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Governor Baker pulled $650m in small-business aid seemingly out of nowhere. Here’s how

The massive program hinges on the latest rescue package from Congress

On Dec. 23, Governor Charlie Baker addressed the media about his $668 million relief bill for small businesses.
On Dec. 23, Governor Charlie Baker addressed the media about his $668 million relief bill for small businesses.Suzanne Kreiter/Globe staff

One moment, Governor Charlie Baker is asking people to lobby their legislators for some relatively modest funding as the state’s well of small-business relief funds runs dry.

The next: Baker unveils $668 million for grants, in particular to help several sectors hit hard by COVID-19 such as restaurants, retail stores, gyms, and hair salons.

The sharp turnabout last week surprised many small-business advocates — not to mention the budget writers in the Legislature.

A Christmas miracle, or clever budgetary legerdemain on the part of Baker’s Administration & Finance team?

Maybe a bit of both.

Baker launched this small-biz support effort in October, through the quasi-public Massachusetts Growth Capital Corporation, with nearly $51 million. It turned out to be wildly oversubscribed, with only about one in 10 applicants winning money. He also secured an extra $17.5 million from lawmakers in the new state budget. But that’s pocket change, compared to the need.

On Dec. 21, Baker made the case in a press conference for the Legislature to pass a supplemental budget bill that he had filed less than two weeks earlier, as well as an economic development bill that includes small-business assistance.

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Then, on Dec. 23, Baker announced the $668 million in relief funds. It was a level of funding that dwarfed the small-business help that could potentially come from both those bills combined. The Legislature had just approved that $17.5 million. So where was that other $650 million coming from?

Asked that question at the pre-Christmas press conference, Baker pointed to the new federal stimulus legislation that Congress finally approved last week. The new bill in D.C., he said, gave him some new flexibility to work with previous federal aid.

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That flexibility, primarily, was this: Baker no longer had to spend all the money Massachusetts received from the CARES Act, the relief package passed by Congress in March, by the end of the year. He now had an additional 12 months.

That meant the administration could take $550 million in CARES Act money it had used to balance the budget for the current fiscal year, and devote that chunk of change toward small-business relief. To make the math work, the administration relied on $350 million from the state’s rainy day fund and about $200 million in “caseload savings,” primarily lower-than-expected MassHealth costs.

The remaining $100 million, roughly speaking, came from CARES Act funds, as well. These had been allocated for potential cost overruns for a variety of COVID-related needs, such as testing, tracing, and housing assistance. The new federal stimulus package includes more than $1 billion for these causes in Massachusetts alone. Officials in the Baker administration said that means they can transfer a portion of these funds to small businesses without any impact on what the state could spend for testing, tracing, and housing help.

It seemed like an eleventh-hour save from the federal government, one that was briefly threatened by President Trump’s promise of a veto. (Trump relented on Sunday and signed the new stimulus bill.)

In many respects, however, the state’s small-business assistance rescue had been in the works for weeks. Many mayors had been lobbying for a big relief package suggested by the Massachusetts Restaurant Association. The trade group’s ideas were to increase the state and local meals taxes by 2 percentage points and to borrow money off the new revenue stream to create a new pot of gold for the beleaguered dining sector.

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The meals tax concept failed to gain much traction in the administration. Still, cold weather and tighter COVID-19 restrictions, primarily from the state, caused more restaurants to struggle, close, or go into “hibernation.” Baker faced increasing pressure to act.

That’s why much of the $668 million will be divided among industries that have been hardest hit by the pandemic. The earlier $51 million tranche focused on businesses owned by people of color and women; many who missed out the first time will get another shot. The new round will be focused on sectors, not demographics. There will be grants of up to $75,000. The two-week application window opens Thursday, and previous applicants may learn as soon as January about their success.

Sure, the Legislature was taken aback by this mystery money. Legislative leaders had been seeking more clarity from the administration about what was left unspent from the CARES Act. They even included an outside section in the new state budget that requires the Baker administration to create a public website to show how the state is deploying federal relief funds.

Publicly, though, they were all smiles. Representative Aaron Michlewitz and Senator Michael Rodrigues, the two chairs of the Legislature’s ways and means committees, offered praise in a joint public statement, saying the new funds will provide “some level of relief to small business — especially restaurants.”

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That’s not to say everyone will be pleased. Surprisingly, the new rules don’t prioritize hotels among the hard-hit industries, and nonprofits are excluded. MASSCreative, an arts-and-culture advocacy group, has lobbied the Baker administration — unsuccessfully, so far — to include nonprofit venues in the mix. Executive director Emily Ruddock said the $10 million that Baker set aside this fall for that constituency represents a tiny fraction of the need.

The new influx of funds takes some of the pressure off lawmakers to fulfill Baker’s supplemental budget request, with its $49 million for small-business relief. It also could change the dynamics of the state’s economic development bill deliberations as House and Senate negotiators race to get something done by the Jan. 5 deadline. That legislation, in the works long before COVID-19, has at least $75 million for small-business relief funded through state bonds, including a proposed restaurant fund.

Taken together, it still won’t be enough. But thousands of small businesses now have a shot at a lifeline, to get through the winter — even if most of them will probably have no idea how the Baker administration unearthed these funds in the first place.


Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.