Why Erie's Downtown is a Proxy for the Nation
The future of main street businesses amidst the COVID-19 crisis
A 15-minute walk—or a stroll just shy of three-quarters of a mile—separates a coffee shop and a brewery in the downtown of Pennsylvania's fourth largest city. They are—along with what lies in between—part of an urban core that has been undergoing a renaissance that's taken years to build but may be wiped out in only weeks.
Unlike site-specific natural disasters—a tornado tearing through the heartland, or a hurricane spiraling up the country's southeastern panhandle—COVID-19 has left virtually no corner of the country untouched, including the northwestern tip of Pennsylvania that kisses Lake Erie. Erie's economic ecosystem is like many across post-industrial America and exemplifies the current dire straits of many main streets. If appropriate action isn't taken fast, among the virus's victims will be many of these small businesses upon which revivals and renaissances have been staked nationwide.
Take two different examples located at 401 State Street and 128 W. 12th Street, Erie, Pennsylvania: Ember+Forge and Lavery Brewing Company, respectively, two beacons of the service industry.
The former, a thriving local coffee shop, just celebrated its second birthday in December. A decade strong, the latter just recently launched a second location, doubling its business by both revenue and expenses.
Despite these strong headwinds, in the last two weeks, both businesses have had to lay off the majority of their staff, resorting to skeleton crews to keep adapted operations, the storefront of Ember+Forge, on the corner of Fourth and State streets in downtown Erie (read: takeout/carryout only) running for as long as they can during uncertain circumstances without a clear end in sight when it comes to both time and situation.
Like many cities, one strength of Erie lies in its closeknit network of public, private, civic, and community leaders. While Congress slow-walks a nationwide relief package, which may take months to implement, key institutions in Erie are keeping small businesses afloat either by deferring payments or by providing emergency funds. They are keeping it simple and moving it fast, a modus operandi that should be repeated by the federal government. These networks are also equipped to ensure that the recovery, when it comes, builds on the city's distinctive advantages and tight relationships and deploys local capital that is flexible and customized.
A sharp look at Erie's nascent renaissance and the current contraction not only explains this crisis but shows how intentional action, in both the immediate and intermediate term, must constantly move from the local to the national and back again.
Erie's comeback story isn't a tale told overnight. Rather, it's a years-long wrestling with a question facing a lot of legacy cities: Where do we go from here in a postindustrial world? And, perhaps more pressingly, who do we want to be now that we must shift if we're to, at the least, survive or, at the most, thrive? Outfitted infrastructure-wise for what was to be anticipated growth, Erie built itself out to be the home of 150,000 residents. The city saw its population rise throughout the mid-20th century and peak in the late '60s, edging in on 140,000. After that, it's been a story of decline, and today hovers around 100,000.
From a shingle factory, to a paper mill, to Erie's once largest employer, General Electric Transportation, which set up its headquarters at the turn of the 20th century in Erie and since merged with Pittsburgh-based Wabtec in 2019 and now only employs 2000 workers, down from 18,000 at its height, all either closed or continually shed jobs throughout the years.
However, over the past decade, the city's downtown has bore witness to the expansion of three remarkable anchor institutions that form the foundation of the core's economy today—Erie Insurance (the homegrown Fortune 500 company), Gannon University, and UPMC Hamot. The relocation of a homegrown internet service provider to the downtown brought new light, as did the launch of an urban innovation district. So did the start of a local, community think tank; an independent, alternative publication; and a coworking space. The bolstering of a local community foundation and the deployment of gaming revenue funds through a uniquely designed impact-investor authority illustrated regional growth and commitment.
And that thriving ecosystem emerging in Erie includes a coffee shop and a brewery, now struggling, in the midst of a crisis no one saw coming and no one was prepared for. Ember+Forge and Lavery Brewing are within blocks of one another.
EMBER+FORGE: MEET HANNAH KIRBY
Ember+Forge was founded in late 2017 with the purpose of creating a space to build community and enable Erie residents and workers to connect and share ideas over locally-roasted, high-quality coffee. In only two years, the locally-owned coffee shop, located strategically near Gannon University, UPMC Hamot, and Erie Insurance, has become a hub of the downtown community and a gathering place. The coffee shop's founder, Hannah Kirby, who moved to Erie to attend college, received her undergraduate degree and MBA from Gannon University and worked as an engineer in a manufacturing company after deciding to remain in Erie after graduation. While secure in her position in the manufacturing sector, Hannah left that job to create a new one for herself and for others by starting Ember+Forge, the city's only locally-owned coffee shop in the downtown. Throughout the two years the business has been open, anywhere up to nine employees have been employed at wages exceeding Pennsylvania minimum wage.
