[Senate Hearing 109-408]
[From the U.S. Government Publishing Office]
S. Hrg. 109-408
THE IMPACT OF HURRICANE KATRINA
ON SMALL BUSINESSES
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 22, 2005
__________
Printed for the Committee on Small Business and Entrepreneurship
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senate
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED NINTH CONGRESS
----------
OLYMPIA J. SNOWE, Maine, Chair
CHRISTOPHER S. BOND, Missouri JOHN F. KERRY, Massachusetts
CONRAD BURNS, Montana CARL LEVIN, Michigan
GEORGE ALLEN, Virginia TOM HARKIN, Iowa
NORM COLEMAN, Minnesota JOSEPH I. LIEBERMAN, Connecticut
JOHN THUNE, South Dakota MARY L. LANDRIEU, Louisiana
JOHNNY ISAKSON, Georgia MARIA CANTWELL, Washington
DAVID VITTER, Louisiana EVAN BAYH, Indiana
MICHAEL B. ENZI, Wyoming MARK L. PRYOR, Arkansas
JOHN CORNYN, Texas
Weston J. Coulam, Staff Director
Naomi Baum, Democratic Staff Director
C O N T E N T S
----------
Opening Statements
Page
Snowe, The Honorable Olympia J., Chair, Committee on Small
Business and Entrepreneurship, and a United States Senator from
Maine.......................................................... 1
Isakson, The Honorable Johnny, a United States Senator from
Georgia........................................................ 4
Landrieu, The Honorable Mary L., a United States Senator from
Louisiana...................................................... 4
Vitter, The Honorable David, a United States Senator from
Louisiana...................................................... 7
Enzi, The Honorable Michael B., a United States Senator from
Wyoming........................................................ 8
Kerry, The Honorable John F., a United States Senator from
Massachusetts.................................................. 20
Thune, The Honorable John, a United States Senator from South
Dakota, prepared statement..................................... 38
Witness Testimony
Barreto, Hector V., Adminisrtator, U.S. Small Business
Administration, Washington, DC................................. 10
Mitchell, Herbert L., Associate Administrator, Office of Disaster
Assistance, U.S. Small Business Administration, Washington,
D.C............................................................ 17
Rowland, John, President, Southern Hospitality Systems, Inc., New
Orleans, Louisiana, on behalf of the National Federation of
Independent Businesses......................................... 45
Wilson, Woodrow J., Jr., President, Gulf South Animated Motion
Technology, Inc., New Orleans, Louisiana....................... 48
Harris, Richard, Harris Homes, Ocean Springs, Mississippi........ 51
Baker, Alta, Chief Executive Officer, Safe Haven Enterprises,
Jennings, Louisiana, on behalf of Women Impacting Public Policy 59
Wilkerson, Mary Lynn, State Director, Louisiana Small Business
Development Center............................................. 62
Sutton, Michele, Owner, Fairway Ventures, LLC, Hammond, Louisiana 65
Swindall, Thomas S., Vice Presiden, SWR, Inc., Troy, Alabama..... 69
Alphabetical Listing and Appendix Material Submitted
American Small Manufacturers Coalition
Prepared statement for the record............................ 97
Baker, Alta
Testimony.................................................... 59
Prepared statement........................................... 60
Barreto, Hector V.
Testimony.................................................... 10
Prepared statement........................................... 14
Responses to questions from:
Senator Levin............................................ 91
Senator Kerry............................................ 92
Contract Services Association of America (CSA), prepared
statement...................................................... 100
Enzi, The Honorable Mike
Testimony.................................................... 8
Prepared statement........................................... 9
Harris, Richard
Testimony.................................................... 51
Prepared statement........................................... 53
Landrieu, The Honorable Mary L.
Testimony.................................................... 4
Prepared statement........................................... 5
Responses by Hector Barreto to questions..................... 6
Letter from C. Edward ``TEE'' Rowe to Weston Coulam.............. 80
Responses to written questions............................... 80
Lopez, John K.
Prepared statement for the record............................ 99
Mitchell, Herbert L.
Testimony.................................................... 17
Information supplied......................................... 19
Rowland, John
Testimony.................................................... 45
Prepared statement........................................... 46
Strock, Carl A.
Prepared statement for the record............................ 99
Sutton, Michele
Testimony.................................................... 65
Prepared statement........................................... 68
Swindall, Thomas S.
Testimony.................................................... 69
Prepared statement........................................... 70
Wilkerson, Mary Lynn
Testimony.................................................... 62
Prepared statement........................................... 63
Wilson, Woodrow J., Jr.
Testimony.................................................... 48
Prepared statement........................................... 50
THE IMPACT OF HURRICANE KATRINA
ON SMALL BUSINESSES
----------
THURSDAY, SEPTEMBER 22, 2005
United States Senate,
Committee on Small Business and Entrepreneurship,
Washington, D.C.
The Committee met, pursuant to notice, at 10:19 a.m., in
Room 428-A, Russell Senate Office Building, the Honorable
Olympia J. Snowe (Chair of the Committee) presiding.
Present: Senators Snowe, Thune, Isakson, Vitter, Enzi,
Kerry, and Landrieu.
OPENING STATEMENT OF THE HONORABLE OLYMPIA J. SNOWE, CHAIR,
SENATE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP, AND A
UNITED STATES SENATOR FROM MAINE
Chair Snowe. The hearing will come to order. I apologize
for the delay, but we had two votes this morning.
Thank you all for being here today. I have convened this
hearing today to explore the devastating impact of Hurricane
Katrina on small business and specifically on how and what time
table the Federal Government and the SBA in particular respond
to provide critical assistance.
I appreciate Administrator Barreto for being here today and
for leading the Small Business Administration in its disaster
relief efforts. I understand the Administrator spent a few days
in the Gulf region and I look forward to your firsthand
insights and testimony.
I also want to welcome the small business representatives
from the second panel to testify on the extraordinary and
almost inconceivable challenges they face in the wake of
Hurricane Katrina and as they seek to rebuild both their lives
and their livelihoods and I thank you for taking the time to be
here at this most difficult crossroads in your own lives.
Two of our colleagues on this Committee, Senator Vitter and
Senator Landrieu, know personally the extent of the magnitude
of the devastation as a result of the hurricane in their own
State of Louisiana and the entire Gulf region, and our hearts
and prayers go out to them and their constituents. I just want
them to know that we are here for them and we will do whatever
it takes to help with this in the days and months ahead.
On Monday, I, along with the Commodore in the Coast Guard
toured the region, as well, from both the air and the ground
and saw firsthand the horrors that have been left behind. House
after house, business after business ravaged and ruined by the
cruelties of wind and water. Without question, the damage from
Hurricane Katrina will be prevalent long after the flood waters
recede and the levies are reconstructed. Equally evident is
this unshakable responsibility we have to bring the full
resources of the Federal Government to bear in repairing the
damage as quickly as humanly possible.
The Small Business Administration will be at the forefront
of this massive relief effort. We can and must do no less than
to strengthen its resources to help the people of the Gulf
arise from this tragedy.
Moreover, in this aftermath of the worst natural disaster
ever to visit itself on this country, and, of course, we don't
know what the extent of damage will be from Hurricane Rita,
there should be no doubt of the enormous economic impact this
catastrophe has had and will have on our entire nation.
Indeed, the challenges facing us are impressive. Katrina's
effects could dampen economic growth by as much as a full
percentage point. In looking to build a brighter future, we
cannot ignore that it is America's 25 million small businesses
that create three-quarters of all the new jobs in this country
and grow at twice the rate of all firms. Clearly, once again,
it will be our small businesses and entrepreneurs who will lead
the way through this most difficult time through their
determination, their innovation, and unflagging spirit.
Even they cannot do it alone. Today, it is estimated that
over 800,000 firms have been effected and employment in
Louisiana, Mississippi, and Alabama may be reduced by more than
one million jobs.
As chair of the Committee on Small Business and
Entrepreneurship, I want to send one message loud and clear,
that we are committed to moving heaven and earth to provide
immediate and meaningful support to rebuild this region and to
help sustain our economy. I want to ensure that Americans
affected by this hurricane have the resources to begin
rebuilding their lives, their businesses, and their dreams.
I understand FEMA has referred over 800,000 cases for loan
assistance to the SBA, and the SBA is receiving up to 20,000
calls per day. This is a tremendous workload that the SBA must
shoulder. To date, the SBA has distributed approximately
850,000 applications for loans to individuals and businesses,
has received over 8,400 loan applications, and approved more
than $3.1 million in loans. This is obviously just the tip of
the iceberg. A great measure of assistance is yet to be
requested and provided, and therefore, it is critical that we
act now.
Last Thursday, the Senate unanimously approved a bipartisan
amendment to the Commerce, Justice, and Science appropriations
bill that I introduced with Ranking Member Kerry, working
closely across party lines with Senators Vitter, Landrieu, and
Talent. We are now collaborating once again to enact a stand-
alone bill based on this amendment and I hope that, frankly, we
can even use a separate vehicle to move unanimous consent to
get this legislation through separately in both the House and
Senate so that it can be signed by the President.
Essentially, this amendment provides a comprehensive
package for immediate emergency relief and funding of almost
$595 million to assist the victims of Hurricane Katrina in
rebuilding their lives and their businesses. Specifically, the
measure would increase the maximum size of a disaster loan from
$1.5 million per loan to $10 million; provide the SBA the
authority to grant victims of Hurricane Katrina up to 12 months
to begin repaying their SBA loans; lower fees for the 7(a)
program to make borrowing more affordable for small businesses
outside the disaster area, many of which have been destroyed by
the disaster and are struggling to cover higher costs in health
care and energy; requires the SBA to treat special disaster
provisions as separate from the regular programs to avoid
increasing future subsidy rates and, therefore, the costs for
borrowers who rely on these programs; increase the program
level for SBA disaster loans, physical and economic injury, by
approximately $600 million, requiring an appropriation of
approximately $86 million.
The legislation would also allow the SBA to provide similar
loans with lower fees for small businesses located outside the
disaster zones, but nonetheless indirectly affected by the
hurricane. We authorize $400 million to the State governments
of Louisiana, Mississippi, Alabama, Texas, and Florida to
provide emergency bridge loans and grants to small businesses
in the disaster areas so that we can disperse immediate funds
until victims can secure other loans or financial assistance.
Given the explosive growth in cost of gas and heating oil,
the legislation also includes a pilot program to give small
businesses and farms access to low-interest-rate disaster
loans. The Senate has already passed this provision three
times. Wwith the costs of Katrina relief and rebuilding
estimated to be more than $100 billion, we expand small
business access to Federal contracts and subcontracts that had
been operating in the areas destroyed by the hurricane.
In a time of uncertainty, government projects are
reliable--all the more critical in a crisis the magnitude of
this hurricane, and can provide steady pay for small business
employees. Government procurement would open doors for many
local small businesses to participate in the long-term
reconstruction work in the Gulf Coast areas. Prior to the
disaster, small construction companies in Alabama, Mississippi,
and Louisiana brought home nearly $500 million annually in
Federal contracts and over $3 billion annually in the Gulf
region.
To achieve this goal, the legislation designates the
hurricane disaster area as a HUBZone, attracting small
businesses to locate and employ people in the disaster area
with contracting and price evaluation preferences. Extending
the HUBZone designation to the Gulf Coast would bring necessary
business development to the area.
Finally, it authorizes nearly $34 million for grants to
increase business counseling in the region for SBA
entrepreneurial development programs, including the Small
Business Development Centers, the Women's Business Centers,
SCORE, Veterans' Business Centers, and the Micro Loan Technical
Assistance Program.
The bottom line is in order to ensure SBA has the essential
resources to provide the best assistance possible to those in
need, we must enact this emergency package and ensure
assistance is delivered to small businesses efficiently and
effectively. What I want to learn, and I know the Committee
Members do, as well, is to learn what are the immediate needs
and requirements of affected small businesses, what is the SBA
doing to bring services and assistance to the people and to the
Gulf region, what is the time table for implementation, and
what further assistance does the SBA require from Congress as
the SBA moves forward, because our effort must be at once
comprehensive, seamless, and tireless.
Before I turn to my colleagues, I would like to note that
while some media reports have raised some concerns about the
STAR Program that was made part of the SBA's 7(a) loan program
after the September 11 terrorist attack, I share with the
Administrator my deep concerns about the allegations that the
program's implementation may have been seriously flawed. We
have asked the SBA's Inspector General, and I know the
Administrator has, as well, to conduct a review of the
implementation of that program, and I just want the Members of
this Committee to know that we will be undertaking our own
rigorous review and oversight concurrently with the IG review.
Both of these reviews are ongoing, and we will make certain
that we will complete a resolution evaluation in a timely
fashion. Once these concurrent reviews are finished, it is
appropriate that the Committee would hold a future oversight
hearing to discuss this critical issue.
At this point, I would like to recognize my colleagues. The
Senator from Georgia, do you have any comments?
OPENING STATEMENT OF THE HONORABLE JOHNNY ISAKSON, A UNITED
STATES SENATOR FROM GEORGIA
Senator Isakson. I will submit mine for the record, Madam
Chairman, but I appreciate you calling this hearing today.
Chair Snowe. I thank you.
My colleague from Louisiana? As I indicated in my opening
statement, we are prepared to have this Committee to bring all
the resources to bear to help your region and to extend our
profound regret and sympathy about what has happened, but we
want to do everything that we can to help mitigate the burden
that has obviously been perpetrated on your State.
OPENING STATEMENT OF THE HONORABLE MARY L. LANDRIEU, A UNITED
STATES SENATOR FROM LOUISIANA
Senator Landrieu. I want to acknowledge our Chairperson
here and how, from the very first days of this catastrophe, the
leadership of this Committee, along with Senator Kerry, has
been focused on exactly what the Chairman said, how this
Committee could move forward aggressively, appropriately, to
help a region that has been devastated, not just, of course,
the city of New Orleans, but the parishes surrounding the city
of New Orleans, which are equally important in the stand-up of
the region and the Gulf Coast generally.
I particularly want to thank this Chair and Senator Kerry
and the Members of this Committee who have stepped forward to
put an extraordinary amendment on the CJS bill and use it as an
opportunity to get some initial $400 million of aid through the
small business organization.
We have had, and I won't go into it today, Madam Chair,
some difficulties with FEMA. We will be working on that, a work
in progress. I believe as a Member of this Committee that the
Small Business Administration is very well poised through
existing programs that we have as well as new things that our
Committee should explore that can really get the right kind of
aid, credit, assistance and just pausing some of the debt that
small businesses have as we re-set up this region and use
wisely the power of the private sector and private enterprise
connected with the government response.
Madam Chair, you are indeed an expert on this. You have
shown it year after year and I look forward--and I see my
colleague from Louisiana, Senator Vitter--but we look forward
to working with you very closely and, in fact, we will be
offering later today a package of incentives for small
businesses in addition to what has already been done that we
will truly appreciate your consideration of.
[The prepared statement of Senator Landrieu follows:]
Prepared Statement of Hon. Mary L. Landrieu, a U.S. Senator
from Louisiana
I thank the Chair for holding this hearing on the devastation that
Hurricane Katrina has brought on my home state of Louisiana,
Mississippi, and Alabama, and how the Small Business Administration can
best serve the people of the region in rebuilding our economy and our
communities.
This Committee and the Senate has already started to help by adding
an amendment to the Commerce-Justice-Science appropriations bill to
bring some immediate relief to small businesses in the Hurricane Zone.
That amendment will provide $400 million to affected states for grants
or bridge loans to small businesses that are trying to get back on
their feet. This was the highest priority for businesses in my home
state of Louisiana. The amendment would allow small businesses in the
disaster area to defer disaster loan repayments for a year, increases
funding for SBA's counseling and training programs, makes the disaster
area eligible as a HUBZone to promote business growth, and sets higher
small business contracting goals for Katrina-related rebuilding
projects. These measures will be a great first step.
More help is on the way. Today, I introduced a comprehensive
legislative package called the ``Louisiana Katrina Reconstruction Act''
that will help rebuild Louisiana's economy and our infrastructure. It
contains tax incentives to spur business development and to encourage
residents to come back home; $45 billion in bonding authority to
rebuild our infrastructure; as well as funding to protect mortgages,
rebuild homes, and to provide for health care, education, housing, and
other human needs in this unprecedented time. We hope this will serve
as a model for rebuilding the entire Gulf region.
I welcome the small business representatives who will speaking
before the Committee today, and am proud to have witnesses from
Louisiana here: Mr. John Rowland, Ms. Alta Baker from Jennings, Ms.
Mary Lynn Wilkerson from Monroe, Ms. Michele Sutton from Hammond, and
Mr. Woodrow J. Wilson from New Orleans. These people and the thousands
like them across Louisiana and the Gulf region will be the key to our
revitalization.
Madam Chair, in New Orleans family-owned businesses are common.
Sure we have big hotels and chain restaurants that employ a lot of
people, but most of the restaurants, clothing stores, and souvenir
shops are small, family-owned businesses. For these families their
businesses were like a second home, their employees like part of the
family. More than 65 percent of the new jobs in Louisiana in the past
decade were created by small businesses and they will be the engines
that drive our revitalization. Before the storm, Louisiana had 86,000
small businesses, employing over 850,000 people. The annual payroll was
$21.9 billion.
As of today, more than 214,000 people have filed jobless claims
filed as a result of Hurricane Katrina. The Congressional Budget Office
estimates that nationwide Katrina could lead to 400,000 job losses.
Congress has to act fast or else we could lose them forever. This
concern is justified. Forty-three percent of businesses that close for
a disaster never reopen. An additional 29 percent close down
permanently within 2 years.
Any loss of these small businesses will have ripple effects beyond
the Hurricane disaster area. There were 71,000 businesses in the
disaster zone in Louisiana, but the storm's harm has reached out to
affect 110,000 small businesses throughout the state. When a small
business closes down, suppliers to that business lose a customer. For
example, crawfish farmers in Lafayette--which was spared major damage
by Katrina--are losing business because restaurants in New Orleans and
other areas in the disaster area are closed. This chain reaction
replicates and grows with each and every small business that does not
get up and running soon.
The Small Business Administration will play a very important role
in restoring our small business economy. I have serious concerns about
whether the agency will have the resources in place to handle the huge
numbers of loan applications that will be coming. Already we are
hearing from small businesses that they may have to wait 90 days before
they get a disaster loan from SBA. More than one million people have
requested loan applications so far, 577,000 of them in Louisiana alone.
The SBA to its credit is trying to staff up to handle this crush of
work, but I am concerned that these temporary workers will not have the
right kind of training to be able to process applications in a timely
manner. SBA's programs can be complicated for people who are not
familiar with them. I do not want a lack of adequate training to keep
small businesses from getting the assistance they need.
Madam Chair, our small businesses do not want charity, and the
assistance we hope to provide them in our C-J-S amendment and the
larger Louisiana reconstruction legislation is not charity. These
efforts will recreate the opportunity that our small businesses used to
succeed and grow before Hurricane Katrina hit. In these difficult and
challenging times, small businesses just want a jump start to rebuild,
reopen, or renew. The entrepreneurial spirit that made them a success
will carry-over and make them successful again. When they are done, our
economy in Louisiana and the Gulf will thrive once again.
I thank the Chair.
______
Responses by Hector Barreto to Questions from Senator Mary L. Landrieu
Question 1. The Senate passed an amendment to the Commerce-Justice-
Science Appropriations bill that included a number of provisions to
provide relief to small businesses in the Katrina disaster area. One of
those provisions provides $400 million in funding for states to help
small businesses with their immediate capital needs through bridge
loans or grants. What is the administration's position on this
provision?
Response. Not available.
Question 2. Your testimony states that SBA is going to hire some
2,000 temporary employees to meet staffing requirements for loan
application processing. I am deeply concerned that these temporary
workers will not receive adequate training in all of SBA's programs in
enough time to be truly helpful to small businesses in the hurricane
disaster zone.
Please describe the training program for these workers.
What are the hiring requirements for these workers.
How much time will it be between the hiring of a temporary
worker and that worker's being ready to handle their responsibilities?
Please describe your efforts to hire displaced workers
from the affected Hurricane areas to fill these temporary positions.
What kind of outreach are you doing to reach displaced residents?
Response. Not available.
Question 3. One of the witnesses stated in his testimony that FEMA,
SBA, and the SBDCs do not have a unified approach and that people
seeking assistance get lost in a maze.
Is there any coordination planning between SBA, FEMA,
other Federal agencies, and State and local governments before disaster
strikes? Please describe that planning and when that takes place.
Does SBA need more resources to ensure that it can
adequately coordinate with other agencies?
Response. Not available.
Question 4. The Committee has heard testimony from small business
owners that it may take SBA as long as 5 months to process disaster
loan applications.
Please describe SBA's loan processing system.
Does SBA check the credit worthiness of applicants?
How do you determine economic injury? What records do
businesses need to give you? If a business has lost its records can
they still receive loans, particularly for economic injury?
Does SBA maintain records from past disasters of average
loan size? How many businesses received the maximum loan amount and for
how many of these businesses is the maximum loan amount not enough to
cover their needs? Please provide this information for the Committee.
Response. Not available.
Question 5. Herbert Mitchell did a presentation describing SBA
staffing at facilities in the disaster area. There were only 140 staff
at 30 sites in Louisiana. Does SBA have plans to hire additional staff
for these Louisiana locations? What will the qualifications be for this
staff? Will you use temporary staff or full-time SBA personnel to fill
these positions?
Chair Snowe. Absolutely, and I want to express to you,
Senator Landrieu and Senator Vitter, that we will do everything
that we can and we appreciate the input that you have provided
in shaping this package and beyond. I would expect this will be
the beginning of this effort by the Committee, both on the
Committee and on the floor, and what we can get through. I
would appreciate your guidance and counsel as we go forward.
What is going to work for the people of your region and your
State that will be most beneficial in beginning to restore the
economic lifeline in your State.
Senator Vitter.
OPENING STATEMENT OF THE HONORABLE DAVID VITTER,
A UNITED STATES SENATOR FROM LOUISIANA
Senator Vitter. Thank you, Madam Chairman. I also want to
thank you and all the Members for being so supportive and
helpful, including in this vital area. I want to thank
Administrator Barreto for being here today and for all of his
work.
To echo what Mary said, we are introducing a full-fledged
package today and a big part of that, one part I have been very
focused on with Mary and others, is the right package of
incentives, tax incentives, depreciation relief, et cetera, to
make sure businesses and jobs come back because that has to be
a key part of the effort. We could rebuild all of the public
infrastructure in sight. In fact, we could gold plate it.
Unless businesses and jobs come back, people won't follow and
we won't properly repopulate and get back on our feet. That is
a big, big goal.
Let me just, as an illustrative list, not an exhaustive
one, mention a few things. For instance, for businesses, we are
proposing a relocation tax credit to help offset the huge cost
many businesses have incurred in relocating and then the
additional costs they would incur to come back. Also, we are
proposing a $1,000 tax credit for each employee a small
business puts back to work in the disaster area and we are
proposing a 3-year suspension of airline ticket taxes for
flights into the disaster area, something that will help bring
visitors back and a big part of our economy connected to
tourism.
Also, certainly the bill we are introducing endorses this
Committee's work by incorporating the Small Business
Homeowners' and Renters' Disaster Relief Act, and we appreciate
that work and we fully endorse it. This plan helps small
businesses, of course. It was adopted last week as an amendment
and we appreciate all your work on that.
The package also would provide grants to States to help
small businesses bridge the time it takes to process SBA loans.
Specifically, it would provide $150 million to Louisiana to
help fund bridge loans to businesses while the whole SBA
process is gone through. Businesses are going to need that sort
of immediate help, so anything we can do in terms of that sort
of bridge loan or any other mechanism to get those businesses
the help they need, not in 2 months, not even next month, but
now is very important.
We believe we should allow borrowers to defer the repayment
of SBA disaster loans, as well. This would allow borrowers--
that includes homeowners and renters and businesses--on
disaster loans to have a 12-month period to get back up and
running before they go back on that repayment schedule.
Also, I think we need to increase the maximum size of an
SBA disaster loan well above the $1.5 million now, perhaps to
$10 million, because many small businesses have essentially
faced complete destruction.
All of these are part of our package and things we will be
working very closely with you on.
With that, I will wrap up, Madam Chairman. Thank you for
all of your very active work already and I look forward to
continuing in that vein, working very closely with you.
Chair Snowe. I appreciate that, Senator Vitter. The help
and assistance that you have given this Committee as we begin
to shape these packages and what is going to work and work well
and effectively. As you are going to be in the front lines, if
you learn more or discern something that isn't working as far
as our perspective is concerned in small business resources, we
certainly want to know that because we have got to eliminate
any of the confusion, the contradictions, and the complications
in what is already a very difficult situation. I appreciate
your view and that proposal, and in my position on the Senate
Finance Committee, if I can help in that way, as well, with
some of the tax incentive measures, that, certainly, I would
want to do, so thank you.
Senator Enzi.
OPENING STATEMENT OF THE HONORABLE MICHAEL B. ENZI, A UNITED
STATES SENATOR FROM WYOMING
Senator Enzi. Thank you, Madam Chairman. I, too, want to
congratulate you for holding this hearing and for the work that
you have already gotten accomplished and finished. That is the
kind of response that is needed, and the kind of response that
you do will make a tremendous difference down there.
