Restaurants in the food court at the Galleria mall in downtown Cleveland vaporized when the city shut down.

The Big Corporate Rescue and the America That’s Too Small to Save

Girish Patel doubts his small, 20-year-old shop will survive the pandemic economy. Thirty stories above, aerospace company TransDigm has sustained eye-popping profits thanks to steep layoffs and raised over a billion with help from the U.S. government.

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On a recent Thursday evening in downtown Chagrin Falls, a Cleveland suburb named for a picturesque cascade in a nearby river, little was amiss: Diners in loafers and sundresses dropped off their BMWs and Alfa Romeos with valets before positioning themselves on patios at prudently spaced tables. Teens ranged around manicured parks taking selfies, while well-groomed women dipped in and out of The Artful Yarn, A Bit of Skirt, and other boho boutiques, cryo spas and vintage home goods stores.

Main Street leads north up a steep hill, past wooded estates, a polo field, and a baroque music venue, until it arrives at a turnoff with a sign on a stone gatehouse with a slate roof: “Marcourt Farm Private Property.”

Down the drive is the 25-acre, nine-bathroom, private lake-fronting, indoor pool-equipped residence of Nicholas Howley, the chairman of an aerospace company called the TransDigm Group, which he founded in 1993 as a merger of several small airline parts manufacturers. In 2017, his last year as CEO, Howley became the third highest-paid head of a U.S. public company, with compensation worth $61 million.

The company had 18,300 employees worldwide at the end of September 2019 and is headquartered in downtown Cleveland, a fact the company does not advertise. TransDigm’s corporate offices are on the 30th floor of a towering black monolith, built in 1964 as a landmark addition to the skyline at the height of Cleveland’s prosperity, just before the collapse of the steel industry and the outsourcing of automotive supply chains gutted the region’s industrial base. There’s no company logo at the top of the Erieview Tower. Someone passing through the lobby wouldn’t notice its presence. Unlike local titans Progressive Insurance and Sherwin Williams, TransDigm hasn’t sponsored any of the city’s sports arenas. It doesn’t donate to the city’s vaunted orchestra, and isn’t a member of the region’s chamber of commerce.

The Erieview Tower in downtown Cleveland houses TransDigm’s headquarters.

Girish Patel knows TransDigm is there, though. Its employees used to stop into his convenience store in the Galleria, a glass-roofed mall attached to the black tower. When it was completed in 1987, the Galleria became the first major new retail development downtown since the 1920s. Occupancy declined in the 2000s, however, and events fell off as the now-dated building struggled to compete with new convention and hotel facilities on the other side of downtown.

Patel, who goes by “Gary,” immigrated from India to California as a young man and came to Cleveland in 1995 to run a Dunkin’ Donuts franchise. He opened the Erieview Newsstand five years later. For twenty years, it was a good location, with reliable foot traffic, and few of the responsibilities associated with a street-facing storefront. People would buy sodas to go with lunches they got from the food court, or energy drinks before a Browns or Cavaliers game. A few years ago, he even sold a $1 million winning lottery ticket.

All that slammed to a halt in mid-March, as COVID-19 raced through Ohio and Gov. Mike DeWine declared a stay-at-home order to arrest its spread. TransDigm workers, along with other occupants of the black tower, retreated to their home offices. The federal government leaped into action, sending the $2 trillion Coronavirus Aid, Relief and Economic Security Act to President Trump’s desk for signature on March 27. The sprawling measure included hundreds of billions of dollars in aid to companies, and individuals in the form of a $600 weekly boost to unemployment insurance.

The legislation offered limited help to tenants of the Galleria. The few remaining restaurants in the food court — all completely dependent on nine-to-five office workers — vaporized.

Patel shut down his shop for a few months, reopening as soon as enough office workers returned to make it worthwhile. He got about $3,000 from the Paycheck Protection Program, a plan created by the CARES Act to help small businesses. It took a month for Patel to receive the money, which ran out almost immediately, eaten up by his small payroll and rent.

