For a lot of business owners, it’s hard to imagine a year tougher than 2020. But 2021 is going to give it a shot.
Bill Batchelder, the fourth-generation owner of Bemidji Woolen Mills, knows all about it. The famous Minnesota outlet for flannels, jackets, hats, gloves and the like — nestled among lakeside getaways — would normally be doing big mid-winter business right now.
But things haven’t been normal for a while. In the early days of the pandemic, the Woolen Mills was closed for 71 days straight. In months since, he’s scaled back on his workforce for their safety, but internet shopping demand whittled down his back supply and left him with less product to sell. On top of that, the holiday shopping season has been abysmal — with normally packed, festive downtown streets all but deserted.
“Just the week before Christmas, I got off work. I drove down Third Street — two, three cars,” he said. “It was just heartbreaking and gut wrenching.”
Batchelder has been saved by big batch orders — blankets for a small bank’s Christmas party and a huge swath of hats for Enbridge Energy. He’s also blessed, he said, with about $30,000 in Small Business Administration relief loan money — distributed through the federal “Paycheck Protection Program,” or PPP, that’s boosted so many business’ bottom lines in the past year.
But now Batchelder and other business owners are looking warily into 2021.There are so many unknowns — the biggest being the vaccine rollout, which offers a tantalizing possibility of something like normality. But even beyond the virus itself, there’s a big question of the balance between taxes and relief packages ahead.
That makes local, state and federal government some of the biggest mysteries for businesses. As late as Jan. 5, it was still unknown which party would control the U.S. Senate. Now that Democrats have won those critical Senate races in Georgia, though, it won’t be clear for months exactly how a Biden administration will chart a financial course out of the pandemic. That’s left a lot of business owners anxious about the size of the tax burdens and relief packages and the regulations still to come.
“The path to recovery is not gonna come overnight,” said John Tacke, vice president of sales for the Sioux Falls-based distributor Dakota Beverage. “It's gonna be years and years now.”
There are reasons for optimism. One is a new tax rule, confirmed in the latest congressional relief bill, that allows businesses to tax-deduct expenses paid for with forgiven PPP loans. Suddenly, businesses who got those loans are looking at significant sums back on their ledgers.
“That weight was a huge weight lifted. It was a boost,” said Brian Johnson, CEO of Choice Financial, which has been closely involved in local distribution on many of those loans. "It doesn't maybe make anybody more money, but it took a potential burden off the table."
It’s unclear how big the impact will be in the upper Midwest. But in Minnesota and the Dakotas, the PPP program distributed roughly $14.7 billion through early June in South Dakota, North Dakota and Minnesota.
Another big reason for optimism is that — at least for now — a lot of government leaders are holding off on tax hikes, despite gloomy budget outlooks. Gary Carlson, a lobbyist with the Minnesota League of Cities, said local governments are well aware of the strains on Main Street. Property taxes for Minnesota’s cities, counties, school districts and the like have increased on a three-year average of 4.8%, he said, but in 2021, that increase will likely be less than 2.5%.
“We don't have the final numbers yet,” Carlson said in a late December interview. “But the proposed levies that the cities and counties had proposed were significantly lower than the last three or five years.”
But the return to normality is still a long ways away. Many local and state budgets are facing fresh headwinds from a COVID downturn — be that from a gutted oil market or a simple lack of demand. Blake Crosby, the executive director of the North Dakota League of Cities, points to a tale of two economies: gas stations and grocery stores are holding on; bars, restaurants and other sectors of the hospitality industry are not. He added that local governments are fortunate to benefit from a 2018 Supreme Court decision allowing them to collect taxes on internet purchases.
“Everybody saw a downturn,” Crosby said. “Whether you're a retailer or a wholesaler or a state government or a local government, everybody saw a downturn, but I don't know if we've really seen the net effect of that downturn, because I think everybody's holding their breath to see if there's a second downturn."
And now, all eyes turn to how quickly Americans can get their vaccinations. The good news is that North Dakota and South Dakota rank highly in the percent of vaccine doses shipped to their states that they’ve actually put into patients’ arms — an apparent indication that rollouts are moving efficiently. That’s according to a New York Times database, which puts Minnesota closer to the middle of the pack.
But Crosby warns the full rollout — at least, enough to meaningfully move the economy — might still be a long way off.
"We have to have the vaccines,” he said. “We can't vaccinate somebody if we don't have the darn vaccines.”