Reasons to be optimistic about the next six months

from Business Pulse magazine July | August 2020

A struggling economy is no time to raise taxes

PHOTO: iStockphoto.com/suman bhaumik

A rough start for local businesses... but there’s reason to be optimistic about the rest of the year

WBA Staff

The first six months of 2020 have taken their toll on Whatcom County. The coronavirus pandemic and the resulting stay-at-home orders and mandatory closures have led to event cancellations, business failures, border restrictions, limited travel and ongoing concerns about the health and safety of employees and customers. And while the pandemic has been the main story, it isn’t the only reason for a battered local economy. In late April, Alcoa announced the curtailment of activity at its Intalco Works aluminum smelter in Ferndale.

That is the bad news. The good news? Local governments can still take action that will help the county’s business community better weather the ongoing storm.

“Sometimes it’s the little things,” said Mark Harmsworth, director of the Center for Small Business at the Washington Policy Center. “Local governments can provide some aid to small businesses by doing something as easy as relaxing local sign ordinances. Allowing retailers and restaurants to put up temporary signage advertising new options like takeout and curbside pickup will help make shoppers and diners aware of options they might otherwise ignore.”

Local and state governments can also do more than such relatively simple changes. Harmsworth, who served two terms as a state representative from Mill Creek, argues that local and state governments need to take a longterm view of revenue.

“The business and occupation taxes levied by the state and many local governments here in Washington will slow the recovery,” Harmsworth said. “The state and municipalities will face budget shortfalls because of the pandemic. No one is arguing otherwise. However, a failure to consider B&O and other tax relief risks the state getting its money now—only to find that the number of businesses able to keep their doors open immediately decreases, leading to less tax revenue, which will put pressure on the government to tax the businesses that survive at an even higher rate. If cities and the state of Washington do not take a longterm view of the budget crisis, they could create a downward economic spiral that could last far longer than the pandemic.”

While that doesn’t sound like good news, it highlights a specific opportunity for Whatcom County’s business community. Over the next six months, the county’s private sector needs to make its voice heard. Policymakers listened to the systemic challenges facing one sector of the economy: health care. As a result, they took appropriate action to avoid the worst-case scenario for an industry that plays an important role in the county’s physical and economic health. The next six months could give private businesses and whole industry sectors the chance to better educate policymakers on both the short- and long-term challenges facing other important economic sectors.The next six months could also see Whatcom County recover faster than comparable counties in other states. Economic projections from the Wharton School of the University of Pennsylvania show that Washington’s economy could recover faster than all but five other states. According to the school’s Penn Wharton Budget Model, the state’s gross domestic product could have a year-over-year decline 41

JUL/AUG 2020 | BUSINESSPULSE.COM

of 1.8%—if the governor continues to open the economy with social distancing still in place. While any decline in GDP is bad news, earlier predictions called for far heavier declines in economic output. Even though Whatcom County’s tourism-heavy economy and border proximity present unique challenges, the forecast for the rest of the year does not appear to be a worst-case scenario.

There are other reasons to be relatively optimistic about the rest of 2020. While this pandemic has taken a historic toll, the county has faced and survived other economic downturns.“Over the past 40 years I have watched this county and our businesses weather occasional economic setbacks,” said Tony Larson, president of the Whatcom Business Alliance. “Some of those setbacks were severe. But each time, the economy has come back stronger than before. It may be hard to believe right now, but individuals and companies respond to crisis with innovation. They have to. That crisis-based innovation helps create economic opportunities no one has even thought of.”

Economic resiliency is not just a talking point. Throughout American history, economic downturns have happened for a wide variety of reasons. The Panic of 1893—which was the country’s worst recession until the Great Depression—traced its roots to the failure of a wheat crop in Argentina. Economists still debate the cause(s) of the Great Depression to this day. The failure of overvalued internet companies caused the recession at the beginning of this century. The Great Recession, which started in 2007, resulted from a distorted housing market and questionable banking practices.

While each of these downturns was different, the years and decades that followed share a common feature: sustained, explosive growth. In fact, some of the most productive economic eras in U.S. history have followed sharp downturns.

Many of Whatcom County’s companies have experienced their darkest moments during the first six months of 2020, but the economy will eventually rebound. Our business community is simply too talented for any other outcome. While there will be a “new normal,” the new normal quickly becomes just “normal”—and within that normal, Whatcom County’s entrepreneurs and business leaders will do what they have always done. They will innovate, rebuild and figure out a way to deliver value to their consumers.

Need an example? The food service sector has been one of the industries hit hardest by the pandemic. But across Whatcom County, many restaurants and food service providers have found fresh ways to serve customers and at

{ Your headshot is your one shot at a great first impression }

tiffany@tiffanybrooks.com 360.734.3605 tiffanybrooks.com

tract new market segments.

“Throughout the state, we are seeing some restaurants learn that alternative business models can lead to unexpected growth,” said Karen Malody, a Seattle-based food service and restaurant consultant. “While this is an existential crisis for many operators, others have figured out a way to make it work and even thrive. Whatcom County has reopened with restrictions still in place, and we are still seeing even more innovation.”

More than anything, though, Whatcom County’s economic recovery over the next six months will depend on the engagement of business leaders who are willing to roll up their sleeves and take part in the rebuilding process. Occasionally, that will require giving policymakers a better sense of how relief from taxes and fees lead directly to job creation and eventual recovery. Rebuilding will also require a willingness to share best practices with other executives who may have developed creative ways to keep employees and customers safe while still keeping the company’s lights on.Whatcom County faces unique challenges over the next six months. The region depends heavily on tourism and cross-border travel, especially in retail. The pandemic has also dramatically affected other important sectors, including agriculture and construction. Western Washington University and other critical local economic engines face an unknown path, at least for the rest of 2020. Nearly every business leader in Whatcom County would trade the last six months of 2019 for the last six months of 2020, regardless of how it turns out—and that is before we even consider challenges facing the public sector.

“We haven’t even seen the full impact on state and local budgets,” Harmsworth said. “The state of Washington and her cities and counties cannot just tax their way out of this downturn. Unlike prior recent recessions, this one is far more widespread. Even health care has seen mass layoffs and facility closures. State and local governments will have to figure out how to reduce shortfalls without further burdening already fragile businesses.”

The next six months will see Whatcom County take a wobbly walk down the road to recovery—but we will all take that walk together. Business, local governments, education, health care, agriculture and every other aspect of the county’s economy will need to collaborate. That has not always been the case, which means that the rest of 2020 could be an opportunity to strengthen relationships and put the county economy in a position to thrive—and work for everyone—long after the first six months of 2020 are just a tragic memory. ■