COVID-19 CRISIS: ACTION TAKEN
Before the crisis hit, Ember+Forge employed seven people, two full-time and five part-time. Of those seven, four have been with Hannah since she opened her doors. The firm has moved fast to adjust to the crisis. It has reduced hours and provided take-out-only options of the full menu. Sales during the week of March 16, as social distancing and quarantine increased, were down ~45 percent from the same week the previous year. Sales on Friday, March 20 versus the same day of just the previous week were down over 50 percent. Gift cards sales were totaled at $1500 for the week and are not included in this month's/week' numbers (due to accounting practices). On March 17, Ember+Forge was compelled to lay off six of the current seven employees.
Coffee shops are low-margin service businesses; "staying afloat" is tough. Ember+Forge is already juggling payments due to a typically slow 2020 first quarter coupled with repayment of supply invoices from the busy 2019 fourth quarter. However, 2020 was on trend to exceed 2019. Cash flow is currently almost non-existent. Over the course of the next two months, Ember+Forge will need anywhere from $6,000 to $25,000 to be able to return to business on June 1. The range will depend on the size of sales and payroll and whether the various expenses expected are delayed.
Given these circumstances, the owner has explored the disaster assistance (e.g., emergency injury loans) offered by the Small Business Administration. Hannah made the following observation: "Any loan is going to be tough, with very limited cash flow to begin, adding in a loan payment at any interest rate will be difficult to add in for repayment 'after' this crisis. SBA looks like around 4 percent interest, which is just not feasible—assuming we are even eligible with collateral and credit rating. A zero-percent interest loan may be possible, but even with no interest will be difficult to add in (depending on total amount and repayment terms) without some other infusion of no-strings cash at some point in the future." A zero-interest loan would clearly be preferential to an interest-bearing loan. But, at the end of the day, it's still added debt the company would take on just to weather the storm, with still no certainty of what the economic climate looks like once the worst has passed.
THE GROWTH THAT LIES BETWEEN A COFFEE SHOP AND A BREWERY
Hannah isn't alone when it comes to the years-long overnight success story of a city on the rise. Taking that 15 minute walk between Ember+Forge and Lavery Brewing Company reveals that.
A few blocks south, snaking down State Street, is the property recently acquired by the Erie Downtown Development Corporation (EDDC). Launched in 2017 as a privately funded nonprofit led by a group of business and community leaders, the EDDC has the "core mission to fuel economic growth through real estate development in downtown Erie," as its website proclaims.
As President and CEO of Erie Insurance Tim NeCastro tells it, he got the idea to form the EDDC after approaching Charles Buki at a presentation at the Jefferson Educational Society. Buki, Founding President of czb, LLC. planning firm that produced 2016's Erie Refocused comprehensive plan, told NeCastro to look to Cincinnati's Center City Development Corporation as a model, which had gained national recognition for its innovative economic development approach.
Since then, Erie has become a poster child for Opportunity Zones. The city designated eight census tracks, the majority of which are in the downtown area in the EDDC footprint in the 16501 ZIP code—the poorest in the commonwealth.
Working together, the city and the EDDC released the nation's first municipal Opportunity Zone investment prospectus. Community leaders formed the Flagship Opportunity Zone Development Company, housing it within the Erie Regional Chamber and Growth Partnership, to promote the city's Opportunity Zones. The Chamber hosted and the EDDC sponsored Erie Homecoming, an event that promoted investment in these zones, which featured HUD Secretary Ben Carson as a keynote speaker.
To date, more than $60 million worth of investment has been announced, and because of these efforts, the city of Erie, represented by the EDDC and the Chamber, was one of four Grand Prize winners at the recent Forbes OZ Catalyst Challenge. Others outside of Erie are taking note of that opportunity.
A few more blocks south lies the Renaissance Centre, home to a mix of established businesses, startups, and a coworking space that can be found from floor to floor.