Last Friday, Senators Frist and Reid took several people
down to actually look at the disaster. I have always said that
a picture is worth a thousand words, but being on the ground is
worth a thousand pictures. Senator Kennedy is the Ranking
Member on my Committee, the HELP Committee, and he was on the
trip, too. It was very helpful on the package that we are
putting together to have that time to collaborate and actually
to see if what we were doing was going to make a difference. I
think we found that there were a few other things that we
needed to do, as well.
I do have a full statement that I would like to have in the
record and I apologize that I won't be able to be here for the
entire hearing. I do appreciate the testimony that was
submitted in advance, particularly from the small business men
and women. That does help us to have a little better feel for
what is happening down there. I think through your hearing and
your efforts, that we will be able to get it right, and I thank
you.
Chair Snowe. I appreciate that, Senator Enzi. Without
objection, your statement will be included in the record, and
all Members of the Committee, their full statements will be
included, as well.
[The prepared statement of Senator Enzi follows:]
Prepared Statement of Hon. Mike Enzi, a U.S. Senator from Wyoming
America is faced with responding to an event of epic proportions, a
storm unlike anything seen in 150 years. In the days that have passed
since Hurricane Katrina devastated so much of the Gulf Coast region of
our country, we have all seen the impact this terrible storm has had on
countless lives in the region.
More and more of us are witnessing firsthand the extent of the
damage, including families and individuals returning to their homes and
businesses. I was able to survey the damage in Louisiana, Mississippi,
and Alabama last Friday as part of a bipartisan Senate delegation. Even
now, scores of volunteers have congregated in the area to feed the
hungry, quench the thirst of the thirsty and repair the damage.
We continue to do our part in the Senate too. I am very pleased
that Chairwoman Snowe has called this hearing. Now is not the time to
play the blame game. We need to focus on immediate assistance and the
rebuilding of the region. Instead, it is a time for us start the
process of addressing the short and long term needs of the people who
were devastated by the storm. I look forward to hearing from SBA
Administrator Barreto and Associate Administrator Mitchell about what
the SBA has accomplished in response to Katrina and what the next steps
are in providing permanent solutions to the affected people and
businesses. Thank you both for participating today, I look forward to
your testimony and working with you both to speed the recovery effort.
In the Health, Education, Labor and Pensions Committee which I
chair, yesterday I introduced sweeping legislation with my Ranking
Member Senator Kennedy. Our legislation, the Community Service Disaster
Assistance Act of 2005 is a block grant program whose goal is to
provide assistance to States and local communities with the intent of
reducing poverty and revitalizing low-income communities. The programs
are community governed, and fund initiatives to change conditions that
perpetuate poverty, like unemployment, inadequate housing and poor
nutrition. As a member of this committee, I look forward to working
with my colleagues to address the needs of small businesses.
As a former Mayor, I have seen for myself the devastation caused by
severe weather. Just last month Wright, Wyoming was hit by a tornado
that did significant damage to the town. Plans to rebuild Wright are
including support and cooperation on the local, State and Federal
level--much the same as this tragedy will. In Wright, I have seen the
Federal Government do an outstanding job of working with the state and
community leaders to start the process of rebuilding. This formula can
be replicated in the Gulf Coast region. It will also call on us at the
Federal level to develop innovative and creative strategies that will
cut through the red tape and provide the assistance that is needed
quickly and efficiently.
That is why I am excited to hear from the second panel of small
business owners and others that were directly impacted by Hurricane
Katrina. We are looking forward to receiving their suggestions as to
what we should do next as we work to produce a plan of action that will
see us through the after effects of this storm--and provide us with a
strategy we can use to respond to future such events.
Small businesses are the lifeblood of our economy. Helping small
businesses open their doors again will continue the healing process and
jump start the economies of the affected areas. The SBA will play an
integral part in this process. I look forward to the testimonies and
suggestions that will be given today. Thank you Madame Chair.
Chair Snowe. Administrator Barreto, welcome, and Mr.
Mitchell, who is the Associate Administrator for Disaster
Assistance. I appreciate the fact that you are here, as well,
today because I think it certainly will provide, I think,
valuable input into how the disaster program works, what is the
status today, and what SBA has been doing in the Gulf region. I
know you just returned, Administrator Barreto, as well from 3
days being down there, so I appreciate your views and being
here today and being so responsive in showing the resolve in
bringing the resources of this administration to the Gulf
region and how best can we do it and go about it in the most
efficient way possible.
Administrator Barreto, why don't you begin, and thank you
for being here today.
STATEMENT OF THE HONORABLE HECTOR V. BARRETO, ADMINISTRATOR,
U.S. SMALL BUSINESS ADMINISTRATION, WASHINGTON, D.C.
Mr. Barreto. Thank you, Chair. Good morning, Chair Snowe
and all of the distinguished Members of this Committee. Thank
you for inviting me here today to discuss the Small Business
Administration's Office of Disaster Assistance Relief Efforts
for all of the victims of Hurricane Katrina.
As you have already mentioned, Chair, I am accompanied by
Herb Mitchell, the Associate Administrator for Disaster
Assistance. Herb is a longtime SBA employee, with over a decade
of experience in the Office of Disaster Assistance. I am happy
to have Herb as the head of our Disaster Office. He is
definitely a man of experience, dedication, and skill.
Herb and I just returned last night, as a matter of fact,
from Louisiana and Texas, and we learned firsthand of the
destruction caused by this massive storm. More important, I met
with citizens, with homeowners, with small business owners who
were affected. We also met with the SBA Disaster Assistance
employees on the ground, and I can tell you, I have never been
more proud of the work they are doing for the SBA and for all
of the victims.
I visited our Disaster Recovery Center and our displaced
New Orleans District Office staff in Baton Rouge, as well as
our Disaster Loan Processing and Disbursement Center staff in
Fort Worth, Texas. They have done an excellent job and are
carrying on the best tradition of Federal service and I am
committed to offer them all of the support they need to carry
out the SBA's disaster assistance mission.
Before detailing SBA's expanded recovery efforts in regards
to Hurricane Katrina, it is important to get some background in
SBA's disaster programs. The SBA Disaster Assistance Program is
the primary Federal disaster assistance loan program for long-
range recovery for the private sector and non-agricultural
disaster victims. Disaster loans are direct loans from the SBA
and eligibility is based on a financial criteria.
Interest rates are set through statutory formulas.
Currently, the rate for loans for homeowners without credit
available elsewhere is 2.68 percent, and with credit elsewhere,
it would bump up to 5.3 percent. For businesses, the rates are
4 percent and 6.5 percent, respectively.
It is important to understand that SBA disaster loans are
not just for small businesses. The majority of SBA disaster
assistance is directly to homeowners to help rebuild their
homes. SBA has two kinds of business disaster loans, physical
disaster loans provided to qualified businesses of any size
that have sustained uninsured losses up to $1.5 million with
funds to repair or replace business property to pre-disaster
conditions. Economic injury disaster loans, or what we refer to
as EIDL loans, provide up to $1.5 million in working capital
loans for small businesses that suffer economic injury as a
direct result of a disaster, regardless of whether or not the
property was damaged.
The bottom line is SBA disaster loans help rebuild
communities. SBA doesn't just help the small businesses, but
their friends and their 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-ravaged
communities and help spur employment and stabilized tax bases
by protecting jobs. The SBA responded immediately to the
President's disaster declaration for Hurricane Katrina and
continues to increase assets to assure our delivery of
assistance goes smoothly.
Yesterday, I visited our processing center in Fort Worth,
Texas. We have expanded that facility by 40,000 square feet. We
have added phone and computer connections to increase our
capacity to process the applications. SBA has received a record
number of referrals already, well over a million to date. We
have been sending out applications and are preparing to receive
them back.
I would like to address head on the misguided media
accounts of computer problems in the Office of Disaster
Assistance. Nothing could be farther from the truth. Our prior
system, the Automated Loan Control System, was cumbersome and
unreliable. It was not a loan processing system, but it was a
tracking system that interfaced with our mainframe to find
loans and a separate system for underwriting on a different
platform and a document generation system on a third platform.
That is the way we used to do it. The technologies for all of
these systems were obsolete.
Last year, the ALCS in one of our offices broke down during
the Florida hurricanes and it took nearly a week to repair
because no one carried parts for a system that was that old.
Faced with the possibility of future failures, SBA built
the Disaster Credit Management System, DCMS, now being used for
Katrina. The DCMS is an integrated web-enabled system that
performs all of the necessary functions on one platform with
the latest technology. This system has been in use since
December 2004 and allows SBA to process loans electronically in
a paperless environment through image or scanning. Processing
and disbursement of disaster loans is centralized in Fort Worth
with a backup location in Sacramento, California.
DCMS introduces virtual loan processing, making loan files
available for processing anywhere by anyone at any time
regardless of where the disaster occurs. This system will
ultimately provide multiple interaction methods between the
applicant and our Office of Disaster Assistance, like the
Internet loan application under development.
The DCMS improves access to credit reports, criminal
background checks, status of Federal debt, tax information,
duplication of benefits data from FEMA, flood zone,
verification of real property ownership with title companies,
and courthouse records, et cetera. All of this is an
improvement over our old system, and we have used it
successfully already for over 15,000 applications.
In response to Katrina, Office of Disaster Assistance is
staffing up by hiring temporary employees to verify losses, to
provide customer service on the phone and in the field, and to
process and disburse loans. ODA is hiring over 200 employees a
day, and we already have over 2,000 employees on board just
focused on Katrina, and we expect to have another 2,000 to meet
the ongoing needs.
By design, the Office of Disaster Assistance ramps up when
a disaster strikes, and that saves taxpayers hundreds of
thousands of dollars by keeping the staff low in times of low
disaster activity. Our SBA ODA employees are in over 30
Disaster Recovery Centers (DRC's) and more are opening daily.
At our DRC's customer service representatives and loan officers
provide Katrina victims with one-on-one assistance, issuing and
helping them fill out applications, answering questions. They
are also accepting completed applications and making follow-up
calls to victims that have not returned their applications.
We also plan a Business Assistance Center in the New
Orleans area, Senator Landrieu, and I promise you that as soon
as it is safe for our folks to be in New Orleans and for our
folks to get back there, we will be there every day and we will
be there to help them. We are already helping a lot of them in
our Baton Rouge operations, where many residents of New Orleans
are currently staying, as well as in our other Disaster
Centers.
Herb and his staff have done a magnificent job. ODA has
ordered equipment and is training new field verification staff
for Katrina as it would for any disaster, but obviously on a
much larger scale. When Katrina struck, ODA had 300 DCMS
tablets--these are the computers--to meet the demands of
ongoing disaster activity included in the immediate response to
Katrina. ODA immediately ordered more tablets--we have already
received 560 of 600 that we ordered--and we have 400 more in
the pipeline.
I would also like to discuss the other steps SBA is taking
outside of our usual programs. Last weekend, I met with a
number of business leaders. It is inspiring to see their
willingness to help. One business is already seeking ways to
work with SBA to help us leverage our business matchmaking
events to assist small businesses in the Gulf region.
SBA has assigned four Procurement Center Representatives,
or PCRs, to Katrina-related contracting, and our Office of
Government Contracting is meeting with Small Disadvantaged
Business Utilization Officers from all of the major agencies to
help focus attention on small business opportunities. SBA is
also working with the General Services Administration to help
update sourcing lists and to help small businesses enter the
Central Contractor Registration Database of small businesses
available for contracting in the Gulf region.
While the administration's priority is always to provide
emergency services as quickly as possible, SBA is committed to
ensuring that small businesses get fair opportunities. Our
Small Business Development Center partners have come forward in
an exemplary fashion to assist small businesses damaged by
Katrina. We are working with them to enable them to provide
services from neighboring States and across the country, and to
that end, I have approved a waiver for SBDCs to help in the
disaster areas.
I also want to discuss the proposals from the President's
speech. SBA supports the President's goal of rebuilding not
just New Orleans, but the entire Gulf region and the designated
Gulf Opportunity Zones, or GO Zones. SBA will have the
following role: Increase the maximum size of SBA business-
related disaster loans from $1.5 million to $10 million. SBA
disaster loans to a business will cover activities that are
typically capped at $1.5 million. The proposal would increase
that to $10 million for businesses in the declared disaster
area who were adversely affected by Hurricane Katrina. Raising
that cap should help business activity recover more quickly by
facilitating access to low-interest loans to cover physical and
economic injury.
We want to increase disaster mitigation loans. When
providing a loan for uninsured costs, SBA can increase the loan
amount by up to 20 percent so the borrower can invest in
mitigation technology, such as storm shutters, for example. The
administration proposes raising the amount, basing the
calculation on total damage.
For example, if a business had $100,000 in damage, they may
have $80,000 insured and $20,000 covered by an SBA disaster
loan. Typically, a mitigation loan in that example would be 20
percent of $20,000. The administration proposal would raise
eligibility to 20 percent of the $100,000 damage, a five-fold
increase in the amount eligible for mitigation.
Increase the maximum size of surety bonds from $2 to $5
million. Small businesses often need bid and performance bonds
for contracts. These bonds assure the contractor's customers
that the contractor has the financial capacity to perform the
work. The larger bonding limit would assist small businesses in
a disaster area to secure contracts, especially those related
to reconstruction.
We want to provide 7(a) and 504 loan borrowers with the
options for deferring the principal and interest payments for a
12-month period. In order to allow affected small businesses in
the disaster area to rebuild, 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 circum-
stances, participating lenders and certified development
companies can make such deferrals available. Where a deferral
is not available, alternative means of temporary relief may be
needed, including economic injury disaster loans for working
capital needs. Through these measures, borrowers could better
regain their financial footing.
SBA is also planning to defer payments on agency serviced
business loans in the disaster area and is asking our lending
partners where possible to do the same on SBA loans that they
service.
We want higher GO Zone specific 7(a) and 504 loan levels
for 2006. The current program authorization set SBA nationwide
7(a) loan volume at $17 billion and 504 loan volume at $7.5
billion. The administration proposes to provide higher
authorization levels for those in the GO Zone area during 2006,
ensuring that lenders will be able to make small business loans
in that area. GO Zone area levels will be $10 billion for 7(a)
and $5 billion for 504 in addition to the levels that are
already authorized.
Once Hurricane Katrina hit the Gulf Coast, SBA's Office of
Disaster Assistance immediately began its outreach, as we do in
all disasters. Immediately, ODA was in contact with our
regional offices, with our Small Business Development Centers,
and with our local community-based organizations. Things are
moving along quickly, and I am pleased to report that we are
serving those affected by this disaster well with the manpower
and the technology to continue to do so.
Again, I want to thank you, Chair Snowe. I want to thank
all of the Members of this Committee for giving me the
opportunity to speak to you today. I look forward to answering
any of the questions that you might have.
[The prepared statement of Mr. Barreto follows:]
Prepared Statement of Hector V. Barreto, Administrator,
U.S. Small Business Administration
Good morning, Chair Snowe, Ranking Member Kerry and distinguished
Members of this Committee. Thank you for inviting me to discuss the
Small Business Administration's (SBA) Office of Disaster Assistance
(ODA) efforts to provide relief to the victims of Hurricane Katrina.
I am accompanied today by Herb Mitchell, the Associate
Administrator for Disaster Assistance. Herb is long-time career
employee of SBA with over a decade of experience in our Office of
Disaster Assistance. I want to tell you how happy I am to have Herb as
our head of the disaster office; he is a man of experience, dedication
and skill.
Herb and I have just returned from Louisiana and Texas. We learned
firsthand the destruction caused by this massive storm, but more
important, I met with citizens--homeowners and small business owners
who were affected. We also met with our SBA disaster assistance
employees on the ground and, I can tell you, I have never been more
proud of the work we do at SBA.
I visited our disaster recovery center staff and our displaced New
Orleans District Office staff in Baton Rouge, as well as our Disaster
Loan Processing and Disbursement Center staff in Fort Worth. They have
done an excellent job and are carrying on in the best tradition of
Federal service. In response to that, I am committed to offer them all
the support they need to carry out the SBA's disaster assistance
mission.
Before detailing SBA's expanded recovery efforts in regards to
Hurricane Katrina, I think it is important to give some background on
SBA's disaster programs. The SBA Disaster Assistance Program is the
primary Federal disaster-assistance loan program for long-range
recovery for private-sector, non-agricultural disaster victims.
Disaster loans are direct loans from SBA and eligibility is based on
financial criteria. Interest rates fluctuate according to statutory
formulas. Currently, the interest rate for loans for people without
credit available elsewhere is 2.687 percent and the rate for people
with credit available elsewhere is 5.375 percent for homeowners. For
businesses the rates are 4.0 percent and 6.557 percent, respectively.
It is important that everyone understand that SBA disaster loans are
not just for small businesses, in fact, the majority of SBA disaster
assistance is directed to homeowners, to help rebuild their homes.
SBA has two kinds of business disaster loans. Physical disaster
loans provide qualified businesses of any size that have sustained
uninsured losses up to $1.5 million with funds to repair or replace
business property to pre-disaster conditions. These loans may be used
to replace or repair equipment, fixtures, and inventory, and to make
leasehold improvements. Economic Injury Disaster Loans (EIDL) provide
up to $1.5 million in working-capital loans for small businesses that
suffer economic injury as a direct result of a disaster, regardless of
whether the property was damaged. These loans are made to help small
businesses pay ordinary and necessary operating expenses that they
would have been able to pay if the disaster had not occurred.
The bottom line is that SBA's disaster loans help rebuild
communities. SBA doesn't just help the small businesses, but their
friends, and neighbors--their customers. Disaster losses are unexpected
and create financial hardships for most disaster victims. 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-ravaged 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.
Yesterday, I visited our processing center in Fort Worth. We have
expanded that facility by 40,000 square feet and added phone and
computer connections to increase our capacity to process applications.
To date, SBA has received a record number of referrals--over one
million. We have been sending out applications and are preparing to
receive them back.
I would also like to address ``head on'' the misguided press
accounts of computer problems in the Office of Disaster Assistance
(ODA). Nothing could be further from the truth. Our prior system, the
Automated Loan Control System (ALCS), was cumbersome, unreliable,
outdated and does not comply with current IT security requirements. The
ALCS was not a loan processing system but a tracking system that
interfaced with our mainframe to fund and disburse loans. A separate
automated Loan Officer Report system was used for underwriting and
operated on a different platform. Finally, we also used a legal
document generation system which also operated on a different platform.
The technologies for all of these systems are outdated and inefficient.
Last year in one of our offices the ALCS broke down during the Florida
hurricanes; and it took nearly a week to be repaired. The delay was due
to the need for parts, parts for a system that is so old no one carried
replacement parts. Faced with the possibility of future failures, SBA
many years ago moved forward to build our new Disaster Credit
Management System (DCMS) now being utilized for Katrina. The DCMS is a
totally integrated web-enabled system that performs all of the
necessary functions on one platform with the latest technology.
This system has been in use since December of 2004 and allows SBA
to process loans electronically in a paperless environment. Processing
and disbursement of disaster loans is now centralized in Fort Worth,
Texas, with a back up processing location in Sacramento, California.
Both locations have sufficient numbers of desktop computers to process
and disburse loans. The DCMS is a ``paperless,'' electronic loan
application and loan process, which improves the processing of paper-
based applications through imaging (scanning).
DCMS introduces ``virtual'' loan processing, making electronic loan
files available for processing anywhere, by anyone, and at any time,
regardless of where the disaster occurs. The system will ultimately
provide for multiple interaction methods between the disaster loan
applicant and ODA, such as internet loan application which is under
development.
The DCMS improves SBA access to external data sources that provide
credit reports, criminal background checks, status of Federal debt, tax
information from the IRS, duplication of benefits data from FEMA, flood
zone mapping with FEMA, verification of real property ownership with
title companies and court house records, etc.
All of this is an improvement over our old system and we have used
it successfully for over 15,000 applications.
ODA is staffing up to meet the demands of this disaster, as it does
for all disasters, by hiring temporary employees to verify losses,
provide customer service to the victims on the phone and in the field,
and process and disburse loans. ODA is currently hiring over 200
employees a day. We have over 2,000 disaster employees on board right
now and we expect to hire perhaps as many as another 2,000 to meet the
needs of those affected. By design, ODA staffs up to meet the needs of
disaster victims when disaster strikes. This 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. By way of example, we had approximately 800
employees ODA wide at the time of the Hurricane.
Our SBA ODA employees are in over 30 disaster recovery centers and
more are opening daily. At each of these DRCs, there are customer
service representatives and loan officers providing Katrina victims
with one-on-one assistance, issuing loan applications, helping to fill
out applications, and answering program questions. They are also
accepting completed applications, forwarding them to Fort Worth, and
making follow up telephone calls to victims who have not returned their
applications. We also plan to establish a Business Assistance Center in
the New Orleans area. As soon as it is safe to for the residents of New
Orleans to go home, SBA will be there to help them.
Herb and his staff have been doing a magnificent job. ODA has
ordered equipment for and is training new field verification staff for
Katrina as it would for any disaster but on a much larger scale. At the
time Katrina struck, ODA had 300 computerized DCMS ``tablets'' on hand
to meet the demands of regular and on-going disaster activity,
including the immediate response to Katrina and has a contract with a
vendor to provide more as needed. ODA immediately ordered more tablets
and has received 560 of the 600 it has ordered, with 400 more tablets
in the pipeline.
I would also like to discuss some of the other steps SBA is taking
outside of our normal programmatic efforts. SBA is considering a number
of efforts to assist small business outside of usual programs. Last
weekend, I met with a number of business leaders. It is inspiring to
see their willingness to pitch in and help. One business is already
seeking ways to work with SBA to help us leverage our business
matchmaking events to assist small business in the Gulf Region.
SBA has assigned four (4) Procurement Center Representatives (PCRs)
to Katrina-related contracting. Our Office of Government Contracting is
meeting with Small and Disadvantaged Business Utilization (SDBU)
officers from all major agencies to help focus on small business
opportunities. SBA is also working with the General Services
Administration (GSA) to establish up to date sourcing lists for small
businesses and helping small businesses enter the Central Contractor
Registration (CCR) data base of small businesses available for
contracting for reconstruction and clean up in Gulf region. 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.
Our Small Business Development Center (SBDC) partners have also
come forward in an exemplary fashion 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
approved a regulatory waiver for SBDCs to help in disaster areas.
I also want to take some time to discuss the proposals outlined in
the President's speech last Thursday. SBA supports the President's goal
of rebuilding not just New Orleans but the entire Gulf region
devastated by Katrina. In the area that the President has designated
Gulf Opportunity Zones (GOZ), SBA will have the following role:
increase the maximum size of sba business-related disaster loans from
$1.5m to $10m
SBA disaster loans to businesses for recovery activities are
typically capped at $1.5 million. The proposal would increase the limit
to $10 million for businesses that were adversely affected by Hurricane
Katrina and are located in the declared disaster area. 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.
increase disaster mitigation loans
When providing a disaster loan for uninsured recovery costs, SBA
can increase the loan amount by up to 20 percent so that the borrower
can invest in disaster mitigation technologies such as sea walls and
storm shutters. The Administration proposes to raise the amount that
can be provided for disaster mitigation by basing the calculation on
the total damage caused by the disaster loan. (For example, a business
that receives $100,000 of damage may have $80,000 covered by insurance
and $20,000 covered by an SBA disaster loan. Typically, SBA's
mitigation loans would be limited to 20 percent of the $20,000. The
Administration's proposal would raise eligibility to 20 percent of the
$100,000 damage--in this case increasing by five-fold the amount of
disaster loan lending eligible for mitigation.)
increase the maximum size of surety bonds from $2m to $5m
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 area secure
contracts, especially those related to reconstruction.
provide 7(a) and 504 loan borrowers with options for deferring their
principal and interest payments for a 12-month period
In order to allow affected small businesses located 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
during fiscal year 2006. Under certain circumstances, participating
lenders and Certified Development Companies can make such deferral
available to the borrower. Where a deferral is not available,
alternative means of providing temporary relief to the borrower may be
needed, and could include the issuance of an Economic Injury Disaster
Loan for the working capital needs of the small business. Through these
measures, borrowers could better regain their financial foundations.
SBA is also planning to defer payments on certain agency-serviced
business loans in the disaster area and is sending a notice to our
lending partners asking them, where possible, to do the same on SBA
business loans that they service.
higher gozone-specific 7(a) and 504 loan levels in fiscal year 2006
The current program authorizations for fiscal year 2006 limit SBA's
nationwide 7(a) loan volume to $17 billion and 504 loan volume to $7.5
billion. The Administration proposes to provide higher loan levels
specifically for the GOZone area during fiscal year 2006, thereby
ensuring that lenders will be able to make small business loans in the
area. GO Zone area limits 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. Immediately, ODA was in
contact with our Regional Offices, SBDCs, and local community-based
organizations. Things are moving along quickly and efficiently. And I
am pleased to report that we are serving those affected by this
disaster well and have the manpower and technology to continue to do
so.
Thank you, Chair Snowe and Ranking Member Kerry, for affording me
the opportunity to speak to you today about this very important topic.
I look forward to answering any questions that you might have.
Chair Snowe. Mr. Mitchell, do you have any comments?
STATEMENT OF HERBERT L. MITCHELL, ASSOCIATE ADMINISTRATOR,
OFFICE OF DISASTER ASSISTANCE, U.S. SMALL BUSINESS
ADMINISTRATION, WASHINGTON, D.C.
