[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
SMALL BUSINESS AND HURRICANE KATRINA: REBUILDING THE ECONOMY
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC, OCTOBER 7, 2005
__________
Serial No. 109-34
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
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COMMITTEE ON SMALL BUSINESS
DONALD A. MANZULLO, Illinois, Chairman
ROSCOE BARTLETT, Maryland, Vice NYDIA VELAZQUEZ, New York
Chairman JUANITA MILLENDER-McDONALD,
SUE KELLY, New York California
STEVE CHABOT, Ohio TOM UDALL, New Mexico
SAM GRAVES, Missouri DANIEL LIPINSKI, Illinois
TODD AKIN, Missouri ENI FALEOMAVAEGA, American Samoa
BILL SHUSTER, Pennsylvania DONNA CHRISTENSEN, Virgin Islands
MARILYN MUSGRAVE, Colorado DANNY DAVIS, Illinois
JEB BRADLEY, New Hampshire ED CASE, Hawaii
STEVE KING, Iowa MADELEINE BORDALLO, Guam
THADDEUS McCOTTER, Michigan RAUL GRIJALVA, Arizona
RIC KELLER, Florida MICHAEL MICHAUD, Maine
TED POE, Texas LINDA SANCHEZ, California
MICHAEL SODREL, Indiana JOHN BARROW, Georgia
JEFF FORTENBERRY, Nebraska MELISSA BEAN, Illinois
MICHAEL FITZPATRICK, Pennsylvania GWEN MOORE, Wisconsin
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
J. Matthew Szymanski, Chief of Staff
Phil Eskeland, Deputy Chief of Staff/Policy Director
Michael Day, Minority Staff Director
(ii)
C O N T E N T S
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Witnesses
Page
Barreto, The Honorable Hector V., Administrator, U.S. Small
Business Administration........................................ 5
Brennan, Mr. Ralph, Owner, Ralph Brennan Restaurant Group........ 32
Ryan, Ms. Rae Ann, President, Travel Affiliates.................. 34
Perkins, Mr. Randy, Co-Owner, Perkins Productions, Inc........... 35
Williams, Mr. Guy T., President, Gulf Coast Bank and Trust....... 37
Appendix
Opening statements:
Manzullo, Hon. Donald A...................................... 45
Velazquez, Hon. Nydia........................................ 47
Christensen, Hon. Donna M.................................... 49
Sanchez, Hon. Linda T........................................ 51
Prepared statements:
Barreto, The Honorable Hector V., Administrator, U.S. Small
Business Administration.................................... 55
Brennan, Mr. Ralph, Owner, Ralph Brennan Restaurant Group.... 62
Ryan, Ms. Rae Ann, President, Travel Affiliates.............. 65
Perkins, Mr. Randy, Co-Owner, Perkins Productions, Inc....... 70
Williams, Mr. Guy T., President, Gulf Coast Bank and Trust... 73
Additional Material:
National Association of Women Business Owners................ 86
(iii)
SMALL BUSINESS AND HURRICANE KATRINA: REBUILDING THE ECONOMY
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FRIDAY, OCTOBER 7, 2005
House of Representatives
Committee on Small Business
Washington, DC
The subcommittee met, pursuant to call, at 10:30 a.m., in
Room 2360 Rayburn House Office Building, Honorable Don Manzullo
[Chairman of the committee] presiding.
Present: Representatives Manzullo, Bartlett, Kelly
Musgrave, Sodrel, Fortenberry, Fitzpatrick, Gohmert, Velazquez,
Lipinski, Grijalva, Sanchez, Bean and Moore
Also Present: Representatives Melancon and Taylor.
Mr. Manzullo. Good morning. I welcome everyone to the
Committee's hearing on the impact of the recent hurricanes on
small businesses located in the Gulf Coast region. There are a
number of small business owners from the affected areas who
deserve special praise from taking time away from more pressing
problems to enlighten the Committee about the situation in the
Gulf and the assistance they may need in rebuilding their
businesses and the economies in the area. I also want to thank
the SBA Administrator for moving his schedule around to make
himself available this morning. Hector, hopefully you received
some sleep during your red-eye flight from Los Angeles.
Unfortunately, we were not able to have a witness from the
Department of Homeland Security to testify about hurricane
recovery procurements for local small businesses because their
top officials are at a conference in New Orleans right now
informing small businesses about contracting opportunities.
Early Monday, August 29, Hurricane Katrina made landfall
in the Gulf Coast region of Mississippi. The strength of the
hurricane devastated the Gulfport and Biloxi areas. But
Katrina's damage did not end there; the strength of the storm
caused substantial breeches to the levee system protecting New
Orleans flooding nearly 80 percent of the city, forcing the
greatest mass migration of people in this country since the
Dust Bowl emptied the Great Plains in the 1930s, and washing
away thousands of small businesses that were the cornerstone of
the economy.
Already traumatized by Katrina, the residents then had to
deal with Hurricane Rita. At one point, the storm was described
as a tornado the size of Georgia. Fortunately, Rita weakened
substantially before it made landfall on September 24.
Nevertheless, the storm inundated low-lying regions of
Southwestern Louisiana and eastern Texas, including areas in
Mr. Poe's district, a valued Member of this committee.
This hearing is not about recriminations or what should
have been done better in the immediate response to Hurricanes
Katrina and Rita. This hearing will examine the disaster
assistance provided by the SBA and look to the future needs of
small business owners as they try to rebuild their
establishments and the economy of the Gulf Coast.
In a meeting with Herb Mitchell, the dedicated public
servant in charge of the Office of Disaster Assistance at the
SBA, he noted that more than 700,000 people registered to
obtain assistance from the federal government as a result of
Katrina. That number certainly has increased significantly
since then to over 1.6 million referrals or inquiries after the
destruction wrought by Hurricane Rita. The Office of Disaster
Assistance at the SBA is one of the government's primary focal
points for providing assistance to homeowners and small
businesses through its disaster loan program. And while not all
of those who registered for assistance will receive a loan from
the SBA, the numbers that the Office of Disaster Assistance
deal with is simply staggering. Compare that to the Northridge
earthquake, which ended up with 125,000 loans, juxtapose that
against the sheer number of applications and inquiries here.
I recently visited Baton Rouge, and I saw dedicated public
servants from the SBA working tirelessly to assist small
businesses devastated by Hurricane Katrina. I also saw small
business owners who remained optimistic that their innate
resilience will enable them to lead the rebuilding of their
communities and shattered economies. The role of the government
in this circumstance is not to smother the workers trying to
provide assistance or hinder the efforts of small business
owners wanting to rebuild. Rather, government assistance should
be limited to absolute minimum needed to ensure that public
servants can do their jobs and small business owners have
adequate resources, combined with those from the private
sector, to rebuild.
No one can deny that certain assistance is necessary. For
example, temporary suspension of payment of SBA loan payments
makes sense because it will be some time before many businesses
will have a customer base. Similarly, an increase in the size
of SBA disaster loans will be needed. What is unacceptable is
using this disaster to spend precious taxpayer funds to
dramatically expand the SBA and other government programs for
initiatives that only tangentially relate to Katrina and Rita
just so we think that we are doing something to provide
hurricane relief. For example, I have specific concerns about
allowing a long-term deferral of payment of interest on
disaster loans because that will dramatically drive up the cost
of the disaster loan program to the U.S. taxpayer and would set
a negative precedent for other natural disasters. The victims
of the devastating 1993 Mississippi River floods in the Midwest
did not have this benefit and they survived. Student loans do
not have this benefit. The issue is, why risk the ability of
the SBA to respond to future natural disasters by allowing the
deferral of interest payment?
As we move forward with relief legislation, the response
from this Committee will not be, let's open the federal feeding
trough and allow just anything into the bill whatever they
like. The right response is to tailor policies to maximize the
potential of private citizens and markets to rebuild the
economies affected by the one-two combination punch of Katrina
and Rita.
Finally, I wanted to take this opportunity to thank the
Bush Administration for rescinding the month-old rule that
increased from $2,500 to $250,000 the amount federal employees
could charge to government credit cards for services related to
Hurricane Katrina relief. I raised this objection during
passage of the second supplemental appropriation bill last
month in a colloquy on the House floor with the Chairman of the
House Appropriations Committee because of its potentially
devastating consequences for small business. Few people know
that contracts of between $2,500 and $100,000 are reserved
exclusively for small businesses. With this new ruling, small
businesses can once again have an open and transparent process
by which to compete for government contracts as it relates to
Hurricane Katrina and Rita relief and recovery efforts. That
will be the subject possibly for another hearing on that aspect
of the relief effort in the Gulf. I also want to thank the
Administrator for recent announcement of a 12-month deferral of
SBA-serviced business and disaster loans in the primary
counties and parishes of the disaster area.
My Dad is from those parts. He was born in Donaldsonville,
and I stayed with my cousin in Baton Rouge. There was no place
to stay. Either I stayed with him or traveled four hours to
Houston. And, my cousin Tommy took us all over that area down
there. We visited the Joint Command Center, where all the
agencies are working and many of those people there are living,
not only in the building there but they are living in tents. I
was really impressed with the quality and efficiency of the
work going on. We have a lot of work to do, however.
[Chairman Manzullo's opening statement may be found in the
appendix.]
Now I will recognize the ranking member of the full
committee, the distinguished gentlelady from New York, for her
opening statement.
Ms. Velazquez. Thank you, Mr. Chairman.
On August 29th, the Gulf Coast was hit with one of the
worst natural disasters ever witnessed by our Nation. Not only
were possessions lost and families separated, but the
livelihood of millions of people and businesses were instantly
shattered.
The impact of Hurricane Katrina was unprecedented, and with
it we were all reminded of the harsh reality, there is nothing
more critical than ensuring that assistance is provided
immediately and efficiently to all those in need.
In the aftermath of Hurricane Katrina, thousands of small
businesses have turned to the Small Business Administration for
assistance. Looking back on the past six weeks, it has become
obvious to me and many others that today SBA has failed the
Gulf Region small businesses. It is appalling that as of last
week, one month after the hurricane touched down, not one of
the small businesses that have been promised a loan actually
received one. This is unacceptable, and there are simply no
excuses for such an inadequate response.
To compound this, small business owners are being told by
SBA that it will take up to three months before they actually
receive their disaster loan. Thousands of small businesses in
the Gulf Region have been displaced or have lost their
businesses altogether. These business owners have existing
expenses to cover, employee salaries to take care of, and rent
to pay. Clearly, they cannot afford three months to receive
assistance. Three months represents a critical period for these
small businesses. It is the difference between recovering and
rebuilding, and having to shut down their businesses.
In addition, many entrepreneurs are simply discouraged from
even applying. Small businesses are overwhelmed by the
paperwork requirements and extremely time- consuming
application process. Many of these individuals simply do not
have the time or resources to weed through the process.
The last thing entrepreneurs in the Gulf Coast need is to
have to fight through an agency charged with being its number
one source of assistance. SBA shouldn't be creating headaches
for these small businesses, they should be curing them.
The sad truth is that this is not the first time we have
heard complaints about SBA's response to disaster. After 9/11 a
number of small businesses in the New York City area never
received a disaster loan, then last year we heard more
complaints about the hurricanes touched down in Florida. What
is happening here today is just plain wrong. With the record-
breaking demand SBA is facing, it is clear the agency lacks the
resources to meet the needs of the Gulf Region's entrepreneurs.
I can tell you what is going on here. We are seeing the
effects of an agency whose budget has been cut in half over the
past five years, and it is now crippling under a demand they
cannot simply handle.
The rank and file employees who are committed as any in the
Federal Government cannot accomplish the agency's mission
without the tools to do so, and that is what is happening here.
I want to thank the SBA employees who are working in such
challenging conditions. While we evaluate ways to remedy SBA's
mishaps, we also need to look at the rippling effects Katrina
will have on the small business and lending communities for
years to come. Over $2 billion of SBA loan portfolio is in the
Gulf Coast Region today. Current estimates have placed long
defaults as high as $500 million. To make sure this does not
occur, steps must be taken now to avoid the looming prices, so
we aren't left scrambling once again.
In order to move forward and avoid situations such as this,
something needs to be done. The bottom line here is, something
has gone terribly wrong in SBA's response, whether it is an
issue of not having adequate staff, resources, or a fully-
functional loan processing system, there are far too many small
businesses through the Gulf Region still awaiting for
assistance. This is simply unacceptable, and it is time they
agency recognizes this. No more everything is fine talk, that
is not going to work here. This agency cannot walk away today
without laying out a plan of action and steps to provide
immediate relief to the thousands of entrepreneurs who are
relying so heavily on SBA right now. Entrepreneurs in the Gulf
Coast need SBA's assistance today, not tomorrow.
If we want these businesses to make a full recovery, and to
ensure small businesses can depend on SBA in future disasters,
then these issues need to be addressed now.
Thank you, Mr. Chairman.
[Ranking Member Velazquez's opening statement may be found
in the appendix.]
Mr. Manzullo. Here's the procedure we are going to use. We
are going to start with Mr. Barreto, and then when we finish
Mr. Barreto said that he would stick around as long as he can
to be able to hear the testimony of the other witnesses.
We have a member here from Louisiana that wanted to, your
last name is about as bad as mine, Charlie, if you would take
just a very brief amount of time, brief, one minute to
introduce your witness who will be on the next panel.
Mr. Melancon. My witness will be in the next panel, Guy T.
Williams, and I came in earlier and found out that another
friend of mine, Ralph Brennan is in here. Both these folks are
from New Orleans, but that entire metropolitan area has been
totally devastated, as you are aware. I had hoped to come in
and introduce Mr. Williams and, Mr. Chairman, I appreciate that
opportunity.
Mr. Williams is the Chairman and Chief Executive Officer of
Gulf Coast Bank & Trust. He was telling me just a few minutes
ago that they have placed a portable building to try and get a
branch back up in St. Bernard Parish, which is one of my
parishes that has been totally devastated. There is not a house
or a business--
Mr. Manzullo. Charlie, you are over a minute.
Mr. Melancon. Over a minute, I'm sorry, sir.
