As we settle into this new normal of greatly diminished and rapidly disappearing business, it is important to reflect on forgotten financial victims of this unfolding tragedy.
Let us first discuss who is not suffering.
The entire public sector currently employed and pensioned is being paid in full and even benefiting financially, as expenses go down and relative purchasing power goes up through the rapid erosion of asset values and prices. Ironically, one could say that this includes all decision makers and deliverers of news and regulatory requirements.
So, we have the situation that all the financial decisions are being made by the sector that will suffer minimally, if at all.
That is not a judgment with respect to the necessity of certain measures relating to health that have been taken. To be clear, no one is advocating the cutting of pensions or the firing of government workers. It is a judgment on other measures relating to the private sector that have not been taken.
Here in British Columbia, we have many thousands of employees thrown out of work and now having trouble paying their rent. Fortunately, there is some assistance available that, in most cases, will allow the most basic bills to be paid.
On the other side of the street, for small- and medium-sized businesses and for landlords, there is a vacuum and a loud sucking noise, as the work of years and decades in many cases, evaporates.
Tenants are not paying rents. Small landlords (and yes, there are thousands of them that own one or two properties and rely on that income for non-government funded pensions and to build a future) are still required to pay property taxes, mortgages and bills. Banks are sometimes, and usually reluctantly, deferring, but not waiving, payments. The piper will have to be paid.
In the commercial world, smaller landlords typically rent to smaller retail tenants.
Tenants are bailing and closing the doors. These rents will never be collected.
Vacancies are skyrocketing. Many [tenants] will not come back. For the landlord, the provincial and federal governments are doing ... precisely nothing. Or, if you add in the fact that it is now impossible to evict a residential tenant, one could say that the Province of British Columbia has made a conscious political decision to foist onto landlords a significant part of the cost of COVID-19.
For small businesses, the government has offered a 10-per-cent wage subsidy. That has helped modestly. They have also offered some compensation to laid-off workers. That has also helped modestly.
For the business owner who has suffered, and will suffer declines in revenue, the federal government has provided nothing of substance. It is political showmanship. The government has offered a subsidy of 75 per cent of wages for those businesses that suffer a 30 per cent loss in revenue. Most businesses I know with rent and/or debt operate on margins of five to 20 per cent. When these businesses lose 10 to 25 per cent of their revenue, it is not a question of going home and hunkering down and watching Netflix; it is a matter of financial ruin.
The hardest-hit sectors—the restaurant and retail businesses—are suffering in many cases 100-per-cent losses in revenue. For them, the wage subsidy is completely meaningless. They cannot afford to pay the rent, let alone 25 per cent of wages for someone who has no place to come to work.
Banks and landlords, in most cases, have personal guarantees. Deferring rent and deferring mortgage payments just kicks the can of bankruptcy a little further down the road.
The entire financial cost of this pandemic is being borne by the private sector and by certain elements of that private sector disproportionately. Ironically—I use that word again, as it is more polite than other choices—it is also the same sector that will be asked to repay all the bills that need to be paid.
What should be done?
I do not have all the answers; however, I do believe the burden of this crisis has to be more evenly spread. There needs to be some rent relief and support for businesses that is not reliant on landlord generosity. There needs to be some property-tax relief for commercial properties. Cities, governments, and municipalities need to restructure, trim and cut expenses significantly. Cities should be provided a one-time exemption to borrow funds to subsidize property-tax relief for commercial properties provided these cost savings are passed onto rent-paying tenants. Finally, the wage-subsidy program should be nuanced: Businesses losing 30 per cent of revenue could qualify for 75 per cent of wages covered; businesses losing 25 per cent of revenue could qualify for 60 percent and so on....
At the end of this long Groundhog Day, we all recognize that lives saved are of paramount importance and the government's and health care system's responses to that aspect have been outstanding.
Notwithstanding, the government also needs to recognize that we cannot allow parts of our society to be financially eviscerated whilst other parts emerge unscathed.
Mike Holmes / President, Pemberton Holmes Ltd.
