front Line Essentials Jobs in California: A the April 2020 Current Population Survey,” NBER Profile of Job and Worker Characteristics,” UC Working Paper Series, June 2020, https://www. Berkeley Labor Center, May 14, 2020, https:// nber.org/papers/w27309. These estimates for laborcenter.berkeley.edu/front-line-essential- business closures are not comparable to those FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 23 jobs-in-california-a-profile-of-job-and-worker- (Community and Labor Center at the University characteristics/. of California Merced, May 2020). Retrieved from, https://clc.ucmerced.edu/briefs-and-reports. 29. Sarah Bohn, Magnus Lofstrom, and Lynette Ubois, “Racial Disparities Are Widespread in 36. Fernando Lozano, Testimony to LHC, July 9, 2020. California,” (Public Policy Institute of California, 37. Quoted in Michael Prebil, “Tech Apprenticeship June 3, 2020), https://www.ppic.org/blog/racial- in the San Francisco Bay Area,” (New America disparities-are-widespread-in-california/. Foundation, Center on Education & Policy, 30. Ben Poston, Tony Barboza, and Ryan Menezes, March 11, 2020), https://www.newamerica. “Southeast L.A. Already Faced Many Ills. Now org/education-policy/reports/bay-area-tech- it’s the Epicenter of Coronavirus,” Los Angeles apprenticeship/. Times, August 6, 2020, https://www.latimes.com/ 38. California State Auditor, Employment Development california/story/2020-08-06/newest-covid-19- Department – Its Unemployment Program cases-surge-in-southeast-la-county. Has Struggled to Effectively Serve California’s 31. Edward Orozco Flores and Ana Padilla, Hidden Unemployed in the Face of Significant Workload Threat: California COVID-19 Surges and Worker and Fiscal Challenges (March 2011, Report Distress (Community and Labor Center at the 2010-112), https://www.auditor.ca.gov/pdfs/ University of California Merced, July 2020), reports/2010-112.pdf. Assembly Insurance Accessed from: https://clc.ucmerced.edu/briefs- Committee, Background Paper, Oversight and-reports. Hearing on Unemployment Insurance Benefit Payment Delays, November 6, 2013, https://ains. 32. Marisol Cuellar Mejia and Paulette Cha, assembly.ca.gov/sites/ains.assembly.ca.gov/files/ “Overcrowded Housing and COVID-19 Risk Final%20Background%20Paper.pdf. See also, among Essential Workers,” (Public Policy Institute Wes Venteicher and David Lightman, “California of California, May 12, 2020), https://www.ppic. Unemployment Agency Keeps Turning to the org/blog/overcrowded-housing-and-covid-19-risk- Same IT Firm Despite Delays, Cost Overruns,” among-essential-workers/. The Sacramento Bee (June 25, 2020), https://www. sacbee.com/news/politics-government/the-state- 33. Daniel Tan and Paulette Cha, “Race, Health, and worker/article243611952.html. the Risk of COVID-19 Complications,” PPIC, April 17, 2020, https://www.ppic.org/blog/race-health- 39. Yolanda Richardson and Jennifer Pahlka, and-the-risk-of-covid-19-complications/, and Employment Development Department Strike “Racial Disparities in COVID-19 Mortality,” (Public Team Detailed Assessment and Recommendations Policy Institute of California, June 22, 2020), (September 16, 2020), https://www.govops. https://www.ppic.org/blog/racial-disparities-in- ca.gov/wp-content/uploads/sites/11/2020/09/ covid-19-mortality/. release.pdf. 34. Bohn, Lofstrom and Ubois, “Racial Disparities Are 40. Laura Tyson and Lenny Mendonca, Testimony to Widespread in California.” LHC, July 23, 2020. 