Modesto-area companies got millions in taxpayer coronavirus aid. Who got the most?
Following the Money: This is the first in a series of investigations by The Bee into how taxpayer-funded Paycheck Protection Program money is being distributed and used in the Central Valley.
As hundreds of millions in taxpayer dollars meant to help small businesses stem losses from the ongoing coronavirus pandemic stream into the Central Valley, dozens of well-known agricultural companies, manufacturers and medical providers are among those receiving the most money locally.
According to data recently released by the Small Business Administration, 44 businesses in Stanislaus County and the surrounding area received the top tiers of funding from $2 million to $10 million each in public money through the ongoing Paycheck Protection Program. That totals to between $103 million and $245 million, though an exact number is not available due to the SBA only providing dollar ranges for its largest recipients.
Among the notable PPP benefactors in the region are a Modesto construction company that received from $2 million to $5 million to retain a reported 18 jobs, a major regional McDonald’s fast-food restaurant franchise owner and two major Modesto medical organizations.
These 44 businesses are some of the largest in Stanislaus County, and span across a diverse array of industries that serve as testament to how widespread the impact of the COVID-19 crisis has been on the region. About 31% of the largest recipients were agriculture or agricultural-related businesses, followed by 20% in construction, 18% in manufacturing, 11% in medical and the rest a mix of retail, transportation, food services and professional services industries.
Based on the SBA data, the 44 organizations reported retaining some 9,920 Central Valley jobs. In July, according to the most recent report from the state Employment Development Department., Stanislaus County has roughly 174,900 total employees in the workforce.
But the largest recipients represent a small fraction of the some 5,880 companies to receive PPP funding for any amount in the region, according to the database’s most recent information, which was last updated July 2. Nationwide, the program has been authorized to spend $659 billion in taxpayer-backed coronavirus aid, and applications are still being processed.
Designed as loans to help small businesses (generally of 500 workers or less) keep those employees on their payroll, program money does not need to be repaid and will be forgiven if used on qualifying expenses. Otherwise the loans must be repaid at a rate of 1% interest.
In Stanislaus County, the five companies in the highest tier of funding, from $5 million to $10 million, were Central Valley Specialty Hospital (a Modesto long-term care medical facility, which said it retained 439 jobs), Crystal Creamery (a Modesto dairy plant which said it retained 500 jobs), Gould Medical Group (a Modesto physicians organization affiliated with Sutter Health, which said it retained 459 jobs), Pacific Southwest Container (a Modesto packaging company, which said it retained 500 jobs) and Northern Refrigerated Transportation (a Turlock-based freight company that said it retained 372 jobs).
For many businesses, the PPP loans made it possible to weather the first months of the pandemic.
“Our facility would have at the very least been on the verge of bankruptcy or have been forced to close down without these funds,” said Central Valley Specialty Hospital Chief Financial Officer Tammy Thompson. “We have continued to struggle even with the help of this program.”
The Bee attempted to contact all 44 companies that received taxpayer-backed payouts of more than $2 million in the region. But more than half of the largest local PPP recipients provided no comment or did not reply. Eight companies both confirmed their loans and agreed to talk publicly about them. Eleven confirmed the loans and then provided a limited written statement or declined additional comment. And the remaining 25 businesses either refused comment altogether or did not return repeated requests for comment to The Bee.
Data about the PPP loan recipients was unavailable for months, leading to speculation about who was benefiting from the loan program. The Bee spoke with a number of small businesses in and around Modesto about their experiences with the program, but could not ascertain how many businesses in Stanislaus County had applied for and received a loan until early July.
PPP loan data released in two parts, but errors reported
Then the SBA released some of the PPP loan data, which The Bee has been working to assess. The data is released in two parts: loan recipients who received less than $150,000 and those whose loan was above that threshold.
For the first group, all businesses are listed anonymously, but the exact amount of their loans is reported. The Bee found that in Stanislaus County, 4,891 businesses received loans under $150,000 totaling $108.6 million. Additionally, at least 995 businesses received loans above $150,000, but their amounts were listed in dollar ranges.
U.S. Rep. Josh Harder (D-Turlock) said he felt the money in Stanislaus County went to the businesses and industries that most needed it. Though he recognized the initial rocky roll-out of the program meant that early on, more connected companies were able to get loans faster, he said that ultimately, those who needed the assistance were able to apply for and receive funding.
