These Restaurants Were Approved for Federal Aid. White Restaurateurs Just Hijacked It.

When Ruth Gresser heard about the Restaurant Revitalization Fund’s grants for restaurants that had been affected by the pandemic, she made sure to get her paperwork in order as quickly as possible. “We were prepared,” she said. “On May 3, we submitted an application at 10 minutes after noon, and the portal opened at noon.” Gresser, the owner of the Washington, D.C.-based Pizzeria Paradiso chain, applied for a grant and was relieved when her application was approved a few weeks later.

Gresser had big plans for the grant money: She was going to pay back rent, and set some funds aside for maintenance costs. Most importantly, she was going to use it to hire more staff.

“Last March, my staff of 170 went down to 20 people. Over the year-plus of the pandemic, we have grown back to around 70, but in order to operate my restaurants at 100 percent — I have four locations, and we started the pandemic with five — I would have to hire a lot of people,” Gresser said. She declined to share how much total funding she had been awarded, but said it would have been enough to restart full operations at all four remaining Pizzeria Paradiso locations and get them “through the next year or so of recovery.”

The money never came. Gresser is one of more than 2,900 restaurant owners across the country who may no longer receive grant money they had been promised by the Small Business Administration, thanks to a couple of lawsuits claiming that the funds — which gave priority to women, people of color, and other small-business owners who usually lack access to capital or have been historically marginalized — were discriminatory ... against white men.

From the beginning, it was clear that there wouldn’t be enough funds to go around. Congress set aside $28.6 billion for the Restaurant Revitalization Fund as part of the 2021 American Rescue Plan, which passed in March. The bill required the Small Business Administration to prioritize applications filed by businesses that are at least 51 percent owned by women, veterans, and people considered “socially or economically disadvantaged” — meaning people of color and people whose net worths fall below a certain net worth — for 21 days. After the three-week period passed, the SBA could begin processing applications and distributing funds to all other businesses.

On May 18, just over two weeks after the application portal opened, the SBA announced that it had received 303,000 applications thus far — 57 percent of which had been filed by “women, veterans, and socially and economically disadvantaged business owners” — adding up to more than $69 billion in requests. By that point, the agency had approved “nearly 38,000 applicants ... for more than $6 billion,” the release read. These initial recipients were all in the priority category.

Three days after that press release was published, a pair of restaurant owners sued the SBA, claiming the prioritization of businesses owned by people from socially and economically disadvantaged groups was discriminatory against white men. And on May 28, a federal judge in Texas issued an injunction preventing the SBA from distributing outstanding funds to applicants in the priority category who had been approved for their grants but hadn’t gotten the money yet. Gresser was among them. The injunction meant that the SBA could, however, start distributing money to non-priority applicants.

The right-wing advocacy group America First Legal — founded by former Trump advisor Stephen Miller and Trump White House chief of staff Mark Meadows — filed the lawsuit on behalf of white restaurant owners in Texas and Pennsylvania. The owners of the Penn Hotel Sports & Raw Bar in Hershey, Pennsylvania, and the owners of the Lost Cajun in Keller, Texas, are “being subjected to unconstitutional race and sex discrimination by the ‘priorities’ that the statute commands for minority- and women-owned businesses,” the lawsuit alleges. The Wisconsin Institute for Law & Liberty, another conservative advocacy group, filed a separate lawsuit on behalf of the owner of Jake’s Bar and Grill, a restaurant in Harriman, Tennessee.

Neither Janice and Jason Smith, the owners of the Lost Cajun, nor Eric Nyman, the owner of the Penn Hotel Sports & Raw Bar, qualify as socially or economically disadvantaged. (It’s unclear what percentage of the Lost Cajun is owned by Janice Smith; if the restaurant were at least 51 percent woman-owned, it could have applied as a priority candidate.) Nyman applied for around $640,400 in funding on May 3, the day applications opened. The Smiths applied for roughly $187,700 on May 5. Thus, the lawsuit alleges, it’s possible that “the entire $28.6 billion that Congress allocated to the Restaurant Revitalization Fund will be depleted” before Nyman and the Smiths “can even be considered for relief under the program.” (Each restaurant’s grant funding is calculated based on income and expenses from previous years.)

As the New York Times reported, the Lost Cajun, the Penn Hotel Sports & Raw Bar, and Jake’s Bar and Grill all received grant funding despite being non-priority applicants. They received their awards on June 1, after the Texas judge issued the injunction preventing the SBA from distributing outstanding funds to businesses in the priority category. And although the America First Legal lawsuit claims that the SBA’s prioritization period is a form of “race or sex discrimination,” the government’s definition of “socially and economically disadvantaged groups” isn’t limited to race or gender.

