The Big Corporate Rescue And The America That’s Too Small To Save

A no entry sign marks the cordoned off food court area at the Galleria in Downtown Cleveland
Restaurants in the food court at the Galleria in Downtown Cleveland have vaporized since the pandemic began. [Jean-Marie Papoi / ideastream]

By Lydia DePillis, Justin Elliott and Paul Kiel

This story was originally published by ProPublica.​ Sign up to receive our biggest stories as soon as they’re published.

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.

Erieview Tower in Downtown Cleveland

The Erieview Tower in downtown Cleveland houses TransDigm’s headquarters. [Jean-Marie Papoi / ideastream]

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.

Girish Patel's Erieview Newsstand at the Galleria in Downtown Cleveland

[Jean-Marie Papoi / ideastream]

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.

Girish Patel, or “Gary,” on a break from running his newsstand. [Theo Stroomer/Redux, special to ProPublica]

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 Galleria at Erieview in Downtown Cleveland

[Jean-Marie Papoi / ideastream]

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.

ProPublica relief money chart

 

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]

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.

ProPublica Per employee chart

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]

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.”

Near empty shops in the Galleria in Downtown Cleveland

The near-vacant Galleria mall. [Jean-Marie Papoi / ideastream]

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.

Sophie Tyl is thinking of closing her Polish bakery, Siedem Roz, after 16 years in Slavic Village. [Theo Stroomer/Redux, special to ProPublica]

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.

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.

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.

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.

Shelle Jackson gives a haircut at her barber shop By the Grace of God, which now can only accommodate a couple people waiting at a time.

Shelle Jackson gives a haircut at her barber shop By the Grace of God, which now can only accommodate a couple people waiting at a time. [Theo Stroomer/Redux, special to ProPublica]

Several blocks south of the Garden of Life, on the commercial corridor that marks the southern end of Slavic Village, JB Grill has its entire menu displayed on the strip mall storefront’s windows: Pork chop dinners for $9.00, Philly cheese steak combo for $8.00. A banner sign advertises catering for a long list of events that don’t happen in the same way anymore: banquets, weddings, birthday parties, graduations.

Inside, the small shop has only a bench for people waiting on food, with paraphernalia from local sports teams plastered all over the walls. Barbara Bradford emerges from a hot kitchen with fans going full blast. She has coiffed hair and long fake eyelashes, but still puts in the same work everybody else does, taking orders and doing deliveries. She walked a few doors down to a formerly empty storefront that she’s turned into a place where kids out of school can come get donated books and bags of snacks, desperately needed in a neighborhood where 100% of the elementary schoolers are eligible for free or reduced price lunch.

Bradford took over the grill five years ago and survived a few seasons of not making much money. But by the beginning of this year, she had scraped together about $25,000 in the bank — and that has kept her afloat so far. Even though she never had to shut down completely, the pandemic killed her catering business. She took her staff of seven down to 15 hours a week each, so they could get partial unemployment insurance while still attached to their jobs, but her landlord did not offer her a break on the rent.

Bradford hustled, advertising her specials on Facebook and calling around to nonprofits and municipal agencies, asking if anyone needed food delivered. She got a few contracts to deliver boxed lunches, to a school and an organization that delivers meals to seniors. But she’s not back up to the business she was doing before, and she’s worried that the jobs don’t seem to be coming back around her — the extra $600 in federal unemployment benefits expired that day.

“I think the majority of residents were receiving it, so it was kind of a boost around here,” Bradford said. “I’m quite sure they’re going to use that for rent, and after that there’s no more.”

Like the unemployed and TransDigm, Bradford got help from the federal government. But her aid, which came through the Small Business Administration, seemed too slow and too small. Like Gary Patel, she applied for a Paycheck Protection Program loan, which provided cash in the amount of 2½ months worth of a business’s typical payroll costs. It can be forgiven if it’s mostly spent to pay workers.

Bradford went through the online lender Kabbage since she already had a loan with them, and they had all her documentation. But she ended up with $22,000 — far less than she expected.

Bradford used the money to pay her previously full-time workers for their reduced hours, which meant that the loan should turn into a grant. She also applied for an $87,000 Economic Injury Disaster Loan from the SBA, but it took five months to come through. In the meantime, her small pile of cash was wiped out. It’s thrown her dreams of opening a full-service dine-in restaurant or a franchising strategy into doubt.

