Since March 17, the pandemic and shelter-in-place orders have transformed the face of Berkeley. Hotels and theaters have been largely closed. Restaurants have pivoted to mostly take-out dining with parklets springing up for the times when outdoor dining has been allowed.
The job market has been devastated by the abrupt closure of many of Berkeley’s businesses. At least 3,000 people have been laid off or furloughed from the city’s largest businesses, and hundreds of others from smaller companies have lost their jobs, according to a new report from the city of Berkeley’s Office of Economic Development (OED).
The closures have translated into a dramatic drop in tax revenues to Berkeley. Taxes paid by businesses into the city coffers plunged 13.2% from the last three months of 2019 to the first nine months of 2020 (Q4 2019 to Q3 2020) going from $18,839,486 to $16,355,379.
In contrast, Alameda County saw tax revenues drop by 7.8% and California saw a 4.2% decline in the same period.
Berkeley’s steeper decline reflects that many of its tax revenues come from businesses that were directly impacted by the shelter-in-place orders: hotels, lodging, retail and beverage businesses, arts, entertainment, recreational and personal services, according to Elizabeth Redman Cleveland, chief strategist, sustainable growth for Berkeley.
In contrast to the declines in those industries, venture capital firms, angel investors, and the federal government invested more than $700 million in the 350 to 400 companies that make up Berkeley’s ‘innovation’ sector, according to the report.
“There are a lot of bad news slides in there,” said Eleanor Hollander, the acting director of OED, referring to her department’s report. “I am not going to sugar coat that. The good news is that the diversity of the Berkeley economy has shown some strengths and maybe that can help us with our recovery going forward.”
Somber outlook with some bright spots
The report from OED, which will be an information item on the City Council’s March 9 agenda, offers somber fiscal news about funds that flow into the city’s general fund. The city is grappling with a $40 million budget shortfall in the fiscal year that began July 1, 2020.
Some highlights from the report:
- The transient occupancy tax – the tax put on hotel rooms – declined 70% for a dip of $4.7 million, according to the report. It normally makes up about 5% of Berkeley’s general fund, according to Hollander. About 75% of Berkeley hotel rooms closed temporarily during different portions of the shelter-in-place restrictions, according to the report. About 90% of Berkeley hotel employees were laid off or furloughed from March to Oct. 2020. “Hospitality was one of the (sectors) hardest hit,” said Redman Cleveland. “Full stop on meetings, conferences, event planning. It just decimated that industry.”
- Sales tax revenues from restaurants and bars dropped 34.3%, according to the report. Indoor dining was banned for three-quarters of 2020. While many restaurants pivoted to offer take-out sales, delivery, catering and outside dining, this did not make up for revenues created from indoor dining.
- The arts and culture sector was hit hard. In a normal year, the industry provides around 7,000 jobs in Berkeley and generates nearly $165 million in economic activity. The coronavirus not only forced places like Berkeley Rep, Aurora Theatre, Shotgun Theater, Freight & Salvage, the UC Theatre, and many other venues to temporarily shutter, it meant there was less dining out around shows and other ancillary economic activity. About 288 employees working in the arts lost their jobs or were furloughed from April to June, and arts organizations suffered a $7.5 million drop in revenues from April through June, according to the report. (The arts organizations themselves saw a $5.2 million drop in box office sales).
- The unemployment rate skyrocketed. While Berkeley’s numbers have not been parsed yet, Alameda County’s unemployment rate nearly tripled, rising from 2.6% in Dec. 2019 to 7.6% in Dec. 2020. “That’s three times what the unemployment rate was a year ago in December,” said Redman Cleveland. California’s unemployment rate was 8.8% in December. The city’s unemployment rate has historically been lower than the county’s and the state’s, according to the report.
- Berkeley’s largest companies laid off at least 3,000 workers during the pandemic, which totals 5% of the Berkeley labor force pre-pandemic, according to Redman Cleveland. Those with 75 or more full-time employees must file what is known as a WARN (Worker Adjustment and Retraining Notification) notice when it terminates or furloughs employees. Most of these layoffs occurred in the hospitality, fitness and food services sectors, according to the OED report. Some of the employers that filed WARN notices included the YMCA of the East Bay (224 jobs gone), DoubleTree Berkeley (126 jobs), Core Power Yoga (18), Meyer Sound (313), Glassybaby (58), Backroads (176), Weatherford BMW (64), Comal restaurant (107), Golden Gate Fields, (143) and Jupiter restaurant (80). Some of these layoffs were permanent. Others were temporary. Many other people in the lodging, food and beverage industries, retail — especially clothing and accessories — durable manufacturing, education and childcare providers, gyms, fitness studios and salons also lost their jobs.
- About 44 restaurants shut permanently. The majority were in the downtown and Telegraph Avenue areas.
‘Innovation sector’ saw growth
But the economic news was not all bad. The “innovation sector,” as the OED refers to the nearly 400 Berkeley biotech, STEM, software companies, cleantech, R&D companies and other companies, raised more than $700 million from venture capitalists, angel investors and convertible securities in 2020, according to the OED. In addition, the federal government awarded 10 companies nearly $6 million in federal SBIR & STTR grants for research and development.
“Others are recognizing Berkeley is a hub of innovation in a sector poised for tremendous growth in the next several years,” said Redman Cleveland.
The majority of office-based businesses were also able to adjust to pandemic conditions. About 63% of Berkeley businesses that the OED surveyed said they could operate with employees working remotely. Some companies got their rents reduced.
Berkeley took numerous steps to help businesses
From the start of the pandemic and shelter in place, the city of Berkeley has taken steps to support local businesses, according to the report.
“Our office and the city more broadly have taken advantage of wide ranges of approaches to support our businesses,” said Hollander.
Right after the lockdown forced many businesses to close, the City Council voted to divert $3 million from the general fund into an emergency relief program called the Berkeley Relief Fund. In addition, business and community members raised another $1.7 million. Grants worth $2.6 million were given to 763 businesses and arts organizations. (Low-income tenants got another $1 million in housing assistance.)
Berkeley has a revolving loan fund that lends out sums of money to local businesses that might have difficulty getting loans from traditional financial institutions. In 2020, eight businesses borrowed $760,000 at very low-interest rates, according to the report. They include Nabolom Bakery, the Kitchen of Fire cooking school, Cupcakin’ Bake Shop and Slingfin, an outdoor equipment manufacturer. In recent years, the RLF has lent out $2.7 million to Berkeley businesses, according to the report.
After the pandemic struck, payments on the loan were suspended for six months. The OED also successfully applied for a CARES Act grant. Once the funds arrived, OED launched the COVID-19 Resiliency Loan Program (RLP) for Berkeley businesses that had 50 employees or less and were at least two years old. The RLP made it easy for businesses to get 0%-1% interest loans.
In June, the City Council passed an urgency ordinance to allow outdoor dining and sales. OED created a webpage to help businesses understand what they could do. OED also worked with local architects to design free templates for outdoor dining spaces. More than 50 places created outdoor dining and shopping spaces, in the public right of way and on private land, according to the report.
OED tried to drive sales to Berkeley businesses. It leveraged its “Discovered in Berkeley” business marketing campaign to highlight local businesses that had successfully pivoted in the pandemic. (The campaign ran on Berkeleyside as advertising and sponsored content.). It also created the #BerkeleyHolidays Gift Guide and marketing campaign featuring 155 businesses.