Mr. Mitchell. Well, certainly I can echo Hector's comments.
I mean, one of the things that--and it is very challenging, we
just spent 3 days in Louisiana, Texas, and speaking to some of
the individuals there in the business community--and one of the
things that the business community kept impressing upon us, it
is not only that the business community needs to recover, there
is a whole issue around employees and getting employees back in
that community and temporary housing, and obviously those
things are beyond the scope of SBA, but if you are going to
look at long-term community economic recovery in those areas,
there is a whole host of things we have to look at beyond just
disaster loans in terms of making that community work again.
Chair Snowe. Thank you. I appreciate that comment, and
maybe that is something, as well, we will have to look at
because, obviously, that is a larger question.
Are you going on? Do you have additional----
Mr. Barreto. He had a chart that we would like to share, if
we can put it up there.
Chair Snowe. Oh, absolutely. Is everybody ready to----
Mr. Mitchell. One of the things we thought we would do,
since we also are going through a reorganization that the
Administrator approved in March and our original plan was to
take 18 months to actually restructure the Office of Disaster
Assistance, but what we have done, we have actually already
started and we have actually expedited it.
Prior to this reorganization, we operated with four
separate area offices around the country. Basically, those
offices operated independently with their own computer systems.
When one office was busy, the other one may not be.
What we have done with this reorganization is what we call
a team concept. We have centralized processing in one location.
We have a call center in Buffalo, in one location. We have two
Field Operations Centers, East and West, Sacramento and
Atlanta.
Do you want to go through the slides?
The Field Operations Centers are responsible basically for
exactly what it is. It is basically managing the Recovery
Centers and the field locations, making the outreach to the
SBDCs and our resource partners, the lenders, working with the
media, and also with the congressional staff.
Specifically for Hurricane Katrina, the Sacramento Office
is handling Louisiana and our Atlanta office is handling
Alabama.
The Recovery Centers themselves, this is actually where the
victims of the disaster come in. There are a number of agencies
there, including SBA, but FEMA and SBA are the primary agencies
that are located there providing the assistance to those
victims that come in with the application, answering their
questions, and helping them fill out the applications.
We can just go ahead on through that one. Go to the next
one.
One of the unique things in this disaster obviously is the
extent that the business community has been impacted, and in
addition to the Disaster Recovery Centers, we are planning to
open, and we already have, I think, in Alabama, open a Business
Assistance Center, and Hector already mentioned that we will
open one in New Orleans. The plan is to go ahead and open that
in Louisiana near New Orleans as soon as we can get into New
Orleans, to then move that center. We are not going to delay in
opening the center to wait until we can actually get there.
We have already mentioned the outreach to the Small
Business Development Centers and also mentioned that Don
Wilson, who is here who is President of the Association of
Small Business Development Centers has been working closely
with us in all three States. Their counselors are on site and
providing assistance to the business community, as well, in
completing those application packages.
Go on to the next one.
This chart simply gives you the total of the activity that
we have received to date. The numbers are staggering. We are 3
weeks into the process. We have seen--and this has been updated
as of last night to over a million referrals from FEMA. Field
staff, we had about 2,300 total in the area office, 446 of
those in the field. Hector mentioned we are hiring at the rate
of about 200 a day, but in order to do that, we are actually
interviewing about 400 applicants a day, and where possible, we
are hiring folks locally in those communities to assist us in
the Recovery Centers.
In fact, we were in Fort Worth yesterday in the Loan
Processing Center where evacuees are located in Dallas. We have
hired some of those individuals, as well, that are working for
us in the Processing Center, as well.
The last page just simply gives you the congressional
points of contact for Mississippi and Alabama and Louisiana.
With that, I will close and certainly we are open to any
questions that you may have.
Chair Snowe. Thank you.
[The information of Mr. Mitchell follows:]
U.S. SMALL BUSINESS ADMINISTRATION--DISASTER ASSISTANCE
Federal Disaster Loans for Homeowners, Renters and Businesses
of All Sizes
SBA's Role in Disaster Recovery
field operation centers (foc) east and west
Inform public with up to date information on all open
disaster declarations.
Perform outreach in the disaster impacted area in Disaster
Recovery Centers, Business Assistance Centers, and SBA workshops.
Perform Preliminary Damage Assessments in conjunction with
local, State and Federal officials.
Contain Congressional Liaisons, Public Information
Officers (PIOs), and Field Operations.
hurricane katrina field operation centers (foc)
The FOC responsible for Louisiana is located in
Sacramento, CA.
The FOC responsible for Mississippi and Alabama is located
in Atlanta, GA.
disaster recovery centers (drcs)
These centers have representatives from FEMA, SBA and the
State providing assistance to disaster victims.
Depending on the size of the disaster, other Federal,
local and volunteer agencies may be present.
sba customer service representatives at each drc
Issue applications.
Respond to applicant inquiries.
Assist individuals in completing applications.
Accept completed applications.
Close disaster loans.
business assistance centers (bacs)
Provide SBA disaster loan information to businesses (large
or small) and nonprofit organizations that were adversely impacted by
the disaster.
Issue business loan applications packages.
Screen completed application packages.
The BAC responsible for Alabama is located in Mobile, AL.
outreach to sbdcs
Disaster staff:
Contacts local SBDCs in the declared disaster area.
Provides program overview and updates on current SBA
disaster activities.
outreach to communities
Disaster staff:
Speaks to community-based groups, including civic clubs
and organizations, Chambers of Commerce, etc.
Represents SBA at town meetings.
katrina grand totals
Cumulative referrals--918,822
Applications issued--878,181
Field staff onsite--446
Alabama 98 in 10 sites
Louisiana 140 in 30 sites
Mississippi 208 in 11 sites
foc congressional points of contacts
Mississippi and Alabama
Field Operations Center--East
Michael Lampton, 404-347-3771
Louisiana
Field Operations Center--West
Rick Jenkins, 916-735-1500
Chair Snowe. I would like to recognize the Ranking Member,
and I just want to reiterate our commitment to work together to
make sure that we can do everything to deliver the resources
that are available to SBA to help mitigate this tremendous
disaster.
Senator Kerry.
OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY,
A UNITED STATES SENATOR FROM MASSACHUSETTS
Senator Kerry. Thank you, Madam Chairman. I really
appreciate the coordinated nonpartisan and bipartisan efforts
that we have been making in this Committee and I thank you for
your leadership on this and thank you for having the hearing
today.
I apologize very much for being late. I expected to be on
time, but I was meeting with some of the families, military
families of kids who were in Iraq, and I must say it was very
moving. One couple, a grandfather and grandmother, had two sons
who had been over there for two deployments, a grandchild is
over there, and you listen to their sort of personal travail at
this time. That is why I am late and I apologize for it.
I just will say very quickly, obviously, this is important.
Small businesses have just been clobbered, and it is starting
over for so many people, but for a lot of them, it is also how
they are going to just be able to quickly pull themselves back
together.
We are fond here of talking about small business as the
engine of our economy, which is true nationally, but even more
so in this particular region. Any recovery is going to be led
by these small businesses being able to recover as fast as they
can. I think there are some 200,000 or so in the area and some
estimated 150,000 have been really negatively impacted.
The questions are enormous of how quickly they are going to
be able to get back on roads that aren't open, get supplies
that can't get there, workers who can't work there. It is just
a huge task and the SBA is going to clearly have an enormous
ability to be able to make a difference here and we hope they
will.
I am not going to interrupt it further than to say that
this is very important and I apologize for missing your
testimony, but look forward to fleshing out some of these
issues.
Chair Snowe. Thank you very much, Senator Kerry.
Just to begin the line of questioning, I think first and
foremost is to make sure that you have the adequate resources
to respond to the magnitude and the scope of this disaster.
Obviously, it is unlike any that you have had to grapple with
in the past. I know you have had to deal with other hurricanes
previously. I would like to have you compare the resources that
you have today with those in the past. I mean, just given the
numbers that you mentioned, Mr. Mitchell, in your chart about
the number of counselors and agents on site and it is a total
of 446. I am just wondering if that is going to be sufficient
to address the needs given the overwhelming nature of this
devastation and the amount of need that is out there.
Also, I understand that you are recruiting, what, 2,000
workers----
Mr. Barreto. It could potentially be at least 2,000 more,
and we will bring on as many as we need. You know, in some
ways, we are in a much better situation than we were last year
when we were trying to deal with those four hurricanes. As we
got to the end of our fiscal year, and, of course, we are
nearing that in the days before the beginning of the new fiscal
year, we had some resources available to us. We had several
hundred million dollars that we could use for administrative
costs, and, of course, we have been busy using that money here
at the very end. We also had about $2.6 billion in budget
authority that was left over for us.
In terms of the immediate needs, in terms of the phase we
were in, we definitely had the money that we needed. Now,
obviously, going forward, that is something that is going to
have to be assessed and evaluated, and, of course, we are going
to be operating in our new budget. It is very, very likely that
we are going to need to go back and have the supplemental to be
able to do the job that is going to be before us.
I would like to have Herb comment specifically, because he
obviously mentioned it, about the day-to-day operations in the
Disaster Office. He can give you some specifics of how we have
been employing those resources that we have and our plan for
future resource needs.
Mr. Mitchell. I think, clearly, the 446 employees that are
in the field today are not enough. They are enough in terms of
meeting the needs of staffing the Recovery Centers that
currently exist, and I clearly expect that the number of
Recovery Centers are probably going to go up at least four
times.
We are expecting at some point to probably have 1,500 to
1,700 folks in the field, and that is a combination of not only
the Recovery Centers, but the inspectors that will actually be
going on site doing the estimation of damages and coming up
with those loss amounts.
Part of the issue here is that it is the infrastructure,
getting access, and I have to tell you the response period on
this disaster has lasted longer than most disasters in terms of
the emergency situation and that is the delay with some of the
Recovery Centers, particularly in Louisiana and some other
places, in Alabama, as well, and in Mississippi in terms of the
infrastructure and getting set up so that we transition from
response to recovery.
Chair Snowe. I think it is going to be important to move as
quickly as possible, even to put people in place in rural
locations to have more accessibility, because given the breadth
of the damage, I mean, I was down in New Orleans the other day,
and I know that Senator Landrieu and Senator Vitter have been
there on the front lines and seeing the devastation. It really,
in Mississippi, it is extraordinary. I think that it is going
to be best to get everything in position so that when people
are prepared to come in and submit their applications, that
there are people who are available.
Some of the people who will be testifying in the second
panel indicated--and I just am going to give you some of the
comments so that you can respond, so that will be helpful
here--that they have no reliable information, that FEMA, SBA,
insurance companies aren't unified so it becomes incredibly
confusing, according to testimony from the second panel,
because I think it would be helpful for you to hear so that you
can respond----
Mr. Barreto. Sure.
Chair Snowe [continuing]. That FEMA makes it impossible to
quote a price, for example, so that they can make home repairs.
The SBDC, some have been destroyed in Louisiana and New Orleans
specifically, and again, so they are overwhelmed for those that
are remaining and don't have the resources. Is it possible to
have SBDCs contracting with other professionals like CPAs and
banks or something to help expedite this process?
These are some of the comments I just want to put out to
you right now that we will hear from the second panel.
Mr. Barreto. Absolutely. Well, I was in the Disaster
Recovery Center yesterday in Fort Worth, our Processing Center,
and they were preparing 80,000 in one day, 80,000 applications
that they were sending out. Of course, they are receiving
thousands back. There is a tremendous amount of volume that we
are seeing there and we are responding to everybody as quickly
as possible.
As you know, the process--and sometimes it is difficult for
folks to distinguish the different players, who is public
sector, who is private sector, what are the steps they need to
take. Obviously, we are communicating to everybody that we
possibly can through every forum that we have, whether that be
through mail, whether that be through information that we are
distributing--we produced hundreds of thousands of information
cards with all of the appropriate information, through the
media, through PSAs, through all of our resource partners,
getting that word out there.
Obviously, if you are having difficulty getting an answer,
that is very frustrating and you don't really care why you are
not getting the answer, you just want the answer. For the first
step for us by the requirement is that everything has to begin
with FEMA, and then FEMA immediately refers that over to us and
we respond to it immediately.
With regards to the insurance companies, I am not clear in
terms of exactly what that glitch was that the individual is
finding, but obviously, to the extent that we can be working
together with the private sector, with our lenders, with the
insurance companies to expedite these loans, we want to do
that.
With regard to SBDCs, as Herb mentioned, and I will let him
comment on this again, we have already been in very in-depth
conversations with them, meeting with them. I recently spoke to
their national meeting, talking to them. We did training at
that national meeting. SBDCs are right now and will continue to
play a critical role in helping us to assist these small
business owners with a whole host of things, not just the
disaster applications and some of the immediate things that we
are doing, but they are going to have a pivotal role to play
over the long term, because one of the things that we want to
make sure that we are doing at the same time on parallel tracks
is bringing as many tools to the table as possible.
A lot of these folks, and we saw this after 9/11, are going
to need assistance transitioning their businesses. They may
never have had to do that before. Okay, how do they change
their business? Do they have to change their business model? Do
they have to change their business plan to be able to get some
conventional financing? Are they going to look at doing things
with government that they never did before?
For example, I got a call from a very prominent business
woman from New Orleans who said, ``You know what, I have never
done government contracting before but I am going to now and so
I need your help.'' And so we are working with her on that, as
well.
Do you want to talk a little bit about some of those
issues, Herb?
Mr. Mitchell. Just a couple things specifically with the
SBDCs, and we agree with him. We have got to do more and we
have got to speed up that process. Part of the Federal response
with the Recovery Centers, obviously FEMA has to lead along
with the State and the local officials in terms of where those
centers are and we follow that process so that, hopefully,
there is a coordinated effort of a number of agencies in the
Recovery Centers.
In regard to the SBDCs, we have been working very closely
with them and certainly are aware of the acute need for
additional space. There have been several lenders in all three
States that have come to us to make space available and we are
going to put the SBDCs and those lenders together in terms of
that space.
We are initiating conversations with the National Credit
Union Administration to make some of their facilities
available.
What we are doing is we are trying every avenue possible
where we can identify space, where business owners can come
into their community to get assistance. That is what we are
working on.
This issue of people not having information is critical.
One of the things we shared with the business community when we
were there is that the business community, an awful lot of
times, can't wait for the process. They have to make individual
decisions. It is amazing, if we are able to get to them, even
if we can't make them a loan or if SBA is not the option, the
avenue they want to pursue, is that they are able to understand
what their options are.
For example, a lot of business owners may not know that
even if they have insurance and they are negotiating with their
insurance, they don't have to wait until they settle that
process. They can still apply to SBA. We can still make the
loan. We can take an assignment in the insurance policy and
they can still take their time to negotiate. It is not knowing
those options.
Believe me, we are doing everything we can to try to reach
out to those communities and make staff available and town hall
meetings, wherever we need to be to make sure that they
understand what is available as they go through their options.
We understand the process sometimes takes a lot longer, but
they need information in order to make decisions today.
Chair Snowe. Senator Landrieu.
Senator Landrieu. Thank you. I do have just a few
questions, and I thank you all for your concern and your focus
because it is going to require, as I have said many times, an
unprecedented national response, not only from the Federal
Government, but from State and local governments involved and
from the business community and faith-based communities. It is
an unprecedented disaster.
As Senator Kerry said, there are over 200,000 small
businesses and counting that have been directly affected, and
let me say, because some of our panelists, Madam Chair, are not
from the areas of emergency, but their businesses are in dire
straits because either their main buyers, like restaurants in
New Orleans are out of business so crawfish farmers in
Lafayette are going broke, for instance, and they will give
some of that testimony.
As we say, talking about the seven parishes that were
primarily affected by the winds and the water, almost every
parish in Louisiana and small businesses are really struggling
because their customers or their suppliers were in the region,
and that is true of the Gulf Coast because we act as an
economic unit.
As Waveland was hit, some people in Shreveport who have
businesses and suppliers in Waveland are now suffering because
their business in Waveland, their associates are gone, so it
really is a quite difficult situation.
No. 2, I want to support what Mr. Mitchell said. Even if
the Small Business Administration could act perfectly, and no
agency can, and do everything within the context of small
business, you can't get businesses stood up if people don't
have houses to live in, highways to drive on, airports that
planes will land in to bring businesses and supplies, and
railroads that are working.
I just ask this Committee to be broad in our view as
opposed to narrow and see how we can really reach out because
it really is a comprehensive package that has to be put
together and we are a part of that.
Just a specific question. You have 878,000 applications
that have been issued. How many have been processed to date, do
you know?
Mr. Mitchell. We have actually received about 12,000 back.
I think out of that, we probably have processed, oh, I have the
numbers----
Senator Landrieu. And approved, processed and approved.
Mr. Mitchell. I don't have that number here, but I think it
is pretty close to about 1,500 that have actually been
processed. I do have the approval number. Only 76 have been
approved for about $4 million so far.
Senator Landrieu. To date, we have 878,000 applications,
the numbers that you gave for having been processed, and then
to date, 78 approved. I raise that, Madam Chair, not out of any
criticism but just to say how huge this is and how much faster
we have to go.
Senator Vitter and I are introducing a package today which
we hope Congress will look at very carefully on some things
based on what you have already done, which was extremely
helpful. Our businesses need immediate debt relief. They can't
pay their mortgages because they don't have the buildings. They
can't pay their credit card debt because they don't have any
cash flow. They can't pay the notes on their vehicles because
they all went underwater, or a lot of them did.
We have got to find a way for this Katrina and Rita, which
is going to happen in Texas, the same thing, to make national
like a 6-month break or something that they can just get their
legs up underneath them. They just can't go borrow more money.
They can't pay on the debt they owe now. Most small businesses
operate, as you know, on a very tight--even with successful
small businesses.
My point is, without going into a long speech, which I am
sure you two have thought a lot about, is we have got to come
up with a different mechanism that is quicker, easier, simple
in the sense that everybody understands what it is, a 6-month
kind of break. Then it allows the system to set up.
The other point is, with hiring people that are coming
quickly, I think that is a good thing and I want to support not
having thousands of people on in between hurricanes, but the
problem is, when you go to hire them, are we hiring qualified
people that are trained? Are we hiring people that really don't
understand what to do so it complicates the situation because
then they are giving wrong answers to important questions? That
is an issue and I would like you all to address that.
One other thing, safety. You should ask the Mayor of New
Orleans and the presidents of the parishes or the Governor
whether it is safe to come back and don't listen to, excuse me,
to CNN and FOX News and other things. You should just ask them,
because I have been there many times. I am fine. It is safe in
some places, not only law enforcement safe, but environmentally
safe, and you can go into St. Tammany, Jefferson, and the
region is used to acting that way. You don't have to be in
every neighborhood. People are used to going--they can't go to
their neighborhood, they know. They shop in Jefferson.
Jefferson shops in Orleans. Just go wherever you can and get
help quickly, and people at home know where to go.
Those were just some of my questions. One more. I have
several complaints--I will put this in the form of a question
to you, Mr. Mitchell, or to you, Mr. Barreto--of there are
large contractors coming through FEMA not using local folks,
No. 1, because we want to use the businesses there that need
the business anyway, so we want local people, and minority- and
women-owned businesses. I have heard many instances where their
applications have been passed up for out-of-town. Could you
comment, Mr. Mitchell or Mr. Barreto, on what you are doing to
make sure our local people get looked at first, and
particularly our minority, qualified minority contractors and
women-owned contractors.
Mr. Barreto. I will take a first stab at those four and
then I will let Herb add as he would like.
With regards to the applications, you know, we normally get
50 percent of those applications back. In other words, a lot of
folks will ask for it, and it is smart for them to do that
because they are weighing all of the different options. When
you see these huge numbers, we already know that a lot of
these, we will not get back. As I mentioned, we are calling
people where we can and reminding them, you know, to send us
that application back.
As far as loans, we have to underwrite these loans, but we
are working very diligently because we know, for example, that
there are a lot of folks in normal loan situations who have
difficulty coming up with documents and being able to provide
the information that we need to finish the underwriting
process, and that has just been exacerbated by this disaster.
Wherever possible, we are not putting in the ballpark and
saying, ``Okay, unless you get me this piece of documentation,
I can't go any farther.''
We are doing everything that we can to get that information
ourselves, whether that be through the IRS, whether it is us
going directly to the credit agencies, whether it is us going
to other sources of information, or maybe their accountant or
somebody else that they did business with.
I will let Herb talk a little bit more about the
applications that we are receiving, and we are processing as
quickly as possible. There is nothing that is happening right
now that is preventing us from processing applications quicker.
We are just deluged right now with a lot of informational
requests. We are sending out a lot of information, et cetera.
That is starting to level off a little bit. I mean, we got
up to these million refunds very quickly, but we are not seeing
these huge amounts of requests for applications like we were in
the very beginning. That doesn't mean that we won't have more.
I am just saying that it sped up to where we are at right now
and more are coming, of course. If Rita hits, this is going to
be exacerbated.
With regards to the qualified employees, we have what we
refer to as a cadre staff. In other words, we have folks like
Herb and other senior managers who have been with us for years.
I mean, these are the experts of the experts. They have been
through a tremendous amount of disasters before. They are our
top people and we are fortunate to have them, and many of them
have been with us for years and years.
The folks that we are bringing on board oftentimes are
specialists. For example, we need to bring in attorneys. We
need to bring in loan processors. We need to bring in
inspectors. These are people that have very specific areas of
specialization and we are finding them. In fact, I asked that
question yesterday to our HR head for the Disaster Office, are
you getting the people that you need? What does the quality
look like, et cetera, and he said the quality has been great,
and by the way, we are trying to hire as many as we can from
the affected areas, but we are also casting a wide net. We want
the best people that we can to be able to respond to this
disaster quickly.
With regards to going back into New Orleans, we agree with
you. Before this recent evacuation, our Disaster Office was
planning to go back in there. I have a great Director down
there, and you may have met him before, Eugene Cornelius. He is
working very closely with the State. He is working very closely
with the Mayor. They have a very excellent relationship. They
were planning on coming in there and setting up and starting to
help people immediately.
The problem is--there are a couple of problems. One is that
as soon as they were ready to go in, they were told they
couldn't come in, and then the second thing is this was the
second evacuation. The third thing is a lot of our people have
been personally affected. Most of our people lost their homes,
as well. They are victims, as well, and so they don't have any
place to live. We are trying to get them mobile homes and
trailers and places. It just shows you the quality of our
people. They are not even paying attention about their own
disaster. They are trying to get back to help the small
businesses.
Of course, as soon as the Disaster Recovery Centers are
open, our people will be there. We always are, and we will
definitely be there. I am talking about our disaster folks. We
will take them down there and we will find places for them to
live. You know, we have had a lot of challenges, yet one of the
things that we saw right at the very beginning is that, okay,
our folks didn't have a place to stay so they were driving,
oftentimes 2 hours just to get into the affected area, and then
they were having problems getting gas.
There have been a number of different challenges that make
this unprecedented----
Senator Landrieu. Can I just add one thing on that----
Mr. Barreto. Sure.
Senator Landrieu [continuing]. And then I am going to stop.
You have been very gracious.
Madam Chair, this whole issue of prepositioning first
responders and having, before the storm or disaster, put
families of first responders in safe places has come up for law
enforcement, for police, and now for small business, in other
words, anyone that has to respond. We have to have a system
where their families are moved to a safe place days before the
storm so that those individuals could come back in and work,
because if they don't work, nothing works. I mean, if our first
responders can't work, nothing works. Even if you have got the
greatest system in the world, some of which you have just
described, a good system, maybe not the greatest but good, it
can't work without trained people on the ground. It is a
challenge. We are not there yet.
Mr. Barreto. The last issue that you mentioned, Senator,
was with regards to contracting, and we are very, very focused
on this. I mentioned in my testimony the PCRs that we have
brought on board to dedicate directly to Katrina. We have
interfaced with the rest of our PCRs, having them identify
opportunities for folks inside the affected area. We have
already met with our contracting counterparts in all of the
agencies, talking to them about identifying opportunities.
I think there is a misunderstanding that nothing has been
relaxed in terms of the goals that we have for small business
and especially minority small business. That is something that
the President talked about in his speech.
One last thing I want to mention to you, we have been
working very closely with Michael Olivier, the Secretary of
Economic Development for Louisiana. In fact, he came and
visited me in my office, brought his team on board. We talked
about a number of different issues, many of the issues that you
are bringing on board.
He strongly suggested that I come and visit him, and I did
that this last week and we had a very, very productive day of
meetings with the business community, with the lending
community, with the State government, with the local
government, with FEMA, with the disaster response folks. They
were very effective.
Now, one of the things that he has mentioned to me, he
said, ``Look, Hector,'' he said, ``we have got to do all these
things. We have got to get the money and we have got to help
them transition,'' he says, ``But they are not going to make it
unless they have business. They need business.'' And, he says,
``You have got to help me get them some contracts.''
One of the things that we are talking to him about and we
are working on, as you may remember, we have had a very
successful business matchmaking program that we have conducted
over the last couple of years. We have set up 40,000 one-on-one
appointments over the last couple years with the buyers of
every Federal agency and many Fortune 500 companies and he has
asked us to bring that program to him in Louisiana and we are
working to do that as soon as possible.