“If you look at the businesses in our area that benefited, I think it was the folks that really needed the money,” Harder said. “We see a lot of this support go to dairy and agriculture, which is critical in our area especially when the price of milk has gone down by more than 40% since this crisis began, as well as logistics businesses, or restaurants and the like. I think that is very much in the spirit of what we were trying to do.”
Harder’s father, an optometrist in Modesto, was a PPP loan recipient. Mark Harder’s optometrist office received around $50,000 in funding, he confirmed, which helped secure the jobs of their five employees during an eight-week period where their office was closed due to the pandemic.
In analyzing the data, The Bee confirmed that it contains errors. As has been previously reported, some companies erroneously show up in the datasets even though they withdrew their loan applications and never received any PPP funding, as was the case with a number of tech companies in Silicon Valley. Errors like this occur because the banks or lenders, not the businesses themselves, report the data to the SBA.
In Stanislaus County, at least one business reported to have gotten over $2 million in funds did not finish its application for the loan, The Bee found.
Five Stanislaus County businesses got over $5 million each
Pacific Southwest Container was among the five Stanislaus County businesses to receive over $5 million each. The packaging company was most recently in the news last September for agreeing to settle a wage theft lawsuit at its Modesto plant for $2.3 million. The lawsuit was filed in January 2018 by a single employee, and then court documents identified 1,489 current and former hourly employees, including temporary workers, who are subject to the settlement which covered Jan. 23, 2014, through July 16, 2019.
In an emailed comment, PSC CEO John Mayol said the funding was to “mitigate the impacts of COVID-19 and avoid team layoffs” and that it was “proud of the courage demonstrated by our team members, and our ability to continue supporting the Modesto and Visalia communities in which we operate.”
The company did not respond to further requests for comment on how the money was used or the exact amount of its funding.
Crystal Creamery, which recently launched a revamped line of ice cream from its Modesto plant, issued a statement saying it applied for the loan because of the pandemic’s impact on its business which “almost overnight” saw its cash flow affected by the stay-at-home order. The statement went on to say the PPP funding was “critical to helping us maintain jobs, production and distribution of our dairy products.” An exact dollar amount for its funding was not provided, nor was there a response to additional requests for information.
The two medical organizations to receive the largest loans locally, Central Valley Specialty Hospital and Gould Medical Group, both said the coronavirus pandemic has disrupted their work significantly as people put off elective and routine services due to fear of COVID-19 infection.
Central Valley Specialty Hospital confirmed it has received $5,069,700 in PPP funding, which have been used almost exclusively for payroll expenses in addition to some operating costs. In an email interview, hospital CFO Thompson said because of the pandemic’s impact, the program was the “best option” for them to stay afloat. Even with the funding it has been difficult because of a slow-down in claims payments due to remote work, increased cost of PPE and many supply shortages.
Thompson said the money covered approximately 2 1/2 to 3 months of its payroll expenses.
Gould Medical Group President Dr. Martin Pricco said in a written statement that the pandemic “significantly decreased” patient volumes, which negatively impacted the group’s finances. The PPP loan was “an important resource” to help retain doctors and clinical staff while remaining focused on the community’s COVID-19 related and other medical needs.
In late May, Sutter Health, which is affiliated with Memorial Medical Center in Modesto, reported that ER visits from January to March dropped by 43 percent at its hospitals in the Central Valley and Bay Area and saw a $1 billion first quarter loss for the Sacramento-based nonprofit.
Northern Refrigerated Transportation confirmed it received a loan through CFO Dan Watson, but he declined to state a specific amount or elaborate on what the money was being used for. The company, based out of Turlock, got between $5 million and $10 million in funding.
From McDonald’s owner to vegetable grower, millions go out in valley
In the next tier of funding, from $2 million to $5 million each, companies ranged from a local McDonald’s franchisee with 24 restaurants in the valley and foothills, one of the region’s largest auto dealership groups and several major agricultural producers in the region.
Karen Monschein, the owner of Riverbank-based counter-top and cabinet manufacturer Monschein Industries, confirmed her business received $2.4 million in PPP funding.
Because of the loan, she secured the jobs of her 246 employees, she said. She said the loan was “instrumental” in helping her business weather the pandemic, which has resulted in a drop in business and unforeseen expenses.
