February 3, 2022
The House Small Business Committee
Chairwoman, The Honorable Nydia M. Velázquez
In re: “The Power, Peril and Promise of the Creative Economy”
It is an honor for the Craft Emergency Relief Fund (DBA CERF+ – The Artists Safety Net) to submit this written testimony in response to the House Small Business Committee’s January 19, 2022 hearing on “The Power, Peril and Promise of the Creative Economy.” Not only did Representative Dean Philips and other Committee members share powerful sentiments that demonstrate the importance of the arts and culture sector to our economy, but you clearly understand that this sector, which is comprised of many small businesses, has been deeply impacted by Covid-19.
In response to your request to the arts sector to offer policy proposals beyond the oral testimonies of our esteemed colleagues during the hearing, we respectfully submit our written testimony about serving and strengthening the resilience of small businesses in the art sector.
CERF+ – the Artists Safety Net was founded in 1985 as a grassroots mutual aid initiative by and for craft artists. The organization delivers financial assistance to craft artists before, during and after disasters and we play a much wider role in education and advocacy for all studio-based artists, ensuring they are better prepared for and able to cope with the impact of disasters, whether they are personal or wide-spread disasters. CERF+ has also been seminal in the creation and engagement with a wider coalition to build a strong safety net for artists, arts organizations and small arts businesses called the National Coalition for Arts’ Preparedness and Emergency Relief (NCAPER).
Given our purview, CERF+ is well-positioned to put the Covid-19 disaster in the context of all disasters, extrapolate important issues and convey the ways in which the unprecedented relief and recovery actions Congress has taken through the PPP Loan Program, EIDL, CARES Act, ARPA, SVOG and other means provide models for both disaster and non-disaster contexts so that the recovery and resilience of small arts and cultural businesses are well-served.
From a disaster management perspective, the arts and culture sector is still in the response phase. With the devastating impacts of recent variants of COVID-19, recovery continues to elude us. Very clearly, government strategies to address these impacts are still needed in order to mitigate further loss and dire circumstances.
The arts sector is a holistic interdependent ecosystem, comprised extensively of small businesses: non-employer and small employer businesses; and gig workers not paid W-2 wages. Understanding the arts and culture ecosystem in all its particularities is critical to the design of meaningful relief, recovery, mitigation or resilience programs. Integrating experts from the field into the design of future programs and as technical assistance providers for the Small Business Administration programs will ensure that these programs meet the depth and breadth of our sector’s needs.
- Artists are almost all small businesses, largely non-employer businesses (meaning the artist is the owner and sole employee of the business). As such, they have unique issues and needs, which require specific approaches to achieve recovery and resilience, as discussed below.
- Artists and arts organizations represent every creative discipline, not just the performing arts that were showcased at the Hearing. This includes: visual, literary, traditional/folk/community-based practices such as storytelling, plus multi- and inter-disciplinary arts. While the performing arts sector has been disproportionately impacted by Covid-19, all disciplines have been impacted. Craft fairs, for example, which support the livelihood of craft artists, have been shuttered in much the same way as performance venues, but because these events often do not take place in dedicated spaces, there was no specific relief carved out for these show producing businesses or the exhibiting artists. Even within the performing arts sector, SVOG did not serve all venues — dance venues, for example, often failed to qualify because they don’t always have sound and lighting systems; even music venues that don’t have fixed seating, a very common phenomenon, could not qualify for SVOG.
- Arts businesses are for-profit and not-for-profit, with the not-for-profit sector often seeding the content and economic success for the for-profit. Many plays begin their lives off-Broadway, off-off Broadway or regionally. In any small business relief program, therefore, the unique needs and differences of each of these sub-parts of the arts and culture sector, as well as the ways in which they function together for the success of the whole, must be understood to successfully design programs for their recovery and resilience.
- As well as artists, there are many non-artist independent cultural workers who serve as consultants, advisors, and allied workers supporting artists and arts organizations. They, too, are an integral and essential part of the sector. They, too, are small businesses.