Normally, it takes months to be able to gear up and to do
all the logistics and bring all the buyers in. We are not going
to do it in months, we are going to do it in weeks, and the
great thing about this is that not only do we have commitments
from procurement officials at all the government agencies, but
the private sector wants to participate in this, as well.
Fortune 500 companies want to give their contracts to those
small businesses.
We will get them in our system. We will make sure--already,
Michael has told us, Michael Olivier, he said, ``Look, I have
already got a database of small businesses here that you can
use to invite to these business matchmaking sessions
immediately.'' By the way, we want this to be regional, so
obviously we are going to go in and do the first one in
Louisiana, but we also need to do one in Mississippi and make
sure that we include the Mississippi and Alabama small
businesses, as well.
By the way, our vision for this is that once we do those
initial ones, we want to do this kind of business matchmaking
on an ongoing basis. We have the technology to be able to do
that. We call that virtual matchmaking. We don't have to do
events and bring people into the area to match up these
procurement officials with those small businesses. We know that
they are going to need business for a long time, and so this is
something that we are working on immediately, and obviously
minority business will have a major role in getting those
appointments that we set up for the small businesses in the
affected area.
Chair Snowe. I would add a couple of points to that. I
think it is going to be critical that on subcontracting, I am
concerned about the waiver of small business in the
supplemental, that overrides small business. It is also
essential that the small businesses in the affected area
participate extensively and substantially in the procurement
process because the government is going to be the biggest buyer
here in many ways.
Mr. Barreto. We agree.
Chair Snowe. Therefore, we have got to make that as part
and condition in this whole effort, as well. That could
certainly help with the economic recovery.
I understand you have one staffer responsible for small
business subcontracting in Louisiana and none in Alabama or
Mississippi. That has got to be a priority because that could
be the first step in the recovery for many small businesses,
which is to participate in the procurement process.
Mr. Barreto. Absolutely, and as I mentioned, we are already
directing resources to those areas. I mentioned our Procurement
Center Representatives. We have four that are already tasked
exclusively with Katrina. All of the other PCRs have been
tasked with this, as well. We have four that are dedicated to
it, and whatever we have to do internally with our GCBD
Department, we will do that.
Chair Snowe. Okay. Thank you.
Senator Isakson.
Senator Isakson. Thank you, Madam Chairman.
Administrator Barreto, many of your lenders are community
banks and medium-sized banks. Given the pervasive damage of the
hurricane to all small businesses, what is the state of your
lenders?
Mr. Barreto. Well, we have been meeting with them. As I
mentioned to you, I met with them in Louisiana. I met with some
in Texas. A lot of these folks are, especially in the affected
areas, are also transitioning. You know, they also were
victimized. They were also affected. A lot of them,
fortunately, had good contingency plans.
One of the major banks there, and excuse me, I have
forgotten their name--I can get you the name--has told me that
they are already operational and they will already be back to
where they were before. Now, they are not in the area, but they
have already set up some alternate sites for their employees
and they are already working on it.
There is no doubt about it that the lenders were affected
and they are also part of the response that we are going to
need to do to make sure that we are doing everything that we
can to work with them so that they can start doing the lending
that is so necessary to bring these people back.
Senator Isakson. Is the capability there to close loans
that are underwritten and insured by SBA? Are those resources
available?
Mr. Barreto. Yes. We haven't seen any--to this point, I
would say to you that some of the ramifications of this are
probably going to become evident in the weeks and months to
come, but as of right now, what they are saying to us--and
again, I haven't spoken to every single lender, but we have met
with a group of government guaranteed lenders and their
attitude towards us has been really more of, we want to be
involved. We want to do everything that we can to respond to
the folks that have been victimized.
Senator Isakson. Well, I have a special love for New
Orleans. I spent my honeymoon there and spent most of my money
educating one of my kids at Tulane, so I don't want this
question to sound the least bit hard-hearted, but I do want to
ask a question.
Senator Landrieu. Give him an application for a loan.
[Laughter.]
Senator Isakson. I support your recommendations both for
the increase in the physical disaster loans as well as your
proposal on disaster mitigation loans, the 20 percent of the
aggregate amount rather than just the amount funded. I do want
to ask this question.
Mr. Barreto. Sure.
Senator Isakson. The underwriting of loans causes people to
make good decisions. I was in the real estate business for 33
years, and could not have functioned were it not for loans,
many of them government-insured, FHA, VA, things like that.
Part of your responsibility is to assess the value of the
security for the loan or the enterprise or the business, and in
these disaster mitigation loans and disaster relief loans, you
are going to be funding leasehold improvements and equipment
which are capital purchases and then in the disaster mitigation
category, you are funding things they can do in their business
to prevent the next hurricane, i.e., Rita, from causing a
repeat of the same damage.
My question is, how much of the underwriting in the
physical disaster loans and subsequently disaster mitigation
loans are going to be tied together so that as you make these
loans, you are also causing good things to happen on the site
so that the next hurricane might not do the damage that the
last Hurricane Katrina did?
Mr. Barreto. I am going to defer that question to my expert
here who deals with all of the particulars of the underwriting
process as it relates to disaster loans.
Herb.
Mr. Mitchell. The basic two criterion in disaster lending,
once we get past the eligibility questions, such as: Are they
in a declared area? and those kinds of things, all we are
looking for is satisfactory credit history and repayment
ability. We are primarily a cash flow lender. We look at the
pre-disaster position and financial condition of the company,
and if they were operating satisfactorily, we make the
assumption that they will continue to do so and that is the
basis upon which we make the loan.
We take whatever collateral is available to secure it, but
if the collateral is not there to secure the loan, we will
still make the loan as long as the applicant has a satisfactory
credit history and repayment ability.
Senator Isakson. If I might, I understand you are a cash
flow lender, but I also understand that a physical disaster
loan is in part a loan to rebuild leasehold improvements. You
are going to have a recommendation later from NFIB about some
advanced depreciation for some of these things----
Mr. Mitchell. Sure.
Senator Isakson [continuing]. But you don't take into any
consideration that you are financing something that might be
damaged again when the next storm hits?
Mr. Mitchell. Well, part of the criteria, the condition for
making the loan, is that they must obtain and maintain
insurance. Otherwise, they are not eligible for any future
assistance from us, and that is probably going to be one of the
issues in some of those areas. When we made loans in a lot of
those areas the condition is if we have made them a loan in the
past, they must have purchased insurance and maintained that.
We are then only going to cover the uninsured portion of that.
Senator Isakson. My only point is this. You make loans to
cover that amount above what is insured. Your example in your
speech, Mr. Administrator, says if a company had $100,000 in
damage but only $80,000 insurance, you will make a loan of 20
percent of $20,000. You want to make it 20 percent of $100,000
in your recommendation.
If you are making that loan to someone, your underwriting,
I think, should encourage them when they spend that money to
rebuild in a more responsible way so that the next storm that
hits doesn't maybe wipe everything out again. All I am trying
to say is we have got a chance to cause people to do things
better----
Mr. Mitchell. We agree with you 100 percent and understand.
We have to get a proposal from them as to exactly what they
plan to do in the way of mitigation and it needs to make sense.
We will evaluate that and fund it accordingly. You are exactly
right. I mean, that is the whole idea.
Senator Isakson. Well, that is going to save them and SBA
and their lender a lot of money in the future.
Mr. Mitchell. That is exactly right.
Senator Isakson. Thank you, Madam Chairman.
Chair Snowe. Thank you.
Senator Kerry.
Senator Kerry. Thank you, Madam Chairman.
Just following up on a couple of things, on the 2,000
people that you are employing and some 2,000 employees you plan
to hire, where are they going?
Mr. Barreto. Well, they are going in a number of different
places. A lot of these are in our center where we are
processing all of the loans, and one of the things that I
mentioned in my opening statement was that we have already
gotten some additional space and we have options even for more
space because we think that we are going to need it. We are
going to have a lot of people----
Senator Kerry. Is that in that Fort Worth center?
Mr. Barreto. Yes, sir, Fort Worth. Of course, we will also
have people in the affected areas. You know, one of----
Senator Kerry. How many people are going to be in the
vicinity, in the region, visible and moving around?
Mr. Barreto. We can give you the absolute numbers that we
have right now, and some of this is a product of how many
centers are opening up. You know, we talked about we have 30
centers already. Herb mentioned earlier that usually by this
time in, if you could ever consider something a normal
disaster, the centers would have already been open, we'd
already have people in there, already interfacing with the
folks that need the help. This is so different because there
are a lot of places that we can't have a center in just yet.
Herb, why don't you mention how many folks we have on the
ground and what is anticipated, because not only have we
brought on 2,000, but we also mentioned that we are making
plans for maybe hiring an additional 2,000, as well.
Mr. Mitchell. Just to use some comparison, with the four
hurricanes last year, we had pretty close to 1,700 folks
actually in the declared areas, and that is a combination of
customer service representatives, loan officers, and
inspectors, and we clearly expect to have that again. I clearly
think at some point we will have a presence of about 2,000
people, with about half of those actually being inspectors that
will actually be going on site once we get the loan application
in to verify the damage and come up with the estimates.
Senator Kerry. What is the background of these folks? Do
they have prior disaster experience?
Mr. Mitchell. What we have is actually, and more so with
the construction estimators, we have what we call a reserve
force that we basically train and we call them back repeatedly
when it is needed. A lot of these folks have worked for us
before. We have a database of about 6,000 folks that have
worked for us----
Senator Kerry. So you are drawing on a pool of people that
are experienced----
Mr. Mitchell. Right, and even before the disaster is
declared, we are calling, we are clearing people, re-instating
credit cards, we are doing all of that even before the disaster
is declared.
Senator Kerry. As the Director said a few answers ago, some
of the ramifications of this are not going to become evident
for several months.
Mr. Barreto. Sure.
Senator Kerry. Given that reality, Senator Landrieu and I
wrote to you on September 1 and again on September 13 asking
you to extend the application deadline on the physical disaster
loans from October 28, because a lot of people aren't even
going to be able to get back in to assess damage by then.
Mr. Barreto. Right.
Senator Kerry. Can you give us an answer today as to
whether you will agree to do that?
Mr. Barreto. You know, we have the ability to be able to
extend, and we have done that many times before. As you know,
we had to do that a couple of times after 9/11. We have done it
for other disasters. As I mentioned, if there is a need and we
find that there are a lot of folks that just are not able to
get us their applications during the prescribed time, we will
definitely look at that and extend it accordingly.
You know, that is kind of where we are at right now. We
talked about the fact that we have sent out a lot of
applications and we are waiting for a lot of those applications
to come back to us. Normally----
Senator Kerry. Where do you send them?
Mr. Barreto. Well, they are sending them--we send them to a
lot of different places. A lot of these folks have already
given us an alternate address, a relative. A lot of them give
us an address of where they are staying at. You know----
Senator Kerry. Those are the people who have contacted you?
Mr. Barreto. So far, yes.
Senator Kerry. What about the people who don't know about
it?
Mr. Barreto. Well, we put out a lot of information. I think
a lot of folks know that--because one of the things that
happens is people know that the first place that you have got
to go is FEMA, 1-800-621-FEMA. They are calling FEMA and FEMA
is immediately getting those people and bringing them to us.
Most people, I think, know that if you need some type of
assistance, if you need a place to live, if you are looking for
a grant, if you are looking for some information on something
that you need, that is the first place that everybody is being
directed to and those referrals that have come to us have come
to us from FEMA.
Senator Kerry. Have you had any evidence that you are not
able to keep up with the demand at this point?
Mr. Barreto. At this point, we haven't seen anything that
has told us that. You know, always, you are concerned about how
quickly you are going to be able to respond, and especially
something of this proportion.
I have got to tell you, we have got people right now
working 7 days a week on this disaster response, around the
clock, and I was worried about them and I went up to talk to
them yesterday, but these folks, they are very, very committed.
They are very energized, if you will, and they are challenging
themselves in ways that they have never done before. You know,
they have a goal every day of how many folks they are going to
be able to talk to and how many folks they are going to be able
to get applications from and they push themselves to meet that.
I will let Herb comment on what he has seen so far, but we
haven't seen anything that has told us that we are not able to
keep up with what we have seen so far.
Mr. Mitchell. Obviously, part of the challenge here is the
number of applications coming in and the number of calls. We
are gearing up to try to be able to process, and we clearly
expect at some point to have 3,000 to 5,000 applications a day
and that is what we are staffing to.
Senator Kerry. One of the issues that concerns me, and I
think others, is the question of coordination with other
agencies. When we had the red tide attack this summer up in New
England--Maine, New Hampshire, Massachusetts were very hard
hit. We had some 1,700 shellfish operators losing about $3
million a day. When they went to SBA to get a loan, they were
told, well, you are not small businesses. You can't get loans--
you are farmers. We don't give farm loans. When they went to
the Farm Service Agency folks, they were told, you are not
farmers and we don't give loans to non-farmers. They were
caught in between and aid didn't come.
What is happening now? You have got a huge shellfish
industry down in Louisiana, which as Senator Landrieu says has
been really hard hit. Who are they going to get assistance
from? Is it going to be clear to them from the outset that they
get small business disaster assistance?
Mr. Barreto. I believe it should be. I mentioned that one
of the persons that we are working very closely with is the
Secretary of Economic Development for the State of Louisiana
and he has brought this to our attention. We are working very
closely with him to make sure that we get the information out
to those folks and to help them every way that we possibly can.
You know, some of those folks----
Senator Kerry. Does that include, in fact, lending to them?
Mr. Barreto. I am sorry?
Senator Kerry. Does that include lending to them?
Mr. Barreto. Absolutely.
Senator Kerry. Okay. So they will qualify?
Mr. Barreto. Obviously, we have to look at every case that
comes to us. I mean, there are a variety of reasons why people
may not qualify that may have nothing to do with the industry
that they are in----
Senator Kerry. I understand that. I do understand there are
some other requirements they have to meet. I think one of those
problems was the definition of aquaculture, if I recall, is
that correct?
Mr. Mitchell. That is correct.
Senator Kerry. Is that resolved?
Mr. Mitchell. We are going to have to get with Agriculture
again and go through that. I mean, we are in contact with them
and we need to make sure that we are clear exactly as to the
definition and where those folks should go. We should not
bounce them back between each agency once we make that
determination.
Senator Kerry. Well, do we need to put that into a bill? We
are working on a bill now that we are going to put through. Do
we need to put that clarification in and make it absolutely
clear so there is no interagency struggle here?
Mr. Mitchell. Well, I am not sure that it is an interagency
struggle. The issue, once--Agriculture has a definition for
aquaculture. The issue becomes what that business is actually
doing and where they are deriving their revenue from, and once
that assessment is made, then they should go to the appropriate
agency, once we make that assessment of that business activity.
Senator Kerry. What does that mean? I am not sure I
understand. If you are in the crawfish business or the shrimp
busi-
ness----
Mr. Mitchell. Well, the question of aquaculture is whether
or not you are actually raising fish as opposed to catching. If
you are catching and you are a commercial activity and
processing, then it is SBA. If you are raising fish, then it is
Agriculture. A lot of times, businesses are involved in a
combination of both.
Senator Kerry. That is why I am asking you. We need to get
assistance to them. Somebody who needs assistance doesn't want
to get caught in this bureaucratic snafu. They need money and
they need a loan. What we have got to do is make sure that this
is as clear as a bell so that they don't get, the run-around or
fall through the cracks. They are going to go crazy.
Mr. Mitchell. Right. I think part of the solution is
wherever they come into, once we make that determination, that
the agencies abide by that determination that is made.
Senator Kerry. We have actually passed a bill in the
Senate. Senator Snowe and I have addressed this issue. It is in
the House now and it has gotten held up, frankly, because you
folks haven't signed off on it. If you could sign off on it, we
could get this out of here and get it done.
Mr. Barreto. Senator, we will be happy to work with you on
that. If the industry in the affected areas--if we have a lot
of cases where this is going to be a problem, then obviously it
is incumbent upon us to be working very closely with the
Department of Agriculture.
The worst possible thing, and I think Herb alluded to this,
we don't want folks to be getting the runaround. We don't want
to add to the confusion of it. We will work together with you
on that and we will also assess what the needs are of the folks
in the fishing industry. A lot of those folks, as you know,
have lost their boats. They have lost their customers. They are
going to need a lot of different kinds of help and we have got
to be there for them.
Senator Kerry. That is why the coordination, I think, is
going to be so critical----
Mr. Barreto. Yes, I agree.
Senator Kerry [continuing]. I just urge you to take a look
at that.
Do I have another moment, Madam Chairman?
Chair Snowe. You may.
Senator Kerry. The Committee was contacted by the National
Association of Realtors because in Louisiana, Mississippi, and
Alabama, realtors are not currently eligible to participate in
the economic injury disaster loan program. They are
disqualified because apparently they have to be independently
owned and operated and SBA interprets that to mean that they
have to be, ``free from significant control by other entities,
which includes a broker.''
Now, the problem, or catch, is that the association with a
broker is required by State law, even though they are out there
on their own. For realtors, their business has evaporated, they
need an emergency loan, but they are disqualified, again, by
definitions. What can we do about it?
Mr. Barreto. Again, I am happy to look at that. This is the
first that I am hearing about this. I don't know if you have
any input on this.
Mr. Mitchell. I have that issue on my desk right now. I
have asked staff to work with counsel, to come back, to take a
look at whether or not we need to take another look at that. It
is policy, so we have some flexibility there. I mean, all we
are trying to do is to make sure if somebody, a business owner,
that they are independently operating, that they have--they are
invested in the business and they take the risks of profits or
loss. We are looking at that to see what flexibility that we
can apply to help that particular industry.
Senator Kerry. Fine. As I close, I just urge you, Mr.
Administrator--I regret that you are not formally at the
cabinet table, but I think you have got to guarantee that
Katrina rebuilding contracts are going to go to small business.
So far, we are reading about big companies and I think it is
really important to start sending the message out there about
contracting with small businesses. I hope you will weigh in as
heavily as possible to get those contracts out to small
businesses, particularly the local and regional ones who are
capable of delivering, as fast as possible.
Mr. Barreto. It is a priority, Senator, and I will make
sure that that happens.
Senator Kerry. Thank you, Madam Chairman.
Chair Snowe. Thank you, Senator Kerry.
Senator Thune.
Senator Thune. Thank you, Madam Chair and Senator Kerry,
for holding this hearing, and I thank the panel, Administrator
Barreto and Mr. Mitchell, for being here, and I especially want
to extend a welcome and thank you to the small business owners
who are here from Louisiana, Mississippi, and Alabama. Clearly,
there are things right now that you could be doing back in your
home area, providing you can get into your home area, to
address all the incredible challenges that are raised by this
hurricane, but we are glad to have you testifying in front of
this Committee and making that sacrifice so that you can inform
the Senate about your businesses, how they are being impacted
and what things we might be able to do to assist you. I
appreciate your being here.
Administrator Barreto, I just wanted to--as was noted
earlier today by Senator Kerry and others, the amendment to the
Commerce, Justice, Science Appropriations bill that was passed
through the Senate does give SBA expanded tools to help
families and businesses that have been harmed by the hurricane,
and some of those provisions align with the President's
proposals that were unveiled last week during a speech in New
Orleans, including increasing the maximum size of SBA disaster
loans and deferring repayment of those loans for up to 12
months.
From your perspective, does that legislation give you the
capabilities you need to meet the rebuilding needs of the Gulf
Coast, or is there anything that we are missing or are there
other things that we ought to be doing, as well?
Mr. Barreto. I think some of the provisions that you have
mentioned will be very, very important. I mean, increasing the
loans to $10 million, I think, is going to be important. The
changes that we make to disaster mitigation loans and the
increase that we can do there, I think that is going to be
very, very important.
We are interested, and I mentioned this in my testimony, to
increase the surety bond level. You know, there is going to be
a tremendous amount of construction down in that area. A lot of
small businesses have already come to us and said, we want to
be part of that, but we are going to need some additional
bonding, so we want to increase that to $5 million. Obviously,
we want to authorize the deferment, the 12-month deferment on
interest and principal for existing 7(a) and 504 loans. That
will provide some of the relief that Senator Landrieu was
talking about.
We think it is very, very important to increase the budget
authority that we have to make 7(a) loans and 504 loans, and to
make sure that the amounts that we do get inside of the Gulf
Area are separate from our normal budget authority. You know,
we want to take it from $17 million and $7.5 million--I am
sorry, $17 billion for the 7(a) and $7.5 billion and increase
that another appropriate amount, $10 billion on the 7(a) and an
additional $5 billion for 504. We think those things will help
give us some additional tools that we don't have right now that
will enable us to help a lot more small businesses.
I will tell you that we are getting--it is great and it is
very, very good. We are getting a lot of ideas coming in from
the Governors, from the Senators, from Mayors, from our
lenders, and we are going through as much of that as quickly as
we possibly can. There are some very, very good ideas there.
There are other things that we really need to evaluate and see
where we can do the most good for the most folks.
Again, we have kind of been through this before. We saw
after 9/11 and some of the other disasters where we had to
change things a little bit to do the most good for the most
small businesses for that particular disaster, and every
disaster is different, and, of course, we are dealing with
something now on a scale that we have never seen before, but at
the same time, with distinctions from other disasters that we
have had.
Those five things that I just mentioned, I think would be
very important. I know that is all part of the legislation, and
we want to and will continue working very closely with this
body and with the Chair and the Ranking Member on any
additional proposals that they might have.
Senator Thune. After 9/11, there was a GAO report issued in
2003 that indicated some of the metrics that the SBA used for
determining disaster loan performance were not fully reflecting
the program's actual performance, and I am assuming, of course,
that you want to have good information in front of you when you
make these decisions about the effectiveness and performance of
the programs, and obviously, as the Committee with jurisdiction
over the SBA, we want that information, as well.
Have you made any changes since that report to help ensure
that the data we are getting is accurate and that we are
measuring the right data?
Mr. Barreto. Absolutely. It is critically important, and
again, I think that sometimes there is a misunderstanding in
that the GAO report wasn't saying that the SBA wasn't doing the
right kinds of disaster loans or that we weren't helping people
that were affected. What they were saying is that the way that
we are measuring the metrics wasn't fully capturing some of the
goals that we had, but it wasn't really talking about the
specific benefits that we were able to provide.
We have made some changes. We have an effective loan
monitoring system now that we didn't used to have. I mean, when
we first started, we didn't have an effective way to monitor
our loans. We have got some very experienced people now that
have been doing this for a while. We have automated a lot of
our process. We have a lot better information. We have a lot of
very good access to our lenders and we are working with them
and talking with them every single day on other loans that we
make.
I believe that we have made some definite enhancements and
will continue to do that and I would be glad to provide you
with a list of some of those specific items.
Senator Thune. Do you think that the interagency
communication, sometimes I think there is a frustration not
only here with us, but also as the public observes some of
this, that agencies of government, that one hand doesn't know
what the other hand is doing, that there is just an awful lot
of confusion out there. How would you characterize the
interagency communication between, for example, SBA and FEMA?
Mr. Barreto. Well, I think it has been good. First of all,
FEMA and SBA are kind of joined at the hip any time that there
is a disaster just by the very nature of disaster response. We
have to work very, very closely with them. We are true partners
in every sense of the word.
First of all, we are co-locating in all of their
facilities, and we have to. I mean, there is no way we can do
our job if we are not able to be in all the facilities because
that is where the victims are going to be.
Also, we work very closely on communication efforts. In
fact, I was just in Baton Rouge--let me see what day of the
week it is--on Monday and we did a joint press conference with
FEMA to make sure that we are communicating to all the press
and to the local community where FEMA starts and where it stops
and then where SBA begins and so forth.
We have had a very effective relationship, and I will also
tell you that there are existing relationships that go back
years and years. I mentioned that Herb has been with us for
over 10 years. He has developed some pretty good relationships
with FEMA folks that have also been there for 10 years. These
are the experts. These are the professionals. These are the
people that do this every single day.
I will tell you that wherever I went last week, whether it
was in Baton Rouge visiting a Disaster Recovery Center, whether
it was visiting the FEMA headquarters in the area, whether it
was visiting the Houston Disaster Recovery Center, everywhere I
went, when I talked to the leader of FEMA in that facility,
they said--because I would ask them, I said, ``Is there
anything that we are not doing? Is there anything that you
need? Is there anything that we could do better?'' Every time,
and please don't overhear me, we are not complacent by any
stretch of the imagination, but every time they said, ``We have
no issues with SBA. Everything is smooth. I know your people. I
don't worry about SBA.''
I think in terms of the relationship that we have had with
FEMA ourselves, that it has been very good, very positive, and
if there are any challenges going forward, I think we have the
relationships and the experience to be able to mitigate that
immediately so there is not anything that is going to affect
any of the folks that are requesting disaster assistance.
Senator Thune. I appreciate your answers and we welcome
your ongoing input about things that we could, can be doing,
tools that can be provided to the small businesses in that
region that will help them get back on their feet. I think it
is going to be critical in terms of this recovery and in
getting the economy going again and jobs created, that we need
to be very aggressive in attacking this challenge.
Again, Madam Chair, I appreciate you holding this hearing.
I have got a statement I would like to have included in the
record.
Chair Snowe. Thank you. Without objection, it is so
ordered. Thank you, Senator Thune.
