In COVID Winter 2, restaurants still hurting. Wis seems likely to help them out

With omicron hitting new highs and the coldest part of Winter coming in for much of America, it's setting up for another rough time in the restaurant industry.

Indeed, even with creative workarounds, nearly 60% of restaurants across the country reported sales decreased by more than half in December, according to a survey of 1,200 conducted by the Independent Restaurant Coalition. Meanwhile, 46% of restaurant owners said Omicron impacted their operating hours for more than 10 days.

And spending at restaurants and bars dipped in December as surging cases driven by the variant have weighed on consumer activity.

We expect a further decline this month,” Ian Shepherdson, Chief Economist of Pantheon Macroeconomics, wrote in a note on Friday.

There was some help for restauranteers earlier this year, with bailouts given in COVID relief packages. But there wasn't enough aid available to pay for all applicants for that aid, and DC lawmakers have yet to give a second round of help.

Still, the ongoing headwinds from the pandemic have impacted and become more challenging for businesses that didn’t get a slice of the Restaurant Revitalization Fund (RRF)— a $28.6 billion federal effort to rescue struggling businesses that was part of the $1.9 trillion COVID-19 relief package.....

Yet there’s been no movement on legislation to replenish RRF funding, prompting the IRC to release last week a letter in a Congressional call to action, signed by current and former mayors from 27 cities.

More locally, Wisconsin State Rep. and restaurant owner Francesca Hong has joined the calls for more RRF assistance.

Thousands of restaurants and bars are running out of options, time, and support. Congress can’t wait any longer to deliver urgent relief. Join me and @indprestaurants in calling on our reps to #ReplenishRRF https://t.co/FYQc2Nwh0T pic.twitter.com/FfUoyIVTui

— Francesca Hong 홍윤정 (@FrancescaHongWI) January 18, 2022

Speaking before state legislators last week, Wisconsin Restaurant Association CEO Kristine Hillmer noted that needs were so great that a majority of state restaurant owners that applied for RRF aid could not get it.

The RRF provided $28.6 billion for grants equal to the pandemic-related revenue loss of an eligible restaurant business (minus any PPP loans taken). Restaurant businesses of 1-20 locations were eligible - which directed the funds at small independent and franchisee restaurant owners and ownership groups. While $28.6 billion sounds large, only one-third of the restaurants who qualified for relief received funds, leaving over $40 billion in unfunded applications. At the federal level we are working hard to have the fund replenished as soon as possible to meet this need.

In Wisconsin, 5,871 restaurant businesses applied for just under $995,000,000 in RRF grants. Of those, 2,095 restaurants were funded for just under $279,303,000.

Hillmer was testifying in support of a bill that would give recipients of funds under the Restaurant Revitalization Fund the same tax-free treatment as PPP loans, and ARPA-related grants that Governor Evers has given for owners of movie theaters, live music venues and lodging industries. Hong is also part of a bipartisan group of legislators that have signed onto this bill (which will be voted on in committee this week). Hillmer added that giving restaurant owners a tax break that comes in the early part of the year is especially critical, due to the seasonal decline that happens in Wisconsin in the first 3 months, and compounded by omicron-related issues.

Just as the Wisconsin Legislature approved earlier this year for PPP loans, SB 690 would adopt the federal tax treatment of RRF grant proceeds. What does this mean revenue wise? If Congress does not replenish the RRF, then $280 [million] in Wisconsin tax revenue would be treated the same as PPP funds. If Congress does replenish the RRF, then Wisconsin would treat nearly $1 [billion] in tax revenue the same as PPP funds.

Yes, the restaurant industry is beginning its long journey back. We estimate that we lost 10-15 percent of restaurants to permanent closure. We also know that we have many restaurants who are still on the verge of not surviving the devastating economic effects of the pandemic. They took on huge debt in 2020, trying to stay in business and retain their team members. Many had a busy holiday season, but winter is here in full force, and many still do not have the cash reserves to survive the inevitable slowdown of customer traffic and sales. Many restaurant economists are predicting that during winter, consumers will return to pandemic-like hibernation, which will further reduce seasonal winter customer counts. Those restaurants that receive RRF grants need the ability to take advantage of the additional tax deductibility to help them stay in business for the long run and emerge stronger this spring.

While there is a legitimate argument to be made as to why this grant money shouldn't count as income (an argument I made about PPP recipients this time last year), the price tag is relatively small (a little over $27 million for the next 3 years) and if it improves the chances of many of these important local employers to survive this second COVID Winter, it seems a small price to pay at this time.

The state tax break for RRF recipients seems set to pass the full Legislature by the end of this month, and if signed soon enough, would allow for those business owners to use the write-off when they file their taxes in the coming weeks. But given the omicron and its related disruptions may cause especially big hits to a restaurant industry that already has suffered enough, lawmakers in DC probably should also step up to help.