“Now there’s nothing in the account,” Bradford said. “There’s no capital. If anything has to be fixed, I would have to go back to Kabbage and withdraw another loan.” That could be costly: With the fees that Bradford was paying Kabbage for her 6-month loan, the annual interest comes out to nearly 40%. In comparison, TransDigm will pay either 6.25% or 8% on the bonds it issued in April (which is high for corporate bonds).

Resorting to nontraditional lenders is more common for Black-owned businesses like Bradford’s which are less likely to have relationships with banks than white-owned businesses. Cleveland’s population is about half Black, and many Black business owners have run through savings and face having to take on more expensive bridge credit.

To be sure, there are some businesses doing well in Slavic Village: A dog training studio, an upscale butcher shop, and a record store that specializes in soul, reggae and hip hop. But they all have one thing in common — they mainly serve customers from outside the neighborhood.

Those businesses are the rare bright spots. At University Settlement, a nearly century-old nonprofit that provides services to the needy, many of the people who now show up to the food pantry on Broadway Avenue didn’t even think to apply for federal aid programs, says the executive director, Earl Pike. They did work under the table and wouldn’t be able to qualify, or didn’t trust the government when it came offering help, he explained.

Pike, a tall, weathered man wearing worn jeans and leather boots while folding masks at the Garden of Life’s opening ceremony, had to go out knocking on doors trying to get the word out about all the new federal relief programs before they disappeared.

“What the money did was, it kept the IV going for the comatose patient. But it didn’t solve anything,” Pike said. Even in the ZIP code that contains most of Slavic Village, where the median income is half the Ohio average and 37.5% of residents live in poverty, there’s still an economic race gap. The median income for white households is $31,815; for Black households, it’s $23,596.

“Black families lost almost all their wealth in the housing crisis, because all of their wealth was in their homes,” Pike said. “We’ve just begun clawing our way back to where we were before. And we’re about to lose the gain of the last 10 years. Once again, when all this is said and done, Black families will have nothing.”

A Company Finds Cash to Ride Out the Pandemic

Walter Hyde, the stocky owner of Daisy’s Ice Cream, who wears a Jameson’s bandanna for a mask over a triangle-shaped patch of beard, has a clear view of how the government’s economic response to the pandemic unfolded in Cleveland: “The thing money and power had was time.”

That was certainly true for TransDigm.

The company employs a strategy that Wall Street embraces because it generates both profits and lucrative fees. TransDigm buys smaller competitors, cornering the market on delivering parts for out-of-sight corners of the airline business; it currently owns 50 subsidiaries. Ninety percent of its sales are for items in which TransDigm is, in industry lingo, the “sole source” provider.

The TransDigm spokeswoman said that being a sole source provider doesn’t make it a monopolist. “It does not mean that others are incapable or in any way prevented from investing to make, market and verify a similar product,” she wrote in an email.

Sometimes, antitrust regulators notice. Three years ago, realizing TransDigm had purchased its most significant competitor in the commercial airline seatbelt business, the Justice Department made it spin off two companies that made them. But TransDigm continues to absorb rivals, and the company is able to achieve profit margins that investors gleefully call “software-like.”

TransDigm has also been wise in its choice of customers. Often it’s the Pentagon, which can spend immense sums for simple items.

In an extreme example, TransDigm charged the U.S. government $6,986 for a 3½-inch piece of metal called a “quick disconnect coupling half,” which is used in the F-5 jet. The part cost the company just $173 to make, producing a profit margin of nearly 4,000%.

That revelation came from a lengthy report by the Pentagon’s inspector general last year. Of the 47 products examined, the company had gouged the government on 46 of them, the inspector general found.

The former CEO of a Florida manufacturer purchased by TransDigm, who was interviewed by investigators, described a “one-two punch” strategy after acquisitions: raising prices and cutting costs. “They cut costs by firing employees. The metric they used was ‘revenue per head,’” he said.

Following the investigation, Howley, his shaved head giving the appearance of a retired professional wrestler, was summoned from his Chagrin Falls estate to testify before the House Oversight Committee in May 2019. After Rep. Alexandria Ocasio-Cortez, D-N.Y., demanded to know why the U.S. government should “give you another dime,” he responded with a hint of exasperation.