[The prepared statement of Senator Thune follows:]
Prepared Statement of Hon. John Thune, a U.S. Senator from South Dakota
Chairwoman Snowe, Ranking Member Kerry, other Members of the
Committee, and last but not least, our witnesses--thank you for putting
this hearing together and for participating on such short notice. I
would like to extend a special welcome and thank you to the small
business owners here from Louisiana, Mississippi and Alabama. I am sure
you have important things you could be doing right now to get your
businesses back online after Hurricane Katrina. Instead you are
testifying before our Committee. You have made a sacrifice to come here
and inform the Senate about how your businesses are being impacted by
the Hurricane. Thank you for making that sacrifice.
I am also looking forward to hearing from Administrator Barreto
about what all the SBA is doing to help with the recovery effort. As
some of you may know, the SBA does something of a transformation during
times of disaster. The SBA transforms into the primary Federal source
of government loans for homeowners, renters, and business owners that
have been impacted by the disaster. Unfortunately, SBA has had a lot of
recent experience with disaster assistance loans.
After 9/11, SBA helped small businesses in New York and around the
country that were hurt by the economic downturn associated with the
terrorist attacks. By the end of fiscal year 2002, SBA approved more
than 9,700 loans for a total of $966 million to assist in the recovery
efforts of September 11 victims nationwide.
Following the unprecedented four hurricanes that struck the Florida
coast during the summer of 2004 and resulted in disaster declarations
in approximately a quarter of the United States, the SBA approved more
than $2.1 billion in disaster loans to about 64,500 residents and
business owners in the affected areas. SBA has stepped up to the task
during these times of need. By providing loans in an accessible and
efficient manner, the SBA has helped bridge the gap between disaster
and reconstruction.
That being said, there are still inefficiencies that can be
improved. Initial news reports on the SBA response to Katrina have been
mixed. I am looking forward to hearing about the experiences of the
small business owners on the ground. I am interested to hear how
quickly SBA and the rest of the Federal Government is responding to
their needs and helping them help themselves.
The Federal Government can and should play an important role in the
clean up and redevelopment of the Gulf Coast. The best laid government
program will never match the worth of a private church or civic
organization helping those in need or an entrepreneur opening up a new
small business that creates new jobs. The best thing we can do as the
Federal Government is to try and facilitate these other parts of
society and be conscientious of not getting in their way.
With that I would like to say that I am looking forward to the
testimony and hearing from the small business owners who are going to
be the real catalysts in redevelopment as they prepare to flip over the
``open for business'' sign and get the Gulf Coast economy moving again.
Chair Snowe. To follow up on that, on being efficient and
removing the conflicts between and among agencies, one of the
approaches the Coast Guard takes, as chair of the Coast Guard
Subcommittee and with whom I visited New Orleans and Gulfport,
Mississippi, on Monday, is that their can-do attitude is this,
they will ask questions later. If they confront a problem, they
address it and they don't ask if it is some other Federal
agency. They don't ask if it is a State responsibility, a local
responsibility. They just go about and they do it.
I think that in this instance, given the dimensions and the
scope of this disaster and this rebuilding effort that is going
to be the largest and perhaps costliest, and we don't even know
what is going to be compounded with Hurricane Rita. All the
more reason to break down these bureaucratic barriers.
So I urge you from that standpoint, let us not get in the
way, whose jurisdictional lines, you know, a certain
responsibility belongs to. I think we have just got to
eradicate them for all practical purposes and we can solve the
rest later.
A few points that I want to make. The deadline which
Senator referred to on October 28th, in our legislation, and I
am hoping--again, as our goal is to assemble a package that we
can move under unanimous consent--get it passed by both the
House and Senate, signed by the President, including which in
our amendment was extending that deadline for a year. We think
that is very important.
Secondly, recruiting people from across the country, if
that is possible. I know that is what the Coast Guard did. When
they prepositioned actually their aircraft and their ships,
they also prepositioned people. They assembled teams from every
Coast Guard station in the country to come in, and so were able
to move in immediately after the hurricane, if not during, to
begin responding to the crisis at hand. I would also urge you
that in some ways.
I know housing is an issue I have seen firsthand, again,
and people are there in the makeshift operations down there,
and I know it has been especially difficult. You may think
about putting people--again, what Senator Landrieu was
referring to, about perhaps setting up shop in some of the
parishes that are operational, again, consulting with local
officials about what is doable, and right now, obviously the
circumstances have changed down there because of the hurricane
that is about to descend again in the Gulf. In any event, but
that is another dimension. If there are operational needs,
maybe it is better to have some centers set up there, as well.
On the procurement, please, I think that is going to be
absolutely vital for small businesses to have access to the
procurement opportunities that will be provided with the role
the government is going to play in this rebuilding effort. I
would urge you--and I am very concerned about these waivers in
the supplemental. We couldn't hold up the supplemental for what
it represented, obviously, for assistance, but I was very
disappointed to find that waiver slipped in there on
subcontracting plans for small businesses that could cost up to
$80 million in subcontracting and perhaps, I don't know, was it
$3 billion or so a year for small business prime contracts.
This is significant. This is not the time--it never is, but
certainly this is not the time to shut out small businesses----
Mr. Barreto. I agree.
Chair Snowe [continuing]. The procurement opportunities and
to be overrun by all the large businesses because they need the
job. This is going to be--you know, the vitality of the economy
is represented by the small businesses that can survive this. I
would urge you in that standpoint.
Finally, looking at the numbers in the applications filed,
I see that the referrals are a million, but the applications
approved is 76. Obviously, it is going to take some time. There
is a huge gap between the referrals, and also, you have got
12,000 received. Approved have been 76, not your fault.
Obviously, it is going through the process. At some point, all
of the sudden, you are going to be overwhelmed by the numbers--
--
Mr. Barreto. Right.
Chair Snowe [continuing]. Between what was submitted for
applications and the processing. I would hope that you are
really prepared with the resources, both personnel and
otherwise, to be responding to all of that.
Mr. Barreto. We absolutely agree and we are using this time
very wisely by training all the folks that need to be trained,
by getting the additional space, and by the way, we have
options for even additional space. We are really very
fortunate. I visited the operation. It is already set up. In
other words, we have gone into space now that already has the
cubicles, already has the phone systems, already has computers.
We can be operational in the additional space as quickly as we
need to be.
We hear you loud and clear, and believe me, Herb and I meet
on this every day. I mean, he is meeting on this every hour to
make sure that we are ready for what is coming.
Chair Snowe. I appreciate that, and please keep us informed
of everything and anything that needs to be before us and that
really does require our attention, because we want to eliminate
as many problems as possible in this process and make it as
easy as possible under these arduous circumstances of people
who have been directly affected.
I appreciate your leadership, Administrator Barreto, Mr.
Mitchell, thank you, and for your resolve and your commitment
to bring the resources to people who desperately need it. Thank
you.
Mr. Barreto. Thank you, Senator Snowe and Senator Kerry.
Thank you very much.
Chair Snowe. No, thank you. Thank you.
Senator Kerry. Could I just ask a couple of other
questions.
Chair Snowe. Oh, yes. I am sorry. Administrator Barreto, I
am very sorry.
Senator Kerry. I just have a couple----
Chair Snowe. Okay. I didn't----
Senator Kerry. That is okay. No, no, no, go do what you
have to do. I will just be 2 minutes.
As we both know, there has been the recent controversy over
the 7(a) STAR loans.
Mr. Barreto. Yes.
Senator Kerry. Obviously, we don't want that to undermine
what happens with respect to Katrina response.
Mr. Barreto. Yes, sir.
Senator Kerry. In an effort to try to make sure it doesn't,
we put a provision in the amendment that authorizes the SBA to
make the supplemental loans for Katrina victims that included
oversight protections. Do you support, No. 1, that amendment
that allows the 7(a) supplemental loans, and No. 2, the $75
million?
Mr. Barreto. Thank you for the question, Senator. First of
all, let me say that we have spent a tremendous amount of time
lately, and we will spend as much as we need to, to make sure
that people understand the difference between our disaster
loans and what these STAR loans were intended to provide. It
has been very unfortunate. There has just been a lot of
inaccurate reporting, a lot of misrepresentations, and to be
perfectly frank with you, this has affected a lot of our
lenders and a lot of the small businesses that we are trying to
help.
We have gotten a lot of calls from our lenders saying, what
is going on? We were trying to help small businesses and now we
are being accused of doing something that we shouldn't have
done. We followed what the regulation was. We followed what the
intent was. We helped those small businesses. Those small
businesses that are calling their lenders now saying, ``Hey, I
have got customers calling me saying that they are not going to
do business with me anymore because they think that I have done
something wrong. They think that I have taken money that I
shouldn't have taken.''
This has been very, very unfortunate. We are trying to
correct the record every place that we could. I know how
important those STAR loans were to you after 9/11 to be able to
stimulate the economy and to get money into small businesses
that were suffering through no fault of their own. There are
many, many businesses, as you know, outside of the declared
disaster area in New York and outside the Pentagon that were
suffering. They were screaming for help, the many industries.
You mentioned some industries today. We were getting calls from
the tourism industry. We were getting calls from the aviation
industry. We were getting calls from businesses in airports. It
was tremendous.
Obviously, we need to do everything that we can to help
small businesses. Our primary focus right now is to help those
hundreds of thousands of businesses inside the declared
disaster area. I am happy to continue working with you on this
issue.
One of the things that I also have to do is reassure our
lending community that if we are able to do these loans, that
it is going to be different this time, that they are not going
to be accused and attacked----
Senator Kerry. Obviously, we want people to know it is
different; and our goal is to make sure Katrina folks--well, we
specifically put in the amendment, Senator Snowe and myself, a
bipartisan effort with Senators Vitter and Landrieu, et cetera,
that the supplemental loans for Katrina can go to people
indirectly impacted. We are saying, and we clarify guidelines
so that we define what constitutes ``adversely impacted.'' I
think we have done our job.
What I want to know is, given that clarification, are you
supportive of giving loans to those folks and of the $75
million?
Mr. Barreto. As I said, as we are dealing with the fallout
right now, and it is a daily thing that we are being attacked,
the last thing I would want to do is create more victims, you
know, create small businesses, again, through no fault of their
own, that are going to be attacked for getting a regular----
Senator Kerry. Are you saying to me you are not supportive
of that----
Mr. Barreto. I am not saying that I am not supporting it. I
would be happy to work with you on that. First, we need to
assess how----
Senator Kerry. Let us do that right here, right now.
Mr. Barreto. Well, I am happy to. I am happy to work with
you right now, but as I said, coming off the heels of where we
are already suffering on the STAR loans, I want to make sure
that if we are able to do it, that we do it right and that
everybody is clear as to what the responsibilities are of all
of the partners in this.
Senator Kerry. I am trying to figure out where we are.
Mr. Barreto. Again, I am happy to continue to work with you
on this issue, but----
Senator Kerry. In other words, you are not necessarily----
Mr. Barreto. I am not ready to make a commitment today to
do a Star loans II unless we really are able to understand
exactly who is going to get those loans, because again, we have
spent a lot of time reassuring our lenders. I have been talking
to them. Everywhere I go, the lenders come up to me and say,
``Hey what is the deal with this STAR loan program?''
Senator Kerry. I understand. But, Senator Landrieu has
clearly pointed out how outside of the immediate, ``disaster
area'', you have major suppliers and others who are obviously
hurt----
Mr. Barreto. Many of those will be able to qualify for our
regular disaster loans or economic injury disaster loans, which
have much better terms, obviously, lower interest rates, longer
terms, more liberal and flexible underwriting. We know that
there are hundreds of thousands of small businesses that are
going to need our help and that could potentially qualify for a
disaster loan. We want to make sure that they get those direct
disaster loans with the favorable rates, and then obviously we
are going to continue to assess what the ramifications are.
You know, I remember after 9/11 it took us some time before
we were able to really understand what the impact is, and
especially with a potential second hurricane hitting and we are
not even out of the hurricane season. This is something that I
think could continue to be an issue for us to deal with for
some time.
Senator Kerry. Well, I am not trying to--I don't want to
litigate the case here now, obviously. I am not trying to. I
just want to make sure we don't throw the baby out with the
bath water.
Mr. Barreto. Sure.
Senator Kerry. There is a clearly distinguishable, it seems
to me, impact area and effect that we ought to be able to
arrive at an agreement on, and I would hope that we do. I mean,
helping areas outside of New York that were harmed by the
ripple effect of 9/11, that was the original effort in the STAR
program. As a result, businesses in Seattle or the Virgin
Islands winded up being the recipients of those loans if they
were harmed. So----
Mr. Barreto. As you know, Senator, these were regular 7(a)
loans, working capital loans, regular ones that we make to
small businesses. These were small businesses that were
applying for these loans because they were affected after 9/11,
and we worked very closely with our lenders to understand that.
There was a tremendous amount of effort by all of us to make
sure that we not only educated the lenders, but we were able to
get that help where the help was needed.
If the intention was to stimulate the economy and to save
thousands of businesses and tens of thousands of jobs, I think
we were very effective in being able to do that. If we are able
to do this going forward, I just want to make sure that folks
are clear, because I am really concerned that the kind of
misrepresentation and misinformation on these STAR loans----
Senator Kerry. We want to help you to clarify it.
Mr. Barreto [continuing]. Is going to occur again, and the
last thing I need--I said in an editorial that I wrote, this is
the second injury. These small businesses through no fault of
their own got a regular 7(a) loan. In fact, one small business
said, ``Look, I didn't get such a great deal here. The interest
rate was high. I want to rework that loan to get a lower
interest rate right now.''
A lot of these small businesses, again, did nothing wrong
and they are being accused of taking disaster money, which is
not true. These were not disaster loans. These were our regular
7(a) loans.
Senator Kerry. Therefore----
Chair Snowe. Can we----
Senator Kerry [continuing]. We shouldn't have any problem
at all in being able to do this under this other mechanism.
Mr. Barreto. I would like to work with you to know that and
make sure that we do everything that we can----
Senator Kerry. My final question is----
Chair Snowe. Okay, because there is a second panel here.
Senator Kerry. Mr. Harris, on the second panel, has been
told that it may take as long as 100 days to get a disaster
loan. Now, given the numbers of people that we are hiring, and
I think this is a refrain that we have heard from a number of
different business folks, how can we dispel that notion and
make sure that is not the case?
Mr. Barreto. I will let Herb speak to that, but our goal is
to process these loans in days--not months, days--and we are
going to be monitoring the metrics on this very, very closely.
I don't know where he got that information. It certainly wasn't
from--it certainly shouldn't have been from anybody from the
SBA because that is not normal operating procedure.
Herb.
Senator Kerry. Thank you.
Chair Snowe. You weren't here earlier, Senator Kerry, but
with respect to the overall STAR loan program, the Inspector
General, we have requested an inquiry on those applications,
and then the staff jointly will be conducting a review, and
then we will have a hearing to follow up----
Senator Kerry. That is great. My interest is not to go
backwards into that right now. My interest is to make sure that
it doesn't stand as an impediment to our ability to be able to
do it now, because I think we ought to, just as I thought we
ought to do after 9/11. That is the key here, and I would like
you not to feel burdened by it in a way that says, ``Gee, we
don't want to do it here.'' It ought to be more than feasible
to get a set of definitions and an understanding of the scope
of the issue so that we help people.
Mr. Barreto. I agree.
Senator Kerry. Thank you.
Chair Snowe. Thank you.
Mr. Barreto. Thank you very much.
Chair Snowe. Now you can go.
[Laughter.]
Chair Snowe. Thank you.
The second panel this afternoon represents the small
business community and the issues that they are now
confronting.
I would like to introduce Mr. John Rowland, a member of the
National Federation of Independent Businesses and the owner of
Southern Hospitality Systems located in Louisiana. He founded
his business in 1984 and it has grown to 11 full-time employees
as well as 200 part-time employees.
May we have order? [Pause.]
Also testifying is Ms. Alta Baker, who is the founder,
President, and CEO of Safe Haven Enterprises located in
Jennings, Louisiana. Ms. Baker is a member of the Women's
Business Enterprise National Council's Board of Directors and
former Chair of its National Women's Enterprise Leadership
Forum.
Next on the panel is Ms. Mary Lynn Wilkerson, State
Director of the Louisiana Small Business Development Center.
Mary Lynn has been State Director for 15 years, where she has
counseled more than 2,500 clients and delivered hundreds of
training programs for small businesses and aspiring
entrepreneurs.
Mr. Woodrow Wilson, President and CEO of Gulf South
Animated Motion Technology, located in New Orleans. Mr.
Wilson's business employs two full-time employees, suffered
severe flood damage causing him to temporarily relocate to
Baton Rouge.
Testifying next is Ms. Michele Sutton, a small business
owner from Hammond, Louisiana. Ms. Sutton and her husband,
Wayne, are the sole owners of Fairway Ventures, Rent USA, and
Rent and Roll, with several stores located in the Mississippi
Gulf Coast.
Next on our panel is Mr. Richard Harris, owner of Harris
Homes, located in Ocean Springs, Mississippi. Mr. Harris was in
the process of creating a housing development when Katrina hit
the Gulf Coast. The new homes, which were in various stages of
completion, all survived but were damaged.
Finally, we have Mr. Timothy Swindall, Vice President of
SWR, Incorporated, located in Troy, Alabama. SWR is a HUBZone
certified small business that operates a logistics support
contracted to the Federal Government.
Thank you all for being here. I thank you for your
presence. I know especially under these difficult circumstances
that you could take the time and the effort to be up here, and
we also thank you for your patience. I am sorry that the
morning went on so long.
Mr. Rowland, let us begin with you. Thank you. You can
summarize your testimony. Your full written statement will be
inserted in the record. Thank you for being here today.
STATEMENT OF JOHN ROWLAND, PRESIDENT, SOUTHERN HOSPITALITY
SYSTEMS, INC., NEW ORLEANS, LOUISIANA, ON BEHALF OF THE
NATIONAL FEDERATION OF INDEPENDENT BUSINESS
Mr. Rowland. Good afternoon. I am John Rowland, President
of Southern Hospitality Catering in New Orleans, Louisiana.
Thank you, Chairman Snowe and Ranking Member Kerry, for giving
me the opportunity to testify on behalf of the National
Federation of Independent Businesses regarding the impact of
Hurricane Katrina on small businesses.
For the past 21 years, Southern Hospitality has been a
full-service, on-site catering business, proudly doing business
in New Orleans. We fed jambolaya, crawfish estoufee, and bread
pudding to literally millions of people all over the country,
including the White House. We have employed hundreds of people
over the past 21 years, many of whom have gone on to open their
own restaurants, put themselves through school, or open their
own businesses.
I started Southern Hospitality directly out of college with
no experience, a few hundred dollars, and a gas card. Since
1984, I have enjoyed much success and take pride in the
business that I have grown. It is amazing, the destruction that
one hurricane has caused. My kitchen and facility are
devastated. My entire inventory is gone, and I have reports
that my mobile kitchen, delivery trucks, and two cargo vans
have been severely vandalized.
I will do whatever I have to do to rebuild my business and
put my 11 full-time and 200 on-call contract employees back to
work. I will have to rebuild from scratch, as they say in the
kitchen. Getting back to operating conditions will be the first
challenge. Getting customers back will be another totally
separate challenge that I believe will take time, persistence,
and, of course, money.
Small businesses like mine are ill-equipped to absorb this
extraordinary, unprecedented event, yet small businesses
account for a huge percentage of the region's economic engine.
I understand Congress is exploring low-interest loans for
small businesses affected by Katrina and I am grateful for
that. I urge, however, that Congress also consider offering
small business grants to qualifying businesses, as well. This
is because many small businesses, particularly seasonal ones
like mine, will not have significant revenue for a long time.
The last thing we can afford to do at this time is to incur
more debt.
Tax incentives, too, are also important to small
businesses. Section 179 of the Internal Revenue Code may be a
great first step in regaining valuable equipment loss due to
the hurricane. Under current law, Section 179 allows small
businesses to expense, that is to fully deduct from taxable
income, a limited amount of the cost of new business equipment
in a year. In order to assist small business owners as they
make the investments necessary to rebuild their businesses, I
suggest increasing expensing limits as high as possible so that
small business owners can take advantage of this immediately.
The second incentive I would suggest would be to revise the
tax treatment of construction for repair and replacement
purposes. Allowing small businesses that were affected by the
hurricane to immediately depreciate 50 percent for equipment,
building and structure, that would be useful for rebuilding
businesses quickly. I sincerely hope that you will try to
address immediate concerns in this area.
Senators I want to put people back to work. I am in this
horrible position through no fault of my own. By increasing the
annual allowance and by offering small business grants, I can
invest in the assets I need to get back into business. When we
speak of rebuilding New Orleans, I suggest that the bricks and
mortar may prove to be the easy part. It will be rebuilding an
economy with businesses of all sizes that will be our biggest
challenge in the long term. Small business owners like me are
eager to return to New Orleans and to contribute to the economy
and culture that make our city great. With help from Congress,
we will rebuild not only our buildings, but our economy, as
well.
I thank the Committee for holding this hearing. I urge your
steadfast support as the impacts of the devastation will long
outlast the news cameras and the front-page stories. Long after
the rest of the country has heard enough about Katrina, the
Gulf Coast will still be hard at work trying to rebuild and to
hold on.
Thank you for the opportunity to testify on this important
issue, and I will be happy to take any questions you may have.
Chair Snowe. Thank you, Mr. Rowland.
[The prepared statement of Mr. Rowland follows:]
Prepared Statement of John Rowland, President, Southern Hospitality
Catering, New Orleans, Louisiana
Good Morning. I am John Rowland, president of Southern Hospitality
Catering of New Orleans, Louisiana. Thank you, Chairwoman Snowe and
Ranking Member Kerry, for giving me the opportunity to testify on
behalf of the National Federation of Independent Business regarding the
impact of hurricane Katrina on small businesses.
For the past 21 years, Southern Hospitality has been a full-service
onsite catering business proudly doing business in New Orleans. We have
fed jambalaya, crawfish etoufee and bread pudding to literally millions
of people all over the country, including at the White House. We have
employed hundreds of people over the past 21 years, many of whom have
gone on to open their own restaurants, put themselves through school,
or open their own businesses.
I started Southern Hospitality directly out of college with no
experience, a few hundred dollars, and a gas card. Since 1984, I have
enjoyed much success and take pride in the business I have grown. It is
amazing the destruction that one hurricane has caused. My kitchen and
facility are devastated. My entire inventory is gone. I have reports
that my mobile kitchen, delivery truck and two cargo vans have been
severely vandalized.
I will do whatever I have to do to rebuild my business and put my
11 full-time and 200 on-call contract employees back to work. I will
have to rebuild ``from scratch,'' as they say in the kitchwn. Getting
back to operating conditions will be the first challenge. Getting
customers back will be another, separate, challenge that I believe will
take time, persistence and money.
Small businesses like mine are ill-equipped to absorb this
extraordinary, unprecedented, event. Yet small businesses account for a
huge percentage of the region's economic engine.
I understand Congress is exploring low interest loans for small
businesses affected by Katrina, and I am grateful for that. I urge,
however, that Congress also consider offering small business grants to
qualifying businesses as well. This is because many small businesses--
particularly seasonal ones like mine--will not have significant revenue
for a long time. The last thing we can afford to do is incur more debt.
Tax incentives are also important to small business. Section 179 of
the internal revenue code may be a great first step in regaining
valuable equipment lost due to the hurricane. Under current law,
Section 179 allows small businesses to expense (that is, to fully
deduct from taxable income) a limited amount of the cost of new
business equipment in a year. In order to assist small-business owners
as they make the investments necessary to rebuild their businesses, I
suggest increasing expensing limits as high as possible so that small-
business owners can take advantage of this immediately. The second
incentive I would suggest would be to revise the tax treatment of
construction for repair and replacement purposes. Allowing small
businesses that were affected by the hurricane to immediately
depreciate 50 percent for equipment, building and structure would be
useful for rebuilding businesses quickly. I sincerely hope that you
will try to address immediate concerns in this area.
Senators, I want to put people back to work. I am in this horrible
position through no fault of my own. By increasing the annual allowance
and by offering small business grants, I can invest in the assets I
need to get back into business. When we speak of ``rebuilding New
Orleans,'' I suggest that the bricks and mortar may prove to be the
easy part. It will be rebuilding an economy, with businesses of all
sizes that will be our biggest challenge in the long term. Small-
business owners like me are eager to return to New Orleans and to
contribute to the economy and culture that make our city great. With
help from Congress, we will rebuild not only our buildings, but our
economy as well.
I thank the Committee for holding this hearing. I urge your
steadfast support, as the impacts of this devastation will long outlast
the news cameras or front-page stories. Long after the rest of the
country has heard enough about Katrina, the Gulf Coast will still be
hard at work, trying to rebuild and hold on.
Thank you for the opportunity to testify on this important issue.
I'll be happy to take any questions that you may have.
Chair Snowe. I know Mr. Wilson, you have to leave at 12:30,
is that correct? Would you like to----
Mr. Wilson. Not exactly 12:30, but pretty close.
Chair Snowe. Well, why don't we begin just in case, and
then Mr. Harris, and then if we want to ask you any questions
or anything. Why don't you proceed, Mr. Wilson.
Senator Kerry. Madam Chairwoman, if I could just say
quickly----
Chair Snowe. Yes, go right ahead.
