A report circulated and published July 14, 2022, by the U.S. Government Accountability Office (GAO) regarding the Restaurant Revitalization Fund (RRF) has sent the restaurant industry into widespread alert. According to the GAO report, which is a major government watchdog organization, the U.S. SBA oversaw the program with some success and major failures.
Citing seven areas for improvement, GAO notes the SBA’s grossest failure to implement a system for vetting potentially fraudulent or suspicious RRF applications. While the SBA implemented a fraud detection protocol, GAO uses an example of an applicant that was wrongfully awarded $8MM by the program, recommending the SBA assess its current fraud-detection system for deficiencies. This was a major focus of the report, in the instance the U.S. Government ever administer another RRF program.
It’s unsurprising, however, that the question of the program’s money has sparked the greatest debate. The $180 million of unobligated funding, per the report, is a major cause of controversy between the 177,000 applicants who have sought, but still haven’t received, RRF funding and politicians who say an RRF replenishment is uncertain. As of June, 2022, the 177,000 pending applicants comprise nearly 60% of the entire applicant pool.
In a letter to SBA Administrator Isabella Guzman, the National Restaurant Association emphasized the disproportionate number of applicants waiting--and hoping--for funding. “Restaurants remain battered with worker shortages, runaway food costs, and an uncertain level of customer confidence in the coming months. The need for relief has not abated,” Sean Kennedy, EVP of the Association, said in the open letter. “Now more than ever, every dollar appropriated by Congress for restaurant relief needs to be unlocked and put in the hands of operators struggling to keep their doors open.”
Kennedy’s letter also zeroed in on a major piece of the debate regarding SBA’s appropriation of the $180 million, specifically that the SBA had earmarked $24 million for litigation purposes. Restaurant industry groups say the original American Rescue Plan Act (ARPA) of 2021 did not create a litigation retainer for the SBA to administer. Furthermore, while ARPA does direct returned or reclaimed RRF awards to the Department of Treasury, most industry stakeholders “believe it would be consistent with the spirit of the law to utilize all unobligated funds to address the RRF shortfall.”
In a time the industry is aiming to recover more than 700,00 jobs and fight against the more than 13% rises of wholesale food in the lat year, restaurant operators are not optimistic about their economic outlook. According to the Restaurant Association’s June 2022 poll, this is the highest level of economic pessimism since 2008.
What comes next?
The GAO report states “SBA officials said they plan to award the remaining funds, but were taking additional time to confirm that any new awards would comply with the terms of legal decisions regarding the priority groups." The ARPA designated certain groups including “women, veterans, and socially and economically disadvantaged small businesses” were to be prioritized in the program’s first 21 days. Within the first three weeks days after the program opened in May, 2021, SBA had given $28.6 billion to just over 100,000 businesses, 72% owned by women, veterans, or members of social and economically disadvantaged groups. Ultimately, the designation was contested by three federal lawsuits and found unconstitutional.
Now, industry stakeholders are requesting that unobligated funds are passed along to restaurant applicants who qualified for RRF grants after the $28.6 billion pool was drained in 2021. At the time, the SBA said it would keep pending requests in the order they were received in case Congress voted to replenish the fund. Operators, industry officials, and the small business community awaits that decision.
In the meantime, Loan Mantra suggests you do the following:
Call on Congress to urge them to replenish the RRF. Though, we will not likely have updates on potential replenishment until late August or September, Loan Mantra urges you to use your voice as a constituent and small business leader.
Even if you are not in the foodservice industry, this sector deserves our support as we recover from the COVID-19 pandemic and its economic impacts, together. We hope you will join us in sending a note to your political leaders.
Find a list of your representatives here.
Read the full GAO Report here.