In summary

With the launch of the Rebuilding Fund, California has laid a foundation for small business recovery, but much more needs to be done.

By Pedro Nava

Pedro Nava is chair of the Little Hoover Commission, Pedro.Nava@lhc.ca.gov.

Sean Varner

Sean Varner, managing partner of Varner & Brandt LLP Riverside, is a member of the Little Hoover Commission’s subcommittee studying economic recovery from the pandemic, sean.varner@varnerbrandt.com.

David Beier, Special to CalMatters

 David Beier, managing director of Bay City Capital, is a member of the Little Hoover Commission’s subcommittee studying economic recovery from the pandemic, dbeier@baycitycapital.com.

On Nov. 20, Gov. Gavin Newsom announced the launch of a key program to support small businesses devastated by the COVID-19 pandemic – the California Rebuilding Fund. While we commend this strong start, the state must marshal more resources to address the pandemic’s impact on our small business communities.

The Rebuilding Fund is a partnership between state and local governments and private organizations – some for-profit, some nonprofit – that will provide financial support to small businesses in underserved communities. The governor and Legislature provided a $25 million anchor commitment in this year’s budget, state money that the Rebuilding Fund will combine with private capital to provide low-interest loans to small businesses.

“This public-private partnership,” Newsom explained, “will give underserved communities across California access to capital, making for a more inclusive economy.” On Nov. 30, Newsom further announced an additional $12.5 million state contribution to the Rebuilding Fund, bringing the state’s investment to $37.5 million.

As members of the Little Hoover Commission, California’s independent government watchdog, we congratulate the governor on these critical first steps. Yet with small enterprises on the edge of extinction, we highly recommend additional action to preserve and enhance the viability of small business, the backbone of our economy. 

To rebuild California’s economy, state government must work boldly to support small businesses. These enterprises employ nearly half of California’s private sector workforce and are the lifeblood of vibrant communities. They are fighting for survival. More than 30% of California’s small businesses remain closed as a result of the pandemic. The impact has fallen most heavily on minority- and women-owned businesses, which were also underserved by federal relief programs.

Two considerations must guide state efforts to support small businesses: 

First, even with some improvement in the state’s budgetary outlook, state government lacks sufficient resources to fully address the enormous economic impacts of COVID-19. State government needs to leverage private resources to help small businesses survive the current downturn and retool for a changed economic landscape.

Second, California must work with the institutions that focus on underserved communities, especially Community Development Financial Institutions, which have a strong track record of supporting minority-owned and women-owned businesses through loans and technical assistance. They are uniquely positioned to support businesses in underserved communities, but need affordable capital to do so.

The Rebuilding Fund addresses both these elements. It provides a robust mechanism by which state government partners with the private sector to support small businesses. It will also encourage broader economic recovery since loan funds, like the Rebuilding Fund, carry a multiplier effect: by boosting small business profitability and employment, they increase economic growth.  

Our commission’s new report, First Steps toward Recovery: Saving Small Businesses, recommends that California expand the Rebuilding Fund to better match the scale of the crisis facing small businesses. It also recommends that state government forge deeper public-private partnerships to support small businesses.  

  • The state must dramatically expand the Rebuilding Fund by using its megaphone to maximize private participation and potentially by also increasing the state’s contribution. 
  • The state needs to work with local governments and community-based organizations to ensure that the Rebuilding Fund reaches small businesses in communities of color and the organizations best positioned to support them.
  • State government also needs to make it easier for small businesses to locate sources of financial and technical assistance. The state should partner with the technology sector to create a single online portal that aggregates information about state, local and private initiatives to support small businesses.

With the launch of the Rebuilding Fund, California has laid a foundation for small business recovery, but the work done thus far represents only first steps toward forging broader public-private partnership. Through bold state leadership and close collaboration between the public and private sectors, California can build a pathway to a brighter and more equitable future for small businesses.

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Pedro has also written about steps California should take to combat labor trafficking, a plan to overhaul California’s mental health care system, and how the Legislature should speed up funding to agencies that help survivors of domestic violence.

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