Senator Kerry. Because we are running late, I am also now
way backed up and I can't be here for all of your testimonies
and I apologize for that. I just want to say, Mr. Rowland, that
is very important testimony. I know many of you are going to
have similar kinds of stories and I appreciate that. I will
review the record. This is the most important part of this
hearing, as far as I am concerned, so I apologize for not being
able to listen to each of you. We will do everything in our
power to help you, and I think your last comment is very
important. Long after the sort of shift has taken place, you
all are going to be struggling. We understand that and we are
here to help you, so thank you.
Mr. Rowland. Thank you.
Chair Snowe. Thank you, Senator Kerry.
Mr. Wilson, you may proceed, and then we will go to Mr.
Harris.
STATEMENT OF WOODROW J. WILSON, JR., PRESIDENT,
GULF SOUTH ANIMATED MOTION TECHNOLOGY, INC., NEW
ORLEANS, LOUISIANA
Mr. Wilson. Thank you very much for having me.
Chair Snowe. Thank you for being here.
Mr. Wilson. I am very happy to be able to be here to put a
real face on what happened to small businesses in New Orleans.
I am not going to take up a lot of time on exactly what
happened. We all have seen the devastating pictures and we are
totally ruined and devastated and now overwhelmed and are here
asking for some help, immediate help, relief. I don't have a
long prepared speech. I want to say what we need to help us get
started immediately back in New Orleans is immediate cash in
the form of loans and/or grants.
The whole Gulf Coast and the area has been devastated.
Everybody is overwhelmed. We need, as I have heard you say this
morning, immediate cash help. We are out of cash. How can we
hire these people back? How can we clean our facilities and get
going? We need the cash and the type of SBA loans I have heard
today with bank guarantees. Banks don't readily loan directly
to small businesses. It just doesn't happen on the ground floor
where we are. You have to really be creditworthy enough to
where you don't need the loan where the banks will loan you
money.
The SBA directive is going to be imperative. It is going to
be imperative that we get the deferments that I have heard here
today in the amendments in the legislation. It is going to be
imperative that we have an opportunity to get a bridge loan
from either a bank or from the SBA so we can have cash
tomorrow.
I have been to my business. I have a brown water mark of 6
feet or above over everything that I own, all my worldly
business possessions. I am here today with the attitude and the
spirit to start again, and I live and work on ground floor, if
you will. We need immediate help in those areas. I have heard
you say, and I hope that legislation is passed. It is what we
need.
Three major things that I want to discuss personally. You
see today a small businessman, of course, and you also see a
small minority-owned business that is on the ground floor in a
predominately minority city that actually hires people on the
ground floor. We need to be put back together much faster than
the process may take. The process needs to be expedited.
Please help us now. Let us go back, clean up, and get those
things going where we actually hire many in the city and urban
people who don't have a lot of specialized skills, but they can
work and want to work in my warehouse, in our office, doing the
delivery, doing those kinds of basic functions.
Very important after that is the contracting opportunities
I have heard here. It is most imperative that the minority-
owned businesses get in on the action on the ground floor,
especially in the area that is heavily minority populated. In
New Orleans, we have a large population of Vietnamese, Latinos,
and African Americans, that make up that gumbo, if you will.
That means everybody has to participate. We are not going away.
We are going to be there to rebuild.
Please help us now. Again, I keep saying that. The
contracting opportunities are in Louisiana. There have been
some very large contracts already awarded, as I understand it,
to very large companies. Those subcontracting opportunities
must be allowed to small and minority companies and we must be
at the table, as I am here today, when those decisions are
made. I heard earlier, Senator, Mr. Oliver of our Economic
Department. We need to be at that table, and I would like to be
there.
Of those contracting opportunities, there are many
businesses that can be primes. We want the subcontracting
opportunities of course, but we also can be primes in a lot of
areas.
One of the last things that I will wrap up on besides the
contracting opportunity is the economic injury loans. What gets
us back to square one, of course, is the disaster loan that we
have applied for. I am one of those 12,000 applications that
are in the SBA process. I have not gotten approval about it,
which I hope I will, and we need to speed up that process.
The economic injury that we sustained that has happened to
us has, of course, wiped out all of our assets. As small
businesses, you don't have a lot to begin with. You are already
marginally profitable, if at all. We have been struggling for
3\1/2\ years personally to develop a technology and a patent in
New Orleans that is going to allow us to not only do prototypes
there, but actually manufacture in Louisiana something that is
always heard of offshore somewhere. We have manufactured many
parts in Hong Kong, but we want to manufacture in Louisiana. We
do have the profit margins to make that effective, but we are
going to need some long-term economic help in the form of loans
and lines of credit.
The economic recovery is very key to us, too, because what
we have got to get back is enough money to start from square
one, start all over, as my colleague says, from square one. You
are going to give me back my inventory and those kinds of
things, my machines, and I am going to be back at square one. I
need the ability and incentive to go beyond that to continue to
hire more, to upgrade my equipment, and to be able to
manufacture in New Orleans.
Very quickly, that has been the five points that small
businesses need immediately. So please help us. Thanks for
being here----
Chair Snowe. Yes. I may want to ask you a couple of follow-
ups before you leave.
Mr. Wilson. Yes.
[The prepared statement of Mr. Wilson follows:]
Prepared Statement of Woodrow J. Wilson, Jr., Principal Owner and
Manager, Gulf South Animated Motion Technologies, Inc. (GSA)
introduction
My name is Woodrow J. Wilson, Jr., principal owner and manager of
Gulf South Animated Motion Technologies, Inc., (GSA), at 4700 Howard
Avenue, New Orleans, LA. GSA is a small 4\1/2\-year old minority-owned
business primarily involved with the development and sales of patented
fiber-optic technology in flexible material (i.e. Caps, jackets,
banners, etc.), and light emitting diode (LED's) in safety and other
highly visible products that are programmable and self-illuminating,
especially at night or during inclement weather situations.
Over the years our company has begun to diversify into other safety
products industrial supplies and products, medical and pharmaceutical
supplies, janitorial and cleaning products and most recently spill
clean-up products, protective clothing and surface disinfectants that
are non-toxic, EPA approved and kills bacteria (e-coli) fungi and
viruses. We are a stocking facility with offices that have hired from
three to six people, either full time or part time over the years,
since 2001. Today a water line marks the nearly 6 feet of water that
covered and destroyed nearly all of our worldly possessions and our
active business. I am sure nothing is salvageable and we will have to
start all over, but start all over we will! We want to recover, rebuild
and restart our business ASAP!!!
1. What We Need to Re-Cover, Rebuild and Re-Start our Businesses--
as Soon as Possible (ASAP). Immediate Financial Help (Access to
Capital). SBA Bank Guarantees that have banks use looser rules and
credit criteria to make loans to small businesses. All, all of our
assets like A/R and inventory have been destroyed, even any equity that
we may have had. Quote: (Mr. Peter Gwaltney, CEO of the Louisiana
Banking Association that said 9/15/2005 T-P) ``Bankers will ask
regulators for more leeway in making loans to customers as they return
home. Banks will make loans they ordinarily wouldn't make. Under the
circumstances banks need to make loans to get this economy moving''
2. SBA Direct Loans, low interest loans and/or lines of credit as
an alternative to inventory repair and replace infrastructure, office
supplies, fixtures, computers and rehire employees. And pay rents and
operating expenses until things get going again.
3. Loan Repayment Deferredments. Loan repayments deferments of up
to 1 to 2 years to give us some breathing room and cash-flow to
maintain. This recovery will be along term process that needs nurturing
and patience.
4. An expedited process that will give us the help we need now in
cash not in words.
5. Special Attention to Minority-Owned Small Businesses. Especially
in New Orleans area and region. Our businesses for the most part are at
ground zero and the heart and soul of places like New Orleans and other
urban areas. Without, the jobs that we create from within . . .
recovery will not be so tangible, take a lot longer to occur and leave
the inner city people still in a trap and dependent.
For the majority, minority-owned businesses, access to capital is
usually non-
existent, except. family and friends and is provided by capital markets
only after you've proved on paper that you don't need the money to
survive anymore. You are too small for venture capitalist, too risky
for the banks and generally not considered when main stream economics
are discussed. But where would we be without the restaurants, taxi
drivers, shoe shops, truckers, carpenters and electricians and other
self-employed craftsman in our communities.
6. Contracting Opportunities. For New Orleans and Louisiana-based
businesses to actually get the contracts to do the work of re-covery.
All Local business should get ``first'' crack at these jobs and bided
or no-bided contracts. Of course the money will circulate throughout
the local and state economics . . . many more times and finally stay
where it creates the most economic impact . . . the whole point of this
recovery effort.
7. Economic Injury Loans/or Grants. In addition to the damage
replacement money that will only bring everyone back to square one, all
of us were actively contributing to the economy and would have
continued if not for Katrina. So, please consider placing into
legislation language that gives us a little something extra to sustain
ourselves and incentives to go forward. Something in south Louisiana we
call ``Lagniappe'' something that can help us cash-flow hiring again
and market ourselves for a quicker recovery.
8. The Last Thing I Would Like to Mention and Commend the President
on. His Gulf Opportunity Zone to spur economic growth (GO-ZONE). It
said in effect:
Businesses in GO would be eligible for benefits through
2007--not just a one-time shot.
GO will provide tax relief and loans for businesses and
entrepreneurs to invest in the region and create jobs especially to
include minority-owned enterprises (that speaks to a probable exclusion
in the past).
It is the small business and entrepreneurs that will
create jobs and opportunity and help break the cycle of poverty.
The U.S. Congress has an important oversight function to
perform to make sure that we get the resources and not just the
rhetoric to rebuild and . . . Rebuild quickly.
Thank you very much for having me testify here today!! And may God
bless us all.
Chair Snowe. Mr. Harris.
STATEMENT OF RICHARD HARRIS, HARRIS HOMES,
OCEAN SPRINGS, MISSISSIPPI
Mr. Harris. Yes. I would like to thank you all for the
opportunity to speak here, and in timeframe, I will be short.
My statement is here.
As a contractor on the ground level, I have been in the
contracting business for almost 20 years. I have an education
in industrial technology and also taught school for close to 20
years. I left education to become self-employed and I spent
many years building a large company which I now own, Harris
Homes, LLC.
The company was doing very well pre-Katrina. I had
purchased property. I had developed a subdivision, which I had
done in the past, and things were doing--and I was doing the
best I have ever done in my business.
It is kind of ironic after Katrina that as a contractor, I
am expected to get rich and help everybody and et cetera, and
it is far from the contrary. I am talking with my attorneys, my
bankers, my CPA. You know, I was doing so well that that was my
problem. I have so much money out and so much vested that it
probably will bankrupt me and I won't be able to help no one in
South Mississippi or anywhere else.
Let me give you a rundown on that. Currently, my book of
business was close to $4 million. I had 25 active projects in
progress. Basically, I built and delivered entry-level homes
from $145,000 to $200,000. I delivered a home, almost a home a
week, on average.
Now, keep in mind that my business is made up of small
businesses. I am a general contractor. I have approximately 50
employees that are subcontractors, and those subcontractors
have anywhere from 1 to maybe 20 employees. As a subcontractor,
I am responsible for carrying a house or the project from the
time it is actually started or under contract until it is
finished. I am financing the materials, the property. I am
financing the wages of all the subcontractors who I employ. If
their businesses fall apart, of course, my business will not
survive.
Hence, my biggest problem is I have lost all my employees
and my subcontractors. At best, before the storm, I was working
50 to 100 people a day. Currently, I have about 12 people
cleaning up the mess and assessing my damage. I lost these
people for many reasons. They were relocated. They lost
everything they owned, as I did myself. I lost my personal
house, my personal belongings, my personal vehicles. Everything
I owned was taken by the tidal surge.
Luckily, my subdivision was not. It was high enough and dry
enough that did not happen, but due to the money I have out, I
do not need to borrow money. I have credit. I have the ability
to borrow $1.5 million tomorrow. I do not have the working
capital or assets to make up what my insurance is not going to
pay. I do not have the employees to continue the business rate
I was at, so therefore I cannot service the money that I have
out.
With that being said, I will probably not be able to do
future business unless I would receive a grant. That would be
about the only way. Some businesses are structured better than
others.
Now, I did not lose my inventory. It is still three. I
still have my 12 pre-sold contracts, but I do not have
employees or the means in a timely manner to repair that or put
it forward simply because materials are going up, labor costs
are going up, my employees are being lost to strong-arming
effects as far as Operation Blue Roof, FEMA. They are hiring my
workers. They hire locally to help recover from Hurricane
Katrina may not be the best idea because those are my employees
they are taking, and that is additionally causing a strain on
my business.
I have other issues, but bluntly, my current operating
environment is very weak, because if another hurricane hits, I
probably will not even be able to get materials to continue
helping and rebuilding.
To go further than that, the insurance companies are in
place. They are going around. Just as the SBA is taking
applications, they are doing estimates. The adjustors are
telling the people to get your local contractor to provide an
estimate. You know, I can't even provide for myself or my
family at the moment, much less put my subdivision back on
track with no workers, no materials, or an inflating price of
what is going to be--who knows what a sheet of plywood will be
next week, especially after a new hurricane hits Texas.
I don't think I can even deliver a reasonable house, and
keep in mind, my houses were under contract. I may have 12
contract purchasers that may sue me because the media basically
has said, your house is worth 20 or 30 percent more. They want
their houses. All my customers want their houses because they
think they are worth 30 or 40 percent more, yet they want me to
deliver that house at the old contracted rate, which there is
no way I can do.
I cannot write estimates. The adjustors are in town, and I
know this is way off from the SBA, but the adjustors in town
are telling, not all of them, but some of the insurance
companies are telling them to go to a local building contractor
and actually get an estimate. Even if I could manage to keep my
company afloat, how can I spend all day writing estimates and
assessing damage that may or may not be somebody else's job and
for jobs I may not even get?
It is a very bleak situation on my end, and I am not sure
of the answers, but financially, I don't think borrowing more
money on my aspect would save me or any small business that
worked for me, and many of my small businesses were destroyed,
so I think--my cabinet shop, my electricians, my plumbers, my
framers, the majority of them did go underwater, also, so there
will be no quick recovery, regardless of what anybody thinks,
of the devastated area. From a ground level, it will be slow
and painful and it may even be much longer than people expect.
My bank has already given me a 60-day extension on my notes and
interest, but I can tell you now, that will be nowhere near
sufficient.
Any questions?
[The prepared statement of Mr. Harris follows:]
Prepared Statement of Richard Harris Submitted by Witness
Mr. Harris lives in Biloxi, Mississippi and owned and worked at his
firm, Harris Homes, located in Ocean Springs, Mississippi, which is
located on the Mississippi Gulf Coast between Biloxi, MS and
Pascagoula, MS.
In 1990, Mr. Harris opened his own business, Harris Homes, and has
been self-employed since that time. In 2000, Harris Homes purchased 20
acres of land in Ocean Springs, and developed a subdivision consisting
of 49 lots (Dove Plains). Prior to August 29, 2005, 21 homes have been
built, sold, and occupied. On August 29, 2005, the status of lots and
construction was 25 active construction projects:
12 pre-sold contracts in various stages of construction (4
approximately 70 percent complete, 3 about 40 percent complete and 5
not started);
5 pending home construction contracts;
5 speculative homes in various stages of construction;
3 commercial developments to be kept as rental properties;
15 lots available for future home construction.
On August 29, 2005, Harris Auto Sales (used automobiles) was
prepared to open for business. The sales lot was completed, dealer's
license was obtained, and 5 used cars had been purchased and were on
hand.
Mr. Harris also had a 1200 square foot strip mall under
construction, as well as a ``four-plex'' apartment building.
After Hurricane Katrina, Mr. Harris was left with his personal home
and possessions destroyed. Estimated uninsured loss of about $100,000.
The Dove Plain houses under construction suffered wind and rain damage,
which Mr. Harris has estimated to range from $2,000 to $4,000 per unit.
Estimated total uninsured loss is $135,000. Mr. Harris' used car
dealership had all 5 inventory units lost to storm surge, all which
were not insured. Estimated total loss including lot repairs is
$28,000.
Mr. Harris has been following protocol. He registered with FEMA on
or about September 8, and to date has not received the promised
application or assistance. He has contacted the Mississippi Small
Business Development Center on September 12 and met with an SBDC
officer on September 19. He has also prepared and submitted all
insurance claims, both personal and business.
Mr. Harris resumed construction in Dove Plains subdivision on
September 5, and is ready to resume construction on the ``four-plex''
and the strip mall. At full operations Harris Homes normally employs
subcontractors with a total of 50 employees daily. Presently he only
has 15 workers daily.
Mr. Harris is concerned because he feels that there is little or no
reliable information available to businesses or individuals. FEMA, the
SBA, and insurance companies are simply overwhelmed. They are not
unified and thus are making the process incredibly confusing. There are
a number of circumstances and requirements set by FEMA that have made
it impossible for Mr. Harris to quote a price for a new home or repairs
to an existing home.
Mr. Harris believes that this process can become much more
effective if:
an effective communication vehicle to let individuals and
small business owners know that they should plan for at least 90 to 120
days before any financial assistance will be in hand, and to
communicate where to go for counseling and assistance.
Provide the resources to staff assistance centers with
trained/qualified staff.
Effective ``bridge'' assistance (interest free loans and/
or grants) to allow for time to assess the situation, and make plans
for moving forward.
Chair Snowe. Wow, Mr. Harris. We are just terribly sorry. I
mean, having been down there on Monday and saw first hand--I
was in Gulfport, so if it is any measure of what happened in
your area, it is pretty devastating, and, of course, in New
Orleans, as well.
Mr. Harris. Well, I have a customer base. I mean, if I
could add, it has been stated that three out of four houses are
damaged in South Mississippi. As a general contractor, it is
sad that I may not be there or able to help anyone rebuild
their property.
Chair Snowe. Yes.
Mr. Harris. I have been very careful in assessing my own
damages, and unless I receive a grant, it will be likely my
company will be----
Chair Snowe. First and foremost of what you are saying is
that having a grant, because obviously loans are of no use----
Mr. Harris. We can talk about loans all day long, but for
some businesses, loans will not be enough.
Chair Snowe. Right. Okay. That is first and foremost for
you. I read your comments, and that is what--some of that, I
was repeating to Administrator Barreto about the process.
Ultimately for you, it is the bridge assistance that you need.
Mr. Harris. The bridge assistance, if it can be converted
into a grant, it might be fine. I need my employees back, and a
lot of those did go to work for local and government agencies
because they were being paid more money. If I have to raise
what I am paying them, I am going to need additional working
capital above and beyond what I am----
Chair Snowe. Yes.
Mr. Harris [continuing]. I am already, because of my
builder's risk policies, everything I had was insured, but it
was underinsured or either deductible and my deductible put me,
because I have so much money out and because I had so many
projects going, my deductible is a loan well over six figures.
My profit margins are not enough per unit to keep up with the
amount of losses I had from the hurricane, much less the
economic strain I will see over the next few weeks.
Chair Snowe. Right.
Mr. Harris. My interest payments monthly are staggering.
Chair Snowe. You know, I appreciate that and we will look
at this and these dimensions that you have raised and looking
at that possibility as far as trying to provide some grants in
this process, because otherwise, it is going to make it very
difficult. You don't want to add debt upon debt at this point,
given your circumstance.
Mr. Harris. Not a good choice on my behalf at the moment.
Chair Snowe. The relocation and the other issues, getting
back employees or getting workers, which is the other question,
I know Senator Vitter was referring to a bill that he and
Senator Landrieu were introducing with respect to that question
about having tax credits for, you know, either relocating or
attracting workers, because that is a huge challenge right now.
Mr. Harris. I have a specific question for that. Is an
employee considered a full-time payroll employee? In my case, I
1099 all my employees, hundreds of them. They are
subcontractors. Would I receive that tax credit? I mean, I had
a constant workforce daily of 50 to 100 people.
Chair Snowe. That is another issue that we can look at,
obviously. You are saying, no, Ms. Wilkerson, is that right?
Ms. Wilkerson. It is unlikely----
Chair Snowe. Unlikely.
Ms. Wilkerson [continuing]. Because they are not his
employees. They are contract labor.
Mr. Harris. They are subcontract labor----
Chair Snowe. Subcontracted----
Mr. Harris [continuing]. But, they make up my entire
company.
Chair Snowe. Yes.
Mr. Harris. The reason for that is because, basically, I
mass produce houses. I am on a production schedule. I don't
build them individually.
Chair Snowe. Well, you know, we have to look at some of
these issues because this is obviously an extraordinarily
exceptional situation in the history of this country with
respect to the worst natural disaster to hit the United States.
We can look at some of those questions. What I have heard from
you today is obviously extremely compelling. I have seen it,
and I can only imagine. We will try to do everything that we
can to help in your specific situation that obviously others
find themselves in, as well. We will look at some of these
exigencies and extenuating circumstances, as you are saying,
about subcontracting and so on and the grant question.
Mr. Harris. Thank you.
Chair Snowe. Thank you, Mr. Harris, and thank you for being
here under these very difficult circumstances and taking the
time to be up here with all the losses that you have
experienced.
Mr. Harris. I do appreciate it. Thank you.
Chair Snowe. We appreciate it. I would hope that you would
also--we will be in touch and we will try to find a way to be
in touch with you from the Committee on some of these questions
and some issues, because we certainly want to do everything we
can.
One of the issues my staff raised, we have extended the
payments, one of the questions. We are trying to move a bill
through very quickly on some of the issues that we have
identified we can agree on and we can get it through the Senate
without debate and move on to the House, get it done, and send
it to the President. One of the issues in there is to defer,
have a moratorium on any payments that are made. Would that
help you in this situation?
Mr. Harris. As far as risk payments, like to an SBA loan
or----
Chair Snowe. Yes, on a loan or a grant.
Mr. Harris. I do have an SBA credit line and I use it
extensively, but it makes up only about one-third of the
working capital I go through on a monthly basis or a yearly
basis.
Chair Snowe. Right.
Mr. Harris. Unlike a lot of businesses, I have some small
net worth, but just the storm itself and then the deductibles
would take up any working capital I could extend myself to keep
my business afloat. I would be happy to look at the scope and
see if it is my projects.
Again, I finance them from inception all the way to
completion, and that includes the real property, the actual
construction of the house, all of the materials, the labor,
everything. My end customer is the person who purchases the
house, but my real working force and my collateral is my
subcontractors and the ability to get the job done, and those
are made up of 45 to 50 other small businesses. I mean, if they
are not in place themselves, regardless of any amount of money,
if I cannot get my framers and my cabinet shop and my plumber
and the electricians back online to service me, then my company
may not do well anyway. I am not sure money or any type of loan
is my answer, other than simply trying to wait it out and do
the best I can in a timely manner.
Chair Snowe. We will stay in touch with you as far as the
assistance package is concerned because part of it will include
some grants in there. We do so far $40 million. This is the
beginning of this major effort, so we want to stay in touch
with you to see if this would be something that would work for
you as we are going through this process and hopefully get this
bill done very quickly.
Mr. Harris. The largest issue I have to date is simply
being able to service the money I have out, since I can't move
forward at the pace I was used to working at----
Chair Snowe. Right, it is deferring that, and also, I think
that is another issue, working with lenders. That is something
else that we have to look at, hopefully, working with the
lenders to defer the requirements for repaying and deferring
them for an extended period of time, as well, and that is
something else we can also look into, how we can best go about
that part of it.
I appreciate it, and we will be in touch. I want to make
sure we have a way of getting in touch with you, because some
of these things may be of help to you directly, okay. Thank
you.
Mr. Wilson--you can leave, Mr. Harris. Go right ahead.
Thank you. Thank you for your patience. I am sorry we had to
delay for the two votes.
Mr. Wilson, can I just add one thing, you mentioned
earlier, contracting opportunities. I couldn't agree with you
more.
Mr. Wilson. Yes.
Chair Snowe. I mean, that is something, because the Federal
Government is obviously going to play a critical and pivotal
and very large role in the rebuilding process, you know,
obviously, hundreds of billions of dollars in the final
analysis, and we have got to make sure that small businesses
that are on the ground floor--and I am really concerned when I
am seeing sheets of paper between the difference between small
business. You were referring to the large contracts that have
already been issued to the large, this is multi-pages for the
large contractors, one page for the small ones.
Mr. Wilson. Right.
Chair Snowe. I know.
Mr. Wilson. Even the SBA's definition of small business can
be pretty large, too.
Chair Snowe. It can be pretty large, too, exactly.
Mr. Wilson. The really small businesses usually get left
out.
Chair Snowe. You are right on. I mean, I agree with you
entirely and we are going to work on this issue because this
could be the foot in the door, at least opening the door for
economic opportunities on the ground floor, and that is with
the Federal Government that is going to be playing, obviously,
that essential role in the rebuilding. I agree with you on
that.
The bridge loans and the grants and that is going to be
also a critical component of this process.
Mr. Wilson. That would help us get going. The
subcontracting part, that is also major, because a lot of times
after these things pass--we have got Rita coming up, we have
got a lot of things, we may have other disasters and we are off
the front page. Who is to watch to make sure those contracts
do, in fact, trickle down, if you will, to small businesses on
the ground floor, small businesses? Please don't forget and----
Chair Snowe. No, absolutely. In fact, that is why it is so,
I think, important to have a Small Business Administration
presence right in New Orleans, because that might also help to
ensure that small business is playing a role where these
decisions are being made, for example.