Mr. Manzullo. We've got votes coming up in just a few
minutes.
Mr. Melancon. Let me just introduce you to my friends, Guy
Williams and Ralph Brennan, from Louisiana.
Mr. Manzullo. Do you guys want to stand up. There you are,
thank you for coming from Louisiana.
Thank you, Charlie.
Administrator Barreto.
STATEMENT OF THE HONORABLE HECTOR V. BARRETO, U.S. SMALL
BUSINESS ADMINISTRATION
Mr. Barreto. Good morning, Chairman Manzullo, Ranking
Member Velazquez, and distinguished Members of this Committee.
Thank you for inviting me to discuss the Small Business
Administration's Office of Disaster Assistance efforts to
provide relief to the victims of Hurricane Katrina.
Herb Mitchell, the Associate Administrator for Disaster
Assistance, is with me. Herb is a career employee with over a
decade of experience in disaster assistance. Herb and I were
recently in Mississippi and Alabama, and previously in
Louisiana and Texas, we learned first hand the extent of the
destruction caused by the hurricane.
In Gulfport, I was shocked to see a city that had literally
been flattened. We met with the citizens, homeowners and the
small business owners who were affected, and with our SBA
employees on the ground, and I can tell you I've never been
more proud of the work we do at the SBA.
Mr. Chairman, I know you want to discuss efforts to rebuild
the Gulf Region, and how SBA can rebuild the economy of the
affected areas. However, would like to first talk about the
SBA's work since Hurricane Katrina hit.
Mr. Chairman, you met our Disaster Recovery Staff led by Al
Judd in Baton Rouge. They are just one of 33 Disaster Recovery
Centers in Louisiana. We now have nearly 600 staff on site in
the affected areas. They have done an excellent job, and I am
committed to offer them all of the support they need to carry
out the SBA's disaster assistance mission.
As the primary federal disaster assistance loan program for
long-range recovery for private sector, non- agricultural
disaster victims, SBA's disaster program offers direct loans
with eligibility based on financial criteria. Currently, the
interest rate for loans for homeowners without credit available
elsewhere is 2.687 percent, and the rate for homeowners with
credit available elsewhere is 5.375 percent. The vast majority,
over 96 percent, of our disaster home loans, are made at the
lower interest rate. For business the rates are 4 percent and
6.557 percent, respectively.
SBA disaster loans are not just for small businesses. Most
loans go to homeowners, and Katrina and Rita home loan
applications currently out number business applications 8:1.
SBA has two kinds of business disaster loans, physical disaster
loans for uninsured losses up to $1.5 million, with funds to
repair or replace business property to pre-disaster conditions.
Economic injury disaster loans provide up to $1.5 million
in working capital for loans for small businesses that suffer
economic injury as a direct result of a disaster, regardless of
whether the property was damaged.
These are loans to help small businesses pay ordinary
operating expenses. The bottom line is, the SBA's disaster
loans help rebuild communities. SBA doesn't just help the small
businesses, but their friends, and neighbors, and their
customers. Our disaster loans make recovery affordable through
three factors, low interest rates, longer terms, up to 30
years, and refinancing under certain circumstances. SBA
disaster loans are a critical source of economic stimulation in
disaster- ravished communities and help spur employment and
stabilize tax bases by protecting jobs.
SBA responded immediately to the President's disaster
declaration for Hurricane Katrina, and continues to expand and
increase assets to ensure that our delivery of disaster
assistance goes smoothly.
I would like to address the media accounts of computer
problems and processing slow downs in the Office of Disaster
Assistance. Nothing could be further from the truth. The old
system, the automated loan control system, was cumbersome. It
was unreliable. It was outdated. The ALCS was not a loan
processing system, but it was a tracking system to interface
with our mainframe, and we had two other unconnected and
outdated systems for underwriting and legal documentation
generation as well.
Last year, the ALCS broke down during the Florida
hurricanes, and it took nearly a week to be repaired because
nobody carries parts for a system that old. Faced with the
possibility of future failures, SBA moved forward to build the
disaster credit management system, or DCMS. The DCMS is a
totally integrated, web-enabled system, that performs all of
the necessary functions on one platform with the latest
technology. It also improves SBA's access to external data
sources like credit reports, and existing federal debt, tax
information, and benefits data. This system has been in use
since November of 2004, and allows SBA to process loans
electronically in a paperless environment.
As I said, SBA started moving even before Katrina hit. We
had 880 staff when the President made his declaration, and we
now have over 2,800. We expect to hire nearly 2,000 more.
Recently, I visited our processing center in Fort Worth,
Texas, where we have expanded the facility by 40,000 square
feet and added phone and computer connections to increase our
capacity to process applications, and we will acquire the floor
above us in Fort Worth to expand further if needed.
To date, SBA has received a record number of referrals from
FEMA, over 1.4 million referrals, more than the four 2004
hurricanes combined. Our processing center in Fort Worth, Texas
is working 22 hours a day, and surge capacity is in place in
the back-up processing location in Sacramento, California. Both
locations have sufficient numbers of desktop computers to
process and disburse loans. They have received 61,000
applications, mostly in the past two weeks, yet they are
receiving and inputting those loans at over 3,000 a day.
The temporary problems in the affected area were not
related to the system, rather staff often couldn't reach homes
or businesses, or contact the applicant. Lack of physical
access slowed our folks in the beginning, and they were only
completing 250 verifications daily. That has doubled and we
reach over 2,000 verifications a day now. We have already
completed 29 percent of the assigned verifications, and that
number will climb.
In order to further expedite verification, SBA is working
to obtain some satellite imaging data and other public records
that can help us verify damage and ownership without going to
the site. Unfortunately, the person on the ground is still
usually the best tool for verification.
As I said, ODA is staffed up to meet the demands of this
disaster and continues to hire. By design, ODA staffs up to
meet the needs of disaster victims when disaster strikes. The
staffing up is transparent to disaster victims and saves
taxpayers hundreds of thousands of dollars by keeping the staff
low in times where little disaster activity is occurring. Our
SBA ODA employees are now in over 50 disaster recovery centers,
and more are opening daily. At each of these DRCs SBA provides
Katrina victims with one-on-one assistance, helping to fill out
applications and answering questions. They are also making
follow-up telephone calls to victims who have not returned
their applications.
I would also like to discuss some of the other steps SBA is
taking outside of our normal programmatic efforts. SBA has
assigned four procurement center representatives, or PCRs, to
Katrina-related contracting. Our Office of Government
Contracting is meeting with small and disadvantaged business
utilization officers from all major agencies to help focus on
small business opportunities. SBA is working with the General
Services Administration to establish sourcing lists for small
businesses, and help small businesses enter the central
contractor registration database of small businesses. It's
available for contracting in the Gulf Region. Small business
can call now, 1-800-FED-INFO to register and learn about
opportunities. A customer service representative from GSA will
field the calls and direct each caller to the nearest SBA
district office. The SBA has designated personnel to respond to
these inquiries and make referrals to SBA's PCRs.
I'm also happy to announce that Judith Roussel, our
District Director from Illinois, who has considerable
contracting experience, has been detailed to coordinate this
effort, and the early data on small business utilization, the
recovery efforts, is encouraging. We are well exceeding our
small business prime contracting goal of 23 percent. While the
Administration's priority is always working to provide needed
emergency services as quickly as possible, SBA is committed to
making sure that our small business customers receive fair
opportunities to help in the rescue, relief and reconstruction
effort.
Let me just offer two examples of the results. The Army
Corps of Engineers recently issued 100 percent small business
set aside for quality assurance services, a multiple award,
firm, fixed-price contract. They've also issued an 8[a]
competitive contract action for multiple award roofing
contracts, three contract awards anticipated at not to exceed
$50 million each.
I have signed an administrative notice for all SBA service
borrowers in the affected areas, giving them up to 12 month
deferment of payment. In the same notice, I encouraged our
lending partners to contact SBA and work with us to see what
type of solutions we can find to assist them in working with
their small business borrowers.
Our small business development center partners have also
come forward to assist with counseling and business development
assistance for small businesses damaged by Katrina. We are
working with them to enable them to provide services from
neighboring states and across the country. To that end, I have
authorized SBDCs to operate outside their state to help in the
affected areas.
SBA also recently announced a new agreement with the
Louisiana SBDC and efforts with the Mississippi SBDC to provide
additional disaster business counseling.
Mr. Chairman, I would now like to discuss some of the
proposals the Administration has put forth. In the area that
the President has designated Gulf Opportunity Zones, or GO
Zones, SBA will have the following role. We will increase the
maximum size of SBA business-related disaster loans from $1.5
million to $10 million. Raising this cap on loan size should
help business activity recover more quickly by facilitating
firms access to low interest loans to cover physical damage and
economic injury.
Increased disaster mitigation loans, SBA can currently
increase a disaster loan by up to 20 percent, so the borrower
can invest in disaster mitigation technology, such as storm
shutters. For example, a business with $100,000 of damage may
have $80,000 covered by insurance, and a $20,000 SBA disaster
loan. Typically, the SBA's mitigation loan would be 20 percent
of the $20,000. The Administration's proposal would raise
eligibility to 20 percent of the total $100,000 damage, in this
case increasing the amount eligible for a mitigation loan five
fold.
Increase the maximum size of surety bonds from $2 million
to $5 million. Small business often must secure bid and
performance bonds in order to win contracts. These bonds assure
the contractor's customers, including those in the public and
private sectors, that the contractor has the financial capacity
to perform the requisite work. The larger bonding limit would
assist small businesses in the disaster areas secure contracts,
especially those related to reconstruction.
Provide 7[a] and 504 loan borrowers with the option for
deferring their principal and interest payments for a 12-month
period. In order to help small businesses in the disaster area
to rebuild their enterprises and cash flow, the Administration
supports providing borrowers with options to defer principal
and interest payments on existing 7[a] and 504 loans for up to
12 months. Under certain circumstances, participating lenders
and certified development companies can make deferral
available. Where deferral is not available alternative means of
providing temporary relief to the borrower may be needed and
could include an economic injury disaster loan for the working
capital needs of the small business.
Through these measures, borrowers could better regain their
financial foundation. SBA is also deferring payments on certain
agency service business loans in the disaster area, and sent a
notice asking our lending partners where possible to do the
same for SBA business loans that they service.
Higher specific GO Zone and 7[a] and 504 loan levels than
Fiscal Year 2006. The current program authorizes for Fiscal
Year 2006 SBA's nationwide 7[a] loan volume to $17 billion, and
504 volume up to $7.5 billion. The Administration proposes
higher loan levels specifically for the GO Zone area during
Fiscal Year 2006, ensuring that lenders will be able to make
small business loans in the area. GO Zone area levels will be
$10 billion for 7[a] loans and $5 billion for 504 loans, in
addition to the levels already authorized for the regular
programs.
Once Hurricane Katrina hit the Gulf Coast, SBA's ODA
immediately began its outreach, as we do in all disasters. ODA
was in contact with our regional offices, with our SBDCs and
local community-based organizations. Our efforts have been
hampered by the destruction, but I'm pleased to report that we
are serving those affected by this disaster well, and have the
manpower and technology to continue to do so.
While SBA is continuing its traditional efforts to offer
assistance to businesses and homeowners to rebuild, we also
believe there is more that can be done to rebuild the economy
in the Gulf Region.
Thank you, Mr. Chairman, and Ranking Member Velazquez, for
affording me the opportunity to speak to you today about this
very important topic. I look forward to answering any question
that you might have.
[The Honorable Barreto's testimony may be found in the
appendix.]
Mr. Manzullo. Thank you.
Mr. Taylor, if you want to take one minute and introduce
your witness. I do not think there is going to be an
opportunity for people who are not members of the Small
Business Committee to ask questions.
Okay, it could be some time. Okay, it's up to you, thank
you.
Mr. Barreto, thank you. What I would suggest is, Herb
Mitchell, do you want to have a seat next to the Administrator,
and as the questions come, because you have a lot of in-pocket
information on this, that if Mr. Barreto wants to have you
answer the question just feel free to do so.
For the record, do you want to give your name and spell the
last?
Mr. Mitchell. Thank you, Mr. Chairman.
My name is Herbert Mitchell, and I'm the Associate
Administrator for Disaster Assistance at SBA.
Mr. Manzullo. Thank you.
The first question is, we've been in contact with FEMA, and
the reason that we have been told that monies have not been
disbursed in the New Orleans area is the fact that the Army
Corps of Engineers has not certified that they can build a
facility that will withstand a Level 5 hurricane, and until
such time as some assurances are made as to exactly what the
Army Corps can do, that the SBA cannot disburse. Did you want
to comment on that, Mr. Barreto?
Mr. Barreto. Well, you are absolutely right, Mr. Chairman.
There are a number of issues, and often times those don't get
mentioned or covered, that we require for us to be able to
distribute a loan. The one that you mentioned is critical, is
that are those areas going to be rebuilt.
One of the things that we have to have is a permit. We are
not allowed to be able to disburse money, even after we've
approved the loan, until there is a permit.
Now, one of the things that slowed us down in the very
beginning was our inability to get into some of those areas. We
also have to go in and physically do an investigation of that
area. We had a lot of challenges in the beginning. It's getting
better, it's getting a lot better, and our investigations have
gone up, but that's also one of the critical requirements.
Another requirement is that there must--if they are in a
flood plain, they must also have flood insurance, so that's
another issue that sometimes precludes us from getting that
money out.
And lastly, and again, this is something that again doesn't
often times get mentioned, is that we can't distribute money
until the individual tells us to distribute the money.
Sometimes for a whole variety of reasons we'll approve a loan
and the individual may decide they don't want it right at that
time. They may not want to start accruing interest, or they may
have decided to go a different route.
So, all of those issues play into why a loan may not be yet
approved or be distributed yet.
Mr. Manzullo. Have loans been approved but are waiting
distribution based upon the factors that you just set forth?
Mr. Barreto. Absolutely.
Mr. Manzullo. Do you have the numbers of those? Mr.
Mitchell, you might have those.
Mr. Mitchell. As of last night, we have approved 586 loans
for $36 million, only 23 of those have actually had
disbursements for $207,000, that's correct.
