Some area businesses reeling in shutdown
Contractors struggle to make their payroll; SBA loans in limbo
The record federal government shutdown, entering its fifth week, is beginning to ripple through the Houston economy, disrupting small business lending, pushing government contractors to the verge of missing payrolls and draining sales from restaurants, retailers and other businesses that cater to federal employees.
While the impact to the overall economy is expected to be slight — barely noticeable to most people — some companies are feeling the effects acutely as they struggle to find the money to keep operating as government payments are halted and loans are stalled. And with no end to the political standoff in Washington in sight, companies say they are starting to run out of options.
Frank Hughes, president of Tietronix, a company near the Johnson Space Center, said his
firm has not been paid for the software that it creates for NASA since the shutdown began, cutting his cash flow by some $650,000 and forcing the company to borrow to keep paying employees. NASA accounts for about 75 percent of the company’s business.
He said he won’t be able to keep paying workers if the shutdown drags on much longer, and he plans to begin furloughing employees beginning Feb. 1 if political leaders can’t resolve their differences.
Hughes, who worked as a NASA flight instructor for more than 30 years before joining Tietronix in 1999, said he’s lived through plenty of government shutdowns, but this one is different — and far more worrisome.
“Every time we had a shutdown before, everybody tried to end it,” said an exasperated Hughes. “We are being impacted terribly.”
The shutdown is not only putting pressure companies like Tietronix that do business directly with federal agencies, but also other businesses across the economy, including restaurants, bars and retailers stores in the Clear Lake area that count on NASA employees as customers, and small businesses that can’t secure government-backed loans. Even some lenders are starting to sweat because they don’t earn their fees until loans close.
Frankie Camera, owner of Frenchie’s Italian Restaurant on NASA Road 1 in Webster, has been serving meals to NASA employees and astronauts for 40 years. He said his lunch business is down by nearly half since the shutdown began Dec. 22 and some 800,000 federal workers stop getting paid.
“People are not going out as much as they did before,” Camera said. “Not just here but everywhere. If you don’t have the money, you don’t go out to spend it.”
Some small businesses also are running short of cash. Tim Jeffcoat, the district director of the Small Business Administration in Houston, said at least $80 million in loans to Houston companies are on hold because of the shutdown.
‘Could lose it all’
Mark Danford, president and CEO of Waterstone, a Houston company that facilitates SBA loans for community banks, said his company has 32 small business loans valued at $28 million that are not getting processed. One loan sitting on Danford’s desk, for $4.2 million, is holding up construction of a hotel in Katy.
“One of those small businesses could lose it all because they can’t get their loan processed by the SBA,” Danford said.
Terry Hale hopes he can avoid that. The company that he bought in 2017, InkBox Printing 2.0, is waiting for a $650,000 SBA loans to help pay off losses from his first year in business, consolidate debt and provide a line of credit to manage cash flow. He had expected to get the loan by Christmas. He didn’t.
InkBox targets commercial customers and prints everything from business cards to billboards to fleet vehicle wraps. Hale said he recently he had to walk away from a $170,000 order because he didn’t have the money to pay some vendors needed for the project. He has also had to cut the hours of some of his nine employees.
“I’ve got nine families totally dependent on the success of this company, and it’s a horrible spot to be in,” Hale said. “I’m literally at a complete standstill. It’s like I’m being held hostage.”
Paycheck to paycheck
Economists say the the impact of the shutdown is mainly felt in these small corners of the economy. JPMorgan Chase & Co. and others have estimated the shutdown will initially reduce the economic growth one-tenth of a percentage point, a loss that could be regained once the government reopens.
The furloughed federal employees represent only a tiny fraction of the nation’s 150 million payroll workers. Federal employment accounts for 204,000 or 1.6 percent of the jobs in Texas. In Houston, the 30,300 workers on the federal payrolls account for 1 percent of the region’s 3.2 million jobs.
More than 5,000 federal employees in Texas have filed a claim for unemployment insurance, and 621 have so far received benefit payments, according to the Texas Workforce Commission. Bill Gilmer, an economist at the University of Houston, said he doubts the effects of the shutdown will appear in the region’s economic data, other than perhaps as a temporary blip in unemployment.
Most of the impact, Gilmer said, is “personal hardship in the paycheck-to-paycheck sense.”
Economists say that the real trouble will hit the U.S. and local economies if funding is cut off for the Supplemental Nutrition Assistance Program. The food stamp program is funded through February. But if the shutdown extends into March, Texas stands to lose about $1.3 billion each month that SNAP is not funded, according to personal finance website The Ascent.
The longer the shutdown drags on, the bigger the threat it poses, said Patrick Jankowski, an economist and senior vice president of research for the Greater Houston Partnership. The risk comes if worried businesses and consumers pull back on investment and spending.
“The danger is what it could do to business and consumer confidence if (the shutdown) goes on too long,” Jankowski said.