Assistant Planner, Mercer Planning Associates
February 5, 2021
How do the new Federal and State policy initiatives affect downtowns and businesses?
Federal Relief Bill
On January 4, 2021, a new federal economic relief package was signed into law that provided direct stimulus payments to qualifying individuals and families, partly restored the enhanced federal unemployment benefit, created a new round of Paycheck Protection Program (PPP) loans, and expanded SBA loan forgiveness.
PPP Changes and Updates
A new round of Paycheck Protection Program (PPP) loans opened on January 11. Over $284 billion is available for first and second PPP loan applicants; but unlike the two previous rounds of PPP loans, the maximum loan amount is $2 million, down from $10 million. Eligibility requirements have also changed. To qualify, a business must have no more than 300 employees (per location if there are multiple locations) – down from 500 in the two earlier rounds last year. A business must also show that revenue has declined by at least 25 percent for 2020 Q1, Q2, Q3, or Q4 as compared to same quarter in 2019. If a business opened after February 15, 2020, they would not qualify for a loan under the new change.
Some regulations have stayed the same, including the payback period (five years), the interest rate for unforgiven amount, and the calculation that determines the loan, which is still 2.5 times the monthly qualifying payroll and excludes yearly compensation over $100,000. However, for this round of PPP, a business that has an NAICS code beginning with 72 (North American Industry Classification System – Accommodation and Food Service businesses) could receive a loan up to 3.5 times the monthly qualifying payroll. The increase is in response to the impact COVID-19 restrictions have had on these businesses
The new round of PPP expands the expenses that can be considered for forgiveness. In addition to group health insurance, rent, and mortgage interest expenses; payments for human resources software, costs for personal protection equipment and other COVID related expenses, and costs related to the civil unrest last spring that were not covered by insurance can be included when calculating how much of the loan is forgiven. The rules for loan forgiveness have changed and been made easier. Now, if the loan is less than $150,000, there is a one-page form for businesses to estimate the amount of the loan spent on forgivable expenses. The business must also demonstrate that all full-time employees, salaries, and wages have been restored.
In addition, businesses that received PPP loans and had them forgiven, are now permitted to deduct the costs that were covered by the loans on their federal tax returns. Note that there is similar NJ legislation (S3234/A5149) that allows a tax deduction of expenses forgiven under a paycheck protection program loan and excludes those forgiven loans from gross income tax passed in the Senate on January 28, 2021, and was referred to the Assembly Appropriations Committee.
Other updates include the extension of the Employee Retention Tax Credit (ERTC), which encourages businesses to keep employees on their payroll, and was established in the CARES Act.
This round of PPP also set aside $15 billion in initial loans and $25 billion in second loans for businesses located in a low to moderate income area, or an area that has a poverty rate of up to 20 percent. These loans can be up to $250,000 per loan.
Small Business Administration Updates
As part of the new stimulus bill, $3.5 billion was allocation for Small Business Administration (SBA) debt relief and $2 billion was enhancements to SBA lending. SBA Section 7(a) loans and 50 microloans will now forgive payments on the principal and interest for up to eight months. Essentially, for a period of time, the federal government will pay a portion of an SBA loan.
The Section 7(a) loans and 504 microloans are not contingent on how a business has been impacted by COVID-19, and although there is still a thorough application process for each loan, the bill makes it easier for SBA lenders to extend financing.
Other Federal Program Updates
The COVID relief package also includes the following:
- $20 billion for new Economic Injury Disaster Loan (EIDL) grants for businesses in low-income communities. Eligible businesses must have been in operation prior to January 31, 2020, have less than 300 employees, and suffered at least 30 percent reduction in gross receipts during any eight-week period between March 2020 and December 31, 2021. Each grant is capped at $10,000. If a business previously applied for an EDIL grant and did not receive the full $10,000 they may be eligible to receive the difference.
- $15 billion for independent movie theaters, live venues, and cultural institutions that have been closed due to the pandemic. To qualify an applicant must demonstrate a loss of at least 25 percent of their revenue, and applicants who have lost 90 percent or more are able to apply first. Each grant will be capped at $10 million.
New Jersey Economic Relief Bill
On January 7, 2021 the New Jersey Economic Recovery Act of 2020 was signed into law. The law is, in part, a response to the COVID-19 pandemic; but also updates, expands, or enacts various programs and policies being discussed prior to COVID-19 aimed at supporting development, job creation, community projects, and business. It should be noted it will take several months for the programs and policies laid out in the law to take effect as new regulations need to be written and adopted.
Below are some of the most pertinent programs for downtowns:
The bill appropriated $50 million to the Main Street Recovery Finance Program for grants, loans, and loan guarantees to small businesses. Grants are awarded to eligible small and micro businesses, defined as having 10 employees or less and less than $1 million in annual revenue. Grants and loans will also be available to CDFIs who support micro businesses. The program also establishes the “Main Street Recovery Fund” in which 40 percent of fund must be reserved for State certified minority- and women-owned businesses. Note that capital projects over $50,000 require green energy standards and prevailing wage requirements.
