Heather Wall still gets emotional when she drives past the empty storefront on Frenchtown Road in North Kingstown.
The darkened space in Hunt River Commons used to be home to Kidzone LLC, an indoor playground business Wall launched eight years ago. By March 2020, she had seven part-time workers and many loyal parents who brought their children to romp in the 4,500 square feet of toys, playhouses, slides and craft stations.
That was before COVID-19 arrived. Before pandemic safety protocols made it impossible for Wall to operate Kidzone. She tried to hold on, thinking government relief might help her keep the business afloat. It did not. By July 2020, Kidzone closed for good.
“I want to cry talking about it now,” she said recently. “It was my baby.”
It’s no secret that the COVID-19 pandemic has had a devastating effect on many small businesses such as Kidzone. Lockdowns designed to slow the spread of the virus forced many into survival mode. Some small businesses have pulled through. Others haven’t.
But no one’s sure how many Rhode Island businesses that were operating in March 2020 have closed.
In the public health arena, there have been daily updates on confirmed cases, hospitalizations and deaths that quantify the toll of the pandemic on the general population. There is no such recordkeeping for the business community.
In fact, according to the state’s business registry, Kidzone is still alive and well, one of 97,000 businesses recorded as operational as of June 2021. It’s unclear how many other businesses still on the books also have been lost to the COVID-19 crisis.
Some say that’s a problem, particularly when that path forward could be paved with $1.1 billion in federal stimulus funds that the state has yet to dish out and could use guidance on how best to direct that money.
“This is a once-in-a-generation opportunity to invest these federal funds,” said Secretary of State Nellie M. Gorbea, who is mounting a run for the governor’s office in 2022. “To do so properly, we should have as clear a data picture as possible.”
OBSCURE NUMBERS
There have been attempts to document the carnage.
News headlines paint a bleak picture, decrying an estimated 100,000 small businesses “gone forever,” according to one story in the Washington Post in May 2020, or sharing the now-ubiquitous 40% business closure rate that originated with a Harvard University-affiliated pandemic tracker.
But rather than hard numbers, what’s offered are educated guesses and projections based on limited and, at times, questionable sources: taxes, credit card transactions, surveys, or even what’s written on a business’s Yelp page.
The R.I. Department of State, through its business services division, has perhaps the most comprehensive state-level data, but its viewpoint is still fuzzy, at best.
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EMPTY FEELING: Heather Wall outside the former location of her business, Kidzone LLC, in North Kingstown. The company closed four months into the COVID-19 pandemic. / PBN PHOTO/ELIZABETH GRAHAM[/caption]
The state’s business registry shows that about 7,300 businesses of all sizes closed between March 1, 2020, and June 4, 2021, according to data provided to PBN. However, more than half of those are designated by the state as “involuntary closures” – businesses that did not pay taxes or fees, or failed to refile registration paperwork on time.
Unpaid taxes or delayed paperwork have long been common occurrences in business, even before the pandemic. In 2019, a strong year by many economic indicators, 7,000 Rhode Island businesses were at one point listed as inactive. Often a business is reactivated in state records after taxes and paperwork are submitted.
What may be more telling are businesses that file paperwork to withdraw or revoke their registration status, designated as “voluntary closures.”
In 2020, voluntary closures jumped to more than 2,300, an increase of 600 from the year before. Data for 2021 suggests that the number of businesses filing closing paperwork will remain elevated. About 1,110 businesses had formally closed as of June 4, less than halfway through 2021.
But even those figures don’t tell the whole story. Certain business types, such as sole proprietors and general partnerships, aren’t required to register with the state at all. Instead, their paperwork trails lie within the municipalities in which they operate.
That’s a significant hole when trying to calculate business failures, given the popularity of sole proprietorships, says Thomas M. Sullivan, senior vice president of small-business policy for the U.S. Chamber of Commerce.
“When you lack that data, you’re X’ing out a ton of small businesses,” Sullivan said.
Many of the business categories in which sole proprietorships are most common – such as barbershops and nail salons – saw the highest rates of closures during the pandemic, according to a Federal Reserve Board study published in April.
