Restaurant relief fund ends in uncertainty, amid lawsuits by white restaurant owners
Lindsay Mescher is at a breaking point. After a year trying to keep her fledgling restaurant afloat during the pandemic, anxiety infects every moment.
“I'm at this spot where I wake up, and the first thing I think about is our finances. I wake up in the middle of the night. I toss and turn and it just hits,” she said. “It’s what I think about all day. And I don't know if I'll have that in me anymore.”
She founded her little farm-to-table restaurant, Greenhouse Cafe in Lebanon, Ohio, in July 2019 after moving back home from Nashville to be close to family. Her brother had died in a workplace accident, and his widow found out weeks later that she was pregnant with their first child.
Mescher quickly built a customer base for her vegetarian cooking, on a block off the town’s main drag that had long lain fallow for restaurants. But when the pandemic hit, she shut her restaurant and reopened as takeout. Her revenues plummeted by nearly half.
Mescher thought she’d found a lifeline when Congress passed the $1.9 trillion American Rescue Plan Act in March. The plan contained a $28.6 billion dollar set-aside called the Restaurant Revitalization Fund.
She applied to the Small Business Administration on the first day of applications on May 3 — as part of a priority group of businesses majority-owned by women, veterans and people of color whose applications would be processed first. Mescher quickly received word she’d won approval for a $60,000 grant.
“It just felt like a stack of bricks was lifted off my chest,” she said. “I actually slept well for a couple of days.”
She began making plans for the future. Mescher borrowed money from family against the promised funds, briefly shutting down her restaurant to make kitchen renovations.
And then, at the end of May, the second letter arrived. Her funding had been rescinded.
“It felt like a gut punch,” she said.
She isn’t alone. In mid-June, nearly 3,000 priority applicants received notice from the SBA that their grants would be revoked. A group of mostly white and male business owners, worried they'd be locked out of funds, had filed a pair of anti-discrimination lawsuits in Texas and Tennessee.
Slightly more than a third of the 278,000 eligible food businesses who applied for the Restaurant Revitalization Fund received money. The program’s funding fell far short of the more than $72.2 billion in requests by eligible applicants, with nearly 40% of funds going to the 5% of recipients who requested more than a million dollars. A $60 billion replenishment proposed by lawmakers sits in congressional limbo.
This left nonpriority and priority applicants to fight for a piece of the pie along familiar cultural fault lines of race and gender. A program that had begun optimistically, with administrator Isabella Casillas Guzman publicly touting the fund’s popularity and fast dispersal of money, ended in litigation and uncertainty.
An untallied number of additional priority applicants had their funding approvals revoked after issues with their applications, say SBA officials. Some restaurant owners waited more than a month to discover their promised funds would not arrive.
“I began calling the SBA once or twice a week to check up on payment,” said George Adelo. His New Mexican restaurant, Guapo in Pittsburgh had been approved for priority funding in mid-May. “Every time I called they stated that my grant was set aside for me, I had nothing to worry about, and they were working through an internal glitch that was causing payments to be delayed. I received this response all the way up until I received an email from them on June 23 stating that they would not be able to disburse funds due to the lawsuits in Texas and Tennessee.”
On June 30, the SBA sent word it was closing out the fund. About 101,000 applicants received grants, averaging around $283,000 apiece.
Administrator Guzman hailed the success of the program in delivering aid. "The SBA will continue to work hard to ensure they get the resources they need to recover, rebuild and be resilient,” she said.
But for some who had their funds rescinded, the closure of the fund brought desperation.
“It feels like a sign it’s time to give up,” Mescher said. “And that’s awful. I’m not that kind of person.”
“I've talked to at least 25 operators a day who have been impacted by this,” said Erika Polmar, executive director of the Independent Restaurant Coalition, which has lobbied heavily for restaurant aid during the pandemic. “Besides having their hopes dashed and being completely devastated, there are people that are considering closing…. And for them, it’s more than a job, it's their entire life. It's their home.”
A raft of legal challenges
The Restaurant Revitalization Fund had initially been designed to streamline aid to some of the same restaurants that now find themselves in purgatory. Indeed, the majority of the money went to priority applicants.
“We are committed to equity to ensure our smaller and underserved businesses, which have suffered the most, can access this critical relief, recover, and grow more resilient,” announced administrator Guzman in May, during the Revitalization Fund’s rollout.