35. Edward Orozco Flores, et al., Massive Job Losses 41. California State Budget—2020-21, Introduction, among Non-Citizens in California and the US p. 2. Accessed from: http://www.ebudget.ca.gov/ 24 | LITTLE HOOVER COMMISSION budget/2020-21EN/#/BudgetSummary. Entrepreneurship Initiative, in collaboration with the Latino Business Action Network, August 42. Jerry Nickelsburg, Testimony to LHC, June 25, 2020); Andre Dua, et al., COVID-19’s Effect on 2010. Minority-Owned Small Businesses in the United States (McKinsey & Company, May 27, 2020), 43. Legislative Analyst’s Office, The 2021-22 Budget: https://www.mckinsey.com/industries/public- California’s Fiscal Outlook (November 2020), and-social-sector/our-insights/covid-19s-effect- https://lao.ca.gov/Publications/Report/4297. on-minority-owned-small-businesses-in-the- 44. Adair Morse, Interview with LHC Staff, July 22, united-states. 2020; Anil Rupasingha, Locally Owned: Do Local 49. Hilda Kennedy, Testimony to LHC, September Business Ownership and Size Matter for Local 10, 2020. Diana Farrell, Christopher Wheat, and Economic Well-being? (Federal Reserve Bank of Carlos Grandet, Place Matters: Small Business Atlanta, Community and Economic Development Financial Health in Urban Communities (JP Morgan Discussion Paper, No. 01-13, August 2013). Chase & Co. Institute, September 2019). Retrieved Retrieved from, https://www.frbatlanta. from: https://www.jpmorganchase.com/institute/ org/community-development/publications/ research/small-business/place-matters-small- discussion-papers/2013/01-do-local-business- business-financial-health-in-urban-communities. ownership-size-matter-for-local-economic-well- being-2013-08-19. 50. Dua, et al., COVID-19’s Effect on Minority-Owned Small Businesses in the United States. 45. On the importance of small businesses for development in underserved communities, see 51. Color Of Change/Unidos US, “First COVID-19 Michael Porter, “New Strategies for Inner-City Survey of Black and Latino Small-Business Economic Development,” Economic Development Owners Reveals Dire Economic Future,” May Quarterly, vol. 11 (1997), pp. 11-27. 2020. https://colorofchange.org/press_release/ first-covid-19-survey-of-black-and-latino-small- 46. Sarah Bohn, Marisol Cuellar Mejia, and Julien business-owners-reveals-dire-economic-future/. Lafortune, “The Economic Toll of COVID-19 on Small Businesses,” (PPIC, May 19, 2020), https:// 52. Sifan Liuy and Joseph Parilla, New Data Shows www.ppic.org/blog/the-economic-toll-of-covid- Small Businesses in Communities of Color Had 19-on-small-business/; U.S. Small Business Unequal Access to Federal COVID-19 Relief Administration Office of Advocacy, California (Brookings, September 17, 2020), https://www. Small Business, 2018. Retrieved from: https:// brookings.edu/research/new-data-shows- www.sba.gov/sites/default/files/advocacy/2018- small-businesses-in-communities-of-color-had- Small-Business-Profiles-CA.pdf. unequal-access-to-federal-covid-19-relief/. 47. Susan Mac Cormac, Written Statement to LHC, 53. Ibid. September 10, 2020. 54. Jonathan O’Connell et al., “Following Messy Start, 48. Mills and Battisto, Double Jeopardy; Marlene Enormous Paycheck Protection Program Shows Orozo and Inara Sunan Tareque, The Ongoing Signs of Buttressing Economy,” The Washington Impact of COVID-19 on Latino-Owned Businesses Post, June 10, 2020. https://www.washingtonpost. (Stanford Graduate School of Business – Latino com/business/2020/06/09/how-effective-is-ppp- FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 25 small-business/. 2016 – Report on Employer Firms (April 2017), p. 16. Accessed from: https://www.newyorkfed. 