Mr. Manzullo. In terms of the personnel required to handle
this number of applications, do you want to share that
information with us?
Mr. Barreto. Absolutely. As we mentioned already, you know,
we've been staffing up continuously. I mean, we are averaging
at one point, and Herb can comment on this, 200 additional
hires a day.
As I mentioned in my testimony, you know, the SBA has a
cadre of employees. I believe that right when the disaster hit
we had 800 permanent cadre employees. Those are the folks that
do--
Mr. Manzullo. Just for disaster relief.
Mr. Barreto. Right, just for disaster relief.
But, since that time we've brought on a couple of thousand
more, and we are expecting to probably have to bring on another
couple thousand.
Now, one of the things is that we are fortunate, is that we
have a network that we call on. In other words, we have people
that are already trained that have worked with us on disasters
before, and so we call them up, it's like calling up the
National Guard, but this is the disaster guard, if you will,
and they come on board with us and they are able to hit the
ground running.
On a disaster like this, and especially with the volume
that we are talking about, we also need some people with
specialization. We are going to need some additional attorneys.
We are going to need some additional people that can do the
loan processing, do the investigation, folks that have customer
service expertise, and all of those people are being brought on
board right now.
I can have Herb talk specifically about the numbers that we
have right now and what our process has been about ramping up.
Mr. Mitchell. As of this morning, we are at 2,900, and as
you already mentioned we started at 880 before the disaster
hit. We are still interviewing. We are estimating that we're
probably going to peak at some point about 4,000, and,
obviously, a lot of the attorneys and paralegals will come on
as more loans move into the legal process.
But, we are also hiring more inspectors in the field, as we
are able to get in, get access to additional areas. Hector has
already mentioned, our productivity in that has gone up
tremendously in the last week or so, simply because we are able
to get access, we've moved people to the field.
And, the other benefit that we are seeing right now, as
more of, I guess, construction employees, who were previously
unemployed, are now available to assist us. I think on this
past week we put out an ad in Louisiana. We had 300 applicants,
Louisiana construction workers, and we are starting to
interview and hire those individuals. I think we hired 15 the
first day, and we will continue to do that. The benefit to us
is, obviously, we don't have the travel expenses, and we have
people that, not only know construction, but they know the
local area as well, to help us in doing the inspections.
Mr. Manzullo. Okay.
Ms. Velazquez?
Ms. Velazquez. Mr. Chairman, I will defer to the Members on
my democratic side, and then at the end I will ask my
questions.
Mr. Manzullo. Who will be the first Democrat out, oh, Mr.
Grijalva?
Mr. Grijalva. Thank you, Mr. Chairman.
I just have some general questions, and thank you, Mr.
Barreto, for being here.
I think the Chairman said that maybe one of the objectives
of the hearing was not to open the federal coffers to such a
point that it becomes a feeding frenzy, paraphrasing. I might
suggest as well, though, that as we've responded to this
devastation, you know, there's been a suspension of Davis-
Bacon, there's been a suspension of affirmative action in some
areas, I think that affects women and minority owned businesses
in terms of accessing contracts. We've had a series of no-bid
contracts to connected corporations, and I would suggest that
maybe denying reconstruction contracts to small businesses at
the initial outset and to local workers who desperately need
the job should be part and parcel of how we reconstruct. And, I
don't think it's a question of coffers, it's a question of
process and fairness, as much as anything else.
My question, though, is, let me just specify in one area,
if I may, Mr. Barreto. Given the needs of the low-income
communities in these devastated areas, the SBA, I believe,
could truly make a difference, not only in the short term
relief, but in the long-term reconstruction, by targeting
programs to the Gulf Region to those specific communities.
And, my question, is the SBA considering any proposals to
expand the use of programs developed for low-income
communities, principally, the PRIME program and the New Markets
Venture Capital program, are those being thought about as
expanding into a targeted aspect?
Mr. Barreto. We are doing a number of things, Congressman
Grijalva. First of all, you are absolutely right, you know,
small business has to be a part of this reconstruction, and
there's nothing that's going on right now at the federal level
that is preventing small business people, minority small
business people, from having access to those contracts.
And, one of the things, whenever there's a disaster, and
this has been our experience, one of our big responsibilities
is to make sure that we are communicating with all of the
individuals in that area on how to access our programs, how to
access our services, also working with the local communities
there to make sure that we are getting that information out.
Obviously, you know, for a lot of folks they are assessing
what their needs are going to be. The disaster loans will be
one component of that. One of the things that this offers us is
an opportunity to also introduce them to all of the other
things that the SBA does. You've mentioned some of those things
in our regular programs, our regular lending programs, our
regular training programs, our regular contracting programs.
And so, we are also offering that as well.
Just yesterday, we had a meeting in New Orleans with
regards to communicating with the business community what all
the tools that are available there, and we are setting up a
business center there, specifically, to interface with the
small business community, and especially the minority small
business community, on how they can access, not only tools,
because tools are very important, but opportunities. A lot of
small businesses are saying to us, look, all the tools are
great, but if I don't get some business for my business pretty
soon I'm not going to be able to take advantage of anything.
One of the things that we are also doing, Congressman
Grijalva, is that we've had a very successful program at the
SBA for the last couple years called Business Match-Making, and
we are working with the affected states right now to bring that
program to those states and match up those small businesses
directly with the buyers, the federal buyers.
Mr. Grijalva. Specifically, the PRIME program, is that
being expanded? Is there stuff that's being done with that
PRIME program in these devastated areas?
Mr. Barreto. Yes, we have not looked at that as to expand
the PRIME program or any of the other programs. Our first, you
know, response that we've had is to make sure that we are
getting the information out on the disaster loans and disaster
assistance. That's key, and then at the same time--
Mr. Grijalva. Those two programs in the long-term
reconstruction and stability, stabilization of the area and the
business aspect, those programs will be looked at for
expansion?
Mr. Barreto. We'll look at all of our programs, because I
want to make sure that the small businesses there have access
to the full complement of SBA services and programs,
absolutely.
Mr. Grijalva. Let me just, one other point, in your Senate
testimony of September 22nd you labeled the press accounts
about the computer problems at ODA as ``misguided.'' And, as I
reviewed your testimony for today, you dropped that adjective,
so that's no longer misguided?
Mr. Barreto. Well, there's a lot of adjectives that you
could use with regards to the press reports. The thing that
happens often times with a lot of the press reports that are
coming out is it's incomplete information.
You know, we don't have a problem with our system, in fact,
our system is a huge improvement above what we had before, and
I mentioned that in my testimony. We think this is going to
help us to do a lot more and do it quicker, and more
efficiently, and in a much more qualified way than we've ever
been able to do it before.
Mr. Grijalva. Last question.
Mr. Manzullo. Well, time is out, we'll get back.
Mr. Grijalva. Thank you.
Mr. Manzullo. Mr. Bartlett?
Mr. Bartlett. Mr. Chairman, I'd like to yield my time to a
gentleman who not only had his district devastated, he lost his
house. I think Mr. Taylor recovered two wrenches and a pipe
cutter. I'd like to yield my time to Mr. Taylor.
Mr. Manzullo. We can do that.
Mr. Taylor?
Mr. Taylor. Thank you, Mr. Bartlett, and thank you, Mr.
Chairman.
Mr. Barreto, what I'm really troubled by is, I hear a lot
of talk about what you are doing for small business, but it's
all the crumbs that are falling off the table. The big contract
right now is disaster clean-up, that was given on a no-bid
contract for up to $500 million to out-of- state firms. Where
were you when this took place? I mean, as an advocate for small
business, I would think that you would have been in the room at
the table saying, wait a second, this is a devastated area,
16,000 casino workers out of work in my district, the shrimpers
have lost their boats, the only thing they are going to catch
in a trawl now might be a Porsche that's been under water for a
month. I mean, we can go down the list, timber fields are
knocked down, cattle fences, and we just go down the list of
everything that's happened.
So, the big jobs that are available right now is disaster
clean-up, and that's going on a no-bid contract to an out-of-
state firm, where was SBA, looking out for the little folks who
live there?
Mr. Barreto. Well, absolutely, Congressman, that is our
responsibility. I'm not aware of every procurement in every
federal agency often times until after it takes place. But, one
of the things that's very important to remember--
Mr. Taylor. Where was SBA when this decision was made? Were
you included at all in that decision-making process?
Mr. Barreto. Which decision, Congressman?
Mr. Taylor. The decision to let the disaster clean-up, a
$500 million, again, you know, everyone else is looking for
just crumbs off the table, I read your programs, crumbs that
fell off the table, the big contract that's going on right now
in south Mississippi is disaster clean-up. There was not a
single word in there about one little carve out to help small
business.
Mr. Barreto. Congressman, last year the Federal Government
bought $70 billion from small business.
Mr. Taylor. I'm talking about right now.
Mr. Barreto. I understand.
Mr. Taylor. This is about the hurricane.
Mr. Manzullo. Mr. Taylor, let the witness answer the
question.
Mr. Taylor. I'm sorry.
Mr. Barreto. $70 billion was almost 23 percent of
everything the Federal Government bought, that's not crumbs,
that's actually a significant increase. A few years ago we were
doing $50 billion.
And, the good news is that those federal contracts are
going to every community, small disadvantaged businesses, they
are going to all kinds of minority businesses, women
businesses, and we will make sure that small businesses there
get contracts.
Mr. Taylor. When?
Mr. Barreto. In the very beginning, what was happening is
that there was an urgent need to respond immediately. We were
trying to save lives, we were trying to get people in there,
and that's what happened. But, there's going to be a tremendous
amount of contracting activity.
In fact, the numbers that we have right now is that a
contract that's going to small business and minority business
is far exceeding the 23 percent federal percentage, far
exceeding as of this moment.
Mr. Taylor. I think your numbers are way off, and I think
you need to double check them.
Mr. Barreto. We have double checked them, and they are far
exceeding 23 percent of all the contracts that are going in
that area are going to small businesses, many of those to
minority businesses.
Mr. Taylor. Are they going from the people from the
devastated areas?
Mr. Barreto. A number of those contracts are going to them.
I don't have the percentage.
Mr. Taylor. I can assure you that 23 percent certainly
isn't going locally.
Mr. Barreto. It's more than 23 percent.
Mr. Taylor. It's not going local, and again, if I may,
that's water under the bridge, let's start today. Are you, as
an advocate for small business, going to request that FEMA go
ahead and recompete those contracts?
Mr. Barreto. They did that yesterday, Congressman. FEMA
rescinded, was going back out to bid on those contracts
yesterday.
Mr. Taylor. And, did you, as the advocate for small
business, request that it be done in an expedited manner,
because 30 days from now a heck of a lot of that work is
already going to be gone.
Mr. Barreto. Right.
Mr. Taylor. And then, it doesn't implement for, say,
another 30 days, so you are going 90 days from the day of the
storm, and a heck of lot of work has been accomplished by out
of state firms.
Mr. Barreto. I agree.
Mr. Taylor. And, they've missed all that opportunity.
So, have you gone to bat to try to expedite that?
Mr. Barreto. We work very closely with FEMA, and the Acting
FEMA Director has said that he's going to expedite those
rebiddings. But, that is another one of those issues where, you
know, you have to balance being able to respond quickly,
especially at the front end of a disaster, and then going back
out to a competition on these things. That's going to take some
time.
Mr. Taylor. Okay, again, for the future, there's really two
phases to a hurricane. I can understand the first guy who comes
in asks for--on electricity, brings his own fuel, feed, and
house his own people, and that goes on for about three weeks.
After three weeks, there is electricity available, there's fuel
that can be purchased locally, there are people that can be
contracted locally. For the future, I would really encourage
you, because there's going to be another hurricane, or tornado,
or flood, whatever, I would really encourage you to work with
FEMA to do it in two separate phases, the initial phase where
the dates are and then the follow on, so that we don't make
this mistake again.
Mr. Manzullo. Thank you.
Ms. Moore?
Ms. Moore. Thank you so much, Mr. Chair, and I just want to
thank the witness for coming here and being willing to be a
part of this panel.
My question really is, I guess, you know, I guess I just
want to say that I know you didn't cause the storm, Katrina.
Mr. Barreto. Thank you, Congresswoman.
Ms. Moore. That hasn't been said often enough, but I do
think that natural disasters like this really give us an
opportunity to step back and look at what the quote, unquote,
to borrow your words, ``normal procurement process'' is like.
And, my concern, as has been stated by other members of the
Committee, is that this storm has really pulled off the fig
leaf, as it were, for how we ordinarily do procurement, and
small business really doesn't fare well.
The L.A. Times today reported, and maybe I can clear up
this 23 percent, people keep being stuck on 23, 23 checks
totally $207,800 have been issued so far to small businesses.
You know, I voted for $62 billion, and $207,800, 23 checks,
have been cut. And that's, you know, when I talk to small
businesses in my district they say that that's kind of business
as usual, that the big companies come in, there's a press
release, you know, saying we are going to do it, and so I guess
I want you to respond to that.
And also, I want to talk about what happens normally. Tell
me how--I know people have talked about Davis-Bacon,
affirmative action, rules being bypassed, but how have the
living within a certain distance of the work, how have those
rules been implemented during this catastrophe?
And, in terms of the 23 firms that have got the $207,800,
what is the plan for?
Mr. Barreto. Sure, thank you for that question.
First of all, let me clarify something. There's actually
been close to 600 loans approved for $36 million.
Ms. Moore. Twenty-three checks have been cut.
Mr. Barreto. Exactly, 23 checks have been cut, for the
variety of reasons that we've already talked about, but, and by
the way, not all those 23 were businesses, by the way. Right
now what we are seeing is, homeowners are outnumbering the
small businesses 8:1 in terms of, you know, the request for
loans. And, that's just normal, there's a lot more homeowners
than there is businesses.
And then, you know, I'm going to let Herb talk a little bit
about this, and I want to also--we brought some charts, because
I want to actually illustrate what it is that we are dealing
with. You know, 70 percent of all of the applications that
we've received we've gotten them in the last couple of weeks.