Supporting arts and culture supports other small businesses.
Like many other workers in America, artists are often required to piece together a livelihood from multiple income sources. For many artists, the income that supplements the receipts from their art practices comes from other segments of the arts or the hospitality sector. Given the shutdown of both sectors throughout the pandemic, most recently during the Omicron surge, many artists lost every source of income. This is why Pandemic Unemployment Assistance (PUA) is essential to their survival.
Congress should consider re-activating PUA, redesigning it as specified below; utilize it as a model to redesign traditional Disaster Unemployment Assistance; and study whether and how unemployment benefits can be made permanent for all self-employed workers. Canada and other countries provide models for this. (see below for further discussion)
Question: Who fell through the cracks or was disadvantaged under Covid-19 relief programs? Answer: Non-employer Businesses
As a reminder, non-employer businesses are businesses with no employees other than the business owner. According to government data:
- 91% of all Arts, Entertainment, and Recreation Sector businesses are non-employer businesses
- 75% (26.5 million) of all businesses in the U.S. are non-employer businesses
- 1/3 are BIPOC owned
- 42% are women owned
- Average gross receipts (before expenses) are $49,000
- A person who works alone and earns income that is not paid as W-2 wages is by default a non-employer business. Gig workers who are not employed by others and the vast majority of small businesses are non-employer businesses.
How did non-employer businesses fall through the cracks?
- Economic Injury Disaster Loans (EIDL grants) were based on the number of employees a business had. A business with zero employees other than the owner might qualify for a maximum of $1,000.
- PPP loans were based on payroll with an additional 25% allowance for business expenses. Businesses with larger numbers of employees and higher payroll were able to get more assistance for business expenses. For non-employer businesses, payroll was interpreted as the net profit (or loss) of the business from Schedule C.
- Like other businesses, non-employer businesses must pay their rent, utilities, insurance, interest on debt, transportation expenses, etc. before showing any profit.
- Like larger businesses, especially in early years, non-employer businesses often defer as much income as possible in order to build up their businesses. Those businesses suffered an extra penalty in the PPP program because they showed an even lower net profit.
- Only in the final round of PPP loans with much encouragement from the arts sector, the PPP formula for non-employer businesses was changed to allow owners to calculate loan amounts based on gross business receipts (before expenses). This was a game-changer for many non-employer businesses, including many artists, who were previously eligible for zero or very small loans and consequently no money to assist with the fixed business expenses that were available to businesses with more employees.
- Therefore, most non-employer business owners were left with Pandemic Unemployment Assistance (PUA) as their only viable option for assistance. The FPUC payment of $600/week (later $300/week) helped bring the minimum compensation up to approximately $15/hour. However:
- Being based on unemployment compensation for W-2 workers, it made no allowance for business expenses that almost all non-employer business owners have to pay before clearing any money. In most cases, state unemployment compensation was based on a business’s net profit (or loss) rather than on gross business receipts. Coupled with low minimum and maximum state unemployment compensation rates in many states, this left little or nothing after business expenses for many workers.
- Despite the fact that Disaster Unemployment Assistance has been in effect for many years, many states were unprepared to deal with both non-employer businesses and the volume of applications from workers of all kinds. Small business owners were subjected to requirements to seek employment, despite the fact that they already were trying to find ways to reestablish income from their businesses.
Small Employer Businesses
While not as severely disadvantaged as non-employer businesses, those with very few employees were still negatively impacted by a system that depended entirely on payroll to determine levels of assistance. A 2013 study by CERF+ of 3,500 artists working in craft disciplines found that 85% worked alone, 9% with one full-time assistant, and only two percent had 4 or more employees. We do not have this data on other art disciplines, but it is reasonable to assume that the numbers are similar for most art disciplines.