55. According to the 2020 Federal Reserve Small org/smallbusiness/small-business-credit-survey- Business Credit Survey, 57 percent of firms with employer-firms-2016. greater than $1 million in annual revenues and 46 percent of White-owned firms obtained bank 62. Luis G. Dopico, 20 Years of CDFI Banks and Credit financing. In contrast, only 23 percent of Black Unions, 1996-2015: An Analysis of Trends and small business owners and only 34 percent of Growth (Opportunity Finance Network, January Latino owners had obtained bank funds; only 24 31, 2017). Retrieved from: https://cdn.ofn.org/ percent of owners of businesses with $100,000 s3fs-public/OFN_CDFI_CreditUnion_LongStudy_ or less in revenues obtained bank financing. FINAL.pdf. Federal Reserve Banks, 2020 Report on Employer 63. Susan Mac Cormac, Written Statement to LHC, Firms: Small Business Credit Survey. Accessed from: September 10, 2020. https://www.fedsmallbusiness.org/survey/2020/ report-on-employer-firms. 64. Hilda Kennedy, Written Statement to LHC, September 10, 2020. 56. Anneliese Lederer and Sara Oros, Lending Discrimination within the Paycheck Protection 65. Ben Horowitz, COVID-19: Connecting Small Program (National Community Reinvestment Businesses to Pandemic Relief Is a Struggle, CDFIs Coalition, 2020), https://ncrc.org/lending- Say, (Federal Reserve Bank of Minneapolis, discrimination-within-the-paycheck-protection- May 19, 2020), https://www.minneapolisfed. program/. org/article/2020/covid-19-connecting-small- businesses-to-pandemic-relief-is-a-struggle-cdfis- 57. Kristin York, Interview with LHC Staff, July 29, say. 2020. 66. Horowitz, COVID-19: Connecting Small Businesses to 58. Hilda Kennedy, Testimony to LHC, September 10, Pandemic Relief Is a Struggle. 2020. 67. Carmi Recto, “CDFIs: Critical Players in Mitigation 59. CDFI Coalition, CDFIs in California – Fact Sheet, the Economic Challenges of the Pandemic,” 2019, https://cdfi.org/california/. Medium, April 22, 2020, https://medium.com/ 60. Ben Horowitz, COVID-19: Connecting Small new-york-fed/cdfis-critical-players-in-mitigating- Businesses to Pandemic Relief Is a Struggle, CDFIs the-economic-challenges-of-the-pandemic- Say, (Federal Reserve Bank of Minneapolis, ec37d2ae03df. May 19, 2020), https://www.minneapolisfed. 68. Brian Rinker, “Wells Fargo To Donate All $400M org/article/2020/covid-19-connecting-small- in Processing Fees form PPP To Help Minority- businesses-to-pandemic-relief-is-a-struggle-cdfis- Owned Businesses,” San Francisco Business say. Times, July 9, 2020, https://www.bizjournals.com/ 61. A 77 percent approval rate at CDFIs, compared to sanfrancisco/news/2020/07/09/wells-fargo-to- a 67 percent approval rate for small banks and a donate-400m-ppp-small-business.html. 54 percent approval rate for large banks. Federal 69. Bank of the West, Written Statement to LHC, Reserve Banks, Small Business Credit Survey, October 9, 2020. 26 | LITTLE HOOVER COMMISSION 70. Organisation for Economic Co-operation and 76. IBank, Disaster Relief Loan Guarantees, https:// Development, Evaluating Publicly Supported Credit ibank.ca.gov/small-business/disaster-relief/. Guarantee Programmes for SMEs (2017), www. 77. Isabel Guzman, Testimony to LHC, September 10, oecd.org/finance/Evaluating-Publicly-Supported- 2020. Credit-Guarantee-Programmes-for-SMEs.pdf. 78. California State Budget 2020-21, “Encouraging 71. May Song, Canada Small Business Financing Recovery,” p. 24. Program: Updated and Extended Economic Impact Analysis (November 2014), https://www.ic.gc.ca/ 79. Susan Mac Cormac, Written Statement to LHC, eic/site/061.nsf/eng/h_02899.html#toc-06. September 10, 2020. 72. Daniel Seens and May Song, Requantifying 80. California Rebuilding Fund, IBank – California the Rate of Incrementality for the Canada Small Infrastructure and Economic Development Business Financing Program (March 2015), https:// Bank, https://www.ibank.ca.gov/small-business/ www.ic.gc.ca/eic/site/061.nsf/eng/h_02933. california-rebuilding-fund/. Accessed 9/1/2020. html#toc-04. 