The Biden administration has been vocal about its goal for pandemic relief to reach underserved communities. Multiple studies suggested Black and Hispanic-owned businesses were underrepresented among early recipients of the $669 billion Paycheck Protection Program. Reports last year from the Federal Reserve Bank of New York and the Brookings Institute showed that businesses in majority-minority neighborhoods not only received less aid, but took longer to get it.
But the administration's approach has run into legal hurdles.
The Restaurant Revitalization Fund was structured so that only grant applications from women, veterans and socially and economically disadvantaged groups would be reviewed during the first 21 days.
Within the first week, the SBA was deluged with applications totaling billions of dollars more than the program could fund. A group of mostly white business owners filed lawsuits in multiple states to halt disbursement of funds, claiming race-based discrimination.
A May 12 lawsuit in Tennessee, backed by conservative legal group Wisconsin Institute for Law & Liberty on behalf of Jake’s Bar and Grill in Harriman, Tennessee, argued that white males were being “pushed to the back of the line.”
In a contentious split decision on May 27, the 6th Circuit Court of Appeals granted an emergency injunction against the race and gender-based priorities.
“When the government promulgates race-based policies, it must operate with a scalpel,” wrote judge Amul Thapar in the 2-1 majority opinion, chiding the government for its “scattershot” approach and “racial gerrymandering.”
Judge Bernice Bouie Donald wrote a sweeping dissent.
“It took nearly 200 years for the Supreme Court to firmly establish that our Constitution permits the government to use race-based classifications to remediate past discrimination,” she wrote. “It took only seven days for the majority to undermine that longstanding and enduring principle.”
“The government is trying to allocate limited COVID relief funds on the basis of race and sex," said Wisconsin Institute for Law & Liberty President Rick Esenberg. "The Court of Appeals held it cannot.”
A suit in Texas on behalf of Lost Cajun in Keller, Texas and Penn Hotel Sports and Raw Bar in Hershey, Pennsylvania, led to another injunction by judge Reed O'Connor. That lawsuit was backed by America First Legal, an activist legal group founded by former White House policy adviser Stephen Miller.
As part of the SBA’s response to the rulings, restaurants party to the lawsuits received grants on June 1. Penn Hotel Sports & Raw Bar got $640,425; Lost Cajun received $187,753; and Jake’s Bar and Grill received $104,590.
The SBA also ceased priority applications until previously filed nonpriority applications had been funded. In the two days after the Tennessee ruling, thousands of priority applicants got approval emails via an automated system. Those could not be honored.
“The SBA hosted a call with the 2,965 small businesses that had been approved for funds under the Restaurant Revitalization Fund but now cannot receive funds, to express our frustration and to explain that we remain committed to doing everything we can to support disadvantaged businesses in getting the help they need,” SBA spokeswoman Christalyn Solomon said.
Glitches and application errors
The SBA has not confirmed how many other priority applicants beyond those initial 2,965 were affected by the lawsuits. Applicants have also reported glitches and other application issues.
Amanda Cohen, at New York plant-based restaurant Dirt Candy, says she initially wasn’t concerned that the lawsuits would affect her. She’d filed her application within the first hour the portal opened, and believed she’d still be funded if all applications were processed in order of receipt.
But her application was held up by a misunderstanding that led to weeks of back-and-forth with the SBA. On June 11, she was told her application would not move forward.
“I got a nice note, or a sad note, saying, ‘Yes, actually, we have fixed the problem. Unfortunately, we are no longer funding these grants,’” she said.
The lawsuits in Texas and Tennessee were the reason, the note said. It was a bitter pill for Cohen, who’d testified before the House Small Business Committee in favor of a bill substantially similar to the program that eventually passed — one that included priority applications for restaurants owned by women and underserved groups.
“For one second it seemed like we were going to level the playing field, by being able to be priority and having the access to that money,” she said. Now, she felt her status as a priority applicant may have damaged her chances.
“All of a sudden, it is a punishment to be a woman or to be a minority,” she said.
As a matter of policy, the SBA does not comment on individual applications. But Solomon said that after the priority period, applications were processed “in the order received, without regard to the priority status.”
In all, $18 billion of the $28.6 billion fund went to priority applicants, including $7.5 billion to restaurants majority-owned by women and $6.7 billion to members of socially and economically disadvantaged groups. About $1 billion went to veterans.
The Independent Restaurant Coalition conducted surveys of priority applicants whose grants were revoked and found that applicants lost funds in two distinct waves, Polmar said. Many in the later group were held up by errors or glitches in their applications, she said.
Some in the later group say they were told the lawsuits had also affected their funding.