The NJ Aspire Program provides tax incentives for affordable and mixed-use housing development, targeting downtowns with or near transit. The tax credits are equal to 50 percent of development costs and up to $50 million for projects in targeted areas. Projects are subject to prevailing wage requirements. The program is capped with the NJ Emerge Program, discussed below, at $1.1 billion per year over a six-year period. However, if a project is transformative the cap, with the Emerge Program is $2.5 million.
The NJ Emerge Program provides tax incentives for redevelopment projects that create and retain jobs in designated areas, especially those communities in economic distress. There are several requirements businesses must meet in order to qualify, including capital investments in the eligible area and a net benefit of 200 to 400 percent of the awarded tax credit. There are minimum requirements and adjustments dependent on the project, size of business, and type of jobs. The program is capped with the NJ Aspire Program, discussed above, at $1.1 billion per year for six years. However, if a project is transformative the cap, with the Aspire Program is $2.5 million. Projects are subject to prevailing wage requirements.
The Historic Property Reinvestment program provides tax credits for part of the cost of rehabilitating historic properties in this State. The building must be listed on the National Register of Historic Places or approved by the State Historic Preservation Officer. Only projects which will be income producing are eligible. Tax credits under this program are capped at $50 million annually for six years and each project is capped at 40 percent of rehabilitation costs. Projects are subject to prevailing wage requirements.
The Brownfield Redevelopment Incentive program is a one-time tax credit to provide funds to developers for assessment and remediation activities of polluted sites. The program is capped annually at $50 million and each project is capped at $4 million. Projects are subject to prevailing wage requirements.
The Food Desert Relief program provides tax credits to incentivize the establishment and retention of supermarkets and grocery stores in food desert communities. Tax credits under this program are capped at $40 million annually for six years.
The NJ Innovation Evergreen Fund is a venture investment fund for New Jersey companies. Over $500 million will be available in capital investment for early-stage and growing businesses. The NJEDA will invest alongside qualified venture firms, up to $5 million for two investments (per year) in New Jersey based businesses. The investment cap is higher for State certified minority- or women-owned businesses, with a goal of 25 percent of the funds being invested in communities in economic distress.
The NJ Film and Digital Media Tax Credit program provides a tax credit for certain expenses incurred for the production of films and digital media in New Jersey. Both the film tax credit and digital tax credit require a certain amount of production expenses be through NJ vendors. The program has appropriated $2.6 billion over 13 years.
The New Jersey Ignite program is a public private partnership providing start-up rent grants (two to six months of rent) to collaborative workspaces to support early-stage innovation economy businesses at the collaborative workspace. The business must be new or no more than three years old, have fewer than 10 employees, less than $1 million in gross sales, and have at least one full-time New Jersey employee. The bill appropriates $250,000 for this program.
Other New Jersey Policy & Programmatic News
NJEDA Second Phase of Small Business Emergency Assistance Loan Program
On January 27, 2021, the NJEDA announced a Phase 2 of the Small Business Emergency Assistance Loan Program. The $10 million expansion will continue to support small businesses that have been impacted by COVID-19. To be eligible a small business or non-profit must have been in existence and in operation from at least February 24, 2020. They must also have $5 million or less in annual revenue and have a physical commercial location in New Jersey (home-based businesses and real estate holding companies are not eligible for financing under this program). Eligible businesses will be able to apply for up to $100,000 in financing. Applicants must pre-register; however, pre-registration set to begin on February 10 has been postponed to a date to be determined. More information>
NJRA Adds $5 Million to Lease Assistance Grant Program
The Small Business Lease – Emergency Assistance Grant Program, which is providing grants of up to $10,000 to small businesses in selected municipalities — received an additional $5 million in funding. The program is targeted to businesses in the 64 legislatively designated municipalities with 5,000 square feet of leased space or less. The application opens at 9 a.m. Feb. 22 and will remain open until the funds are exhausted. ALthough the new round is not on the NJRA website yet, expect updates and more information here>
Main Street New Jersey
The new application round to become a designated Main Street New Jersey (MSNJ) district opened on Monday, February 1, 2021. MSNJ is a revitalization program that helps promote and support economic development in downtowns throughout New Jersey. The program provides technical assistance and training in downtown economic development and revitalization management, as well as competitive grants to participating communities. More information & application>
Other New Funding Opportunities
Main Street Resiliency Grant Program
To support revitalization efforts, the National Main Street Center announced the Main Street Resiliency Grant Program that will provide ten members of the Main Street America Network $8,500 each to fund innovative revitalization efforts to address the current and/or legacy impacts of COVID-19. Applications accepted through Friday, February 19, 2021. More information>
2021 AARP Community Challenge Grant
The AARP Community Challenge grant program is part of the nationwide AARP Livable Communities initiative that helps communities become great places to live for residents of all ages. The program is intended to help communities make immediate improvements and jump-start long-term progress in support of residents of all ages. 2021 program information and applications are not yet available, but are anticipated in February 2021. Sign up for the AARP Livable Communities E-newsletter to receive information as it becomes available.