You know, there's this sense of that we have thousands, and
thousands, and thousands of applications in a pipeline
someplace that are not getting out, that's not really what's
happening.
And then, I'll let Herb talk a little bit about, you know,
sometimes we talk about what we do in a normal disaster. I
don't think that there is any kind of a normal disaster. They
are all different, they all require a different kind of a
response and a different kind of an effectiveness. There's no
doubt that this one is very different, unprecedented in the
scope that we are dealing with right now.
And, you know, Herb has a tremendous amount of experience
over the last ten years dealing with every disaster that the
SBA has ever had to deal with, so I'd like him to maybe walk
through a couple of these charts, and I think that will
illustrate a little bit about how the flow is going on these
loans.
Ms. Moore. And, be very specific, because I think that, you
know, this hearing is about the Gulf Region, but I guess I'm
trying to get my arms around how you operate ordinarily.
Mr. Barreto. Sure.
Ms. Moore. You know, and how we've departed from those
practices, like, for example, if Brown & Root, one of the
Haliburton companies, I mean, does it meet the mile
requirement? I do want to understand that better, how small
businesses do or do not qualify for loans, if they don't live
in proximity to the SBA regional offices.
Mr. Barreto. Okay, and Herb can come in on that too, but
please understand, there is no--I mean, if that small business
is in a declared disaster area, and remember, we are talking
about a declared disaster area the size that we've never seen
before, the size of a country, anybody inside that area, it
doesn't matter where in that area that they live, could qualify
for a small business loan or a homeowner's loan, or a renter's,
you know, to replace personal property. So, there's not an
issue there, if they are inside the declared disaster area they
are going to be able to apply for these loans.
Ms. Moore. Okay, just very quickly, before my time runs
out.
Mr. Manzullo. Mr. Gohmert.
Ms. Moore. Before my time runs out.
Mr. Manzullo. It's run out.
Ms. Moore. Oh, Mr. Chairman.
Mr. Manzullo. I can't stop the clock.
Mr. Gohmert. Thank you, Mr. Chairman.
Just to go quickly to some questions I had. One of the
recommendations is to increase the maximum size of surety bonds
from $2 million to $10 million, and I notice the President's
recommendation was to $5 million. Has there been any data as to
how many businesses it would affect to go from $2 million, to
$5 million, to $10 million?
Mr. Barreto. Well, we've looked at that. I don't have the
exact percentage in front of me. What we found is, is that most
of the small businesses that we are dealing with would be under
that $5 million surety bond area. And so, you know, that's the
reason that we determined $5 million was probably the best for
us, because it's going to include most of the small businesses.
Mr. Gohmert. So, you don't recommend the $10 million?
Mr. Barreto. Not at this point. I don't believe that it's
going to affect that many of the small businesses in that area.
I mean, we are always happy to continue taking a look at it,
and if there's evidence that a number of small businesses need
that $10 million, then we definitely want to take a look at
that.
Mr. Gohmert. Well, with regard to this maximum size of the
loans themselves, $1.5 million to $10 million is a possibility,
what is your data on that?
Mr. Barreto. Well, you know, we've done this before, we did
this in 9/11. We realized there were a lot of small businesses
that were going to need more, that were going to need more, and
especially in a disaster like this where there's been such
devastation, where it's going to take some time for some of
these small businesses to come back, we want to be able to
offer them as much of that loan as they can get. So, $10
million has been a number that we've used before on these kinds
of things.
Mr. Gohmert. There's a potential recommendation to defer
repayments owed to the SBA in the 504 loan program, what is the
recommendation on how long to defer payments?
Mr. Barreto. Right now, we are looking at a year, we are
looking to defer those payments and that interest for a year.
Mr. Gohmert. Okay.
You mentioned that the SBA had been ramping up and hiring,
basically, at times 200 people a day.
Mr. Barreto. Right.
Mr. Gohmert. That's pretty massive.
Mr. Barreto. Yes.
Mr. Gohmert. How long term are the contracts for these
people that are being hired?
Mr. Barreto. Yes. Well, obviously, we are going to have
people working with us on this disaster, and this is not
unusual the way that we do it, for as long as we need them. So,
you know, we don't anticipate that, you know, they are going to
be there for a month and then they are going to be gone, we
think we are going to have people in the area, in these loan
processing centers, for a significant amount of time.
Herb can speak a little bit to that, in terms of what his
approach is going to be on that.
Mr. Mitchell. Most of the employees are employed for up
to--temporary employment up for a year. Generally, we generally
go 90 days, and if we need to extend, but we simply just know
that it's going to be long term, so almost all of the
temporaries are given at least a one-year appointment.
Mr. Gohmert. Well, I'm sure you understand my concern. We
don't want so much of this money being allocated for SBA to end
up, even though it helps people temporarily by giving them a
job, making the governmental entity bigger than the people they
are trying to help, which has happened in some departments.
Mr. Mitchell. We understand, and they will only be kept on
board as long as they are needed. We have, obviously, the
flexibility to let them go if we don't have the work.
Mr. Gohmert. You guarantee a year, there's no month-to-
month?
Mr. Mitchell. There is no guarantee, they have an
appointment for up to a year.
Mr. Gohmert. Up to a year.
Mr. Mitchell. That precludes us, for example, of giving
somebody a 30-day appointment and then have to go through
paperwork for 2,000 employees to extend it. We just put them on
a year appointment, and we release when we don't have the work.
Mr. Gohmert. With regard to the SBA loans, these will have
security, correct?
Mr. Barreto. Well, they are underwritten. I mean, they have
to have collateral, and they have to be able to prove that they
can repay the loan. Now having said that, this is not like
underwriting a regular commercial loan, we are going to be a
lot more flexible, and we don't have the stringent requirements
that one of our lenders would have in a normal situation.
Herb, do you want to talk about the underwriting?
Mr. Mitchell. Our specific policy on collateral is that we
take best available to secure the loan, which means--
Mr. Gohmert. My time is running out, so let me just
encourage you to make sure you get the collateral properly
secured. That's been a problem some places in the country,
collateral has not been properly secured.
And one other issue when it comes to collateral, and I
haven't heard anybody mention it, but I know in east Texas
where I'm from, after a river floods we've had feds come in and
say to the land owner, that's wetlands, you can't do anything
with that anymore, and I haven't heard anybody say whether or
not there has been any discussion with the entity that might
come in and say, you know what, New Orleans is now wetlands,
you are going to leave it alone.
Mr. Barreto. Well, you know, that's a big issue, and that's
one of the reasons that we can't, you know, even if we have
approved a loan in a certain area, by the way, this isn't
particular to this disaster, you know, we've approved loans in
other areas and sometimes it takes a while before that money
can be disbursed, because the person doesn't have a permit to
be able to rebuild there. So, we will not release any monies
until those permits are in place.
Mr. Manzullo. Ms. Bean?
Mr. Gohmert. Thank you.
Ms. Bean. Thank you, Mr. Chairman, Ranking Member
Velazquez, thank you, Mr. Barreto for being here today.
I'd like to go back to the contracts that are being
awarded.
Mr. Barreto. Sure.
Ms. Bean. You mentioned that the clean-up contract is going
to be rebid. How many local businesses, small businesses, have
you identified and already approved, and have you cut checks
for, so that they are prepared to participate in this rebid
process? Many of them you mentioned a match-making program that
is going to look at their skill sets and match it up with where
there's opportunities.
Mr. Barreto. Right.
Ms. Bean. But, many of them have been operationally
devastated, even though they have the skill sets and the
knowledge base, and they know the area, to do some of the
clean- up or reconstruction. So, how many have you identified?
What are we talking in terms of dollars, given that billions of
dollars have been awarded even previous to this contract
already, that have been done on a no-bid basis, exclusively
cutting out the potential for the local businesses to
participate?
Mr. Barreto. You know, a lot of these contracts are coming
out of FEMA and GSA, and so they are tracking these numbers,
and I don't know that they have reported specific numbers in
terms of how many local small businesses and what the contracts
have got. We've gotten some preliminary data as to what the
percentage of the contracts that they've let, and how much of
that has gone to small businesses, how much of that has gone to
minority businesses, and we will work with them and we'll make
sure that we have all available data on that.
And, with regards to business match-making, some of these
businesses are going to be in transition, and some of them may
need to partner with another company, or some of them we'll
help them transition their business. So, business match-making
is more than just, you know, matching somebody up with somebody
for a contract that day. Often times what's happening here is,
you are creating linkages, you are creating relationships that
will lead to contracts in the months to come.
With regards to the loans, as we've said before, you know,
the majority of the loans that we are dealing with right now,
the overwhelming majority of the loans are not coming from
small businesses, they are coming from homeowners, people who
have had physical damage to their home, or may have lost some
personal property.
Herb, I don't know if you want to comment on what you are
seeing with regards to the small business activity on the loans
that we've already approved.
Mr. Mitchell. Well, very few of them at this point have
actually been disbursed. I mean, the challenge here, and what
we expect within the next three to five days, is the
inspections will be completed, we are getting access, we'll get
those numbers as to what it's going to cost to repair or
replace that property.
But, a lot of challenges still lay ahead, even once they
get a decision as to, you know, whether or not they are going
to actually be able to get a contract or get an estimate, get
the permits, get all of the things in place to actually
rebuild.
One of the town hall meetings that we had in the field,
beyond just the financing, was employees. A lot of businesses
are saying to us, look, we just don't have the employees. We
need some assistance in providing temporary housing for our
employees in the area where we can operate, and that's one of
the challenges as well, beyond--there are a whole host of other
issues as well.
Ms. Bean. So, what have you done from a process perspective
to prioritize loan requests from local businesses that are part
of the reconstruction effort, or certainly would like to be,
and/or to do outreach to those who don't even know that these
resources are available to them?
Mr. Barreto. Well, that Business Center that we are opening
up in New Orleans with the Mayor, that's going to help us to do
that, and again, what we are dealing with is really
outreaching, educating, informing people.
You know, a lot of times these small businesses, this is
the first time they are ever going to come in contact with the
SBA, and so we really have to do an orientation for them.
With regards to the small businesses that are applying for
loans, it kind of depends on what business they are in. Not all
of them are interested in contracting with the Federal
Government or local government, they may have a business, maybe
a restaurant business for example, I know that we are going to
hear from the restaurants, they are interested in getting their
business back up to speed, getting those customers back,
marketing that business, et cetera.
So, you know, you are dealing with different kinds of
concerns, depending on what that business is.
Ms. Bean. So, you said you are doing outreach, what are you
doing? How are you letting the people--
Mr. Barreto. Well, a number of different ways. One of them
is, is that we are working very closely with the economic
development officials of their state. We've had several
meetings, for example, with Michael Olivier, who is the
Secretary of Economic Development for Louisiana. He's been very
helpful to us. Most recently, he was the Economic Development
Director in the State of Mississippi, so he's very familiar
with those two states. We are working with him to get that
information out.
When I was down there in Louisiana, and in the last few
weeks I've been to all of our operations, working with them,
meeting with their business communities, making sure that
information is out, working with the media, getting PSAs out.
We've produced hundreds of thousands of informational brochures
that illustrate all the things that we can do for them. So, I
mean, we are getting--
Ms. Bean. So, you are doing radio and public service
announcements?
Mr. Barreto. Absolutely, and working with our district
employees as well, who are helping us get that information out,
too.
Ms. Bean. Thank you, Mr. Barreto.
Thank you, Mr. Chairman.
Mr. Manzullo. Thank you.
Mr. Fortenberry?
Mr. Fortenberry. Thank you, Mr. Chairman, we appreciate
your willingness to hold this important hearing and, obviously,
I've just walked in, and trying to catch up on the context of
the entire proceeding. So, I would yield some time to my
colleague, Mr. Gohmert, if he is interested in speaking.
Mr. Gohmert. Thank you.
I am curious, what analysis has been done to the amount of
flood insurance in the area, and how it affects businesses, and
how you might mesh with that prospect?
Mr. Barreto. Well, Congressman, one of the things that is a
prerequisite for us, especially if the small business is
located in a flood plain or an area that is very susceptible,
you know, that is one of the requirements before we are able
even to distribute.
Mr. Gohmert. I would hope so.
Mr. Barreto. Yes, it is, and, Herb, do you want to mention
what we are seeing right now with regards to the flood
insurance in terms of, you know, the ability to get it?
Mr. Mitchell. Yes. I don't think there's any challenge in
terms of the availability of flood insurance, and, obviously,
there are some issues around some of the mapping and whether or
not some of those areas should have been mapped accordingly.
But, you know, that's just a product of the maps not being
updated.
But, there are two elements to flood insurance. One is, if
you were in a flood plain, and you were required to obtain
flood insurance and you did not, you would not be eligible for
any federal assistance, and that's SBA across the board. I
mean, that's statutory.
If we make you a loan as a result of a flood, then you must
purchase the flood insurance and maintain that insurance.
Mr. Gohmert. So, for those people that have insurance,
shouldn't that take care of rebuilding their business?
Mr. Mitchell. Our experience is that what people will find
is that they will be under insured. I mean, flood insurance and
hazard insurance, for that matter, cover specific things, and
if you don't get additional riders you may not have full
coverage.
And so, we are covering that uninsured portion of the
insurance, whether it's flood insurance or hazard insurance.
But, I also want to emphasize to you--
Mr. Gohmert. So, you are saying that even though you
require flood insurance you don't require riders that would
actually keep them insured in the event of a flood.
Mr. Mitchell. Well, not to that extent. Flood insurance has
limitations as to what is actually covered. For example, you
know, basements may not be covered, but only the furnace and
those essential utilities in the house would be covered. But,
if you fix your basement that may not be covered on the flood
insurance.
And, you simply have to look at your policy as to exactly
what's covered. What's not covered on the insurance you are
eligible for an SBA loan.
Mr. Gohmert. Well, unless there is an exemption or
exception for flooding caused by a local government failing to
take care of itself by securing the levee that may allow it to
flood, then I would think that if we had flood insurance on
these businesses then flood insurance should come in and take
care of that.