Is that possible from your perspective? Could Small
Business be located physically now in some part of New Orleans?
Mr. Wilson. Well, yes. I heard them earlier saying that
they were, in fact, beginning to move. I am not aware of the
second evaluation. It is possible. A lot of downtown is dry and
it is pretty safe. I live there, also. A lot of the bacteria
levels, as Senator Landrieu said about the E. coli, are not as
high as has been reported. Our own DEQ has levels that are
higher than normal, but are well within limits that we can
function in. I have met with Mr. Cornelius, who the
Administrator mentioned earlier, and also with Mary Lynn, who
is with the SBDCs, who will assist me quite a bit or a lot, and
I am sure she will have some things to say. It is possible. I
am moving back right away to start to clean up.
Chair Snowe. Okay, great. Thank you. I will let you go,
because I know you have a time schedule, but thank you very
much.
Mr. Wilson. Thank you very much for having me.
Chair Snowe. No, thank you. We will follow up on all of
these issues, and we hear you about what is essential, what is
absolutely paramount, and on a very fast track. Making sure
that it works--and I hope you won't hesitate in any way,
because you have enough burdens, but if there is something that
you see or hear, through Senator Landrieu, Senator Vitter,
myself and the Committee, we will have contacts here. If things
aren't working, we want to hear about it and to work it out.
You don't need those types of problems with bureaucracies and
obstacles. I thank you.
Mr. Wilson. Thank you.
Chair Snowe. We are here to help you. Thank you.
Okay. Ms. Alta Baker, thank you. You may proceed.
STATEMENT OF ALTA BAKER, CHIEF EXECUTIVE OFFICER, SAFE HAVEN
ENTERPRISES, JENNINGS, LOUISIANA, ON
BEHALF OF WOMEN IMPACTING PUBLIC POLICY
Ms. Baker. Good afternoon, Chair Snowe and Members of the
Committee. I am Alta Baker, owner and CEO of Safe Haven
Enterprises, located in Jennings, Louisiana.
Safe Haven Enterprises manufacturers modular steel
buildings for physical protection--forced entry, ballistic
resistant FEBR units with and without blast protection that can
be used for office buildings, complex facilities, mobile
command and communication centers, clinics, and a safe place
for employees to deploy in the threat of terrorist attacks or
even inclement weather. Safe Haven supports private industry
and is the fabricator of Department of State certified windows
and doors. In addition, we are general contractors capable of
project management and debris cleanup in the wake of Hurricane
Katrina. Safe Haven is a woman-owned, HUBZone company.
I am appearing today on behalf of Women Impacting Public
Policy, WIPP, a national bipartisan public policy organization
advocating on behalf of women in business, representing over
500,000 members. I am also a member of the Women's Business
Enterprise National Council, WBENC, and Women Presidents'
Organization, WPO.
I am going to start by telling you what it is like to
operate a small business in Louisiana today. Jennings is
located approximately 2\1/2\ hours from New Orleans, so we did
not suffer physical damage from the hurricane, but the effect
on our company has been substantial. As you know, public
communications systems have been strained to the maximum. We
have been without reliable phone and data service since
Hurricane Katrina hit the Gulf Coast, and as I walked in to
testify, I received a phone call from my CEO in Jennings. We
are now in the process of forced evacuation in advance of
Hurricane Rita.
As you might guess, we have been inundated by folks who
need homes to rebuild their lives. We have had as many as 24
guests staying in our home who have been temporarily displaced
by the hurricane. Our daughter, our grandson--our daughter lost
her business in New Orleans, and our grandson, whose school
will not reopen this year.
Many evacuees remain in Southwest Louisiana. They need
jobs. We are making it our business to provide jobs for them.
Safe Haven has taken a leap of faith. We have decided to hire
additional welders and carpenters who need work. To date, we
have added seven. I was told this morning we are now up to 10.
We pray that the orders will come to support these new
employees. Our company will hire the people who have lost
everything in the recent devastation of our State and are ready
and willing to work.
In preparing for this hearing, I asked the Executive
Director of WBENC, Gulf Coast, to give me a sense of the impact
of Katrina on women-owned businesses that are located in the
greater New Orleans area, and it has been devastating.
According to the Center for Women's Business Research, over
47,000 women-owned businesses were operating in New Orleans
prior to Katrina. They provided 100,000 jobs and generated $11
billion in sales. In the three most heavily damaged States,
Louisiana, Mississippi, and Alabama, about 371,000 women-owned
businesses employed nearly 700,000 people and produced $80
billion in sales. As we all know, many of these businesses
suffered severe damage or went out of business completely.
Within several days of the hurricane, WIPP members who
could provide or volunteer services answered a call to action.
We have shared that database with SBA and Federal agencies. One
of WIPP's coalition partners, the National Association of Women
Business Owners, NAWBO, is leading a coalition effort of women
business organizations that link business revenues and
opportunities for women entrepreneurs affected by Hurricane
Katrina. This website is www.womenbizrelief.com.
Safe Haven Enterprises is a small business located in a
small town, but our largest Federal customer is the Department
of State. Our buildings are deployed in embassies. We have Safe
Haven buildings in places such as Israel and Lebanon. Another
customer is the United States Army Corps of Engineers. In fact,
one of our units is the Hurricane Command Center located on a
Mississippi levee in New Orleans. It is intact and functioning.
We have a good grasp of government needs for secure structures
and understand the requirements of the Federal, State, and
local contracting process.
First of all, we want to thank the leadership of this
Committee and other Senators who sponsored the small business
amendment to the Commerce, Justice, and Science Appropriations
Act. We thank you for working in a bipartisan fashion to ensure
that small businesses do not get left behind and that women-
owned businesses have a voice in Congress.
Key to the recovery of our region is the provision that
establishes a 30-percent prime contracting goal and a 40-
percent subcontracting goal for small businesses in the
Katrina-related reconstruction contracts. Not only is it
important for those small businesses in the Gulf region, it is
also important for the small business community nationwide.
Our members believe that the existing 23-percent goal
should only be a starting point. The goal contained in this
amendment more adequately reflects the contracting numbers that
our members believe should be reflected in Federal procurement
policy. With regard to Katrina recovery and reconstruction,
small businesses are willing and able to assist.
While we completely understand the necessity of making
adjustments to procurement procedures during a crisis such as
Katrina, we also believe that the changes must take into
consideration the effects on small business. The Emergency
Supplemental Appropriations Act to Meet Immediate Needs Arising
From the Consequences of Hurricane Katrina, 2005, contained a
provision that is very troubling to WIPP. The new law raised
the micropurchase threshold from $2,500 to $250,000. WIPP
believes this not only invites waste, fraud, and abuse in
Federal contracts, but also undermines the ability of small
business to help in the recovery effort. The small business
reserve sets aside Federal contracts are less than $100,000.
Since the threshold has been raised to $250,000 which can be
bought with a credit card, we believe that the small business
reserve is rendered useless. We applaud this Committee's pledge
to modify this contracting change so that small businesses will
be treated fairly with regard to procurement.
In closing, I want to thank the Committee for giving me the
opportunity to share my experience and to address some policies
that I believe will make a difference in the reconstruction of
the Gulf Coast. I am now happy to answer any questions.
Chair Snowe. Thank you very much. We appreciate that.
[The prepared statement of Ms. Baker follows:]
Prepared Statement of Alta Baker, on Behalf of Women Impacting
Public Policy
Good morning, Chair Snowe and Members of the Committee. I am Alta
Baker, owner and CEO of Safe Haven Enterprises located in Jennings,
Louisiana. Safe Haven Enterprises manufacturers modular steel buildings
for physical protection--forced entry, ballistic-resistant--(FEBR)
units with, or without, blast protection that can be used for office
buildings, complex facilities, mobile command and communication
centers, clinics and a safe place for employees to deploy in the threat
of terrorist attacks. Safe Haven supports private industry and is a
fabricator of Department of State-certified windows and doors. In
addition, we are general contractors capable of project management and
debris clean up in the wake of Hurricane Katrina. Safe Haven is a
woman-owned, HubZone company.
I am appearing today on behalf of Women Impacting Public Policy
(WIPP), a national, bipartisan public policy organization, advocating
on behalf of women in business, representing over 500,000 members. I am
also a member of the Women's Business Enterprise National Council
(WBENC) and Women Presidents' Organization (WPO).
I am going to start by telling you what it is like to operate a
small business in Louisiana today. Jennings is located approximately
2\1/2\ hours from New Orleans, so we did not suffer physical damage
from the hurricane--but the effect on our company has been substantial.
As you all know, public communications systems have been strained to
the maximum. We have been without reliable phone and data service since
Hurricane Katrina hit the Gulf Coast.
As you might guess, we have been inundated by folks who need work
to rebuild their lives. We have had as many as 24 guests staying in our
home who have been temporarily displaced by the hurricane. Many
evacuees remain in southwest Louisiana. They need jobs. We are making
it our business to provide jobs for them. Safe Haven has taken a leap
of faith: we have decided to hire additional welders and carpenters who
need work. To date, we have added seven--and we pray that the orders
will come to support these new employees. Our company will hire the
people who have lost everything in the recent devastation of our State,
and are ready and willing to work.
In preparation for this hearing, I asked the Executive Director of
WBENC, Gulf Coast, to give me a sense of the impact of Katrina on
women-owned businesses that are located in the Greater New Orleans
Area--and it has been devastating. According to the Center for Women's
Business Research, over 47,000 women-owned businesses were operating in
New Orleans prior to Katrina. They provided 100,000 jobs and generated
$11 billion in sales. In the three most heavily damaged states,
Louisiana, Mississippi and Alabama, about 371,000 women-owned
businesses employed nearly 700,000 people and produced $80 billion in
sales. As we all know, many of these businesses suffered severe damage
or went out of business completely.
Within several days of the hurricane, WIPP members who could
provide or volunteer services answered a call to action. We have shared
that data base with the SBA and Federal agencies. One of WIPP's
coalition partners, the National Association of Women Business Owners
(NAWBO), is leading a coalition effort of women business organizations
that links business resources and opportunities for women entrepreneurs
affected by Hurricane Katrina. The website is: www.womenbizrelief.com.
Safe Haven Enterprises is a small business located in a small town,
but our largest Federal customer is the Department of State. Our
buildings are deployed in embassies the world over. We have Safe Haven
buildings in places such as Israel and Lebanon. Another customer is the
United States Army Corps of Engineers. In fact, one of our units is a
command center located on a levee in New Orleans; it is intact and
functioning. We have a good grasp of the governmental needs for secure
structures and understand the requirements of the Federal, State and
local contracting process.
First of all, we want to thank the leadership of this Committee and
other Senators who sponsored the small business amendment to the
Commerce, Justice and Science Appropriations Act. We thank you for
working in a bipartisan fashion to ensure that small businesses do not
get left behind and that women-owned businesses have a voice in
Congress.
Key to the recovery of our region is the provision that establishes
a 30 percent prime contracting goal and a 40 percent subcontracting
goal for small businesses in the Katrina-related reconstruction
contracts. Not only is it important for those small businesses in the
Gulf Region, it is also important for the small business community
nationwide.
Our members believe that the existing 23 percent goal should only
be a starting point. The goal contained in this amendment more
adequately reflects the contracting numbers that our members believe
should be reflected in Federal procurement policy. With regard to
Katrina recovery and reconstruction, small businesses are willing and
able to assist.
While we completely understand the necessity of making adjustments
to procurement procedures during a crisis such as Katrina, we also
believe that the changes must take into consideration the effect on
small businesses. The ``Emergency Supplemental Appropriations Act to
Meet Immediate Needs Arising from the Consequences of Hurricane
Katrina, 2005'' contained a provision that is very troubling to WIPP.
The new law raised the limit of micropurchase threshold from $2,500 to
$250,000. WIPP believes that this not only invites waste, fraud and
abuse in Federal contracts, but also undermines the ability of small
businesses to help in the recovery effort The small business reserve
sets aside Federal contracts that are less than $100,000. Since the
threshold has been raised to $250,000, which can be bought with a
credit card, we believe that the small business reserve is rendered
useless. We applaud this Committee's pledge to modify this contracting
change so that small businesses will be treated fairly with regard to
procurement.
In closing, I want to thank the Committee for giving me the
opportunity to share my experience and address some policies that I
believe will make a difference in the reconstruction of the Gulf Coast.
I am happy to answer any questions.
Chair Snowe. Ms. Wilkerson.
STATEMENT OF MARY LYNN WILKERSON, STATE DIRECTOR, LOUISIANA
SMALL BUSINESS DEVELOPMENT CENTER
Ms. Wilkerson. Thank you so much, Chair Snowe, for allowing
me to be here. You have my testimony, so I am going to take
this opportunity to deviate a little bit and talk about a few
things that I think are important.
I have been on the ground since day six helping businesses.
I relocated myself to Baton Rouge and started working
immediately in Secretary Olivier's office, and I, too, have
been working 14 hours a day, 7 days a week, talking to people
about their business needs. I appreciate the bipartisan support
that you all are giving this issue because I think sometimes
people don't understand the scope.
What we are dealing with is one-third of our economy, maybe
more, and in that, one out of every five people live in
poverty. Almost 30 percent of the children live in poverty.
That is a huge number. She has given you numbers about things,
and still, even though the numbers are big, women and
minorities represent together less than 6 percent of the total
sales in the State and about 8.5 percent of total payroll.
There is huge opportunity to increase that.
When you talk about government procurement, and if we get
them these government contracts, we must also be able to fund
those government contracts. These businesses have probably
already been impacted negatively by the storm, so we have got
to ensure that they get the funding that will enable them to
complete a government contract. I just want to remind you of
that.
Also, in New Orleans, 85 percent of the businesses have 19
and fewer employees. We are talking about a lot of really small
businesses. The thing that scares me at some point is the
statistic that comes from the Home and Safety Group that says
43 percent of the businesses that are severely impacted never
reopen their doors and another 29 percent fail within 24
months. I mean, that is like half of the businesses. Louisiana
cannot afford to lose 30,000 businesses. I mean, we just can't.
I can't imagine what that will look like if that happens.
I really want to highlight this need for the bridge
financing that you all have talked about. Several of the people
that I have talked about, one is an accounts receivable issue.
We have got a business in Jefferson Parish, which is around New
Orleans, that employs 60 people. It is an industrial products
and services business. They service a lot of municipalities and
they have over 1,000 private businesses. When I spoke to them,
they were very concerned about their business because of their
accounts receivable. In 90 to 120 days, those accounts
receivable now are virtually worthless. What happens in 90 to
120 days? Who is going to fund that? Even if he can get
government contracts, his credit-worthiness then is much less
than it was.
We also have a contractor with 12 feet of water in their
building. All of their equipment is underwater. They are going
to need more than $1.5 million. They need that $10 million.
Also, FEMA has hired their two foremen at $500 a day to put
tarps on buildings. They are not coming back to work for this
company.
Then on Sunday, a young woman called me to try to find her
assistance. Her home has been destroyed. Her mother's home has
been destroyed. She is a nurse, has been working 12 hours a
day, but she also owns a limousine business. She hasn't gotten
a paycheck. Her husband hasn't gotten a paycheck. She can't
afford her insurance premiums. She can't afford the payments on
the limousine services. She can't make payroll, and without an
immediate bridge loan, she and her husband will lose both of
their businesses.
I just hope that this legislation comes in time to save
them. If the government doesn't provide the financial
assistance we need, we are going to be in serious financial
trouble.
As far as the SBDC part is concerned, we have been getting
over 250 calls a day since September 6. We have offered five
training programs to more than 200 businesses. We have been
working with businesses. Mr. Wilson, we finished his
application. Of those applications SBA received, we have
probably helped clients send a significant portion.
I have 30 to 40 employees, and the Administrator talked
about working with SBDCs often as did the disaster people, and
that is true. I have met with them. I have talked to them. I
have called to them. Never once did he talk about additional
resources to the SBDCs. We are already in Bogalusa, Slidell,
Hammond, and St. Charles Parish doing training and business
assistance.
I appreciate your letter to the Administrator, yours and
Senator Vitter's, about the portability grant. To date, we have
heard nothing. It has been 25 days since Katrina and we have
heard nothing about the portability grant. I just could tell
you that we need that money because the demand for services is
now, and I hope that if they pass this bill, that we, in fact,
will as SBDCs get money, because not only are we going to have
to try to help people get through this, but in the next 5
years, we are going to have to help create new entrepreneurs
and get them in business. Thank you.
Chair Snowe. Thank you, Ms. Wilkerson.
[The prepared statement of Ms. Wilkerson follows:]
Prepared Statement of Mary Lynn Wilkerson, State Director,
Louisiana Small Business Development Centers
Chair Snowe, Ranking Member Kerry, Members of the Senate Committee
on Small Business and Entrepreneurship, I am Mary Lynn Wilkerson State
Director for the Louisiana Small Business Development Centers, an SBA
partnership program with the State of Louisiana and 12 participating
universities. Our program is administered by the University of
Louisiana Monroe.
You indicated that you want to hear how small businesses have been
impacted by Katrina. I hope that I will be able to provide you with
some sense of the complete devastation of the small business community
in the greater New Orleans area.
New Orleans and the surrounding parishes represent one-third of
Louisiana's economy. Almost one million people were evacuated for
Katrina and 3 weeks later, they have not been allowed to return to
their homes and their businesses. Where are all of these people located
now? Most of them are are still in the State of Louisiana. They are in
small rural churches, closed school buildings, shelters, closed but
hastily reopened dorms, and in the homes of friends and families.
Can you imagine your state without one-third of its economy;
without one-third of its small business community? Can you imagine not
knowing when the largest city will begin to recover? Can you imagine if
the largest city in your state was virtually destroyed? What if your
state was almost the poorest state in the nation? Louisiana's poverty
rate is 19.2 percent--the second highest in the nation.
Let's say you could open your business. Where will your customers
come from? How long will it take for hundreds of thousands of homes to
be repaired and become habitable again? How long will it take for
thousands of businesses to be cleaned, repaired, and reopened? What
will the population density need to be to support businesses? Who will
provide the funds you need to continue your business? How long will it
take to get the funds? How will you survive until the business sector
begins to recover? All of these questions simply cannot be answered
yet.
Perhaps never in the United States, has a major metropolitan area
been so devastated. We must have the help of the Federal Government. We
must have help from President Bush and bi-partisan Congressional
support to recover.
Most of the businesses I have personally spoken with are having a
very difficult time--they have lost or have significant damage to their
home, they have significant physical damage to their business and the
economic injury is incalculable at this time. They have no current
income or a greatly reduced income. Many small business owners need
someone to talk to about their business and they need someone to help
them forecast what their economic injury will be and how long it will
be before they begin to recover. They need technical assistance that
can be provided by the SBDC's.
There are a few facts you should keep in mind as I tell you a few
of the stories I have heard in the past 2 weeks. In the 11 critical
parishes most severely impacted by Katrina, there are 70,525 businesses
with less than 500 employees and there are 140 businesses with more
than 500 employees. Businesses with 19 and fewer employees make up 85
percent of the total businesses in the greater New Orleans MSA.
Minorities make up 36 percent of Louisiana's population. They own
14 percent of the firms in Louisiana, but minority businesses represent
only 1.8 percent of total sales and 2.7 percent of total payroll.
Women-owned businesses own 23.9 percent of firms, but represent only 4
percent of total sales and 5.6 percent of total payroll. These
businesses already have a difficult time with access to capital and
their survival rate will be greatly impacted by their inability to
obtain sufficient capital during this very difficult time.
In an article written by Scott Daugherty, ``Helping Small
Businesses After Hurricane Floyd'', quotes from the Institute of Home
Business and Safety provide some alarming statistics for small business
survival after a disaster--``of all businesses that close down after a
disaster, more than 43 percent never reopen, and an additional 29
percent close down permanently within 2 years.'' In Louisiana, we
cannot afford to lose 20,000 to 30,000 businesses.
Finally I am getting to the stories.
A family-owned and operated business that employees 60+ people has
been in business for several decades and is based in New Orleans. They
are in the industrial and institutional maintenance products business
and they provide products and services to many of the governmental
agencies in the region. The company has a private client list of more
than 1,000 businesses. When I spoke with one of the owners on Friday
about the future of his business, he told me that he is extremely
worried. According to him, ``more than 90 percent of the businesses in
Jefferson Parish are closed''. He believes that he is one business that
might have the opportunity to survive and to grow because of the clean-
up situation. However, his family business faces a real threat--most of
his business is done through accounts and his receivables are now
virtually worthless. When the accounts become 90 to 120 days, he
believes that his business will be in serious jeopardy. It will be. He
asked me who would fund his business. I did not have an answer for him,
but I promised I would look and I promised that I would ask when I came
to Washington, D.C. Questions about financing accounts receivable with
no value has been a common concern with businesses.
One couple owns a medium-sized firm that had as much as 12 feet of
water in their business. Much of their heavy equipment has been
destroyed or will have to be completely reworked before they can begin
using it in their construction business. Their offices have been
severely damaged. FEMA has hired the firm's two foremen. FEMA is paying
them $500 per day to cover buildings with tarps. The foremen are not
coming back to work for the company. The workers are primarily from New
Orleans East and they want to come back to work, but there is no place
for them to stay. The owners will need far more than $1.5 million to
get their business back to where it was before Katrina.
On Sunday a young woman called me to try to find some assistance.
Her home had been destroyed, her mother's home had been destroyed, her
husbands business has been severely impacted, and her limousine
business is gone. She is also a nurse and has been working extremely
long hours and was shifted to another hospital. The hospital records
have been mixed up and her paycheck had not been processed yet. She was
in tears and you could tell she was at the end of her rope. She had a
limousine service and her vehicles were 4 months from being completely
paid off. She cannot pay this month's insurance premium and she cannot
make her payroll. Without an immediate bridge loan on both businesses
this family will lose both businesses. She indicated that she had
signed up with FEMA but had not received the SBA Disaster application.
They cannot wait several months for the SBA Disaster loan to be
processed and closed. I advised her that the SBDC would help her and
her husband fill out the applications and then we would help her with
the financial projections they will need for economic injury. I advised
her that her husband may be eligible for disaster self-employment
benefits. She was very grateful that I was able to provide her with the
first real information she had been able to get. I just hope that help
is not too late for her--and for the other small businesses in
Louisiana.
If the Federal Government does not provide the financial assistance
needed, if it does not ensure that Louisiana businesses receive
contracts to rebuild our communities and ensure the funding our
businesses need to survive and rebuild, then it is the same thing as
leaving all of those people on the roofs of their houses.
In Louisiana, the SBDC's are the only source for in-depth business
assistance. The Louisiana SBDC has 13 Service Centers throughout the
State of Louisiana--5 were impacted by Katrina and 3 of those 5 remain
closed, and will be for some extended period of time.
Our main telephone number has received over 250 calls per day since
September 6. In the past week, the SBDC's in Louisiana have offered 5
training programs for business recovery to more than 200 attendees. One
press release resulted in 200 telephone calls and 50 e-mails in 1 day
at Southeastern Louisiana University SBDC in Hammond. The LSU SBDC has
provided one-on-one counseling to 27 individual clients, 52 requests
for disaster assistance, and 39 e-mail inquiries in 1 week--all with no
promotion. The LSU SBDC receives approximately $120,000 in State and
Federal funding for their SBDC and the SLU SBDC receives just under
$100,000 in State and Federal funding. We receive $1.2 million for the
entire state program.
The SBDC service centers in Louisiana and Mississippi cannot handle
the demand that is coming and we have no resources to increase the
number of counselors in our centers. There are many CPA's, bankers, and
other professionals that have been negatively impacted and with
additional resources, we could contract with these individuals to
provide services to Louisiana businesses.
The Association of Small Business Development Centers arranged for
more than 150 SBDC counselors to be trained and the ASBDC has
coordinated SBDC volunteer counselors from other states coming to the
affected areas. However, Louisiana does not have the funds necessary to
pay travel, per diem and lodging for many of these volunteer
counselors.
Madame Chair, I sincerely appreciate the letter you and Senator
Vitter wrote to Administrator Barreto asking that the Small Business
Administration waive the $100,000 maximum so that the SBDC's will have
the ability to apply for the necessary amounts of the SBA's Portability
Funding program. It is now 25 very critical days since Hurricane
Katrina and the SBDC's in Louisiana, Mississippi and Alabama still have
no idea when the money can be applied for or when it will be available.
Last year when Florida suffered 4 hurricanes they asked for additional
resources from the SBA and they received $4,500. We need increased
resources now. The demand for services is now.
We need for the amount of the SBA Disaster loans to be increased
from $1.5 million to $10 million. We need the loan payments deferred
for at least 1 year. We need to increase the term from 3 years to 10
for applicants with credit elsewhere. We desperately need bridge loan
money and grants. Small Businesses need to be able to refinance
existing debt. We need for the October 28 deadline for physical injury
applications to be extended. We need more money appropriated for the
SBDC program and more specifically for Alabama, Mississippi and
Louisiana SBDC's.
Madame Chair, Ranking Member Kerry, I am extremely grateful for the
Snowe, Kerry, Landrieu, Vitter, Talent amendment that provides for much
of the funding for businesses that is so desperately needed on the Gulf
Coast and for $21 million in additional funding for the national SBDC
program. I would like to express my gratitude to each of the Senators
on this committee for their vote. I can only hope that the house also
will pass the amendment as it is offered.
