Objectives

To determine whether Empire State Development (ESD) awarded funds according to COVID-19 Pandemic Small Business Recovery Grant Program (Program) eligibility requirements, and whether ESD established performance measures to assess the impact of the awards. The audit covered the period from April 2021 through January 2023.

About the Program

On March 20, 2020, New York’s former Executive signed the “New York State on PAUSE” executive order in response to the COVID-19 pandemic. The order included a directive that all non-essential businesses across the State would need to close, effective March 22, 2020. While the order affected businesses of all sizes, most of the businesses in New York are small businesses employing fewer than 100 people. Specifically, 98% of businesses have fewer than 100 employees, and 93% have fewer than 25 employees. Based on U.S. Census Bureau data, 77% of small businesses in the State reported a decrease in revenues and sales at the end of April 2020. The impact remained a year after the pandemic’s onset, with 78% reporting an overall negative impact on their business as of the first week of March 2021. To assist the over 400,000 small businesses in the State impacted by the pandemic, the 2021-22 State budget established the Program, with $800 million in funding. ESD was charged with administering the Program through enactment of Section 16-FF of the Urban Development Corporation Act.

The mission of the Program was to support small businesses or for-profit independent arts and cultural organizations impacted by the COVID-19 pandemic that either did not qualify for federal assistance programs or that received inadequate federal COVID-19 support. Priority was to be given to socially and economically disadvantaged business owners, including, but not limited to, minority- and women-owned business enterprises, service-disabled veteran-owned businesses, veteran-owned businesses, and businesses located in communities that were economically distressed prior to March 1, 2020 based on U.S. Census data. Program awards allowed New York State small businesses to cover costs such as payroll, rent or mortgage payments, personal protective equipment expenses, utility bills, costs associated with compliance with COVID-19 health and safety protocols, and other documented COVID-19 costs as approved by ESD.

ESD reported receiving over 168,000 applications, with just over 75,200 being fully completed and submitted. ESD awarded the entirety of the $760 million allocated for small businesses ($40 million was allocated for administrative expenses) to 40,842 applicants, with an average grant amount of $18,608.

Key Findings

ESD needs to improve controls for monitoring eligibility of grant recipients and enhance practices for award distribution. Specifically:

• ESD awarded almost $4.1 million to 101 businesses that were ineligible because they had already received assistance from federal business assistance programs.
• ESD did not consider business type, need, or factors established in the original goals of the Program when awarding grants, instead favoring a first-come, first-served methodology to awarding grants, which resulted in tens of thousands of businesses that went unfunded and resulted in certain types of businesses—most notably Sole Proprietor Transportation businesses without employees (i.e., rideshare drivers)—receiving a significant percentage of the total dollars spent. Rideshare drivers received $184,493,238 or about 24% of the total dollars spent. Within the first 12 months from when the Program’s application portal was launched (June 2021 to May 2022), these businesses accounted for over half of the funded businesses (54%). Additionally, due to this methodology, several women-owned businesses and low-to-middle-income businesses did not receive funding, as Program funding was completely disbursed before their applications could be reviewed. These businesses were more represented in businesses that did not receive funding compared to those that did.
• ESD did not establish a process to measure, in a meaningful way, whether the Program achieved its intended goals or its impact on businesses. Therefore, there is limited assurance that the Program met its goals outside of distributing funds to businesses. Furthermore, without any form of performance review, any potential improvement areas that could be implemented for any future emergency relief programs were not identified.

Key Recommendations

• Develop and implement enhanced application review and award practices for grants administered by ESD. This may include, but not be limited to:
  • Utilizing relevant publicly available data sources.
  • Working with federal or other applicable government partners to obtain relevant information on eligibility criteria.
  • Incorporating relevant elements into award selection methodology, including, but not limited to, areas outlined in the Program’s goals.
• Establish a process or practice to measure performance of grants administered by ESD.
• Recover Program funds that were awarded to ineligible businesses as appropriate.