Now, I think the people I know on this panel on both sides,
Democrats and Republicans, are compassionate, we want to help
people that are in need, but then again, we don't want to rush
in and make the Federal Government and the taxpayer pay for
what an insurance company should have examined the risk and
taken care of itself. And, I just haven't really satisfactorily
heard how that comes into play, if SBA is going to be taking
the burden off of the flood insurance obligation.
Mr. Mitchell. Well, I'm not sure SBA has--the statute for
us is that we can cover uninsured losses. The flood insurance
policy prescribes what's covered. They have flood insurance and
they are reimbursed to the extent of what's covered under that
policy, then the loan can cover what's remaining.
Mr. Gohmert. I do have an issue about fair market value. I
don't know how you go about assessing fair market value in an
area where there are obviously no comparable sales within these
conditions, and how do you go about assessing it? You know, we
hear some people say there are so many chemicals and sludge and
things that it shouldn't even be used, and I'm not sure how you
go about assessing that.
Mr. Mitchell. Well, that's a good question, but there are
two elements to that. When we actually go out to do the
inspection, we are coming up with the cost to repair or replace
that property. So, it's the replacement cost that establishes
the eligible loan amount.
Fair market value only comes into play as to the value of
the collateral that's going to secure that loan, and,
obviously, that's going to be a tough figure to come up with.
But, keep in mind, irregardless of the fair market value of the
collateral value, if the business has the cash flow to repay
that loan and satisfactory credit, we would still make the
loan.
Mr. Manzullo. Ms. Sanchez?
Ms. Sanchez. Thank you.
Mr. Barreto, I want to bring your attention to a very
alarming story that I think highlights the importance of
today's hearing, and this is a true story of what is happening
in the Gulf Region.
There's an example of 75 electricians that came from New
Orleans, Baton Rouge, and Lake Charles, Louisiana, who were
hired by a local minority contractor, Allmight Enterprises, a
few weeks ago for a $163 million project which was to last 21
months at the Naval Air Force Station in Belle Chasse,
Louisiana, and they were going to wire a tent city that would
house 15,000 military personnel.
Four weeks into that project, BE&K, who was the overall
project contractor from Birmingham, Alabama, and who I would
note is also working for Kellogg Brown and Root, which is a
subsidiary of Haliburton, they told the minority contractor and
the 75 workers that their services were no longer needed.
Workers later found out that they were released so that
BE&K could replace those local workers and minority contractor
with out-of-state workers that would be paid half of what the
workers were paid previously, because they had been paid the
prevailing wage, and an electrician was being paid $28 per
hour, including benefits, while the out-of-state replacement
workers were paid only $14 an hour.
Now, BE&K's firing of the minority contractor and local
workers in Belle Chasse, Louisiana, probably is not an isolated
incident, but a growing trend in the Gulf Coast, where we see
big corporate contractors come in and rob Louisiana workers and
Louisiana minority-owned contractors of work and jobs to
rebuild their own communities, and I want to share with you,
when I talked with one of these workers whose voice broke and
he was in tears talking about this experience, he said that the
workers, the 75 electricians on that job had suffered
devastating losses. Most of them were living in their cars and
working on the job, and they had, basically, the clothes on
their back while they were working on that job. Now, they no
longer even have those jobs.
And, we know that small businesses, sitting on this
Committee, we hear it over and over again, are the economic
engine that spurs economic growth and has the potential to
revitalize the Gulf Region.
So, while you testified today that you have these wonderful
programs in place to try to help minority contractors find out
about these opportunities, I want to know what is the Small
Business Administration doing to ensure, not just that minority
contractors know about these bidding opportunities, but that
the local contractors and local workers are going to, in fact,
get awarded these contracts and are going to keep these
contracts when out-of-state contractors come in with workers
that are willing to work for sub-par wages and kick and
displace these already devastated workers off of these jobs.
Mr. Barreto. Was this a FEMA contract?
Ms. Sanchez. I don't know if it was a FEMA contract.
Mr. Barreto. Because I think I read something about that
recently, and I don't know that I have all the facts of this,
but my understanding of what I have heard is that a contract
was let, they wanted to immediately respond. There was a firm
that didn't have enough electricians to be able to respond to
it, so they partnered with another firm. This must be the
minority firm. And, they assumed that it was going to take X
amount of time to do the work, and my understanding is that 60
to 80 percent of the work got done much quicker than what they
thought it was going to get done.
Now, if it's a FEMA contract, I believe that the FEMA
Administrator has said yesterday that they are going to go back
and look at those contracts and make sure that, you know, there
isn't an egregious example where somebody is being taken out of
a contract unfairly.
In this particular instance, my understanding is that the
contract was a temporary contract, again to supplement the
existing workforce of the firm that had the contract.
Now, you asked what we are doing, and we are doing a lot of
things, but one of the things that we've done is that we have
procurement center representatives, and those we refer to as
PCRs. We've dedicated four of our PCRs full time to the Gulf
Region to identify opportunities for small businesses,
especially minority businesses, and we are asking all of the
rest PCRs that we have across the country to assist in that as
well.
I mentioned in my testimony that I've also asked Judith
Roussel, she's a District Director from Chicago, from New
Orleans, with a tremendous amount of experience working with
small businesses and on contracting issues, to work with us,
and I've detailed her now to New Orleans, she's from New
Orleans, so she'll be perfect for this kind of responsibility.
Ms. Sanchez. If I could just interrupt you, because my time
is about to expire. I just want to say, though, that, you know,
these workers were told 21 months and four weeks on the job
they were let go. I have a hard time imagining that they would
say it's for a short-term duration, we think 21 months, oh, but
the work got done much quicker, and four weeks after they were
hired on they got let go.
My concern is that we should be making sure that the first
person to get these jobs are folks who have been devastated and
lost everything and looking for economic opportunity, so that
we have Louisianians rebuilding Louisiana, and Mississippians
rebuilding Mississippi, and I'm not hearing that out of your
testimony today.
Mr. Manzullo. Thank you.
Ms. Kelly?
Ms. Kelly. Thank you, Mr. Chairman.
First of all, Mr. Barreto, I want to tell you that I
appreciate all the work that the SBA is doing in the Gulf
Region to help recover from both Katrina and Rita. I am
concerned, just like my colleague, Ms. Sanchez, though, about
reckless spending, inappropriate spending, and the spending
that goes to large corporations rather than to the small
business people, and the skilled workers who live in that area
who need to get the money back in their pockets.
The reason for that is that the banks and the other people
who depend upon the financial structures being there for them,
banks can't even do business if they don't have anybody with
money in their pocket to come into the door.
So, I'm concerned that we do keep a focus on that.
I wanted to know if--I had to leave, so I don't know if
you've answered this question, what kind of safeguards do you
have to ensure that our taxpayer dollars that are going there
are being used in such a way that they are going definitely
down to these small businesses?
And, as a corollary to that, I want to let you know that in
the past the SBA has not been mindful of the fact that a lot of
the SBA loans that are going out to people are larger, not
small loans. There are businesses there that need $50,000, not
$500,000. It takes just as much paperwork to do a $50,000 as a
$500,000 loan, are you being mindful of that, sir?
Those are two questions I'd like answers to.
Mr. Barreto. Absolutely.
Well, and we agree with your context, Congresswoman. WE
need to be judicious. We need to be careful. We need to make
sure that there isn't fraud and waste. I mean, you know, I
think sometimes people forget that we have all of these
safeguards built into the underwriting of these loans. You
know, the truth of the matter is that sometimes people don't
want loans, they want a grant, and SBA can't do grants. We do
not do grants.
In fact, this is another thing that sometimes people don't
realize. A lot of people come to the SBA to file their
application so that they can be turned down by the SBA, so that
they can go back to FEMA and get a grant. You know, that's not
always discussed either. There was a lot of people that applied
to SBA because they have to, they have to be turned down by SBA
before they can go back and get that grant. FEMA does those
grants.
Ms. Kelly. May I interrupt you and ask you one more
question about that?
Mr. Barreto. Absolutely, sure.
Ms. Kelly. How long does that process take? How long does
it take you to deny or accept a loan right now?
Mr. Barreto. Yeah, I will let Herb talk about that, because
that is one thing that we are very mindful of. We understand--
we know the individuals that are not seeking loans, and we are
very mindful that we need to give them a decision very quickly
so they can go back to FEMA, and, Herb, do you want to talk
about that?
Mr. Mitchell. Our target is to try to get people an answer
within 30 days, and, obviously, there are exceptions, and there
are exceptions for a number of reasons, either because we don't
have the documentation, we can't gain access, or someone may
have forgotten about a student loan that they had 20 years ago
and we've got to clear that up, or there's a delinquent federal
debt that they haven't filed. I mean, there are a whole host of
issues that can come into the process, the underwriting
process, that can deviate from that time frame that we try to
work with the borrower to, basically, clear that up and get
some satisfactory answers so that we can move on to a decision.
Ms. Kelly. I want to ask, I want you to go on, I asked you
two questions, actually.
Mr. Barreto. On the contracting side, you know, obviously,
what we need to do is work very closely with the entities that
are giving the contracts, and we do that. We have a great
relationship, of course, with FEMA because we are co-partners
any time there is a disaster, so we are working very closely
with them and their procurement folks. We are working very
closely with GSA, because GSA also puts out a lot of contracts.
In fact, yesterday we made an announcement that GSA and
ourselves had put together a dedicated 1-800 line for small
businesses to call us if they want information, and also a
website to go on and get information very quickly on how they
can access these federal contracts.
And, then again, I mentioned to you that we are not waiting
for the small businesses to come to us, we are going to them.
This business match-making initiative that we are launching in
the Gulf States is starting immediately. Over the next month we
are going to be registering people so that they can attend a
business match- making event that we are going to be doing in
the Gulf States. In fact, we have plans to do two of these
events before the end of the year, and after we do those events
we want this to be an ongoing initiative.
We can use technology now to set up appointments for
people, so we don't even have to do an event in the area every
week. After we do these events, and after we have a database of
these small businesses, that we will receive from these
economic development officials in these states, we'll be able
to stay in contact with them and help them facilitate contract
opportunities on a going forward basis. This will be a
priority, and there is going to be, as everybody on this
Committee knows, a tremendous amount of work and procurement
for years, and small business has to get its fair share of it.
Mr. Manzullo. Thank you.
Mr. Lipinski?
Mr. Lipinski. Mr. Chairman, is Mr. Melancon going to have
an opportunity to ask questions?
Mr. Manzullo. If someone yields.
Mr. Lipinski. Okay, let me, I will yield, let me take a few
seconds, and then I'm going to yield my time to Mr. Melancon.
My concern is that, yes, we face an extraordinary
situation, extraordinary disaster, and what we need to be
concerned about from this point forward is doing the best that
we can to help small businesses who have been impacted by this.
I worry that it has--SBA has been overwhelmed by this, but
there's an unwillingness to admit that it has been the case. I
don't see any political sin in admitting that, so that we can
move forward from here, and maybe devote more resources to
taking care of small businesses.
But, with that, I am going to yield my time to Mr.
Melancon.
Mr. Manzullo. Mr. Melancon, you have a little over four
minutes.
Mr. Melancon. Thank you, Mr. Lipinski and Mr. Chairman.
I would like to request, since I have a limited amount of
time, that the SBA provide this Committee with the list of
small businesses that are getting contracts, specifically, for
me, for Louisiana, I would think that Mr. Taylor would like
Mississippi.
There are workers being hired, you said, substantial
numbers by SBA, can you tell me exactly where these people are?
Mr. Barreto. Sure, absolutely.
Well, we've talked about the numbers, they are in a number
of different locations. Every time a disaster recovery center
opens, and as you know, well, we have over 60 now, but in the
very beginning there was only a very few, but every time one of
those centers open we deploy our people to those centers
immediately. So, we have people right now in those 60 centers,
several hundred people in the affected areas.
Of course, we have people that are also working out of our
processing center in Fort Worth, Texas. We have a lot of people
there, because they are the ones that are responsible. All of
the applications are going there, so we have all of the people
that are responsible for inputting the information, processing
it, processing the loans, customer service. Of course, we also
have people in our call centers. We have a couple of call
centers, one in Buffalo, New York, and an overflow in
Sacramento.
Mr. Melancon. Mr. Barreto, since I have a limited amount of
time, and I appreciate the preponderance of information, but
the information I'm trying to get is, are there Louisiana
folks, is there a Louisiana office, are they being deployed and
put to work? These people have nothing, no home, no nothing.
Mr. Barreto. I agree. I was recently in Baton Rouge in our
recovery center there, and actually I was also in Gulfport,
Mississippi a couple of weeks ago. Wherever possible, we are
hiring local people. We have a number of local people that are
working with us in those areas, too.
But, to give you specific information, I'd like Herb
Mitchell to talk about where our assets are deployed, and how
we are going about also reaching out to the local community so
that we can hire them.
Mr. Melancon. Herb, would you just give me numbers? I don't
need to take all that down.
Mr. Mitchell. I don't have the numbers. We'll get the
numbers for the Committee.
Mr. Melancon. That's fine.
Mr. Mitchell. But, keep in mind, we are going to be
increasing that number.
Our strategy in any disaster is to go in and, obviously,
deploy wherever we can get people. As we then continue to staff
up, it's to hire locally, and then get people off of travel
status and hire local folks. So, I mean, that process continues
throughout.
Mr. Melancon. If you could just try and get me that.
My numbers that have been given to me, and I'm told that
they ought to be pretty accurate, in Florida last year after
the hurricanes I'm understanding that the SBA loan rate
approval rate was at 94 percent, and I'm understanding right
now in Louisiana it's at 2 percent.
Mr. Barreto. It's never been 94 percent approval rate. It
usually averages, and Herb can talk to this, about 50 percent,
and again, I want to restate this, not everybody that applies
for SBA wants a loan from the SBA. Some of them want grants,
and they go back to FEMA, some of them change their mind and
they decide not to take the loan. So, there are a number of
different issues at play.
But, we've never had a 90 percent approval rate.
Mr. Melancon. And, not on average you don't, but I'm just
telling you what the numbers I've been told.
