Here’s how MA policymakers can save our local restaurants

The COVID-19 pandemic has not been kind to many business sectors, and the hospitality industry is arguably taking some of the hardest hits. Cape Cod hotels and restaurants have been dealing with reduced capacity and reduced demand since the stay-at-home order was issued by Governor Baker in March, along with ever-changing guidelines on how they can operate, a smaller workforce, and some very difficult-to-please customers. By many accounts they have been able to get through the summer somewhat intact (some even say it was much better than expected) because, well, it’s the summer – our busiest season of the year.

But winter is coming and concern for the future of our local hospitality industry, which accounts for thousands of jobs in the region millions of dollars in tax revenues. Looking at the state as a whole, nearly 1 out of 5 restaurants have already closed. This is to say: there is a chance that some really good, really beloved local restaurants are not going to make it.

Most small businesses have limited cash on hand that barely began to cover the loss of revenue caused by the public health crisis; and funding from the federal government was difficult for them to access and failed to address the long-term impacts of the pandemic. Leaving them to look elsewhere for help.

Under current operating conditions, saving these restaurants cannot simply fall on consumers to eat out, get takeout and buy gift cards. It is also up to our policymakers to enact policies and create programs that will support the local restaurants whose closures would have ripple effects across the region in lost jobs, reduced tax revenue, and less business for other local service providers and suppliers.

The Massachusetts state government can and should pass policy interventions meant to bolster the restaurant industry and give them a fighting chance at surviving this mess that is 2020.

Governor Baker’s recent move to delay sales and meals tax payments and the legislature’s short term allowance for cocktails to go are a temporary help (to what is a long term problem). Other necessary policy interventions have been introduced into the state legislature including addressing lack of financial support from insurance companies, capping fees on third-party delivery apps, and setting up a fund that would give financial aid in the form of grants to independently owned restaurants. All of these would go a long way to covering expenses that their current limited revenue cannot. However all of these have yet to be passed or have been put on the back burner (pun intended).

Most restaurants, hotels, and those in the food and beverage service industry are required to carry business interruption insurance – costing them thousands of dollars every year. At a time when “business interruption” is pretty much standard, every restaurant across the country that has filed a claim with their insurance company for business interruption insurance was denied. Because pandemics are not covered by said policy. However, in this case, there is a pretty strong argument that it was not the pandemic that forced the closure of any of these businesses – state orders did. And this “civil disruption” is covered by most business interruption insurance policies. Still, insurance companies refuse to pay out.

In addition to Massachusetts, California, South Carolina, Rhode Island, Pennsylvania, Ohio, New York, New Jersey, Michigan, Louisiana, have bills that have been introduced that would clarify the laws around business interruption insurance and ultimately require insurance companies to honor legitimate claims.

A nationwide effort to get states to pass this type of legislation (insurance companies are regulated at a state level) has been taken up by a newly formed group of independent business owners turned legislative advocates who are working to keep the hospitality industry alive by asking elected officials to ensure that insurance carriers provide the protection they paid handsomely for.

Through grassroots organizing THIRST has cultivated community partners in 15 states – including Massachusetts – and a team of lawyers who aim to expose some deficiencies in the existing legal system with regard to the issue of business interruption insurance, and engage and raise the voices of independent business owners as to their realities throughout pandemic. And ultimately get the insurance industry that is sitting on $850 billion in reserves to step up for their small business customers and this country during this unprecedented time.  

Other large corporate entities that have not been doing any favors for independent restaurants are third party delivery apps like Grub Hub, Door Dash, Uber Eats and Postmates. Many of the food delivery apps are charging upwards of 30% per sale to an already slim margin (most food service businesses say between 10-15% is really all they can afford). True, they are being provided a service (though some of the service charges are questionable), but if that service will basically contribute to the restaurant’s demise, then really, there’s no point.

Cities like San Francisco, Los Angeles, New York, Washington, D.C., Cincinnati and Seattle have already capped delivery fees, and a New Jersey legislator introduced a bill that would apply statewide. The language of the bill captures the spirit of the argument: “while some companies have provided meaningful support to the restaurant community, other companies offering third-party food takeout or delivery services may charge restaurants a service fee exceeding 30% of the order price, thereby compounding the current financial strain on restaurants.”  

The Massachusetts House unanimously passed a bill addressing third party delivery fees back in June, but it has seemingly stalled at the Senate Ways and Means Committee.

Other MA state legislators have shown some support for restaurants through establishing the Distressed Restaurants Fund that was included as part of the recently voted on economic development bill. The bill sets aside 30% of the revenue from taxes and fees on the sports betting industry for the Fund (about $15 million a year). This fund would provide one-time grants of up to $15,000 to help cover payroll expenses, rent and mortgage, insurance costs, past due payments for supplies, goods or services, and the procurement of personal protective equipment. A version of the economic development bill has passed both the Massachusetts House and Senate, and in now in conference where anything could happen and any part of it could be eliminated or changed.

(It is also worth noting that there is a proposed Restaurants Revitalization Fund at the federal level which creates a $120 billion grant program for independently owned restaurants to get the financial aid they so desperately need – but there has been little movement on that or much of anything in Washington, D.C. these days).