Now, Patel’s sales are just $200 a day, down from $700 on average pre-pandemic — which means he’s losing as much as $1,000 per month on the operation, with foot traffic still a fraction of what it used to be. He keeps a nervous eye on the boxes of candy and gum, knowing that he’ll have to throw them out if they expire before someone buys them. Even though the YMCA in the mall is open, it doesn’t drive business like the office workers did.

“People go in, get their exercise and get out,” said Patel, who speaks softly and wears a short-sleeved striped button-down to work with bright white Nike sneakers.

Girish Patel, or “Gary,” on a break from running his newsstand.

Unless things change in the fall, Patel figures he might have to close by December. His options are grim. He figures he could only get about $50,000 if he sold the business, moving it somewhere else seems just as risky as staying put, and the job market seems even scarier.

“How are we going to tell what’s a better location when the whole economy is struggling?” Patel wondered aloud, before trailing off. He had a brain aneurysm four years ago, and sometimes loses his train of thought. “I’m 54. Who’s going to hire me now?”

Upstairs in the black tower, TransDigm had much better options.

When the novel coronavirus swept through the travel industry in March, grounding flights and stalling airplane orders, TransDigm didn’t wait for a congressional bailout in order to keep itself solvent. It didn’t have to. On March 23, with a green light from Treasury Secretary Steven Mnuchin, the Fed announced that it would buy as much corporate debt as necessary — in the form of bonds — to reassure companies that they could raise money they needed to ride out the pandemic. Within a few weeks, the bond market had nearly regained the ground it lost, spurring a debt boom. U.S. companies issued a record $873 billion in bonds in the second quarter. Even highly leveraged companies seen as risky after years of aggressive borrowing, like TransDigm, got in on the action.

In April, the $27 billion aerospace manufacturer borrowed $1.5 billion in two bond offerings. The money “is an insurance policy,” Howley told investors, noting that it could come in handy if TransDigm wanted to pick up any more companies.

The Fed’s safety blanket wasn’t the only help for TransDigm. A few days later, Congress enacted tax cuts as part of the CARES Act that will bring tens of millions in direct aid to the company this year.

Unlike government loan programs set up to cushion companies affected by the pandemic, TransDigm’s support didn’t come with strings. The company wasn’t required to keep workers on the payroll or stop returning money to shareholders. Indeed, TransDigm said in April it would lay off up to 15% of its workforce, or nearly 3,000 workers. The next quarter, although revenues were down, those cuts allowed TransDigm to maintain its eye-popping 40% profit margin. Its share price has recovered most of the ground it lost in March.

In response to detailed questions, a TransDigm spokeswoman called its bond issuance a “prudent measure to ensure the company maintained liquidity in the face of the unprecedented and unpredictable commercial aerospace market conditions caused by COVID-19.” She also reiterated information released in April that laid-off employees received $4,000 payments to defray the cost of job searching and health care.

TransDigm and the Erieview Newsstand — a business similar to thousands of small enterprises lining Cleveland’s commercial corridors, now gasping for air — are emblematic of the diverging fates of very large businesses and the cities that host them. That dynamic has been supercharged by the economic effects of COVID-19, which have fallen hardest on the service industries that require face-to-face contact.

The streets of downtown Cleveland, which is still reeling from the loss of office worker foot traffic.

Congress and the Federal Reserve have created an array of pandemic rescue programs that are unprecedented in their speed, scale — more than $3 trillion compared to the roughly $1.5 trillion in post-crisis financial relief packages passed by Congress in 2008 and 2009 — and the nature of the aid offered. But the effects of the federal help have been unevenly felt.

By bolstering a bond market that had been in freefall, the federal government offered its largest, most rapid and least encumbered relief to large businesses that already had robust cash reserves. This intervention required no application process. Nothing protected rank-and-file employees from simply being laid off, and the prime beneficiaries have been shareholders and bondholders as the stock market has soared to new heights.

For small businesses, however, the programs were patchy, poorly administered and ultimately insufficient. The largest component of that aid, the $660 billion Paycheck Protection Program, kept thousands of small businesses afloat. But it was also maddeningly complex, and did not reach the companies that needed it most. By one estimate it saved only 2.3 million jobs, at the cost of $224,000 each.