So, another question that I would like, or request I would
like to make is, I'd like to see from Florida how many
applications were made, how many were turned down, from
Louisiana to date, how many were made, how many were turned
down. And, some of them may be going back because they want the
FEMA, but, you know, that's probably going to be footnoted,
that it is believed, because you said you know who they are.
Mr. Barreto. We'll get you the information, absolutely.
Mr. Melancon. Hector, you were talking about insurance,
that's going to be a whole other calamity, because the property
and casualty carriers are looking for every option to get out.
The most you can buy is $250,000 of flood insurance, and if
you've got a small businessman that's got a million dollars
invested he's in French speaking card play, he's burried.
As the big contractors have been hiring people--
Mr. Manzullo. I've got to move this along, we've got an
hour of votes coming up in a half an hour.
Mr. Melancon. Thank you, sir.
Mr. Manzullo. Ms. Musgrave?
Mrs. Musgrave. Thank you, Mr. Chairman.
I would like to know, you mentioned that homeowners' loans
were the biggest category so far, has the demand on personnel
for that in any way caused a problem for small businessmen that
were seeking loans? Do you have adequate personnel to handle
both of those?
Mr. Barreto. Absolutely.
You know, we'll process any loan that's coming to us, so, I
mean, we are not, you know, segmenting the loans. It just
happens that there's a lot more small businesses in any area
when there's a disaster, so you are going to get a lot more.
We think, and Herb can speak to this, we are seeing a
higher incidence in this particular case, you know, 8:1 right
now is what we are seeing, but there is nothing in our resource
allocation that would prevent us from being able to process any
loan that we get from a small business person.
Mrs. Musgrave. I'm really concerned about the cost of
housing for federal employees, some of us were a bit amazed
when we heard about a contract with Carnival Cruise Lines, and
what that was costing. So, what kind of oversight are you
exercising in regard to these overhead costs?
Mr. Barreto. Well, I'm not sure, with regards--the
oversight that we do exercise is with our own employees, and
that's an issue for us as well. In fact, in the very beginning
of the disaster, you know, we had people that were literally
driving two hours each way every day because there was no place
to stay. Now some of our folks, especially the folks in the
local areas, for example, we have an office in New Orleans, our
regular district office, but every one of those employees
that's in that district office was a victim as well.
Now, they want to get back to work, and we have them
working in other offices, but they want to get back to work in
New Orleans to help the small businesses in New Orleans, but
they've had no place to stay. So, we are working with FEMA to
get them trailers.
Obviously, this is on a voluntary basis, but a lot of our
employees are passionate about this, they are committed about
this, they want to be back in that area.
The same thing happened to us in Gulfport. You know, we had
employees in Gulfport, we had a satellite operation there, but
Gulfport had tremendous amounts of damage. And so, we are
working, we've got them in another office. There's another
office of the local government that kind of adopted us, and so
we've got our SBA employees in that office as well.
So, you know, that has been a challenge for us also
personally, in terms of, especially in the heavily-damaged
areas, where do our people stay, where can they stay, and so we
are working through those logistics as well, and making sure
that we are policing it, and that there is no egregious, you
know, expenses for this.
But, do you want to comment on what we are doing to get--
Mr. Mitchell. Everybody in travel status has to be
authorized, and they are authorized based on the Federal Travel
Regulations, and, obviously, in every disaster, and more so in
this case, there is increased allowance for housing.
But, the reality is, housing, at least initially, was not
available, and Hector has already mentioned, we had people
sleeping in tents, we've had people sleeping in schools, ten to
a room. We, basically, have rented apartments where there's no
furniture, and we've issued blankets and everything for them to
sleep on, but the challenge is, it's just the lack of
availability of places to stay.
When we were there recently, we had to, basically, stay in
Houston in order to get to Baton Rouge, and fly back and forth
each day.
Mrs. Musgrave. Do you have any employees on ships?
Mr. Mitchell. I'll have to check, I'm not sure, but we can
check. You are referring to the ship that FEMA provided in New
Orleans?
Mrs. Musgrave. Yes.
Mr. Mitchell. Yes, we'll check.
Mrs. Musgrave. Okay, thank you.
I yield back the balance of my time.
Mr. Manzullo. Ms. Velazquez?
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Barreto, during your testimony on the Senate side, you
said that the SBA will respond in days, no months. But, as of
two days ago the SBA has received 4,569 business applications
for loans. Of this, only 398 or 8.7 percent have been
completed, processed by SBA. Can you please explain to us why
is the SBA taking so long in processing so few applications?
Mr. Barreto. Well, we have responded, and I mentioned to
the Senate, I believe I mentioned here, is that even before the
disaster happened we were already bringing people on board,
staffing, getting ready.
Now, one of the things, as you know, that we can't be in
the area where there's a disaster until FEMA sets up a center,
and so that was one of the things that kind of slowed down the
process in the beginning.
Now, the other challenges, and this is particular to this
disaster, is that we have to go in and look at the property. We
have to do an investigation, and we had a lot of challenges
with that as well.
Ms. Velazquez. Let me, if I may.
Mr. Barreto. Sure.
Ms. Velazquez. What about the 17,000 site visits that you
have completed? So, if you follow the trend of approval loans
in previous disasters, it is about, and you said it before, 45
to 50 percent.
Mr. Barreto. Right.
Ms. Velazquez. Well, that will have given you at least
7,000.
Mr. Barreto. Well, Congresswoman Velazquez, there's never
been a disaster like this in history. You know, one of the
things that we have to get is information from them.
Ms. Velazquez. Okay.
Mr. Barreto. Sometimes people have--
Ms. Velazquez. I know, I know--
Mr. Barreto.--lost their information, and we are working
with them to be able to produce that.
Ms. Velazquez.--let's move on.
Mr. Barreto. Okay.
Ms. Velazquez. Tell me about the EIDL. Why hasn't the SBA
processed the 338 EIDL applications? They do not require visit
sites.
Mr. Barreto. No, they do not, and, you know, every EIDL
application that we received we are processing. In fact, it's
less than 1 percent of all the applications that we've received
so far are the EIDL applications, but EIDL is economic injury,
they are economic injury disaster loans, it's not physical
damage, it's business that they have lost. And so, one of the
things that we are working with them is to establish what the
revenues that they've lost are.
One of the reasons that we allow people to apply longer for
EIDL is because often times they are not going to know for a
period of months how much business they have lost. It takes
some time to be able to really verify. And, a lot of times
people say, look, I don't want to ask for too much, and I don't
want to ask for too little, I want to ask for what I need.
Ms. Velazquez. Okay, you answered me.
Is the SBA doing anything different that will adversely
affect approval rates for businesses seeking disaster loans?
Mr. Barreto. To our knowledge, we are not doing anything
that would adversely affect the processing and approval of any
disaster loans.
Ms. Velazquez. Okay.
I'm asking you this, because as you can see from the chart
that we have there, the approval rate for business loans from
Katrina as of two days ago was 8 percent, 5 percent for
business. That means that SBA has declined 92 percent of all
loans, 95 percent of business loans.
In previous disasters, the approval rate was much higher.
For Hurricane Ivan, the approval rate was 49 percent, for
Francis it was 39 percent, for Hurricane Charlie it was 46
percent, and the list goes on.
So, why is it that SBA only is approving 5 percent of
business loan applications for this disaster?
Mr. Barreto. Because the chart is comparing apples and
oranges. You know, in previous disasters, every application
that came in somebody was looking at it, and often times what
would happen is that our people in the field would not even put
it in the system. In other words, they had the authority to
look at an application and say, this application, should we
process it, are we going to be able to approve it, and many,
many applications never made it into the system. Now that we
have an automated system, all of the applications are going in,
applications that before would have never even been processed
before because the individual might not qualify for a loan, now
those are going in the system and that is skewing the
percentage.
Ms. Velazquez. But, why could you say that this is
comparing apples and oranges?
Mr. Barreto. Because we have--
Ms. Velazquez. The disasters in Florida were natural
disasters, and this one is a natural disaster.
Mr. Barreto.--I'm not comparing the disasters, I'm
comparing the system. The system that we have today versus the
system that we used for every disaster prior to this.
Ms. Velazquez. So, can you explain to me why only 5
percent?
Mr. Barreto. Sure. I'd like Herb to explain, because I
think it's very important to understand what the process was
before, where somebody had to eyeball the application and many
times the application never even made it into the system,
versus now that we have an automated system, everything goes
into the system.
Mr. Mitchell. I think that's part of it, but the other key
element here is, you have to compare the time frame, from the
time the disaster was declared to this point in time for
Katrina to the Florida hurricanes.
If we go back and look at almost the same point in time, I
would dare say it's probably going to be very similar, because
what happens is, the declines move through the process, whereas
approvals, for example, and I've asked the staff to look at
every one of these EIDLs and tell me exactly what status they
are in, either we are waiting for the IRS transcript
information, or we are waiting for additional documentation,
and, in fact, probably more than half of them are at the stage
where they are ready to be approved. But, it just simply takes
a little bit longer to get the approval, and what will happen
is that, as we go through this period the approval rate will go
up.
Ms. Velazquez. So, are you arguing--
Mr. Manzullo. Thank you, your time is expired.
Mr. Barreto, you are excused.
Mr. Brennan, I want you to have a seat up there and start
with your testimony immediately. You have to catch an airplane.
Mr. Barreto. Thank you, Mr. Chairman.
Mr. Manzullo. While he's doing that, Mr. Taylor, introduce
your witness.
Mr. Taylor. Thank you.
Mr. Manzullo. Thank you.
Mr. Taylor. Mr. Chairman, I'd like to welcome actually two
folks from south Mississippi, Mr. Brennan, although he works in
New Orleans, has a home in Hancock County, as Mrs. Phil Ryan.
We want to welcome both of them.
I would hope that one of the things that they could talk
about, that I think is very much going to affect business, is
the problem of people who did not live in a flood zone, who did
not have flood insurance, and have now found that they are not
going to get any settlement from their insurance companies.
And, I've got to believe this is going to have a profound
effect on people's pocketbooks and, therefore, on business.
If they could work that into their testimony I would
certainly appreciate it.
But, we want to welcome both of them.
Mr. Manzullo. Okay, thank you.
Mr. Brennan, you are up, five minutes.
STATEMENT OF RALPH BRENNAN, RALPH BRENNAN RESTAURANT GROUP
Mr. Brennan. Thank you, Mr. Chairman.
Chairman Manzullo, Congresswoman Velazquez, and Congressman
Taylor, I did have a house in Hancock County. It's now rubble,
unfortunately, thanks to Katrina. But, let me begin my remarks.
Thank you, Mr. Chairman.
Chairman Manzullo, Congresswoman Velazquez, and Members of
the Committee, my name is Ralph Brennan I am the owner of three
restaurants in New Orleans, Louisiana: the Red Fish Grill and
Bacco in the French Quarter; and Ralph's on the Park next to
the City Park. I am testifying here today on behalf of the
National Restaurant Association, which is the leading business
association for the restaurant industry. The Association's
mission is to represent, educate, and promote a rapidly growing
industry that is comprised of 900,000 restaurant and
foodservice outlets employing 12.2 million people around the
country. I am also actively involved in promoting travel and
tourism to New Orleans and the surrounding area and I serve as
the Chairman of the Ernest M. Morial New Orleans Exhibition
Hall Authority. Thank you for the opportunity to testify today
about the impact of Hurricanes Katrina and Rita on small
businesses in the Gulf Coast region and changes in federal
policy that will help the region rebuild.
Mr. Chairman, I'd heard about the storm that would wash
away New Orleans for my whole life. I thought it would never
happen, but it did. To see the destruction has been
overwhelming. In addition to the devastation in New Orleans,
I've also seen the devastation along the Gulf Coast in
Mississippi which to me looks like a barren planet in a science
fiction movie. It's incredible. I feel a lot of emotion because
of the impact on each of our lives. All of us left town
expecting to return in two or three days and that our homes and
businesses would be reasonably safe. Unfortunately, they're
not. We have to rebuild our entire city and the Gulf Coast
Region, especially the hospitality industry in these areas.
Unlike many restaurants in New Orleans and other areas of
the Gulf Coast region that have been heavily damaged and
destroyed, two of my three restaurants in New Orleans are now
open, but with limited menus, partial staff and until today
boiled water restrictions. Bacco had no gas until Wednesday,and
we are using our wood-burning grills and ovens and a great deal
of creativity to serve customers. To reopen the Red Fish Grill,
I worked closely with Jim Funk, the head of the Louisiana
Restaurant Association and the Louisiana Department of Health
to draft modified health regulations which have allowed
restaurants to reopen while protecting the health of our
employees and our customers. One of my biggest challenges is
finding employees to staff my restaurants. Many of my staff
have not come back to the city or have found employment
elsewhere. The biggest short-term issue in this regard,
particularly in New Orleans, is finding adequate housing for
restaurant employees as 70 percent of the houses in New Orleans
sustained water damage.
The overall scope of the damage from Hurricane Katrina,
followed by the destruction in southwest Louisiana caused by
Hurricane Rita, is unprecedented. The areas most heavily
impacted by Hurricane Katrina are home to about 6,800
restaurant and foodservice establishments, employing
approximately 90,000 people. Annual restaurant sales for
Louisiana, Mississippi and Alabama total $12.4 billion, about
2.6 percent of the $476 billion in restaurant sales nationwide.
Louisiana fared the worst, with the destruction from Katrina,
followed by the extreme damage in Southwest Louisiana caused by
Hurricane Rita. Our 5,200 impacted restaurants employed about
67,000 people. The restaurant industry was the number one
private employer in New Orleans before these hurricanes,
directly employing 54,000 people and indirectly employing
another 20,000 people that supplied the industry with goods and
services. The travel and tourism industry represents over
650,000 jobs and more than $10 billion in payroll for the three
impacted states. Eating out was frequently one of the number
one reasons for visiting New Orleans. The city has a distinct
cuisine that is a crucial part of its culture.
In 2004, travel and tourism accounted for more than $50
billion in business activity in the region. In New Orleans,
travel and tourism is a $5 billion-a-year industry, accounting
for more than 80,000 jobs.