“It seems to me the government always has the choice of what to buy and what not to buy from us,” Howley said. “We believe that we provide the government with well-designed, well-manufactured, high-quality product.”

After the drubbing, TransDigm reimbursed the Department $16.1 million for overcharges. That made headlines, but it was a pittance compared to the company’s $5.2 billion in revenue that year.

The episode didn’t dull Wall Street’s enthusiasm because investors can rely on TransDigm to send its profits back to shareholders through generous dividends and stock buybacks — nearly $600 million over the past five years.

“We expect TransDigm to continue to pursue its long-standing objective of returning considerable capital to shareholders, maintaining an aggressive financial policy of high leverage to do so,” the ratings agency Moody’s wrote in a favorable credit report in October 2019.

Then the pandemic hit and airports became ghost towns. As Boeing’s production slowed down and dragged down the entire aerospace industry, TransDigm began furloughs and nearly 3,000 layoffs around the country. That helped keep profit margins above 40%, even when travel restrictions grounded commercial flights all over the world. In a show of solidarity with laid-off workers, the company said it would cut its executive salaries. But that doesn’t matter much when virtually all compensation is based on stock; CEO Kevin Stein, whose salary was cut by 50%, received only $1 million out of his $13 million pay last year in cash. Howley’s 2019 compensation package was still worth more than $60 million.

Just a few days before the layoffs, the Federal Reserve, acting with the Trump administration’s imprimatur, had announced its unprecedented intervention in the market for corporate debt. That proved a godsend for TransDigm as well as those who held the company’s older debt.

As the magnitude of the pandemic dawned on investors in March, they pulled out of the stock market and sought a safe haven in cash. The appetite for buying existing corporate bonds or lending new money evaporated. This was especially true for companies, including TransDigm, whose debt is seen as riskier and comes with a higher interest rate. A broad index tracking these riskier assets, known as “junk,” or “high-yield,” bonds, plummeted 20 percent in the weeks before the Fed’s intervention.

The two programs the Fed created to buy as many as $750 billion of new or existing bonds reassured investors, and they started buying again. The bond market largely recovered and even riskier companies were able to borrow. That’s when TransDigm secured the $1.5 billion in cash that it plans to use as a rainy day fund and for acquisitions.

Ultimately, it was more the Fed’s talk than the Fed’s actions that made it easier for companies like TransDigm to borrow. The Fed has purchased just $12 billion through its corporate bond programs through the end of August, far short of the $750 billion maximum. The mere existence of the programs boosted markets. The message received by investors was that the central bank was essentially guaranteeing bond prices wouldn’t fall too far.

The Fed has insisted the program was aimed at helping workers keep their jobs. “If companies cannot issue bonds, they may be unable to pay employees or suppliers,” economists at the New York Fed wrote in a blog post in the spring. But unlike the CARES Act’s lending programs for smaller businesses, there are no rules limiting how companies use the money they borrow by issuing bonds. Thus TransDigm was able to pile up cash while laying off thousands of employees.

Having trimmed costs and amassed some dry powder, the company is poised to acquire again, targeting companies that were hit hard by the downturn. As small businesses around the country are shuttered, TransDigm could grow even larger.

In March, TransDigm benefited from another piece of legislation aimed at easing the economic dislocation of the pandemic. A provision of the CARES Act boosted the tax break on interest paid by businesses, meaning Transdigm could shave its tax rate even more. That and other provisions in the bill will lower the company’s taxes by between three and eight percentage points, the company has said, a benefit of at least $30 million and perhaps tens of millions more.

Unsurprisingly, workers at TransDigm’s companies often feel expendable.

“You’re just a cog and we can get a new one,” is how one former employee described working at Kirkhill, a Transdigm company in Orange County, California. Kirkhill, which specializes in seals for doors and various other aircraft parts, laid off 79 employees in early April due to COVID. It was already the second round of layoffs this year: In February, dozens of other employees had been let go due to slower-than-expected growth.

Meanwhile, TransDigm’s shareholders have seen most of their losses from March, when the stock bottomed out at $246, erased. Today, it’s back above $500. For Nicholas Howley alone, that recovery restored hundreds of millions of dollars to his fortune.