TransDigm Got More Than All Stimulus Checks in Cuyahoga County Combined
While the company borrowed $1.5 billion, residents of the county and smaller businesses relied on programs that doled out far less.
Lena Groeger/ProPublica; source: SEC filings, Internal Revenue Service, Bureau of Labor Statistics, Ohio Department of Job and Family Services, Department of Health and Human Services, Small Business Administration, Cuyahoga County, City of Cleveland, Department of Education, Federal Aviation Administration, ProPublica estimates
Per Employee, TransDigm Took In a Lot
If all the money borrowed by TransDigm were divided up among its employees, they would have gotten over 16 times as much as if all of the other CARES Act spending were divided up among Cuyahoga County residents.
Lena Groeger/ProPublica; source: SEC filings, U.S. Census Bureau, ProPublica estimates

Even though Cleveland wasn’t as badly hit by the virus as other Midwestern cities like Detroit, the city suffered economically about as much as the rest of the country on average due to a weekslong precautionary lockdown that devastated local retailers. One out of five small businesses open in Cleveland in January 2020 were still closed by mid-August, according to the ecommerce platform Womply. Mirroring the country’s experience, the unemployment rate in Cuyahoga County, which contains the city, shot up to 22.9% in April, and remained at 12.9% in July. That left 78,000 people looking for work at a time when federal unemployment benefits were running out.

To be sure, starting in April, plenty of money flowed into greater Cleveland, mainly through the CARES Act — about $6 billion when the stimulus checks, extra unemployment insurance, small business loans and grants, aid to schools, local government subsidies and hospital grants are all combined, according to ProPublica’s calculations. (All that spending together amounts to about $5,000 for every resident of Cuyahoga County, or 6% of the county’s annual GDP.) For some, it kept the economy in a state of suspended animation, allowing families without income and businesses without profits to continue to pay rent and stay afloat.

But as Congress dithers on a new spending package, and Cleveland looks forward to hosting the first presidential debate at the end of September, uncertainty is suffocating thousands of small businesses like Patel’s. Paycheck Protection Program funds are gone, and for most businesses, revenue hasn’t nearly recovered — but they have neither access to unlimited credit nor the means to pay it back. All of that exacerbates existing inequities that had only just begun to heal after the deep blow of the 2008 recession.

“The idea is that it would be a bridge until recovery,” said Anthony Brancatelli, a Cleveland City Council member. “We need another bridge.”

The near-vacant Galleria mall.

Bypassed by a Boom, Then Hit Hard by COVID-19

Sophie Tyl is thinking of closing her Polish bakery, Siedem Roz, after 16 years in Slavic Village.

If you were to gaze south from TransDigm’s lofty office, you might see the spires of St. Stanislaus Church in the neighborhood of Slavic Village.

According to his canonization, St. Stanislaus, an 11th-century prelate who expanded Catholicism in Poland, resurrected a dead witness to win a dispute over money with the king. Today, Slavic Village, which historically was a destination for Polish and Czech immigrants but now is majority Black, could use another fiscal miracle. The neighborhood housed workers in the nearby steel furnaces and garment mills, reaching a population of 60,000 by the end of World War II. But starting in the ’60s, residents decamped for farther-flung suburbs. The grand historic buildings along its retail corridors fell into disrepair.

By the 2000s, the neighborhood had lost nearly two thirds of its population, and was racially diverse but desperately poor. Things were about to get worse: Slavic Village became a target for subprime loan scams, trapping residents in mortgages they couldn’t afford when the market collapsed in 2007. For one quarter that year, the neighborhood saw the highest number of foreclosed homes in one ZIP code in the country before the housing crisis migrated to the Sun Belt — a fact that Sen. Sherrod Brown, who moved to the neighborhood in 2013, often mentions. Residents worked to get more than 1,000 vacant homes torn down, leaving the area pockmarked with grassy lots. The long expansion after 2008 led to a retail, restaurant and housing boom in neighborhoods closer to downtown, but largely bypassed Slavic Village, despite some successful efforts to stabilize homeownership.

Artwork brightens residential streets in Slavic Village.

