States rush to keep afloat businesses crushed by the pandemic

Among the countless things transformed by the coronavirus pandemic is the perennial competition between the states for business, jobs and the revenue that comes with them. Make no mistake, the experts say, that battle is still going strong. But the battle lines have shifted dramatically.

“If anything, this is going to increase competition among the states, which truthfully is always one of the inherent advantages that America has had,” said Tom Stringer, a managing director and practice leader for site selection and incentives at BDO USA in New York, in an interview with CNBC.

But rather than relentlessly trying to poach big employers from other states — often by dangling massive incentives and tax breaks — state economic development authorities have shifted their focus toward shoring up the businesses they have, at least for now. Some states are offering targeted loans and loan guarantee programs to help businesses affected by the pandemic.

“No. 1 is get out and talk to your largest employers in your regions and find out what do they need and what are they going through,” he said. “Going forward getting their workforces back on board is probably one of their biggest issues.”

“These agencies are still in retention mode,” Stringer said. “I think the indicators are that this is going to be a very long, slow recovery that’s going to take a lot of hard work.”

The sudden shutdown of the U.S. economy in response to the pandemic instantly changed businesses’ priorities, Stringer said, and economic development agencies need to react.

The pandemic is also forcing states to look beyond the big fish — big companies and major employers — and turn more attention to smaller businesses that form the backbone of their economies.

State economic development agencies across the country are taking a proactive approach to help Main Street. Those without such programs have been offering help to guide businesses through federal assistance initiatives, like the Paycheck Protection Program (PPP) and the Small Business Administration’s Emergency Injury Disaster Loan program. Last week Congress passed an extension for the PPP program to Aug. 8, since there remains $130 million of allocated funds yet to be tapped. To date more than 4.8 million small businesses have utilized the program, collectively employing $520 billion in relief aid to keep their operations afloat.

“I think, for a healthy economy, there’s been a recognition that, my God, this is really 65% or 70% of the American economy. We shut it down; we need to turn it back on,” he said.

A CNBC analysis of all 50 states’ economic development efforts shows that every state — no matter how big or how hard-hit by Covid-19 — has created some sort of assistance program to help local companies access resources to deal with the pandemic. Some programs are far more advanced than others.

In California, for instance, the state’s Infrastructure and Economic Development Bank is guaranteeing loans of up to $50,000 for affected small businesses. The state legislature just pumped another $50 million into the program. The state-owned Bank of North Dakota is subsidizing loans of up to $10 million in operating expenses for affected businesses in the state through a program called the Covid-19 PACE Recovery Program. The economic development agency in Ohio, JobsOhio, has allocated $50 million in loan guarantees just to help get the state’s innovation economy through the crisis. That is on top of $50 million in loan guarantees aimed at small businesses.

Beyond dollars and cents — and beyond the immediate crisis — states are working with employers large and small to help them reopen safely and sustainably.

Some states are drawing on what Stringer calls “muscle memory” — processes developed as a result of previous disasters — like hurricanes in Gulf Coast states like Louisiana and Texas or, in the case of New York’s Empire State Development Corp., Superstorm Sandy and the Sept. 11, 2001, terrorist attacks.

“They were really on the front lines of getting businesses certified in terms of who could be open, what the governor’s orders meant, getting folks the designation to stay open or getting them designations as to who had to close or work in shifts,” Stringer said.

Empire State Development is flooding the business community with resources, Stringer said, taking the approach developed following 9/11 and employing it region by region throughout the state.

Elsewhere, the Massachusetts High Technology Council brought together government officials, business leaders and the medical and scientific communities to create a 72-page Recovery and Return to the Workplace Framework — issued in April and continuously updated — to guide all aspects of the state’s reopening. The document covers everything from testing and treatment to social distancing guidelines, what types of businesses should be allowed to reopen and when.

While every state has some sort of reopening plan, MHTC board member and Bain Capital Co-Chair Stephen Pagliuca said the Massachusetts plan is unique in its comprehensiveness. And he said keeping the state competitive was a key goal.

“The implication of the work we did in Massachusetts was to really use all the best tools to allow us to open the economy up in a graduated way, really to prevent a second wave, which would cause another shutdown and more and more economic harm,” he told CNBC. “This is a balancing act.”

With U.S. manufacturing activity resuming its expansion in June following three months of Covid-19-related declines, according to the Institute for Supply Management, economic development leaders increasingly are looking beyond the immediate crisis and returning to their traditional bread and butter — luring big employers to set up shop in their states. The prospects are especially tantalizing with increased talk about repatriating supply chains in the U.S. to avoid the shortages of basic items, medical equipment and pharmaceuticals that plagued the U.S. at the start of the pandemic.

A survey by Gartner of 260 global supply chain leaders conducted in February and March found 33% had moved manufacturing operations out of China or were planning to do so in the next two to three years. But the activity had as much to do with the trade war as the coronavirus, and many were moving manufacturing not to the U.S. but to other overseas locations, like India or Vietnam.

Still, the pandemic has brought intense political pressure for onshoring, as well as the first state victory in the new battleground: Richmond, Virginia-based Phlow Corp. won a $354 million federal contract in May to produce Covid-19 drugs and drug ingredients.

“We’re going to be hiring 350 people right here in Virginia,” Phlow CEO Eric Edwards told CNBC’s “Squawk Alley” in May. “There is no lack of talent available, and we’re proud to be putting Americans back to work in American factories.”

Stringer said companies are now considering the states’ responses to the pandemic as they start thinking about where to locate and expand.

“Does this state treat economic development proactively? Haphazardly? Or are they not interested?” he said. “This Covid crisis has been another factor that’s gone into that political analysis.”

He said the needs of companies are shifting in an economic downturn, with more emphasis on low costs along with the demand for skilled workers. He believes the shifting priorities will favor the Sun Belt.

“You’re looking at Texas, you’re looking at Florida, and you’re looking at your southeastern United States,” he said. “Those are strong economic development agencies, strong value propositions. And I think they’re going to be pushing very aggressively.”

Stringer said he is already seeing activity start to pick up.

“Site selection is in full swing again,” he said. “I think we’re a leading indicator. So we typically see people either spending money or retracting from spending money, probably 12 to 18 months before it hits the general economy. So things are starting to move again.”