Bob Freeman, the owner of the historic Buena Vista Cafe in San Francisco, applied for a priority grant as a veteran. His grant was approved on May 28 — the same day the Texas injunction was issued — though he declined to say how much the total funding would have been. On June 12, Freeman received an email saying he would no longer be receiving the funds.

“The SBA is not able to pay 2,965 priority applicants — including yourself — who were previously approved and notified of their approval. SBA will not pay these claims because the legal conclusions in these court rulings would preclude payment,” the email read. “SBA’s leadership is frustrated with this outcome and remains committed to doing everything we can to support disadvantaged businesses getting the help they need to recover from this historic pandemic.”

“We could’ve been in the other group, except for the fact that both my [business] partner and I are veterans. He was an Army officer, I was a Navy officer,” Freeman said. “I spent three years, four months, 29 days, and some-odd hours in the Navy, and I’m getting penalized for it.”

But it’s unclear whether applying as a non-priority candidate would have been beneficial. The SBA has awarded grants to more than 100,000 restaurants so far. Of those, around 72,000 were in the priority category, according to the New York Times. Priority applicants have gotten roughly $18 billion of the $27.5 billion the SBA has distributed — meaning it’s entirely possible that the fund would have been depleted before the priority period ended. In an emailed statement, an SBA spokesperson said many restaurants in both categories would not be able to receive grants due to budget constraints.

Greg León, the owner of Amilinda in Milwaukee (who also spoke to the Times), was hoping to use the funds to expand the restaurant’s hours, expand the restaurant’s bar, upgrade its ventilation system, and — most importantly — hire more employees and give raises to existing staff.

“Although all the restrictions in Milwaukee have been lifted, we’re still operating at 50 percent because we need to bring in more staff,” León told Eater. “To bring in more guests, we need more staff, but we can’t afford to bring in more staff without making more money. So we’re caught in this vicious circle.”

On June 22, León received an email from the SBA referencing his status as a priority applicant. “[D]ue to recent court rulings, the SBA will not be able to distribute” his grant, the email read. But the Texas judge’s injunction requires the SBA to keep processing applications and distributing grants to those not in the priority category. Given the total number of applicants in both categories and the relatively small size of the fund, there’s no way everyone who qualifies for a grant will get one. “If Congress provides SBA with additional money for the Restaurant Revitalization Fund,” León’s notice read, “SBA will be able to process in the order received and fund applications as approved until the additional money is exhausted.”

Whether or not León and the more than 2,950 others whose grants were rescinded get funding is ultimately up to Congress. A bipartisan bill introduced earlier this month would add $60 billion to the fund; if lawmakers agree on a bill that provides adequate funds for the restaurants who qualified for grants but never got their money, the lawsuits will be moot. But if Congress doesn’t pass a second round of funding, restaurant owners in the priority category whose grants were approved but never distributed will only get funding if the Revitalization Fund somehow doesn’t run out of money — which it’s already about to.

In an emailed statement, the SBA said it would “continue to work around the clock to get the nation’s restaurants, venues, and other small businesses back on track.” Per the Counter, the agency is also urging Congress to infuse the Restaurant Revitalization Fund with more money.

Gresser, the D.C. pizzeria owner, is hoping that a second round of funding will mean there’s finally enough money to go around. “This program has been hampered from the beginning because it did not address the true size of the need that it was created to rectify. Instead, the law established a false scarcity by funding this program at [one-third] of the recognized, anticipated need,” she said. “Of course Congress could resolve this by passing the replenishment bill. My individual story is important but the bigger story is that given the way the program was funded, the full scope of the economic impact of the pandemic continues to go unaddressed.”

Like other restaurant owners across the country, León has had trouble hiring more staff as everyone scrambles to reopen at once. He planned on using some of the $285,000 he had been awarded to raise wages at the restaurant to make hiring more competitive. Now that he has been denied the funds, León said, it will have a trickle-down effect on the whole community.

“This isn’t money that’s going in my pocket,” he said. “This is money that’s going into the business. And not only is it going into my business, but it’s going to all the local farmers we work with, the fishmongers, the butchers, and the growers. The less sales I make, that’s less tax revenue that the city and county and state make. If I hire more people, that’s more payroll taxes, that’s more Medicare and Social Security we’re paying into.”

Gaby del Valle is a freelance reporter who primarily covers immigration and labor.