Taking a page from Washington, cities craft their own stimulus

Business in the tiny northern California town of Lakeport is withering. Weekend pleasure boaters aren’t coming to Clear Lake like they used to, and credit remains almost impossible to come by.

So Lakeport made a bold decision: Even in a time of budget deficits, it agreed to sell some of its own property and use the cash to fund loans to help save the stores of its gold rush-era downtown.

Like a handful of cities from New York to San Francisco, Lakeport is not waiting for a federal stimulus to see their businesses through the current crisis. The plans are often controversial and in some cases unprecedented, exposing the cities to the risks of defaulting businesses. But there is no blueprint for how cities should manage their own small-business recoveries, and the scope of the problem demands action.

“We’re in a situation where we have to do what we can to try and pull ourselves up by our bootstraps and not stand by and do nothing,” says Richard Knoll, director of the Lakeport’s redevelopment agency.

The municipal relief efforts encompass a wide array of strategies:

– Several cities, including Boston, San Francisco, and Bayonne, N.J., are repurposing federal money to give microloans to businesses, to spur construction, or to attract industries.

– New York City is spending $10 billion – much of it from its own pockets – to get the local economy moving and to encourage entrepreneurs to spawn businesses in emerging fields.

– On a smaller scale, Westport, Conn., has relaxed longstanding city rules by allowing shops to place signs on the sidewalk, hoping the advertisements might gin up more business.

“The town doesn’t have any spare change, but we can make other efforts and try some outside-of-the-box thinking,” says First Selectman Gordon Joseloff, who says the city is also encouraging recently unemployed resident consultants and investment bankers to donate their expertise to brainstorm for local shops.

Lakeport’s decision to sell off $405,000 in city assets remains among the most far reaching efforts to save local businesses. It is a town of only 5,100 residents that is already facing a huge budget shortfall of its own and is considering major cuts in other areas.

Desperate times, desperate measures

Lakeport has made loans before, but always used federal dollars. The depth of the economic downturn, however, is prompting cities like Lakeport to consider new ideas.

“It’s a little unprecedented, the scale of the problem now, so I think everyone is on new ground,” says Karl Seidman, a professor of economic development at the Massachusetts Institute of Technology in Cambridge.

Cities have a long history of local business development, he says, but they are less equipped to deal with rescue efforts.

“The challenge for cities is that they’ve got their own fiscal crises to deal with,” says Professor Seidman. Yet for development programs “to make a difference,” he says, they must be done on a huge scale.

That concern percolates through Lakeport, which approved the loan scheme last month.

“There’s a fear there that this may be a bit more risky than any of us know,” says Mr. Knoll of the redevelopment agency. “What are we going to be looking at a year from now if the businesses need to close and can’t make repayments?”

But, he adds, “rural communities don’t seem to be getting the attention through the federal recovery program that a lot of the urban areas are getting. We’re not sure if we’re going to get much help.”

Changing priorities
In truth, many urban areas are simply retasking federal money that they have received for other purposes.

Boston recently announced the creation of a $350,000 microloan program that uses federal grant money that the city has on hand to target struggling businesses in poorer parts of the city. The goal is to help businesses overcome a loss of cash flow and a tight credit market. The beneficiaries so far include an ethnic food market and a discount store, both of which received $25,000 to help keep their doors open, says Kerry O’Brien, spokeswoman for Boston’s Department of Neighborhood Development.

On a more expansive level, San Francisco is using $23.8 million of federal money to entice companies to set up shop in struggling parts of the city. The effort is part of a five-part stimulus plan that draws on federal and local funds to pay for construction projects, training programs, and recruitment of overseas industries – particularly from China. Similar microloan efforts are underway or in planning stages from Bayonne, N.J., to Boulder, Colo.

“There is some potential for success here, with just keeping people employed, even if at some point the companies don’t make it. Until we get some job growth that would be beneficial,” says Michael Wasylenko, professor of economics at Syracuse University in New York. “The downside is: Are we just delaying the inevitable? That’s a very hard thing to assess, especially with small businesses.”

Professor Wasylenko’s hesitation reflects a wider concern with emergency business stabilization. There is little way of knowing if the preserved businesses will be the types of businesses that will thrive in an altered, post-crisis economy.
In New York City, such concerns are paramount. The city is embarking on a $10 billion stimulus program. Some $3 million of that will be allotted to the earliest stages of business development – helping entrepreneurs to move from an idea to a viable business model. It also will provide office space and training programs.

“You have to invest for the future at time when you are hurting the most,” says Seth Pinsky, president of the city’s Economic Development Corporation.

In Lakeport, Roy Fields is still hopeful there will be a future for his swimwear and boat-rental shop, On The Waterfront. It’s far too early to close up shop, he says, but revenue is down to $30,000 a month – $50,000 below his usual break-even point. Mr. Fields’ business was what Knoll, the city’s redevelopment director, had in mind when he came up with the city loan-stabilization program.

“I’m trying not to put my hand out, I’m trying to make it on my own,” Fields says. But many businesses, and quite possibly his own shop, won’t survive without a cash infusion, he adds.

“We need each other to survive, especially in a small community,” Fields says. “What [Knoll]’s doing over there is worth watching.”