Jamie Leeds, owner of three remaining locations of Hank’s Oyster Bar in Washington and Northern Virginia, had to close two restaurants during the pandemic. She took on thousands of dollars in debt to keep her 16-year-old seafood restaurant group in business. Deferred rent to landlords left her under the shadow of perilous balloon payments..
Though she was approved for a Restaurant Revitalization grant in early May, and bought patio furniture in anticipation, the money never came.
“I’m determined not to lose more restaurants,” she said. “I just can’t.”
Mathivanan Pothiappan, owner of upscale Indian restaurant Cholanad in Chapel Hill, North Carolina, said he never wanted to be placed into a priority group.
“I'm from India. I'm brown,” he said. “But the point is that everybody needed help. Everybody is struggling.”
Despite receiving an early approval as a priority applicant, he was left calling the hotline as he watched neighboring restaurants in both priority and nonpriority groups receive money. On June 23, SBA officials told him the lawsuits meant that he wouldn’t receive money.
Without the more than $500,000 grant, he said he’ll be left drowning in debt, and can’t hire new employees.On the fund’s application portal, which will shut down for good on July 14, he says his funding status still says “Sent.”
“Our approval looks like it went into the black hole. Nobody noticed until it was too late,” he said. “I think of it like this: The operation was a success. But the patient died.”
"An extinction event of independent restaurants"
According to Polmar at the Independent Restaurant Coalition, infighting among restaurants is a symptom of the real problem: The program didn’t have money to fund most applicants.
“If this fund is not refilled, there will be an extinction event of independent restaurants,” she said. “It’s not a question of how the fund was administered. It's about how the fund was funded.”
Restaurants remain strapped with debts and obligations from the previous year, Polmar said. Many are also dealing with difficulties hiring back employees, and supply-chain issues that have increased food costs.
“You've made it through the pandemic, you've held things together with duct tape and baling twine,” she said. “And now that you've gotten to the other side, you still need the tools to be able to take that duct tape off and put on a more permanent fix.”
On June 11, a bipartisan group of lawmakers introduced a bill that would add $60 billion to the fund — a sum that would more than cover the gap between the program’s initial funding and the applications received.
In the Senate, Kyrsten Sinema, D-Ariz., and Roger Wicker, R-Miss. co-sponsored the Restaurant Revitalization Fund Replenishment Act. Reps. Earl Blumenauer, D-Ore., and Brian Fitzpatrick, R-Pa., led it in the House.
In March, Fitzpatrick and Wicker had voted with other congressional Republicans against the American Rescue Act that contained the initial program. They are now calling for bipartisanship to expand targeted aid to restaurants.
“Due to the overwhelming demand for relief, Congress must work together on a bipartisan basis to replenish the Restaurant Revitalization Fund as soon as possible,” Rep. Fitzpatrick said in a statement. “The mom and pop diners and delis on Main Street all across America still need our help, and we must act urgently to save our local restaurants."
The bill has amassed more than 180 sponsors in the House, but has not been put on the schedule.
“What we hear repeatedly is, ‘We know you need help,’” Polmar said. “I'm just hoping that they have the courage to move in a bipartisan fashion and prioritize continuing to support small businesses, specifically restaurants.”
Whatever happens, Robert Castillo said he hopes it happens soon.
He was approved in May for a $27,000 grant from the Revitalization Fund, he said — an approval that was then rescinded.
“We received an email that we were no longer gonna receive our award,” he said. “You know, it just takes away the momentum in your heart.”
Last year, Castillo was forced to shut down his El Paso, Texas, taco trailer, Go Taco Go Kitchen. The country nightclub where he parked his trailer had closed during the pandemic, taking his customer base and licensing with it. To re-open in a new location, his vehicle and trailer need significant work. After he got word his grant was approved, he began repairs using scant savings.
He worries that if he doesn’t receive the Revitalization grant, he won’t have enough operating capital to keep his taco trailer running — or enough money to re-apply for his wife’s visa. His wife has been trapped on the other side of the Mexican border for the past two years after an immigration issue.
He’ll press forward, he said, because he has no choice.
“It's a gamble,” he said. “I'm gambling the little bit of savings I have, and then I'll have no other things to fall back on if an accident happens. I’ll just pray to God, and hope everything comes out good.”
Matthew Korfhage is a food and culture reporter for the USA TODAY Network's Atlantic Region How We Live team. Email: firstname.lastname@example.org | Twitter: @matthewkorfhage. For unlimited access to the most important news, please subscribe or activate your digital account today.