Mr. Chairman, with regard to changes in federal policy that
will help the region rebuild, there exists an urgent need to
assist small businesses, a number of whom are also restaurant
supply companies and food purveyors who are facing a bleak
future unless the restaurants and food service outlets they
serve are able to open.
In addition to the housing issue I talked about, some of
the main challenges that restaurants are facing are:
Lack of employees. Restaurants are typically opening with
30% of their former staff. There is a great demand for
foodservice workers. We have only been able to open with 16
percent of our former staff.
We have a lack of a customer base. In my area, Orleans
Parish is still not repopulated and other parishes are only
partially inhabited. To build back up to our former number of
approximately 3.400 restaurants, we will have to achieve a
significant return of our population base.
There are unresolved insurance issues. Many restaurateurs
in the Gulf Coast region are having difficulties in getting
their claims resolved and are even more concerned about whether
affordable insurance can be obtained for the future.
And re-establishing tourism and convention business is
important. The hospitality industry played a significant role
in the New Orleans economy before Hurricane Katrina. Re-
establishing tourism can play a significant role in our
recovery.
Specific recommendations for important targeted and time-
limited provisions to assist in the long-term recovery and
reconstruction of the Gulf Region are included in my written
testimony.
Mr. Chairman, and Members of the Committee, thank you again
for holding this important hearing and for focusing your
attention on the plight of small businesses in the Hurricane
Disaster Zone. The Committee has an important role to play in
the hurricane relief efforts, and this hearing is an important
step.
Since Katrina, a lot of people have suggested that I open
restaurants elsewhere, but I'm not going to do that. I've gone
home and have reopened, and I plan to stay there. This
Committee and Congress can help get New Orleans, Louisiana, and
the entire Gulf Coast Region, back on its feet, so that all of
our residents, restauranteurs and other small businesses, can
go home again.
I'd be happy to answer any questions.
[Mr. Brennan's testimony may be found in the appendix.]
Mr. Manzullo. Thank you.
Ms. Ryan? Do you want to pull the mike closer to you? Thank
you.
STATEMENT OF RAE ANN RYAN, TRAVEL AFFILIATES
Ms. Ryan. Mr. Chairman, and distinguished members of the
House Small Business Committee. My name is Rae Anne Ryan and I
am honored to appear before you today to convey the devastating
impact Hurricane Katrina has had on small businesses,
especially the travel and tourism industry, in the Gulf Coast
region of the United States.
But, first I want to recognize the efforts of the
Administration, state and local officials, U. S. citizens and
people from around the world. Without their assistance and
generosity, we could not begin to recover, and the help just
doesn't stop. I'm here today through the help of Air Tran
Airlines and Hampton Suites Hotel. We could ill afford to come
away at this time.
I am the president of Travel Affiliates in Gulfport,
Mississippi, and co-own the agency with my husband, Phil. My
full-service agency has been a member of the American Society
of Travel Agents, ASTA, since 1967. The ASTA Travel Trade
Association is the worlds largest and most influential, with
more than 17,000 members in 140 countries.
Gulfport was severely broadsided by Hurricane Katrina. In
these five weeks since the hurricane, Gulfport homes and
businesses that were left standing now have power, but little
or no phone service. Much of the infrastructure remains
impassable with washed out bridges and roads.
I, and four of my employees, have lost our homes to
Katrina. Since the storm, two of my employees haven't returned
to work, and may not even return to the area. Sadly, this trend
is echoing across the region. It represents the loss of
thriving small businesses, a decreasing workforce, and
challenges the area's ability to recover and prosper quickly.
Fortunately, my travel agency came through the storm
without serious structural damage, but my current situation is
not typical. Many of my colleagues spread across the Gulf
Region who own and operate small business travel agencies like
mine had roofs torn off and broken windows that let the wind
and rain destroy everything. They are basically out of
business. Regardless of where we are conducting our travel
business, all we are doing is processing refunds for our
clients. How can we possibly endure the next four to six months
waiting for new travel business to surface. We need assistance
to working capital in order to sustain businesses while the
region rebuilds.
The travel and tourism industry is a primary economic
engine that drives the prosperity of the Gulf Coast. According
to statistics compiled by the Travel Business Roundtable and
the Travel Industry Association of America, the Katrina
affected counties in Mississippi and Alabama, and the Parishes
in Louisiana, supporting 260,000 travel-related jobs generating
$3.7 billion in payroll income. In 2004, the travel sales for
the Gulf Coast Region was $18.3 billion.
Mr. Chairman, there are no easy solutions to restoring and
preserving the Gulf Coast Region after Katrina. Immediate
federal and state relief packages are needed to allow the
people to rebuild their homes and small businesses.
Reflecting back to the events of 9/11, I have this
Committee and the SBA to thank for my agency's survival. I
successfully applied for, and my travel agency received, one of
the 500 EIDL loans. It saved my business.
As Congress formulates relief packages for small businesses
in the Gulf States, it is essential to keep in mind that small
businesses need working capital to survive. The SBA also has
had the ability to increase the maximum size of SBA business
and home-related disaster loans from $1.5 to $10 million, allow
for deferred principal payments up to 12 months on new or
existing disaster loans, and provide debt consolidation and
refinancing opportunities for small businesses. Most
importantly, the SBA needs the resources and tools to act
quickly and efficiently process disaster relief loans.
ASTA endorses the elements contained in the SBA's plans
that were presented to the Senate Small Business and
Entrepreneurship Committee on September 22, 2005. We believe
it's the best approach in enacting small business relief
legislation.
Thank you for inviting me to testify, and I'll answer any
questions.
[Ms. Ryan's testimony may be found in the appendix.]
Mr. Manzullo. Thank you for your testimony.
Mr. Perkins.
STATEMENT OF RANDY PERKINS, PERKINS PRODUCTIONS, INC.
Mr. Perkins. Chairman Manzullo, Ranking Member Velazquez
and Members of the House Small Business Committee, my name is
Randy Perkins and I am the co-owner of Perkins Productions in
Covington, LA on the North Shore of New Orleans.
Before I came in to address you this morning, I want you to
know that I prayed for a couple of things, for clarity and
wisdom, clarity to understand that I'm not just speaking for
Perkins Productions, but for hundreds of thousands of small
businesses across the Gulf South, and also the wisdom to share
with you our desperate needs.
My wife and I have been in business for 11 years now, and
the two of us run our video production company out of our home,
but we subcontract out to approximately 50 people in the area.
Our business relies heavily on the customers and filming
opportunities that exist right in the city of New Orleans, and
that's about 95 to 97 percent of my business.
The strong base which we depended so heavily on was turned
upside down on August 29, 2005. That is the day Hurricane
Katrina hit our city, and that is when the livelihood of our
business came to a sudden halt.
Not only were large sections of New Orleans largely
destroyed, but so was our business. In the last 30 days my
business has generated only $225 dollars. This is compared to
an average monthly revenue of $18,000. With monthly bills
totaling somewhere between $9,000 and $10,000 and virtually no
income coming into our business, we needed to secure financial
assistance elsewhere.
On approximately September 9th, we decided to apply for an
SBA disaster loan. It seemed to be the first, and one of the
few, options available to us. All in all, it was really the
only chance we had at getting assistance that would enable us
to get through the rough period. My wife went ahead and took
the time to fill out the paperwork and submit this application.
I happened to bring a copy with me. We are lucky. We had five
years of documentation, many businesses in the New Orleans area
have lost everything. Once we had submitted this, she was then
told it would take up to 90 days to receive the loan, once it
was approved. However, it's one month later, and I still
haven't been told whether we are going to get a loan, or even
if they received my application.
When there is no income coming in, business has all but
stopped, and there are existing expenses and costs to cover ,
three months is just too long to have to wait for assistance.
What we need, and most businesses in our similar situation, is
immediate relief so we can start providing again for our
families and investing in our local economies.
An additional challenge that I have is an already existing
loan payment that we have to make. We are in the 5th year of
paying back an SBA loan. Right now, my wife and I are paying
for a business that has lost the majority of its customer base.
At this point, if there is anything that would help us
financially it would be forgiveness of what we owe on the
remaining loan payments. I know SBA had offered to suspend the
payments, but the truth is that even if we don't have to pay
for a period of time, we are still going to be dealing with
incurring debt on top of more debt when we start the payments
again. The reality is that to have these payments forgiven
would enable us to take care of the existing challenges we face
day to day, moving forward with our production company, and
continuing to serve our local economy.
In the aftermath of Hurricane Katrina, obtaining financial
assistance is at the top of the list for all small businesses.
Given the extraordinary circumstances we have been faced with,
grants are another option. Congress bailed out the airlines
when they needed it. Small businesses that represent over 99
percent of employers, especially those from the Gulf Coast,
deserve the same. The four loans that have been distributed in
Louisiana so far are just not going to cut it. Grants are
another solution to help remedy a situation that is not going
away anytime soon.
Small businesses in the Gulf Coast need assistance now.
There are many who may not make it through if we don't get
immediate relief, and I'm one of those companies. From a
business perspective my end goal is this, to get my firm up and
running again, boost the local economy, pay the bills and at
the end of the day have a little bit of money left to feed my
immediate family, and also the four extra families that I've
got living with me.
This is why small businesses are relying so heavily on SBA
during this time.
In the past, I have had a great response from the SBA. As a
matter of fact, this is my second SBA loan. They were always
available, ready to listen and comprehensive of our business
needs. However, post Katrina I cannot say the same. Throughout
this ordeal SBA has become a very faceless agency to me. They
aren't making themselves readily available, and the assistance
that they talk about isn't reaching the people that need it
most.
It has been over five weeks now, and to this date my wife
and I have received nothing more than a $2000 FEMA check.
Waiting three months for a disaster loan, that might come
through, will add more debt upon more debt, is going to be too
little, too late. All of the businesses that were devastated by
the hurricanes need help, and I beg of you, they need help
today.
I want to thank you for allowing me to appear before the
committee today and letting me share my story. At this time, I
will be glad to respond to any questions you may have.
[Mr. Perkins' testimony may be found in the appendix.]
Mr. Manzullo. Thank you, Mr. Perkins.
Mr. Williams?
STATEMENT OF GUY T. WILLIAMS, GULF COAST BANK AND TRUST
Mr. Williams. Mr. Chairman, Ranking Member Velazquez, and
Members of the Committee, my name is Guy Williams. I am
president and CEO of Gulf Coast Bank, I'm here on behalf of the
American Bankers Association and small business in the metro
area. I am both the small businessman and the leading lender to
small business in South Louisiana. Our bank is the largest SBA
lender in the State of Louisiana. I want to tell you where we
are.
25 percent of my employees have lost their homes. My
parents lost their home, my sister lost her home. We have three
families living together. My brother came over to help from
Lake Charles, Rita struck and his wife's business was severely
damaged, so he went back to Lake Charles.
Fortunately, our main office was undamaged.
Mr. Manzullo. Mr. Williams, would you take a sip of water,
please.
Mr. Williams. Thank you, I'm sorry.
Mr. Manzullo. Go ahead.
Mr. Williams. Fortunately, our main office was undamaged
and we reopened last week. We were the first bank to reopen
downtown. We had two small businesses come in. One a sandwich
shop looking for change so they could open, another one who
wanted to make a loan payment, God bless him.
We are doing things differently now. We have Fidelity
Homestead operating in our lobby downtown. We are opening
Monday in St. Bernard Parish. We'll be the first business back
in St. Bernard Parish. We are excited to do that, and we are
happy to be there to contribute to the redevelopment in that
Parish.
But, I want to make two key points. Small business is the
heartbeat of Louisiana. We are not a big business state, we
only have one Fortune 500 company, that's Entergy, and they
recently placed their New Orleans subsidiary, Entergy Services,
in bankruptcy. Small business is it in Louisiana, and we need
help right now.
I couldn't agree with my fellow witnesses more, we need
help immediately. The paperwork is too slow, response has been
too slow. The New Orleans Times Picayune had an article this
week, SBA slow to the rescue. The Wall Street Journal
yesterday, in the New Orleans area as many as 30,000 businesses
are significantly at risk. The SBA has said the agency is
working. The New Orleans Chamber has said they were told it
will take four to five months to get money in hand.
Two examples, we started a small business in Chalmette,
World of Wings, not as nice as Mr. Brennan's restaurants, but
well received, and they were doing great. Their business today
looks like this, you have it in your package, that's the mud on
the floor. They can't reopen. They are in leased premises. The
insurance is not going to pay them the full value of their
damage. We need to give help to them.
Another small business in Chalmette, a young man returned
to Chalmette from Afghanistan, and he started a technology
business. His insurance is going to pay him depreciated value.
Surely we can help him.
Now, we have some ideas of how this could be done
effectively. First, there are certified and preferred SBA
lenders. If SBA will allow us to originate disaster loans, we
can speed this process. We are audited. We have financial
integrity. We know how to process SBA paperwork. If you pay
banks a small fee, say 2 percent, to originate these loans, we
could originate the disaster loans, if we originated all of
them for a cost of about $40 million the 4,000 employees that
the SBA is proposing to hire, when you factor in their total
cost for a year, including salaries, that will be about $200
million. It would both be cheaper, and it would be faster, and
it would spread the work around.
We all know that the SBA cannot handle this work right now,
and I'm not critical of the SBA, they are overwhelmed,
everybody is overwhelmed. Right now, the Red Cross lines up
people to get service. They can handle 1,200 a day. As I drive
in to work, usually between 6:15 and 6:30 in the morning, they
make an announcement, we've reached our limit. So, people sleep
in their cars. They are opening one disaster center in New
Orleans. We appreciate it, but if those people work day and
night they can't handle the need.
Let us, as a banking industry, share the work. This is a
cost effective solution and it will work. It will speed the
process and it will be more efficient.
Second, 7[a] loans that are severely impacted, like the
gentleman at the end, let those loans be turned into the
disaster program and the amortization extended.
Third, I agree with some of the Chairman's ideas on greater
flexibility, we as a banking industry support that.
Fourth, collateral requirements could be waived and should
be, not reduced, but in some cases people don't have anything
else to put up, they put everything on the table to start their
business, but the businesses were doing well, they'll do well
again if we can give them a start.