81. Bank of the West, Written Statement to LHC, 73. Vincent Chandler, The Economic Impact of October 9, 2020. the Canada Small Business Financing Program (Working Paper, June 2010), https://www.ic.gc.ca/ 82. Isabel Guzman, Written Statement to LHC, eic/site/061.nsf/eng/h_02195.html; J. David Brown September 10, 2020. and John S. Earle, “Do SBA Loans Create Jobs?” US Census Bureau Center for Economic Studies 83. Governor’s Office of Business and Economic Paper No. CES-WP-12-27 (August 2013), https:// Development, Calling All Californians: #Shop papers.ssrn.com/sol3/papers.cfm?abstract_ Safe Shop Local, https://business.ca.gov/ id=2205174&download=yes. Studies vary in shopsafeshoplocal/. their findings on the impact of credit guarantee 84. Isabel Guzman, Written Statement to LHC, schemes on employment because these September 10, 2020. programs themselves demonstrate considerable variation and because firms faced different 85. Press Release, CMTA, “California Manufacturers economic conditions depending on the period Step Up with PPE Portal to Help Gov. Newsom under consideration. Studies also employ Re-Open State’s Economy,” June 26, 2020, https:// different methodologies, especially with regard to cmta.net/page/press_releases2.php?release_ including or excluding from their analysis outlier id=266. firms with particularly high rates of employment growth. 86. Deborah Nankivell, Interview with LHC Staff, November 16, 2020. 74. Brown and Earle, “Do SBA Loans Create Jobs?” 87. Gino Di Caro, Interview with LHC Staff, October 75. Peter Hennecke, Dirk Ulbricht and Doris 29, 2020. Neuberger, “The Economic and Fiscal Benefits of Guarantee Banks in Germany,” Small Business 88. Susan Mac Cormac, Written Statement to LHC, Economics (October 2019). September 10, 2020. FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 27 89. Susan Mac Cormac, Written Statement to LHC, September 10, 2020. 90. LA Regional COVID Fund, https://www. lacovidfund.org/. Accessed October 16, 2020. 91. Silicon Valley Community Foundation, Small Business Relief Fund, https://www.siliconvalleycf. org/small-business-relief-fund. Accessed October 17, 2020. 92. Resilience Fund – Sierra, https://resiliencefund. org/about. Accessed October 16, 2020. 93. California Organized Investment Network – Coin, California Department of Insurance, http://www. insurance.ca.gov/0250-insurers/0700-coin/. For a sense of scale, COIN qualified “high impact” investments in underserved communities amounted to nearly $6 billion in 2016, the most recent reporting year, California Organized Investment Network, Community Investment Survey (CIS) – 2016 Data Call (July 2016). Retrieved from, http://www.insurance.ca.gov/0250- insurers/0700-coin/10-Pub-News/. 94. Hilda Kennedy, Testimony to LHC, September 24, 2020. 95. Russ Mitchell, “Bay Area Group Raising $1 Billion for Small Businesses Hurt by Virus, Theft, Curfews,” Los Angeles Times, June 5, 2020, https:// www.latimes.com/business/story/2020-06-05/a- billion-dollar-loan-program-for-california-small- business. 96. Ellen Seidman, Sameera Fazili, and Brett Theodos, Making Sure There Is a Future: Capitalizing Community Development Financial Institutions (Urban Institute, May 2017). Retrieved from: https://www.urban.org/research/publication/ making-sure-there-future. 28 | LITTLE HOOVER COMMISSION Little Hoover Commission Members CHAIRMAN PEDRO NAVA | Santa Barbara ASM. CHAD MAYES | Yucca Valley Appointed to the Commission by Speaker of the Assembly Appointed to the Commission by Speaker of the Assembly John Pérez in April 2013 and reappointed by Speaker of the Toni Atkins in September 2015. Elected in November Assembly Anthony Rendon in 2017. Government relations 2014 to represent the 42nd Assembly District. Represents advisor. Former State Assemblymember from 2004 to Beaumont, Hemet, La Quinta, Palm Desert, Palm Springs, 2010, civil litigator, deputy district attorney