On the ninth floor is Radius CoWork, which started with just 12 founding members in 2015. Today, 140-plus come and grow throughout the space, some moving out into their own brick-and-mortar space, including the aforementioned Ember+Forge, along with WeCreate Websites, which notably developed a homegrown mobile parking app, and MenajErie Studio, which offers a range of video services and worked extensively on the short film "Our Erie," both of which are located in the Renaissance Centre.
Many other businesses still use the coworking space as their offices, but all have one thing in common: The uncertainty of how to weather the financial implications of this storm in the here and now as well as the then and there.
Outside of the Renaissance Centre and down the street on West 10th sits the newly renovated headquarters of Velocity Network, the region's 30-year-old local internet service provider. Its President and CEO Joel Deuterman felt called to be a part of the region's urban renaissance, and when he needed to expand his operations, decided to move into the three-decades-vacant Rothrock Building thereby bringing 70-plus tech-sector employees into the downtown.
James and Deborah Fallows, in their bestselling Our Towns: A 100,000-Mile Journey into the Heart of America, heralded Deuterman as one of the city's visionaries. The other is Tom Hagen, the chairman of Erie Insurance, who's pushed Erie's progress through philanthropy with his own dollars, and who led the company when he was CEO to its Fortune status.
"I'm actually from southern California, but if I weren't, I'd love to be from Erie—and am proud to be an official citizen now," James Fallows says over the phone when discussing the future and fate of metros like Erie. At the Jefferson's annual Global Summit in 2018, city of Erie Mayor Joe Schember granted both James and Deborah keys to the city and made them bona fide Erieities.
Now in the burgeoning downtown of Erie, many of those VNET employees make their way out of the back of the building and across the street to Lavery Brewing Company, where on any given day, they're likely to bump into Jason Lavery.
LAVERY BREWING COMPANY: MEET JASON LAVERY
Founded in 2009, Lavery Brewing Company brews a panorama of innovative, award-winning ales and lagers. Headquartered in the city of Erie's 12th Street corridor, a mainstay to the legacy city's manufacturing, Lavery Brewing Company has deepened the definition of what it means to be a maker in the region. But the story of LBC began five years earlier when Jason Lavery, the brewery's founder and co-owner with his wife, Nikki, first "got the homebrew bug" at the age of 23.
Brewing every weekend throughout grad school (he graduated from Edinboro University of Pennsylvania with a master's degree in communications in 2008), he continued brewing four to six times per month after college and won an award for his Belfast Black, a smoked porter, and decided to commit to brewing and build a business. After working at a brewery for a summer, he incorporated his brand and then licensed his business in early 2010 and soon thereafter secured a space to rent so that he could begin brewing and distributing.
Since then, the Laverys and their team have gone on to make a name for themselves and Erie in the beer world, winning other awards, including but not limited to: receiving a Gold Medal at the Great American Beer Fest in 2013 for Liopard Oir Farmhouse Saison; being named Grand Champion in 2016 at the Celebration of the Hop for Madra Allta IPA; and nabbing first place finishes at the Pennsylvania Farm Show for both Gold Leopard Saison and Double Dulachan IPA.
Beginning with "growler hours" in the early days, Lavery Brewing Company grew to include a pub at its 12th Street location, complete with a kitchen, serving a limited but distinctive menu ranging from pizzas to ramen to pastas to burgers depending on the night and the season. In July 2019, Lavery Brewing Company launched its second location, opening the Lavery Lager Haus in the downtown of Crawford County's Titusville. The company began brewing on-site, and built out a fuller menu thanks to a larger kitchen space.
COVID-19 Crisis: Action Taken
Down 30 percent in revenues in March so far with the impact at its peak the week of March 16, Lavery Brewing Company was compelled to lay off 27 of its 30 employees and completely shuttered the Titusville location. If trends continue, Lavery Brewing Company will be down 40 to 50 percent, Jason estimates, for the month of March when compared to the brewery's revenue in March 2019.
With Pennsylvania Governor Tom Wolf announcing the closure of first all non-essential businesses on Monday, March 16 and then all non-life-sustaining businesses on Thursday, March 19, as a brewery and pub, Lavery Brewing Company has reverted to takeout and carry-out orders. Operational hours have been reduced to noon to 7 p.m. Tuesdays through Saturdays. As Jason notes, the company has not yet explored delivery options.