In 2019, Gorbea introduced legislation to make her office the central database for all business filings regardless of type. The measure didn’t pass, and it wasn’t among the bills she introduced this session due to other priorities, she said.
However, it has become easier for businesses to register and dissolve with her office. Company owners once were required to show up at an office on West River Street in Providence and hand over paperwork to open or close their business, but now they can do it online.
While Gorbea didn’t want to speculate on why recent years have been marked by an increase in business closures, particularly since the onset of the pandemic, she said the ease of the administrative process was likely a reason.
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LATEST EDITION: Natasha Nichols, standing, is the vice president for restaurant group Chow Fun Inc. in Providence, which opened OZ Tacos & Tequila in Lincoln in April. Nichols speaks with diners Michelle Armes, left, and Ariana Beliveau of Lincoln. / PBN PHOTO/MICHAEL SALERNO[/caption]
Another problem with relying on the state’s business registry to gauge the pandemic’s toll: Closure numbers rely on business owners submitting the paperwork – and paying fees between $10 and $50 – to register that they’ve closed.
Sometimes owners of shuttered businesses purposely don’t submit the paperwork – flying under the radar as long as possible, potentially to avoid payment, according to Christopher Parisi, co-founder of the Rhode Island Small Business Coalition and owner of Trailblaze Marketing Inc. in Providence. More often, they don’t document the closure because they don’t know they have to.
That was the case for Wall, the owner of Kidzone who only learned that she needed to fill out the paperwork to dissolve her business when filing her tax returns this year – a full nine months after her business closed.
The decision to shut down Kidzone was hard enough – laying off her employees, saying goodbye to longtime customers, peeling up the colorful squares of foam flooring she and her children had laid down by hand when she opened eight years ago.
Ultimately, the pandemic restrictions on child care facilities and inside gatherings were a blow her business could not recover from, and the money she received in federal payroll relief through the Paycheck Protection Program was so small, it failed to cover costs such as overhead and equipment. She gave it back.
When told by her accountant that she needed to submit dissolution forms – and pay a fee alongside quarterly taxes – she was indignant.
“How would I have known to do this?” Wall said. “No one sent us anything.”
Gorbea said she’s trying to improve communication between businesses and the state through online notices and mailings to businesses. She also introduced legislation this session that would have waived the closing fee or outstanding taxes for businesses that failed during the pandemic. The measure died in committee.
“These are extraordinary time periods,” Gorbea said. “To have to close your business and then figure out how to pay all these fees … is absolutely unfair.”
Wall agreed with the need for more accurate data about business closings, particularly to help those companies still trying to recover as a new COVID-19 surge hits.
IS IT NEEDED?
Not everyone, however, believes a clearer picture of the casualties is necessary.
Restaurants open and close so frequently it almost seems inconsequential to track, says Kristen Adamo, CEO and president of the Providence Warwick Convention & Visitors Bureau. Indeed, the 30 restaurants that the Rhode Island Hospitality Association estimates have closed during the pandemic is a minuscule percentage of the more than 3,000 eateries in the state.
Even before the delta variant became a serious threat, Sarah Bratko, lobbyist for the hospitality association, anticipated a new wave of restaurant closures once the summer season ends, as labor shortages and the lack of federal grants through the Restaurant Revitalization Fund program push them over the brink.
Her assessment of how many restaurants had closed and how many were nearing closure was an educated guess. There’s no single database – through the state, city and town liquor licenses, even the U.S. Small Business Administration – to rely on.
Bratko isn’t opposed to better data, but she is against implementing a tracking system that would create more work for employers.
Mark S. Hayward, SBA Rhode Island district director, dismisses the need for better data, at least when it comes to deciding how to spend the state’s chunk of American Rescue Plan Act funds.
“I don’t need statistics to figure out what I need to do in order to help small businesses,” Hayward said. “I talk to small businesses every day. I hear what their needs are.”
While Hayward declined to weigh in on whether initial forecasts of business closures were overblown, he was quick to point out that the crisis has also ushered in a wave of new companies and entrepreneurial ventures, much like the 2008 recession and even the 1991 credit union crisis.
Indeed, the 10,500 Rhode Island companies registered with the state in 2020 is the highest annual number in the last decade.