At Ceres-based Graspointner Management Inc., owner Dennis Graspointner runs 24 McDonald’s locations from Livingston to Ripon. He said he applied for PPP funding because of initial business drop-off at the start of the stay-at-home order of about 30 percent. He declined to state the exact amount of his loan, but records show it was between $2 million and $5 million. He said before coronavirus, his company employed about 1,200 workers, which dropped to 800 as the crisis started. He is now at 1,350 staff members across his restaurants.
He credits the stimulus checks and unemployment benefits with helping to spur the return of customers en masse to his fast food establishment, which have helped him recover and grow. He said all of their PPP money was spent in eight weeks on payroll. He said without the funding, he would have had to slash some 250 jobs and close down some locations.
“The program was very, very helpful for my business and to the people I do business with. If you are a refrigeration company, plumbing company, all these people were able to keep their business going, not just mine, with these funds,” Graspointner said. “It was a combined windfall for the business and the economy. All those jobs were protected. It made a significant difference.”
Like Graspointner and Monschein, many of the other loan recipients who spoke with The Bee said the funding allowed them to avoid layoffs entirely. Those include Ceres-based tanker manufacturer West-Mark (which recorded 232 jobs retained), Hughson-based commercial nursery Duarte Nursery (308 jobs), Modesto-based non-profit hospice care group Community Hospice (157 jobs), Modesto-based produce grower Ratto Bros. (240 jobs) and Modesto cheesemaker Rizo-Lopez Foods (259 jobs).
“Without the funds we may had had to lay off workers, quite honestly,” said Ratto Bros President Frank Ratto. “The uncertainty of what would have happened is scary enough. It’s not just a matter of hurting our business, but we feel responsible for so many people who work for us. We’ve never laid people off in our 115 year history.”
More than half the companies refused comment, no callback
The openness about how the loans have helped both valley businesses and the local economy from some businesses contrasts strongly with the responses from others. When contacted about its $2 million to $5 million funding, a person who answered the phone at Modesto-based NGB Construction, Inc. confirmed the loan, but said they were “too busy” to comment. According to the SBA database, the company retained 18 employees with the money provided.
Others who confirmed but declined additional comment included Central Valley Automotive Group, which runs six car dealerships in Modesto; Varni Brothers Corporation, a Modesto-based 7Up bottler; and Northern Refrigerated Transportation, a refrigerated freight company out of Turlock.
Among the companies that did not return multiple attempts for comment was Modesto-based Storer Transportation Service. The bus company is in an ongoing legal battle with the city. Since 1981, Storer has provided dial-a-ride services for Modesto, which gives seniors and the disabled door-to-door transportation. But in April city staff recommended another company take over the service, meaning Storer could lose the $27.6 million, nine-year contract. According to SBA data, the company received a $2 million to $5 million forgivable PPP loan.
The contract will be back before the Modesto City Council the first week of August.
Another big question moving forward to PPP loan recipients large and small will be forgiveness of the funds. The program will allow companies to avoid paying back their funding if certain criteria are met. But the exact mechanisms for accountability and enforcement have not yet been fully detailed by the SBA. Otherwise, loans must be repaid at the well below-market interest rate of 1% over a period of five years.
Currently, federal officials are investigating PPP-related loan fraud, following public outcry that large, national businesses had unfairly taken advantage of the program. Among those under investigation is a Florida man who was recently charged with bank fraud for using a $4 million PPP loan for personal expenses, including clothes, jewelry and a Lamborghini sports car.
In a written statement from a spokesperson, Modesto painting contractors Hutton Lovewell, Inc. (which recorded 269 jobs retained) said at first the company was unsure if it would even receive funding, and then got its loan of between $2 million to $5 million in the second round. At the time weekly revenue had “reduced drastically” and remains tight, so without the program it was “facing massive layoffs.”
“The timing of this government program could have not been better. It took a massive amount of pressure off of our company,” the statement read in part. “We have not currently used all of the funds provided and do not intend to keep funds as a loan that are not used directly for employee expense. Also, there are some uncertainties as to the loan forgiveness portion of the program for us at this time since the program seems to be constantly evolving and the economy itself is in an unprecedented state of uncertainty. That said. overall the PPP has been overwhelmingly positive for us.”
This story was produced with financial support from the Stanislaus Community Foundation, along with the GroundTruth Project’s Report for America initiative. The Modesto Bee maintains full editorial control of this work.
To help fund The Bee’s economic development and children’s health reporters with Report for America, go to https://bit.ly/ModestoBeeRFA
This story was originally published July 31, 2020 at 4:30 AM.