With no deferment options from landlords, lenders, utility companies, and local and state governments, it would take $120,000 to operationally float the brewery over the next two months. However, if landlords et al were to grant some version of a payment/tax holiday during this period, that number is significantly reduced to $20,000.
Without a clear picture of when and how the crisis stands to end and what implications that will have on the business, Jason says he's been communicating with his bank officer and is "exploring everything currently."
The Silver Lining, if one exists, Jason says: "Everyone is going through the same thing—we're all limping together. Failure is not an option. I'll sell my house and live here if I have to. It's my baby."
RELATIONSHIPS, RESPONSE, RECOVERY
Hannah and Jason's stories—and the story of Erie's downtown more broadly—have three implications as the nation and communities alike struggle with the economic fall out of this unprecedented crisis.
First, they reveal the intricate web of relationships that surround even the smallest Main Street business. Both Ember+Forge and Lavery Brewing Company are each surrounded and supported by the families of founders, landlords, lenders, utilities, business chambers, customers, local cheerleaders, city governments, economic development intermediaries, and more. These places sell products, but they also act as gathering places and the social glue for their communities. This closeness forms the basis of a "Cheers Economy" where "everyone knows your name." It also provides the foundation for locals helping locals, the first line of defense before large federal resources begin to flow.
The local response is now in full swing. Hannah and Jason are already in conversations with their landlords and lenders about deferring payments. The math of revenues and expenses, particularly in small cities where relationships are key, is not a rigid formula. In many cases, relationship-driven business arrangements can bend without breaking so that small businesses do not collapse. (Many landlords, of course, are also small businesses, making these calculations challenging to say the least).
More structural local support is also underway. On Thursday, March 19, the Erie County Gaming Revenue Authority (or "ECGRA" as it is commonly known) announced the COVID-19 Response Fund, which includes one new grant program and two new loan programs "created to help meet rapidly rising needs generated as a result of the COVID-19 public health crisis," according to ECGRA's website. (In a prescient act, Pennsylvania's 2004 Race Horse and Gaming Act entrusts a small portion of gaming revenue to ECGRA "to invest in projects and initiatives that invigorate the Erie County economy").
The three components of the COVID-19 Response Fund would work as follows:
- Immediate Human Relief Fund: A grant fund established to offer immediate relief to the populations served by Food Pantries, Homeless Shelters, Youth/Child Care Centers, and Elder Care Centers. Organizations can apply for grants through the ECGRA online application system.
- Civic Institution Deferred Income Loan Program: Erie County Civic institutions that can demonstrate that they have been negatively impacted by the COVID-19 pandemic will be able to access low-interest loans with deferred repayment plans. This Loan Fund will be administered by Bridgeway Capital.
- Small Business Loan Fund: Small businesses that can demonstrate negative financial impact as a result of the COVID-19 pandemic will be able to access low-interest loans with relaxed short-term repayment plans contingent upon developing global economic conditions. This Loan Fund will be administered by Bridgeway Capital.
According to the announcement ECGRA Executive Director Dr. Perry Wood made on Facebook, along with Erie County Councilman Carl Anderson, a total of $2.35 million in ECGRA-administered funding will be made available, with $500,000 going to the Immediate Human Relief Fund (and an additional $100,000 from County Council added to that). The latter two will each be funded at $800,000, and an additional $250,000 will go to the Erie County Redevelopment Authority, which supports mid-sized businesses.
Bottom line: It's a local relief package. And it's one that businesses and nonprofits can begin applying for now while state and federal governments catch up to those leading at the local levels. And it's one that is being repeated all across the country as cities such as Birmingham, Philadelphia, and Seattle are deploying creative measures in the face of this crisis.
For example, Invest Atlanta, the economic development authority for the city of Atlanta, established a Business Continuity Loan Fund (BCLF). With $1.5 million of funding from the city, the fund offers small businesses zero-interest loans as stop-gap measures for lack of capital and cash flow due to the reduction of consumer demand or other hardships due to COVID-19's economic impact.
Second, these small business stories and the local responses to date help "reverse engineer" the kinds of federal interventions that are needed so that they reflect realities on the ground, are fit to purpose and can be delivered expeditiously and efficiently.