And finally, we do need to allow simpler documentation.
Some of these businesses, particularly in St. Bernard, have
lost their location and their CPAs are gone.
Members of the Committee, thank you for--
[Mr. Williams' testimony may be found in the appendix.]
Mr. Manzullo. Thank you, Mr. Williams.
We are going to have votes in ten minutes. I'm going to
take a few minutes and then Ms. Velazquez.
I read somewhere, I thought it was in one of your
testimonies, and perhaps not, that the State of Louisiana had
instituted itself some bridge loans. Is that correct?
Mr. Williams, you would know about that.
Mr. Williams. No, that's not correct.
Mr. Manzullo. Okay, all right, thank you.
One of the problems, and I think you heard the testimony of
the Administrator with regard to disbursement of the loans, is
the question of certification by the Army Corps of Engineers as
to the integrity of the levy. That's necessary in order to get
insurance in place, and that has a lot to do with it.
Mr. Williams. And actually, there's a lot of confusion.
None of the levies broke, the canals broke that serviced the
city. There's a simple solution, it's used in Holland, you put
flood gates at the end of the canals. That's a proven
technology. We can argue a long time about that, but if we are
going to wait for the Corps to build Category 5 levees you
might as well just close New Orleans.
Mr. Manzullo. Well, that's a big problem, because the issue
there is whether or not the taxpayers of this county should
rebuild New Orleans, partially or in whole, until there is a
process whereby the integrity of those levies can be assured.
This is a risk for everybody, and being a banker you obviously
have that risk also with regard to your conventional loans.
Mr. Melancon. Mr. Chairman, if I could just make one
comment on that. The integrity of the levies are overseen, and
engineered and approved by the Corps of Engineers.
Mr. Manzullo. That's correct.
Mr. Melancon. And contracted. They are doing the job.
Mr. Williams. The levees actually didn't fail, once again.
There is a simple solution, it's flood gates as used in
Holland, but I don't think we can stop--
Mr. Manzullo. I understand, the legal problem is insurers
willing to underwrite in an area, even though they don't write
the flood insurance, in an area as to which they have no
certification as to the integrity of the levees. That's what
differentiates this disaster from all the other disasters.
Ms. Velazquez, I want to go to you since we are running out
of time.
Ms. Velazquez. I just would like for the record to reflect
the fact that on this side of the aisle, Democrats, we are
committed to rebuild Louisiana, and to make it even better than
it was, all of the region, but, you know, I've been hearing all
these comments and statement about questioning the fact if we
should rebuild Louisiana.
Mr. Williams, what do you expect the impact of Katrina to
be on your loan portfolio, which I know includes a significant
number of 7[a] loans.
Mr. Williams. If we don't get some help it will be
devastating. In St. Bernard, we have 65,000 residents and not
one habitable home. There's not an electric light bulb burning
in St. Bernard today.
We'll be the first business open when we open on Monday.
Ms. Velazquez. Do you have any recommendations to the
Committee?
Mr. Williams. Let us approve the disaster loans. We can do
the work. We are certified. We have audited by the SBA. We can
speed the process. We know who needs it. We'll get it done
fast.
Ms. Velazquez. Mr. Williams, there are $2 billion worth of
SBA loans in the hurricane affected region, and there is the
potential of $500 million of these loans to default. If default
costs by Katrina lead to higher program costs for the 7[a]
program in the next year, how will your bank handle that?
Mr. Williams. Banking is a leverage business. If we lose
money, then we'll be less able to help people in the future,
and it will reduce our flexibility and our ability to provide
financial resources.
Ms. Velazquez. Thank you.
Mr. Perkins, I understand you filed for an SBA disaster for
your business nearly--yes, Mr. Perkins, I know that you
testified that you applied for a business loan, a small
business loan, 30 days ago, and as far as your request for
financial assistance how would you characterize the response by
SBA?
Mr. Perkins. Well, I want to realize that time is a big
blur for everyone down in that area right now, so I can't tell
you whether it was a week ago or two weeks ago. We tried to
follow up with the SBA by making a phone call, and we called to
the Atlanta Division to talk about the loan process and if
there were any other options.
We were referred to Arkansas. Arkansas referred us to
Texas, and Texas referred us back to Atlanta. At that time, we
hung the phone up.
Ms. Velazquez. Would you say that you and your fellow
business owners are discouraged by the fact that you have to
fill out a lengthy application, which the SBA is telling you
might take three months, and then on top of that you heard in
today's hearing that they decline rate right now is 95 percent.
Mr. Perkins. Well, today has been eye opening for me. I
have to say that. I had a decision when I came here today to
decide whether I'd keep my business in the New Orleans area, or
whether I'd leave, or whether I would fold it. I have to think
long and hard going home. But, before I left Louisiana, I
talked to a mortgage company owner. He told me that he received
the application like I did, and we filed through the FEMA
process and got the application, that he looked at it, threw it
in the trash because he said it's too much documentation. I
don't have the time. I'm worried about cutting trees out of my
houses. I'm trying to get food on the table.
Ms. Velazquez. Mr. Perkins, let's assume that you get a
disaster loan from SBA. Is that loan going to be enough to
ensure that you get the business back on track?
Mr. Perkins. I don't think the face of my business is going
to be the same for years. If I get a loan, and I still, I
question incurring more debt upon more debt, but in these sorts
of situations I do have to do, I am willing to make a
commitment to stay, and build, and retool, and reshape my
business.
Ms. Velazquez. Thank you.
And now, I yield my time to Mr. Taylor.
Mr. Taylor. I want to thank the gentlewoman.
Rae Ann, please forgive me for forgetting your name, but I
will never forget that 16 years ago right now, on extremely
short notice, you got 300 people up here for my swearing in
ceremony, so thank you very much for that.
Ms. Ryan. You are welcome.
Mr. Manzullo. Mr. Bartlett?
Mr. Bartlett. Thank you very much.
Mr. Chairman, I don't think there was a single individual
or organization going into this that said, gee, I, we, are
going to screw up the response to and the recovery from these
hurricanes. I think that every individual and every
organization did what, at the time, they thought was the right
thing to do.
Obviously, we could have done better, and I hope that the
response to this is not going back and pointing fingers and
fault finding, but without any recriminations just seeing how
we can do it better next time, because there will be a next
time.
Mr. Chairman, I have just one little pet thing that really
bothers me in events like this. Imagine that I'm a homeowner in
Mississippi, and my home is flooded, and I come back and I see
a big red thing on the door that says you can't go in there.
You know, as a private property owner, I'm having a big problem
with some bureaucrat telling me that I can't go back into my
house, and I can't live in my house. I don't have any problem,
Mr. Chairman, with the government telling me, we've inspected
that house and we are not sure it's safe, and if you go back in
there you go back at your own risk, but I understand they are
telling the homeowners that they can't go back into their
house. Is that true? And, if that's true, am I the only one in
America that has a problem with Big Brother? I just think that
there's such a thing as property rights, you know, and, you
know, you tell me that my home is not safe, and then you leave
it up to me whether I want to go, but you are not my caretaker,
thank you.
Mr. Brennan. Well, I think, if I can answer that question,
I believe what the Mayor was trying to do was have each
building that was severely flooded inspected for structural
integrity.
Mr. Bartlett. Still, if the thing falls on my head, sir,
that's my--you tell me, I think it may fall on your head.
Mr. Brennan. Oh, I agree.
Mr. Bartlett. So, I go in at my own risk, is that okay?
Mr. Brennan. I believe the Mayor allows you to go in at
your own risk, but they did mark each building that they
believed had structural problems, so that when the homeowner
returned that the homeowner would then know that he was
entering at his own risk.
Mr. Bartlett. If that's all they did I'm happy with that.
Mr. Brennan. That's my understanding.
Mr. Bartlett. I want them to do that.
If they went the next step and said you can't come back,
then I'm having a big problem with that.
Mr. Brennan. And, if I could add something, I mean, I'm
not--this hasn't come out yet, but New Orleans hasn't been
repopulated, and in my remarks I said about 70 percent of the
homes and businesses had water damage, those people just
started to return to inspect their properties now. So, if there
are issues with SBA and other programs that are taking place,
there's an opportunity to fix it, because only a small portion
of New Orleans, a city of approximately 450,000 people, has
begun to be repopulated. And, I happen to have a home in there
and a business in that area, and they are coming back very
slowly in our area.
So, it's going to be a while, and SBA will have--should
have some time to catch up if they move quickly.
Mr. Bartlett. Mr. Chairman, there's one other lesson I
think we might learn from this. I remember watching my
television night after night, and they were televising from the
French Quarter, and there wasn't any water there. I understand
there never was any water there, is that correct, and yet there
was nobody there.
Now, there wasn't any reason anybody had to leave the
French Quarter if they had had food, if they had had water, if
they had had sanitary facilities, and if they had had some
power for lights or something. And, I hope that one of the
lessons we learn from this is that people need to be told that
they can prepare and should prepare, because we have a whole
lot of people out there homeless today who wouldn't have needed
to be homeless if they had made some preparation.
Don't you agree?
Mr. Brennan. Well, actually I'll try to answer this too, I
believe the Mayor called for the mandatory evacuation, not
because of the potential of flooding, but rather because of the
potential of wind damage. We had 150 to 175 mile an hour winds
threatening the City of New Orleans.
And, as was said here, we've never had a levee break like
this before, and it was not the main levees that protect us
from the lake and the river, but rather the internal canals
that broke.
But, I believe the Mayor's mandatory evacuation was based
on wind, and not the threat of flood.
Mr. Bartlett. There are many buildings that have safe parts
of the building, even for wind damage, and again, personal
property rights and personal responsibility give me a big
problem when you tell me I've got to leave my home. You tell me
we think you ought to leave your home, that's okay, but tell me
I've got to leave my home?
Mr. Perkins. Sir, if I could address you just a moment. I
went into New Orleans approximately two weeks afterwards, and
it's not a place you'd want to be.
Mr. Bartlett. That may be true, sir, but I'd like that to
be my decision.
Mr. Perkins. I understand.
Mr. Bartlett. Not yours.
Mr. Perkins. I understand that, but, you know, you talk
about the television press and all that, showing that, I'm in
the video production business, and I can tell you that my video
camera cannot in any way, shape or form, demonstrate the
devastation that's in that area.
I've gone into some homes that have had 9 foot of water in
it, and it's the stink, it's the disease, it's the smell, and
people are going to get sick if they go back in those homes.
Mr. Bartlett. Thank you for telling me that, then let me
make my own decision.
Thank you, Mr. Chairman.
Mr. Manzullo. Okay, I made a decision, Ms. Bean you are up.
Ms. Bean. Thank you, Mr. Chairman.
I guess, first of all, know that on the Small Business
Committee we are very committed to being advocates for small
businesses which is our stimulative engine, and given the
economies that you are dealing with that have been wiped out
it's so important that we focus there.
We've heard a number of the challenges that you are facing.
Obviously, the infrastructure of the city itself, local or
internal operational challenges, some businesses have been
devastated internally, some have not, housing for employees. Of
those things, I'd like to hear what's the number one issue? Is
capital the issue, or is it first making sure that the area,
and the infrastructure, and the phone lines, and the housing,
is it personnel and infrastructure more than capital, or does
capital come up first in what's holding you up?
And, I guess the other thing is, what percentage of your
customer base do you think will return, because, particularly
for Mr. Perkins, who said, you know, your revenue stream has
gone away, and it sounds like you could move forward, but if
your customers don't come back then where are you really
headed.
So, what percentage do you think is viable to count on as a
returning customer base?
Mr. Perkins. Well, what we are looking for, I'm fortunate,
I had utilities back up in two weeks, my phone lines were back,
I have Internet access, and things of that sort. I'm looking
for work, that's the biggest thing that I have.
My business is going to have to take a new face. It will be
quite some time before the New Orleans base will come back. I'm
going to have to reach tentacles out. I'm also going to have to
take a new look at my business, and maybe do a spur, restore
home videos and things of that sort, but I need capital to buy
a $10,000 machine that will allow me to do that.
So, realizing that I'm willing to make the commitment that
I'll keep my business there, that eventually, eventually, I
don't know when that is, is it six months, is it a year, is it
five years, it will come back, but I want to stay there so I am
positioned to regain my business.
Ms. Bean. So, capital is your number one issue.
Mr. Perkins. Capital is number one.
Ms. Bean. What about the rest of you?
Ms. Ryan. I have to say that, and maybe it's just the
female mother of me, but my workforce, everyone I come into
contact with, is so focused on having clothes to wear, having
the health of their family, being able to get from point A to
point B, the infrastructure has been a real problem.
The sales people that call on me selling me advertising for
the Sun Herald, doing television commercials, that kind of
thing for me, those sales reps can't even go out and do their
job. Phones are down, they can't drive anywhere, the cost of
gas, the length of time in traffic.
So, for us, the infrastructure, I'd almost have to say,
would be number one, but can we do both at the same time?
Ms. Bean. We hope to multi task, but, obviously, we don't
want to leave any critical areas out by just focusing on
capital.
It sounds like we are being called. Thank you.
Mr. Manzullo. Okay.
We concluded. Let me just conclude on this note. With
regard to the decline rate, the approval rate on the other
hurricanes was after the completion of all the applications and
consideration, the decline rate at present by the SBA, that's
still a work in progress, so you can't compare the two of them.
In the end, it will probably come up to about the same decline
rate or approval rate as the other hurricanes.
I want to thank you all for coming. We made it under the
bells. We have a tierney of bells here. Thank you for trekking
the long way from Louisiana, and Mississippi--
Ms. Velazquez. Mr. Chairman?
Mr. Manzullo.--and thank you both for coming--yes, Ms.
Velazquez?
Ms. Velazquez. I just would like to clarify something here.
There is not a relation between the volume and the approval
rate, and in previous disasters there's not such correlation.
So, volume and approval don't track each other.
Mr. Manzullo. Well, we don't know that at this point.
Ms. Velazquez. Yes, we do, we have the data.
Mr. Manzullo. In any case, thank you for coming.
This hearing is adjourned.
[Whereupon, the hearing was adjourned at 1:17 p.m.]
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