It is well-known that income for artists is often episodic. Famously, actors may go for extended periods of time between films or shows, piecing an income together from multiple sources. The same is true for visual artists who may labor for years to produce a body of work for a gallery exhibition, or whose income comes from selling at art and craft fairs, or other venues where income is irregular and undependable. Therefore, many arts workers must supplement self-employment income with that from W-2 sources. In fact, many employers in the performing arts field are required to employ musicians or actors for a single performance or a limited run as W-2 workers. These same dynamics of multiple-income earners are increasingly in effect for non-art workers in the so-called “gig economy.”
In the PUA program, many states decided to compensate workers who had sufficient W-2 income to qualify, based only on the amount of their W-2 income-even if that was the smallest source of income. The impact varied state-to-state depending on the compensation schedules in place, but arts workers and others consequently suffered inadequate unemployment compensation.
What can we learn from the pandemic relief programs and how can we build resilience in the creative economy?
By assessing what worked and where programs fell short, as we have begun to do in this testimony, the Small Business Committee and other arms of Congress can plan for and model even more successful programs for the relief, recovery and resilience of small businesses. Not only are severe climate-related disasters on the rise but the percentage of individuals who are self-employed continues to grow. While in the arts, self-employment is often a choice, in other sectors it is often the result of employers not wishing to take on benefits programs. These individuals must not be disadvantaged; programs must be designed to protect them between times they are earning income.
In Summary: Our Recommendations
- Update Disaster Unemployment Assistance (DUA), which exists after every disaster for the self-employed, to include pandemic-style federal add-ons to provide families with bridge income while they recover.
- Reform DUA so it is not just for self-employed individuals whose economic losses after disasters are a “direct result” of the disaster (which has been interpreted to mean there is a physical nexus with the disaster that results in the loss of income, such as the place of work being destroyed), but also for those whose income has disappeared as a secondary economic effect of the disaster, as was the case with PUA.
- Reform antiquated unemployment delivery systems in the states to better accommodate the needs of self-employed, non-standard, and multiple income workers. Base state compensation on actual income lost from all sources and not on net profits (or losses).
- Create forgivable or partially forgivable loan programs similar to PPP for the smallest, most disaster-vulnerable businesses such as non-employer businesses and small employer businesses. For the smallest businesses base loan amounts on gross business receipts or another formula that takes into account the actual business expenses of these businesses.
- Make SBA and other applications and reporting as simple as possible, taking into account that the smallest businesses consist of one person who does not have the resources to meet complex requirements, especially while navigating a disaster.
- Facilitate Access to Federal Resources That Are Available to Other Businesses and Workers — For example: FEMA’s Other Needs Assistance (ONA) program that provides grants to replace tools, equipment, and protective gear lost in disasters and necessary to earn a living. However, this assistance is currently available only to workers employed by others, and self-employed workers have been ineligible. Make this assistance available to non-employer businesses which, by definition, consist of a single worker, and to small employer businesses for those tools used by the owner (they are already available to her employees).
- Pass the PLACE and CREATE Acts, as well as CERA (the Creative Economy Revitalization Act)
- Build a Better Safety Net for Self-employed, Freelance, or Gig Workers — Gig workers, self-employed, non-employer or small employer businesses represent a growing, significant, and vulnerable segment of the economy. They are the heart of the creative economy. However, they work without the safety net and protections that exist for workers in the rest of the economy. It is time to envision a stronger safety net for these workers including, but not limited to:
- Family leave and sick leave for workers who are unable to work due to circumstances not under their control such as extended illness, caregiving, etc.
- Unemployment compensation/retraining assistance for self-employed workers who need to seek other employment due to physical limitations or business failure.
- Portable benefits programs
Thank you for taking the time to read our testimony and consider our analysis and recommendations. CERF+ and our colleagues and partners stand ready to work with the Small Business Committee to build a stronger and more resilient arts and cultural sector.
Cornelia Carey, Executive Director (signing on behalf of Mr. Nutt & Ms. Schwartzman)
Craig Nutt, studio furniture maker, CERF+ Policy Advisor
Amy Schwartzman, independent cultural worker, consultant to CERF+