As of the writing of this piece, Congress and the Trump Administration have either enacted rescue plans or are considering proposals that violate, in whole or in part, these basic conditions. Their first instinct was to authorize the Small Business Administration to offer up to $50 billion in emergency injury loans to affected businesses. As written last week [with co-author of this piece Bruce Katz] by Ross Baird and Colin Higgins, the terms and conditions of SBA loans (3.75 percent interest rate, required collateral) do not make sense in this kind of crisis and the delivery system for such loans (designed for geographically contained and time-limited natural disasters) will not move the capital in time.
The package now under consideration would make available up to $350 billion in loans to businesses with 500 or fewer employees. Fees would be waived, no collateral would be required, and payments would be deferred for one year. The loans could be sized to cover payroll, salary, benefits, rent, mortgage, and utilities. It requires, on first reading, that loans could be forgivable if a business maintains its employee headcount for one year after submitting its loan application.
While it's clear in the ECGRA model how funds are secured, made available, and distributed (that is, from gaming revenue to an authority that then has pledged a relief-fund series of buckets to which businesses and nonprofits can apply and receive funding through the intermediary Bridgeway Capital), the congressional plan remains clouded.
As we have already seen, the crisis has already moved past these solutions. Both Hannah and Jason, and many other small-business owners like them, have already laid off almost all their employees. Too, like Hannah and Jason, many do not own the physical space in which they operate, meaning that their guaranteed collateral is limited. They are also wary of taking on excessive debt given the uncertainty and are more likely to accept products offered via trusted local institutions.
Finally, these stories and the local responses telegraph our path to recovery.
On one level, fast recovery in the long term (when the health crisis abates) is dependent on the nature and scale of the short-term response. The longer we can keep small businesses alive and workers employed, the quicker the recovery and rebound will be. Erie is a microcosm of the small cities throughout the country. Almost overnight, downtowns have eerily become lifeless movie sets— literally former shells of their former selves — the buildings are intact (unlike after a flood), but there is little or no business being transacted given the imperative of social distancing and the collapse of basic consumerism. If we can keep businesses alive, then the bounce back will be rapid and pronounced. If businesses collapse, then the recovery will be slow and painful. On another level, the recovery will depend upon the kind of bottom-up responses and collaborative action that is a hallmark of Erie and many other communities. In our view, this crisis is too complex and multi-dimensional to be left to policymakers sitting in our remote national capitol. Rather, local networks of public, business, civic, university, and other leaders need to band together—now—to prepare their communities for what comes next and be a constant feedback loop for national and state governments.
In many cities, local economies are already steered and stewarded through the strategic actions of networks and the smart blending of public, private, and civic capital. These local networks will need to be strengthened and supported at scale. At a minimum, tight local leadership will need to (a) track the impact of economic contraction and relief packages as they evolve; (b) pioneer local responses that fill the gaps of what will necessarily be incomplete federal and state relief; (c) critique federal and state responses so that they can be improved or modified in real time; and (d) prepare policies and aggregate capital so that local economies can be reanimated as quickly as possible once the health crisis subsides.
The need for networked governance with the capital and capacity to perform these critical roles has never been higher. Philanthropy, both traditional and new, will need to step up to provide a surge of funding in this community infrastructure, the capabilities of which vary widely across the country. But more radical change is needed. The recovery will require not just a little more of what cities and communities were doing before the crisis but a revolutionary transformation. New Localism, in other words, on steroids.
Within cities, leaders will need an entirely new set of metrics to guide their decisions. The crisis has revealed our ability to track COVID-19 test results (when test results are available) and filings for unemployment. But our measures around the health (and even continued existence) of small businesses lag considerably. Incredibly, the last national survey of small businesses dates back to 2012! Real-time administrative data will need to be collected and then routinized across cities.
With such information, cities could fashion Recovery Prospectuses that are grounded in their distinctive economies and reflect the realities of the economic damage wrought by this crisis. Dozens of cities, for example, have worked with Accelerator for America and Drexel University's Nowak Metro Finance Law to create Investment Prospectuses to guide the attraction of Opportunity Zone capital. We need a similar unified approach and common template to guide recovery through the COVID-19 crisis when the time comes.