The divergence between TransDigm’s fortunes and those of the smaller businesses in the city it calls home may be a consequence of the levers the Federal Reserve can easily pull, which can have dramatic effects on capital markets but do very little to funnel cash toward small business. That’s generally seen as the purview of Congress, which since its initial batch of aid in March and April hasn’t taken significant new steps to help struggling Americans. Meanwhile, the Fed’s policy of keeping interest rates at rock bottom fuels consolidation, since big businesses can pick off competitors, making it harder for the little guys to compete.

And these days, those big businesses don’t help the cities they’re headquartered in as much as they used to back when Cleveland was a hub for industrial titans.

“What we see about big companies is that they’re more global now,” says Joel Ratner, director of the community development financial institution Cleveland Neighborhood Progress.“They’re not invested in Cleveland in a way anything like what they used to be. Often the C-level people don’t live in Cleveland or just moved to Cleveland for the job and aren’t invested in the community. Even the ones who live here are hardly here.”

Relief Came Swiftly to Cleveland, but Vanished Just as Fast

The money that the CARES Act pumped into Cleveland undeniably helped keep the city afloat through the spring and summer. But it’s running out just as the economic recovery plateaus, setting up a looming disaster in the fall.

The Cuyahoga County government received $215 million through the CARES Act. Three million went toward renting out enough hotel space to shelter about 400 homeless people, mostly absorbing the increase of people who’d lost their housing and preventing the kind of COVID-19 outbreaks in congregant homeless shelters that occurred in dense cities like New York. Along with the city, it put $16 million toward rental assistance, forestalling evictions. A couple million went to micro-grants and zero-interest loans for small businesses that needed aid faster than the federal programs could get it to them. The rest went to support for COVID-19 testing, buying personal protective equipment, retrofits of buildings to comport with social distancing, hazard pay, and other expenses related to fighting COVID-19.

The city’s medical providers — foremost among them hospitals like the Cleveland Clinic, University Hospitals and MetroHealth — received $384 million. The county’s small businesses received about $580 million in Economic Injury Disaster Loans and around $3 billion in Paycheck Protection Program funds, according to ProPublica’s estimates.

But much of the federal assistance either hasn’t materialized or remains unspent.

One example: The Fed set up the Main Street Lending Program, which the Treasury backed with $75 billion in taxpayer dollars, meant to support $600 billion in loans with relatively low interest rates. The program took months to get up and running, and so far has made only about $1.1 billion in loans, with both borrowers and banks saying the process is too complicated and difficult.

The CARES Act can help local governments weather the downturn, but the law covers only costs directly attributable to the pandemic. Nationwide, city and county officials face the greatest threat from an indirect impact: a massive downturn in the money they used to collect on taxes on retail sales, income and entertainment. That’s why Cuyahoga is holding $100 million back, in hopes that Congress will change the law, while staring down the possibility of cutting everything from social workers to prison guards.

The Fed set up a program to lend money to strapped state and county governments. But it’s made only two loans for $1.65 billion, out of a total capacity of $500 billion; Cleveland hasn’t wanted the extra debt. Meanwhile, the Trump administration approved Ohio’s application for an extension of $300 per week in extra unemployment insurance retroactive to August 1, but the checks won’t arrive until late September.

Back at the Galleria, Gary Patel is still watching the slow days go by, hoping that the building’s management will at least open more of the five doors into the mall so that people might come in for snacks. He takes solace in his elder son and daughter, who are studying to become a physician’s assistant and computer engineer, respectively; a 16-year-old son is still in high school. They all live together in a four-bedroom house in a suburb about a half-hour’s drive south of the Galleria, and the kids work on the weekends to chip in with family expenses.

Eventually they’ll be able to help support the family with good salaries. But right now the Patels have only a little bit in savings, and health insurance costs $500 a month. Even hiring an accountant to pull together the paperwork to apply for a break on his $1,200 rent from the building’s management costs several hundred dollars that he doesn’t have.

In the meantime, he waits for customers to come back. If they don’t, there’s no way to keep going. “We’ll have to close our doors, because I don’t just want to keep paying the bills,” he says.

The Galleria sits at street level to Erieview Tower in Downtown Cleveland

The Galleria below the Erieview Tower. [Jean-Marie Papoi / ideastream]

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