and member San Jacinto, Twentynine Palms, Yucaipa, Yucca Valley, and of the state Coastal Commission. Elected chair of the surrounding areas. Commission in March 2014. SEN. JIM NIELSEN | Gerber VICE CHAIRMAN SEAN VARNER | Riverside Appointed to the Commission by the Senate Rules Appointed to the Commission by Governor Edmund G. Committee in March 2019. Elected in January 2013 to Brown Jr. in April 2016 and reappointed in January 2018. represent the 4th Senate District. Represents Chico, Managing partner at Varner & Brandt LLP where he Oroville, Paradise, Red Bluff, Yuba City, and surrounding practices as a transactional attorney focusing on mergers areas. and acquisitions, finance, real estate, and general counsel work. Elected vice chair of the Commission in March 2017. ASM. BILL QUIRK | Hayward Appointed to the Commission by Speaker of the Assembly DION ARONER | Berkeley Anthony Rendon in 2017. Elected in November 2012 to Appointed to the Commission by the Senate Rules represent the 20th Assembly District. Represents Hayward, Committee in April 2019. Partner for Aroner, Jewel, and Union City, Castro Valley, San Lorenzo, Ashland, Cherryland, Ellis. Former State Assemblymember from 1996 to 2002, Fairview, Sunol, and North Fremont. chief of staff for Assemblymember Tom Bates, social worker for Alameda County, and the first female president SEN. RICHARD ROTH | Riverside of Service Employees International Union 535. Appointed to the Commission by the Senate Rules Committee in February 2013. Elected in November 2012 DAVID BEIER | San Francisco to represent the 31st Senate District. Represents Corona, Appointed to the Commission by Governor Edmund G. Coronita, Eastvale, El Cerrito, Highgrove, Home Gardens, Brown Jr. in June 2014 and reappointed in January 2018. Jurupa Valley, March Air Reserve Base, Mead Valley, Managing director of Bay City Capital. Former senior officer Moreno Valley, Norco, Perris, and Riverside. of Genentech and Amgen, and counsel to the U.S. House of Representatives Committee on the Judiciary. CATHY SCHWAMBERGER | Calistoga Appointed to the Commission by the Senate Rules CYNTHIA BUIZA | Los Angeles Committee in April 2018 and reappointed in January Appointed to the Commission by Speaker of the Assembly 2019. Associate general counsel for State Farm Mutual Anthony Rendon in October 2018. Executive director of the Automobile Insurance Company. Former board member California Immigrant Policy Center. Former policy director of the Civil Justice Association of California and the Capital for the American Civil Liberties Union, San Diego, and Political Action Committee. policy and advocacy director at the Coalition for Humane Immigrant Rights of Los Angeles. JANNA SIDLEY | Los Angeles Appointed to the Commission by Governor Edmund BILL EMMERSON | Redlands G. Brown Jr. in April 2016 and reappointed in February Appointed to the Commission by Governor Edmund G. 2020. General counsel at the Port of Los Angeles since Brown Jr. in December 2018. Former senior vice president 2013. Former deputy city attorney at the Los Angeles City of state relations and advocacy at the California Hospital Attorney’s Office from 2003 to 2013. Association, State Senator from 2010 to 2013, State Assemblymember from 2004 to 2010, and orthodonist. Full biographies are available on the Commission’s website at www.lhc.ca.gov. FIRST STEPS TOWARD RECOVERY: SAVING SMALL BUSINESSES | 29 “DEMOCRACY ITSELF IS A PROCESS OF CHANGE, AND SATISFACTION AND COMPLACENCY ARE ENEMIES OF GOOD GOVERNMENT.” By Governor Edmund G. “Pat” Brown, addressing the inaugural meeting of the Little Hoover Commission, April 24,1962, Sacramento, California Milton Marks Commission on California State Government Organization and Economy www.lhc.ca.gov