Cities will be on the vanguard of creating new norms and models for financing the recovery. As Keith Mestrich and Mark Pinsky wrote in their recent book "Organized Money," we need to bolster not only the financial literacy of individuals but the "financial system literacy" of cities and their stakeholders so that capital can be deployed at scale for inclusive and sustainable ends post-crisis.
The goal, on one level, is to fuel new norms and models at the local level. Given low-interest rates, municipal borrowing could play an important customized role, with debt serviced by a portion of tax revenues. As Luise Noring has argued, cooperative financial mechanisms and revolving funds could be stood up by individual cities or classes of cities. As Ross Baird and others [including co-author Bruce Katz] have contended, new financial products, organizational structures and legal mechanisms that build rather than undermine Community Wealth must be created.
But local action — "every tub on its own bottom," so to speak — will not be sufficient. We need new, well-resourced intermediaries to capture and codify new financial models as quickly as possible so they could be scaled across cities, irrespective of market condition or local capacity. As Jenn Pryce and Beth Bafford of Calvert Impact Capital have argued, we need a new level of community development-minded financial institutions to interact, on one hand, with large institutional investors and pools of motivated capital and, on the other hand, with small entrepreneurs, particularly minority entrepreneurs, who will need radically different forms of capital to restart their businesses in the aftermath of this crisis. And we need consortia of cities, like Kommunivest in Sweden, that are able to aggregate their market power and help invent with financial institutions new asset classes and capital structures that enable resources to flow to communities all across the United States. The geographic, racial and ethnic disparities that existed pre-crisis, which were exacerbated by narrowly drawn financial tools and perspectives, cannot be repeated post-crisis.
This crisis revealed a nation unprepared. There is no excuse for cities to repeat that sad reality during the recovery phase.
The challenge with what we—the collective we—are going through with the ongoing COVID-19 crisis is that we don't know about the end. That's both the what and the when—when will the crisis be abated and a sense of normalcy can be seen on the horizon, and what, when we get there, will it look like?
The Erie story presented here is a microcosm of the nation. It shows how a community writ large—and a group of remarkable, passionate entrepreneurs and city builders—have been able to restore a sense of civic pride and purpose and put a city back on track.
As federal emergency responses move to the ground, we have a simple test that we will apply for the nation. Do these measures work for thousands of downtowns and main streets like Erie? Do they respond to the real-world calculations of business owners like Hannah and Jason? And do they ultimately harness the collective power and capacity of communities both to mitigate the damage and drive the future?
As much as any other metropolis or community, Erie is a proxy for rebuilding the nation in the aftermath of this crisis.
ABOUT THE AUTHORS ACKNOWLEDGEMENTS
DREXEL UNIVERSITY NOWAK METRO FINANCE LAB
The Nowak Metro Finance Lab was formed by Drexel University in July 2018. It is focused on helping cities find new ways to "finance the inclusive city" by making sustained investments in innovation, infrastructure, affordable housing, quality places, and the schooling and skilling of children and young adults. It is an initiative of Drexel University's Lindy Institute for Urban Innovation.
THE JEFFERSON EDUCATIONAL SOCIETY OF ERIE
Founded in 2008, the Jefferson is a nonprofit, nonpartisan institution founded to promote civic enlightenment and community progress for the Erie region through the study, research, and discussion of ideas and events that have influenced the human condition. The Jefferson offers lectures, courses, seminars, debates, and publications that examine the central ideas that have formed the past, assist in exploring the present, and offer guidance to enhance the civic future of the Erie region and beyond.
ACCELERATOR FOR AMERICA
Accelerator for America is a non-profit organization created by Los Angeles Mayor Eric Garcetti in November 2017. It seeks to provide strategic support to the best local initiatives to strengthen people's economic security, specifically those initiatives that connect people with existing jobs, create new opportunities and foster infrastructure development. Ben Speggen is Vice President of the Jefferson Educational Society and a contributing editor at the Erie Reader. Prior, he taught writing, research, and literature in the English department at Gannon University and hosted a public-affairs program for WQLN Public Media. Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University and a Partner with Accelerator for America to scale and replicate innovative economic development finance tools across the country. Bruce is the co-author (with the late Jeremy Nowak) of The New Localism: How Cities Can Thrive in the Age of Populism.