Then this year, COVID-19 coursed through the neighborhood, causing another round of devastation. Slavic Village’s ZIP code is in the highest range for COVID-19 infection in Cleveland, with at least 413 cases, according to the city’s public dashboard. Like many low-income neighborhoods, where residents disproportionately work in restaurants and retail jobs, Slavic Village had borne the economic brunt of the public health measures imposed in late March. An analysis of census tract-level unemployment published by The New York Times estimates that Slavic Village saw between 20% and 30% unemployment in June. Local social service agencies say that demand for assistance, from rent subsidies to pet food, has spiked.

In late July, a group of residents transformed a remnant of the earlier crisis into a commemoration of the current devastation. They made a vacant lot into a memorial garden for the virus’s victims, painting salvaged tires in bright colors and turning them into flower pots full of black-eyed Susans. The day of the opening ceremony for the little park, neighbors gathered despite a slow drizzle to make kits with masks and flyers with infection-control advice, folded into Ziploc bags and safety-pinned onto clotheslines strung between newly planted saplings. They wrote the names of deceased loved ones onto crosses fashioned of popsicle sticks, planting them in one of the small plots of soil.

Tamika Compton took the mic to inaugurate the space, which they had called the Garden of Life.

“We started this journey in remembrance, and also for the survivors,” she said, before stopping, tearing up. “Don’t cry, girl,” said someone in the audience. Compton, whose cousin died of the virus, pulled it together. The ’90s cover band behind her struck up a song and a ribbon was cut with five pairs of oversize scissors.

The Garden of Life, a memorial to COVID-19 victims on one of the many lots in Slavic Village left empty after the 2008 foreclosure crisis.

Before the pandemic, Cleveland had been decades along in the process of rebalancing its economy away from producing goods and toward services. As smokestacks shut down and heavy machinery moved out in the 1980s and 1990s, hospitals, universities and entertainment firms rose in their place. The Republican National Convention in 2016 spurred a surge of hotel construction. The Cleveland Clinic is now the city’s largest employer, according to a ranking by the municipal economic development agency. The first for-profit corporation in the ranking — KeyBank, with 4,800 employees — is No. 8.

Manufacturing jobs now account for only 11.2% of the workforce, down from 17.3% in 2000 and 26.3% in 1980. And President Donald Trump’s attempt to bolster domestic manufacturing through tariffs has had little impact. A heavily subsidized expansion at Charter Steel — which Trump touted in a 2018 speech as “one of the biggest comebacks that anybody has ever seen for any industry” — ultimately yielded only 25 new jobs.

So the move toward a public sector-heavy service economy seemed like a good direction. But COVID-19 eviscerated the city’s burgeoning convention and sporting events business and threw its hospitals into financial turmoil as elective procedures were canceled. And it hasn’t been good for Cleveland’s remaining manufacturers, either, many of which are clustered on Slavic Village’s southern border. The global steel company ArcelorMittal announced 454 layoffs in the plant just up the road in late July.

That has further stressed the neighborhood’s main commercial thoroughfare, Fleet Avenue, which was slowly rebounding after the heavy blow of the housing bust and then a yearslong streetscape renovation that made it difficult for customers to reach local businesses. Even after the stay-at-home order lifted, retail activity remained depressed while government grants ran out. And unlike TransDigm, most local businesses don’t have access to abundant credit to see them through the crisis.

Walter Hyde takes orders from the window of Daisy’s Ice Cream. Buying protective gear has been expensive.

Daisy’s Ice Cream, right in front of the Garden of Life, is generally a recession-resistant business. Still, Walter Hyde hasn’t been able to raise his staff’s pay to $10 an hour this year like he planned, with all the extra expenses of masks and gloves. Sophie Tyl has run a Polish bakery called Siedem Roz for 16 years and is thinking of closing because so few of her customers are coming in for cookies and breads anymore. Pete Skantzos spends a lot of time looking out the windows of his diner, the Red Chimney, waiting for customers; business is still down 75% because people are afraid to come eat in a sit-down joint even if they have money to pay for it. Shelle Jackson can only have a couple people waiting at a time in her barber shop, dramatically cutting down on the number of clients she can serve in a day. She had to draw down her small savings account to tide her over and retrofit the space to be COVID-compliant.

Frames show the Red Chimney’s storefront and its owner, Pete Skantzos. His customers are avoiding eating inside.