Qualifying for state aid a headache for Duluth restaurants
A slide offset by a summer of tourists and ways to count employees and locations make access to aid a pain.
The Boat Club Restaurant in Duluth is down $500,000 compared to last year. The second and fourth quarters, when both statewide indoor dining shutdowns to curb COVID-19 took place, saw sales fall 62% and 40%, respectively.
But the restaurant, located in the lower level of Fitger's Brewery Complex, won't receive any of the state's $88 million in grants meant for businesses affected by the shutdowns, owner Jason Vincent said.
That's because a better-than-expected summer of tourism during the third quarter pushed it out of the program requirements .
To qualify for the grants, the Minnesota Department of Revenue compares a business' 2020 second and third quarter to the same period in 2019. If a business lost 30% in taxable sales during that time, it automatically qualifies for $15,000-$45,000 in grants based on the number of employees.
Thanks to a strong showing by tourists in the summer, the Boat Club actually saw third-quarter sales increase 10% compared to the year before, disqualifying it from aid, even though the second and fourth quarters saw significant decreases.
Vincent said the state's requirements were "penalizing us for having one good quarter when quarter two and four are going to be absolutely devastating."
Of Vincent's three restaurants — the Boat Club and Vanilla Bean in Duluth and Vanilla Bean in Two Harbors — only the Vanilla Bean in Duluth's Mount Royal Center qualified for $10,000-$15,000 in aid.
That will help cover rent.
"Clearly, takeout is not paying any bills. It's pretty much paying the people that are working and paying the food bill that is used to buy the food that we're selling," Vincent said. "There isn't anything left to pay rent, unfortunately."
Tom Hanson, owner of Duluth Grill, Corktown Deli and Brews and OMC Smokehouse, said his three restaurants all qualified for state aid, having sales that fell 47.5%, 37% and 30.8%, respectively, during the second and third quarters.
"We're kind of celebrating the fact that we're just under that (30% requirement) ... there's some positives for us," Hanson said.
Aid is crucial in keeping some businesses alive. One-third of hospitality businesses are expected to close within six months without additional financial relief, a survey released by Visit Duluth last month found.
That's a fate several of the locations owned by Grandma's Restaurant Co. could face, said Tony Boen, director of operations at Grandma's.
Although state aid was meant for each location of a business, Grandma's, which owns five restaurants and an arcade, is only expecting to get $45,000 of state aid in the first round because it records its payroll under one tax ID, rather than six separate tax IDs for each location.
Had it recorded employees under tax IDs at each location, it would expect a total of $160,000, with most locations receiving $25,000 each.
"If we were to get the full amount that was intended for us, we could survive a month. That would pay about a month of bills, of payroll and keep us open a month," Boen said. "That $45,000 isn't really going to do anything really meaningful."
Boen, who serves on the board for Hospitality Minnesota, an industry association that pushed for the state aid legislation, said the first round is meant to distribute money quickly and automatically while additional money was sent to counties, which then distribute money to qualifying businesses missed in the first round.
It's unclear to him what St. Louis County's plans are, however, and whether it will give Grandma's the full $160,000.
St. Louis County on Wednesday said it was still preparing to distribute the $3.8 million it has from the state to small businesses and nonprofits throughout the county. It anticipated a mid-January opening for applications.
Without that aid?
"If we don't get this, I'm sure we'll be closing restaurants," Boen said. "At least temporarily."
But not all restaurants are in the same situation.
Like Vincent's Boat Club and Vanilla Bean in Two Harbors, the Rustic Inn Cafe, along state Highway 61 in Castle Danger, saw an influx of guests this summer. Coupled with its onsite gift shop and continued wholesale demand for its pies, Rustic Inn didn't qualify for and isn't seeking any aid from the state, owner Beth Sullivan said.
"I think there are other people that could quite honestly use the aid," Sullivan said. "And when I listen to what I'm hearing from other people, I just wonder how long that a lot of people can hold out. It's a bad situation for a lot of restaurants."
For Vincent, his restaurants will go on without state aid, and he's looking forward to a new round of federal Paycheck Protection Program loans that only require showing a 25% drop in one quarter of 2020.
Having come off a year when more than one-third of the days were closed to indoor dining, Vincent is confident he can weather whatever 2021 brings. Aid now, however, will determine how successful this year is.
"Am I going to spend the entire 2021 digging out of a massive hole that we've been put in?" Vincent said. "Or am I going to be set up for success to actually start having a successful year?"