Edinaldo Tebaldi, an economics professor at Bryant University, is not surprised.
“Times of crisis also are times of opportunity,” he said. “Innovators, entrepreneurs, they look ahead and see an opening.”
It was during those early months of lockdown, for example, that Providence restaurateur John Elkhay, owner of Chow Fun Inc., assembled the menu for his newest restaurant. OZ Tacos & Tequila, the latest addition to Chow Fun’s half a dozen local restaurants, opened in Lincoln in April, and the staff numbers about 25.
However, the new beginning also came after a loss; the year prior, Chow Fun closed its longtime downtown burger joint, Luxe Burger Bar.
Natasha Nichols, Chow Fun vice president, said the pandemic was the final blow for the 15-year burger restaurant. With the lease ending, closing “just made the most sense,” Nichols said.
Nichols recalled bursting into tears the day she had to close and lay off the 15 employees.
“I just couldn’t really control my emotions,” she said.
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STARTS AND STOPS: While the number of closed or inactive Rhode Island businesses spiked in 2019 and
fell back to typical levels in 2020, the annual number of newly registered Rhode Island businesses has continued to climb for a decade, including during the COVID-19 pandemic./ Source: R.I. Department of State[/caption]
FLAWED DATA
Tebaldi cautions that the influx of new businesses may not all be true employers.
“To me, that’s the biggest weakness of the data we have,” he said. “You can register a business but never buy or sell anything, never employ people, just have that registration.”
Tebaldi prefers to examine data from the U.S. Bureau of Labor Statistics, which tracks quarterly business openings and closings and their impact on employment. “The number of businesses is a good metric, but what is important is to link that to a number of jobs,” he said.
Historical context matters, too.
Tebaldi suggests comparing the coronavirus crisis to the 2008 recession, which left Rhode Island grappling with high unemployment rates for years afterward. The number of in-state establishments – how BLS defines companies that actually produce goods or services – that closed annually jumped 4.8% from 2007 to 2009, according to BLS data.
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OUT OF business
IN THE PANDEMIC
(from March 1, 2020, to June 4, 2021) / Source: R.I. Department of State[/caption]
In that period, the increase in business “deaths,” as the BLS calls them, was accompanied by an increase in business “births.” The numbers of births and deaths during the pandemic have not yet been compiled by the BLS.
R.I. Department of Labor and Training data offers a more up-to-date assessment, at least in terms of employment. As of June this year, there were 471,000 nonfarm jobs in the state, the highest number since March 2020. At the same time, unemployment rates, which surged to 17.4% in April 2020, have declined to about 6% for the last three months.
But there are still about 10,000 more Rhode Island workers collecting unemployment benefits now compared with the months immediately before the pandemic. How many workers lost jobs due to companies closing is unclear.
At least a dozen are former workers at Hallworth House. The Providence nursing home closed in July 2020, laying off its nearly 50 employees. The building, which is owned by The Episcopal Diocese of Rhode Island, is empty, but it’s still registered with the state, and still receiving bills for unemployment insurance for former workers, said Stephanie Igoe, the former administrator.
Igoe is not one of those collecting unemployment; in March, she took a new job as an administrator at Bethany Home of Rhode Island in Providence. The decision to remain in the field of nursing home administration was not one she took lightly.
“The difference here is I get to watch people get better and go home,” she said of her new job.
It’s a marked contrast to her last few months at Hallworth House, where 12 patients died due to COVID-19 in the first two months of the pandemic. Igoe spent every day riddled with anxiety for her patients, staff and her own family. When she broke the news of the closure to the employees and families of residents, she cried.
“It was like somebody kicked me in the stomach,” she said.
Whether more money would have saved Hallworth House, Igoe doesn’t know. Low insurance reimbursement rates combined with a shortage of nursing home workers spelled trouble even before the pandemic began.
But funneling funds to businesses directly may not be the best solution, either.
“We cannot just pump money into businesses and expect that will be enough,” Tebaldi said. “We should be spending our funds on infrastructure, training, workforce development.”
Gorbea sees it differently.
“Rhode Island is a small-business state,” she said. “We need to make sure we understand what the small-business people in Rhode Island are facing … and do what we can to support them.”
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.