I know that you are all aware that the impact of Katrina is not
limited to the Gulf Coast, but will be far reaching and will very
likely impact businesses in your states. You have all had your
businesses impacted by higher gasoline prices because of the damage to
the oil producing drilling rigs and the plants in Louisiana that
produce gasoline. A manufacturer in Missouri may have a primary
supplier in St. Bernard Parish that may not be open for the next 8 to
12 months. That manufacturing business will suffer economic injury.
We must be aware that our banks could be facing difficult times as
well. Many millions of dollars in direct disaster loans will be made at
very low interest. Banks cannot compete with these rates and we must
find a way to address the impact on banks. There needs to be some
additional incentives for banks to make loans to small businesses.
Thank you again for allowing me to appear before the committee
today. It has been an honor and a privilege. At this time, I will be
glad to respond to any questions that you, Madame Chair, or other
Members of the Committee may have.
Chair Snowe. Ms. Sutton.
STATEMENT OF MICHELE SUTTON, OWNER, FAIRWAY VENTURES, LLC,
HAMMOND, LOUISIANA
Ms. Sutton. Good morning. My name is Michele Sutton. My
husband and I own three furniture stores and one tire store on
the Mississippi Gulf Coast, two in Gulfport, one in
D'Iberville, and one in Pascagoula, respectively. Our home
office is in Hammond, Louisiana. We have owned and operated
furniture stores for the last 21 years. After a brief 6-month
retirement, we opened our company on the Gulf Coast in order
for our sons to return home for gainful employment.
We had annual revenues of $3 million, a payroll of
$958,000, and a modest profit margin after tax of 3 to 5
percent. We had 1,500 customers. Prior to Katrina, we had 32
employees. As of today, we have 14 left. In addition, prior to
Katrina, we had signed and paid franchise fees to open an
additional 10 stores in New Orleans, Jefferson Parish, and
Baton Rouge, and on the Mississippi Gulf Coast. This would have
meant an additional 100 newly created jobs over the next 3
years.
However, Katrina put a halt to our growth strategy. We are
now in a survival mode. The morning after the storm, my husband
and youngest son went to Mississippi to assess our situation
and what they found was heartbreaking. Two of our stores were
completely gone, 50 percent of our company, poof, overnight.
Delivery trucks, inventory, retail locations, all gone.
However, our other two locations sustained only minor damage--
water, roof, glass.
Hooray! From one perspective, we are saying our glass is
half-full. We could regroup, rally the troops, and salvage our
family's livelihood. However, we had some small problems: No
electricity, water, telecommunications, or gasoline, and most
of all, our most valuable asset, our employees. Not to be
deterred, while I am home praying for the return of utilities,
my husband and son searched for our employees. They literally
went shelter by shelter for our valued employees.
We have had people with us since we started, for 21 years.
These people are a part of our family. We were able to find 20
of them, each with their own horrific story of Katrina's fury.
Ten only had the clothes on their backs left. We immediately
held a company meeting. We brought them in hot meals,
paychecks, and gasoline. How do you motivate people to work
when they have lost their homes and they are being moved from
shelter to shelter, and in some cases living with relatives
hours away? We decided we would do it with hope for a future.
We promised them we would come back and we would be even
stronger with their help.
We started devising recovery strategies. The first step in
the daunting task was finding our customers and assessing the
status of our products in their homes. We knew we had $1
million of cost of goods out in the field, which equates to $3
million of accounts receivable that we needed to recover. Our
customers are blue-collar workers, casino employees, service
industry people, and those on fixed incomes. What we found was
that 50 percent of our customers' homes were gone.
Neighborhoods were completely decimated. Thirty percent still
had homes standing, but the people had evacuated. Twenty
percent were home and they were okay. In addition, 35 percent
of our customer base were casino employees who now are
unemployed.
Basically, we were able to surmise that 90 percent of our
customer base is presently unable to continue to make payments
on their accounts for the following four reasons. No. 1, they
no longer live in the area. No. 2, they no longer had the
product. No. 3, they no longer have jobs. And No. 4, our
physical absence in the marketplace implied, game over, store
is gone, you don't have to pay.
We now believe we are like the little engine who said, ``I
think I can. I think I can.'' We, too, think we can hang on
long enough to rebuild and recoup some of our accounts
receivable, but in every direction we are turning, reality is
dealing us another blow.
We no longer have delivery trucks. We had to immediately
dip into our cash reserves and spend $70,000 to replace two
delivery trucks.
We need two new locations to replace the ones we lost, but
the availability of retail space that is equipped, ready to go,
is lacking.
Availability of goods, trying to get our products in, and
then only 50 percent of our vendors that we have had a 20-year
relationship would work with us because they were concerned
about our viability.
The insurance claims process is moving at a snail's pace.
It was 3 weeks before we saw the first adjustor, and now the
adjustors are fighting with each other to determine what came
first, wind or water, and personally, I don't care. I just want
them to settle our claims. We paid them. We paid our premiums.
We have no store, and we just want to get back to the business
of being in business. I suppose this would be a good time to
tell you, we are responsible. We bought--I used to laugh at my
husband--we bought every type of insurance known to man to
protect our company, but yet we can't get one adjustor to make
a final decision and we don't know when, if ever, we are going
to start to see an insurance check.
Two weeks ago, we filled out an online application with
FEMA. As of today, we haven't heard anything, and I can tell
you, on that application, once you fill it out and said you had
insurance, the application stopped. They didn't refer us to SBA
to look for a loan. Fortunately, I heard about that attending a
local Rotary Club meeting. That is where I heard about the SBA
loan and that our local SBDC would help us. What we are being
told is the application alone is arduous, it takes about 2
weeks to complete, and then about 3 to 6 months before we are
going to hear if we qualify and if we are going to see monies.
Chair Snowe. Who told you that?
Ms. Sutton. The local SBDC in our community told us that
that is what they were told----
Chair Snowe. Three to six months?
Ms. Sutton. Yes, and that is what they were told by the
Small Business Administration. Finally----
Chair Snowe. Is that true? Excuse me. Ms. Wilkerson, is
that true? I know it isn't yours, but I just want to clarify
that.
Ms. Wilkerson. Yes. We were told that by the SBA, that
before a person got a check, it could be months, and, you know,
I mean, they get part of an application in, but then you have
got to have the records. Some of the mortgages are not
available. They are underwater. I mean, we have lost the whole
infrastructure, and by the time you get all the pieces
together----
Chair Snowe. We are going to follow up on that. That was
one of the questions that I was going to ask Administrator
Barreto, and I will get to that with him, but that is--so you
are confirming what Ms. Sutton is saying, then, from your
knowledge?
Ms. Wilkerson. We, in fact, have been told, off the record,
that that would be true.
Chair Snowe. Okay. We are going to straighten that one out.
Ms. Wilkerson. I will say this, that this next group that
came in from Sacramento said that would not necessarily be the
case, so that we are cautiously optimistic. They said the
average turnaround would be somewhere around--they had been 42
days. They were working to close that gap. I will be cautiously
optimistic.
Chair Snowe. Well, I appreciate that. Thank you for your
straightforward answer on that one and we will have to take
care of that matter. Thank you.
Ms. Sutton, continue.
Ms. Sutton. While we are still trying to bridge the gap
between insurance and then an SBA loan, we still have payroll,
cost of goods, business loans, and accounts payable with which
to contend. Our bankers are telling us they are hesitant to
lend us even more money when they don't know for sure whether
or not our business is going to be viable. I am looking at
which came first, the chicken or the egg. Is it business
capital or is it a successful business?
I do not believe in bringing someone else my monkey unless
I offer you solutions. Some suggestions would be immediate or
expedited SBA loans and grants; the coordination between FEMA,
SBA, and the insurance companies; training grants for new
employees to replace those that aren't coming back; and then
short-term loans guaranteed by the insurance money we have, but
we just can't get our hands on.
Basically, every week that is passing, we are losing
$56,000 in revenue and an opportunity to do more new business.
As if that wasn't enough, what is adding insult to injury is
the fact that an outsider can come in with the ready resources
to take advantage of our misfortune because of where we did
business. While we wait and watch, our years of sacrifice, hard
work, and dreams are disappearing before our eyes.
I thank you and appreciate the opportunity to share with
you our story.
Chair Snowe. They are excellent suggestions. The training
grants for new employees to replace those that aren't coming
back and also short-term loans guaranteed by insurance
proceeds--Mr. Mitchell said earlier that they can do that. We
will just make sure that they do. It all does depend on
timeliness, too, here, I mean, on top of everything else. Thank
you. I will get to the other issues in a moment.
[The prepared statement of Ms. Sutton follows:]
Prepared Statement of Michele Sutton, Owner, Fairway, LLC,
Hammond, Louisiana
Good morning. My name is Michele Sutton. My husband and I own three
furniture stores and one tire store on the Mississippi Gulf Coast: two
in Gulfport, one in D'Iberville, and one in Pascagoula respectively.
Our home office is in Hammond, Louisiana. We have owned and operated
furniture stores for the last 21 years. After a brief 6-month
retirement, we reopened our company on the Gulf Coast in order for our
sons to return home for gainful employment. We had annual revenues of
$3 million, payroll of $958,000 and a modest profit margin after taxes
of 3-5 percent. We had 1,500 customers. Prior to Katrina, we employed
32 people; as of today, we have 14 left. In addition, prior to Katrina,
we had signed and paid franchise fees to open an additional 10 stores
in New Orleans, Jefferson, Baton Rouge and the Gulf Coast of
Mississippi. That means an additional 100 employees would be hired in
the next 3 years.
Katrina has put a halt to our growth strategy. We are now in the
survival mode. The morning after the storm, my husband and youngest son
went to Mississippi to assess our situation. What they found was
heartbreaking--two of our locations were completely gone. Fifty percent
of our company was gone overnight--delivery trucks, inventory and
retail locations. Our other two locations sustained only minor damage .
. . water, glass/window, and roof--hooray! Our glass was half-full. We
could re-group, rally the troops and salvage our family's livelihood.
We had one small problem--no electricity, water, telecommunications or
gasoline and, most of all, no employees. Not to be deterred, while I
was praying for the return of utilities, my husband and sons searched--
shelter by shelter--for our valued employees. We've had people with us
since our inception 21 years ago. They are a part of our family. We
found 20 of them--each with their own horrific story of Katrina's fury.
Ten had only the clothes on their backs left. We immediately held a
company-wide meeting. We brought them hot meals, paychecks and
gasoline. So, how do you motivate people to work when they have lost
their homes and are being moved from shelter to shelter or, are living
with relatives hours away? With hope for a future, we promised them
that we would come back if we had their help.
Recovery strategies were devised. The first step was the daunting
task of finding our customers and accessing the status of our products
in their homes. We knew we had $1 million in cost of goods sold in the
field and an open accounts receivable of $3 million that needed to be
recovered. Our customers are blue-collar workers, casino employees,
service industry people and those on fixed incomes. What we found was
that 50 percent of our customers' homes were gone--complete
neighborhoods were decimated; 30 percent had homes, but the people had
evacuated; and, 20 percent were home and OK. In addition, 35 percent of
our customers were casino employees who were now unemployed.
Basically, we were able to surmise that 90 percent of our customer
base is presently unable to continue to make payments on their
accounts. The primary reasons are:
1. They no longer live in the area.
2. They no longer have the product.
3. They assumed because we no longer had a physical location, they
didn't have to pay.
4. For customers who actually have the money to pay their bill, the
lack of gasoline, mail service, or the inability to drive from one city
to another to bring a payment makes it almost impossible.
We now believe we are like the little engine who said, ``I think I
can, I think I can.'' We too, think we can hang on long enough to
rebuild and recoup some of our accounts receivable. But, in every
direction we turn, reality deals us a blow.
1. We no longer have delivery trucks. We have to use part of our
cash reserves to spend $7,000 for two cubes.
2. We need two new locations that are fully operational ASAP! But,
there is a lack of available retail space.
3. Availability of goods--only 50 percent of our vendors would work
with us on payment terms. Bye-bye cash reserves again.
4. The insurance claims process is moving at a snail's pace. It was
3 weeks before we saw the first adjuster. A lot of good he's been. He's
arguing with another adjuster in what came first--WIND OR WATER--WHO
CARES? We have NO STORE! Just settle it, so we can get back to the
business of being in business! I suppose this would be a good time to
share--we have every type of insurance available: Disaster, Business
Interruption and vehicle.
5. Two weeks ago we filled out an on-line application with FEMA
and, as of today, we have had no response.
6. We're working our way through a very cumbersome SBA loan
application. We're being told the application takes 2 weeks to complete
and 3 months to process--I hope we can hang on until we get help.
7. Finally, we still have payroll, costs of goods, business loans
and accounts payable with which to contend.
In addition, with the slow (or no) insurance funds available, banks
are hesitant to loan money to a company that cannot clearly determine
if they will make it or not. It's the chicken or the egg; which came
first--Business Capital or Successful Business?
I do not believe in bringing someone else my monkey. So, I
respectfully offer you these suggestions for solutions:
1. Immediate or expedited SBA loans or grants.
2. Coordination between FEMA, SBA and insurance companies.
3. Training grants for new employees to replace those who are not
coming back.
4. Short-term loans guaranteed by insurance proceeds.
Basically, every week that passes while we are waiting, we do not
collect $56,000 in revenue, and our opportunity to secure new business
is lost.
Thank you, and I appreciate the time and opportunity you have given
me today to share our story.
Chair Snowe. Mr. Swindall, thank you for your patience.
STATEMENT OF TIMOTHY S. SWINDALL, VICE PRESIDENT, SWR, INC.,
TROY, ALABAMA
Mr. Swindall. Yes, ma'am. My name is Tim Swindall and I am
Vice President of SWR. My company is a HUBZone certified
business based in Alabama. You have my written statement, and
having sat through the hearing and listened to a lot of these
stories, I am going to deviate largely from that and be quite
brief.
Being a HUBZone business, we bring a different perspective
to the small business issues, but you mentioned, Chair Snowe, a
lot this morning about the importance of contracting
opportunities. Obviously, that is important. It is the engine
that drives the small business program.
As a HUBZone business, we are faced not only with competing
against large companies, but competing within the small
business program, as well. Amendment 1717, I believe, expressed
or acknowledged the importance of the HUBZone program as a
useful tool in rebuilding the Gulf Coast area.
As a HUBZone business, one of the big challenges that we
face, even outside of a disaster situation like this, but on a
normal basis, is the lack of enforcement of the program. Agency
contracting officers largely ignore the acquisition
requirements that are already in place and have been that apply
to HUBZone companies. It is my hope that the potential focus
that the SBA's efforts in this disaster relief effort could not
only help in revitalizing the area, but also give the HUBZone
program the support and focus that it needs to really bring its
potential to fruition.
You know, the HUBZone program is designed to bring
assistance to economically distressed areas, and that is a fact
whether we are looking at a disaster situation or not. It is
kind of a two-fold consequence that this effort could largely
address and help out tremendously in.
What I would like to see is the small business goals for
prime and subcontracting opportunities through the amendment to
recognize the HUBZone program, as well, and specifically
identify percentage goals for HUBZone companies whether it be
through set-asides or subcontracting opportunities, as well. I
believe that would be tremendously advantageous to the program
rather than trying to roll that up into the small business
program generically.
Thank you for the opportunity to be here today.
[The prepared statement of Mr. Swindall follows:]
Prepared Statement of Timothy S. Swindall, Vice President, SWR, Inc.,
Member HUBZone Contractor's National Council
My name is Tim Swindall, I am Vice President of SWR, Inc. SWR is a
HUBZone certified small business concern based in Alabama. SWR works as
a Logistics Support Contractor to the Federal Government and currently
performs contracts in such fields as Warehousing, Transportation,
Communications, Electronics Repair, Aircraft Corrosion Control,
Aircraft Transient Alert Services, Courier Services, Furnishings
Management Operations, Appliance Maintenance, installation of
Engineered Structures used for temporary and emergency applications,
and Military Uniform Alteration and Repair. Current clients include
Department of the Army, Department of the Air Force, Department of the
Navy, Department of Veterans Affairs, and The Library of Congress. We
currently employ approximately 125 people of which 85 percent reside in
designated HUBZone areas.
The direct impact of Hurricane Katrina on my business was the
complete termination of three contracts performed for the Department of
Veteran's Affairs in Biloxi and Gulfport Mississippi, and the reduction
of services performed under a contract with Keesler AFB, Mississippi.
This, in turn, affected six to eight employees. Three of these
employees have returned to work in the area on a part time basis, and
two are in the process of being relocated and assigned to other
projects until such time as their previous positions are reinstated.
The contracts with the VA may never be reinstated as at this point it
appears to be unlikely that the Gulfport campus will be rebuilt.
Services provided at Keesler AFB were inclusive of operating the Base
Furnishings Management Office. Once the base was opened for mission
critical personnel we began cleanup of warehousing areas that were
subject to our contract. Fortunately this damage was minor and the
structural integrity of the warehouse was not greatly compromised. All
salvageable furnishings in inventory have been grouped and are in the
process of being distributed throughout areas of base housing that are
presently inhabitable. The long term status of this contract is
uncertain. Prior to Katrina, Keesler was evaluating the implementation
of a Base Operations contract that would group a multitude of smaller
contracts into one large contract. This contract currently being
performed by my company was the resulting award of a HUBZone set aside
procurement; however, if a decision to incorporate the Base Ops mode of
operation is made it would effectually preclude small and small HUBZone
businesses such as ours from competing as a prime contractor.
The SBA's HUBZone Empowerment Contracting program is logically
designed to create jobs and encourage economic development in
distressed or underutilized areas by increasing access to Federal
contracting opportunities and offsetting some business costs. I have
witnessed, firsthand, the results that this program is capable of
rendering. When a HUBZone contract is awarded results within the work
area are immediate in creating jobs, increasing cash-flow that
circulates within the community, and strengthening area infrastructure.
This impact is felt within each specific area as its employment rate
increases and commerce begins to grow. For these reasons the HUBZone
program could potentially be a highly effective development tool in
restoring the Gulf Coast area.
Amendment #1717 in its Small Business Contracting Provisions allows
for the designation of Hurricane Katrina disaster areas as HUBZone at
the discretion of the SBA Administrator. At face value this appears to
be a positive move that would reap benefits to those devastated areas;
however, there are several critical points that I believe have been
overlooked or not realized that could encourage substantial benefits.
In order to render the HUBZone program, not only within the Gulf Coast
but as a whole, successful in reaching its full potential economic
impact on the distressed areas of our country these points must first
be addressed.
1. Federal Acquisition Regulations pertaining to the HUBZone
program states at FAR 19.1305 that agency contracting officers shall
set aside acquisitions exceeding the simplified acquisition threshold
for competition restricted to HUBZone small business concerns when they
have a reasonable expectation that offers will be received from two or
more HUBZone small business concerns; and award will be made at a fair
market price. This is probably the strongest language used in
describing the requirements of any small business program. The HUBZone
program was deemed important enough by its designers that its use is
required without exception when the procurement parameters are met
rather than leaving it as an option for use at the contracting
officer's discretion, as many small business programs are. Still, as
strong and plain spoken as this language is most agencies continue to
ignore it, and in my experience, refuse to follow its required use even
when pointed out. On almost a daily basis I find procurements posted on
FedBizOps that fit the requirements to be set aside for HUBZone
competition. It is mystifying to hear the comments from many
contracting officers when approached about the possible use of the
program. Some are simply ignorant of or not familiar with the
requirements and when brought to understand comply; yet others are
belligerently biased against its use. Presently there is a procurement
for warehousing and transportation services being solicited as a small
business set aside by the Army Corps of Engineers in Mobile Alabama.
This is a prime example of contracting opportunities that could easily
be set aside for HUBZone competition but are passed on by the
contracting officer. Bottom line is that no matter how much potential
is in the program it will never reach fruition until agencies are
better educated and made aware of the program and its benefits. The
SBA's HUBZone program under the Administration of Kevin McHale and with
the diligent support of the HUBZone Contractor's National Council lead
by Ron Newlin and Cordell Smith has made great efforts toward affecting
that result; however, until more authority is dedicated toward
enforcing existing regulations any efforts toward expanding the program
will be fruitless.
2. By designating Hurricane Katrina disaster areas as HUBZone,
target areas could potentially encompass large areas previously outside
of the HUBZone program. This, without doubt, would undermine the intent
of the program. By broadening the scope of the program beyond those
most needy areas, businesses largely unaffected by this disaster and
otherwise unqualified for meeting HUBZone program certification could
then become certified and compete for Federal contracting dollars that
would end up outside of truly distressed areas. Careful, deliberate
evaluation should be exercised by the SBA Administrator within his
discretion toward the expansion of current HUBZone area parameters.
3. Amendment #1717 also carries a provision establishing
contracting goals of 30 percent prime contracting and 40 percent
subcontracting for small businesses. With the estimated rebuilding cost
at $100 billion I believe this goal is both progressively stimulating
to small businesses in the affected area while at the same time
establishing reasonable parameters for contracting officers to take
quick decisive actions where necessary without abusing small business
programs. I also believe an additional provision that would increase
the reciprocal benefits of these provisional goals would be to
establish a specific goal toward HUBZone small businesses based on a
percentage of the small business prime contracting goal of 30 percent.
As I expressed earlier the primary obstacle standing between the
HUBZone program and achievement of its full potential is merely
enforcing its proper use.
4. Establishing a specific goal of perhaps 7 percent to 10 percent
of the 30 percent prime contracting goal established for small business
would bring its requirements undeniably to the conscience of agency
contracting officers and give the program the authoritative power that
is needed to finally generate some much needed momentum in the program
creating the beneficial results that we know to be possible. While 7
percent to 10 percent is an increase above the program goals of 3
percent currently established on a national level, considering that
much of the affected areas subject to these provisions can be
established as HUBZone and therefore available to an increasing number
of small businesses to compete for as they enter into the HUBZone
program I believe this to be a fair measure.
I am most confident that the HUBZone Empowerment Contracting
program can, when properly acknowledged and utilized, not only have an
astounding effect on the rebuilding and revitalization of the Gulf
Coast from the devastation reeked by Hurricane Katrina but also play a
vital leading role in recuperating our Nations economically distressed
areas and creating jobs where they are most greatly needed.
Chair Snowe. Mr. Swindall, I gather you are suggesting
having a separate designated HUBZone, having a separate
designation.
Mr. Swindall. Yes, ma'am. I believe, because as I stated,
my experience is--well, the fact of the matter is that
contracting officers are already ignoring the program. It is a
challenge that we are faced with daily. As a matter of fact----
Chair Snowe. You are just saying, even though you are a
HUBZone and you are supposed to be eligible for these
contracts----
Mr. Swindall. Exactly.
Chair Snowe [continuing]. They are still ignoring----
Mr. Swindall. Yes, ma'am. Specifically, the Corps of
Engineers right now in Mobile is soliciting a procurement for
warehousing and transportation. It is a combined contractual
effort to provide both of those services, both of which my
company have experience and excellent ratings performing. It is
a small business set-aside procurement, which in and of itself
is not bad, but it easily meets the FAR requirements to be set
aside for HUBZone.
The amendment also potentially will increase HUBZone areas
at the SBA Administrator's discretion, so basically, largely,
the disaster areas could end up becoming entire HUBZones, which
would make these opportunities available to any small business
that entered the program.
I believe by specifically addressing HUBZones in those
contracting bills with a percentage, I think it really would
put some teeth into the program to bring these contracting
officers and make them comply with the regulations that are
already there.
Chair Snowe. Right, which you are saying they are not, the
bottom line.
Mr. Swindall. Yes, ma'am.
Chair Snowe. Well, that is something we have got to
address. It is an incredible bias, frankly, that exists in the
agencies.
Mr. Swindall. It is a problem that we face whether we are
in a disaster situation or not.
Chair Snowe. Exactly. Yes.
Mr. Swindall. It is something that we have battled on a
daily basis. I believe to shine some silver lining to the dark
cloud, I believe that some focus on that program through these
disaster relief efforts could potentially get the ball rolling
and not only help the disaster areas, but other economically
distressed areas, as well.
Chair Snowe. Right. It is an excellent suggestion and we
will work on that and we will focus on that, absolutely,
because it really does otherwise minimize the effectiveness of
this approach----
Mr. Swindall. Yes, ma'am.
Chair Snowe [continuing]. Ms. Wilkerson, when you were
saying just about New Orleans, and 85 percent of the businesses
in New Orleans have 19 or fewer employees. That is significant,
and we are looking at this HUBZone designation for disaster
areas and that is in our legislation, as well, but it is going
to render parts of that useless if they are overlooking the
value of small business, and looking at the comparative charts
here between the small business contracts that already have
been compared to the large contractors, already, you can see
the dimensions of the problem.
In other words, I mean, if they could do the
subcontracting, but we have got waivers in the supplemental
that are creating problems that you have all identified, as
well, and it has raised serious concerns to me. We didn't want
to hold up the supplemental for the assistance. It was a
Hobson's choice for us. We could not do that. We are going to
try to rectify it. They have committed to working with us on
that, hopefully. Nevertheless, we are going to do that, because
small business really is a lifeline here.
Mr. Swindall. Subcontracting opportunities are great, but
it is my experience--my company deals largely in Federal
contracting, providing services for the Federal Government. It
is a trend within DOD now to base operation contracts and other
similarly-related contracts that roll several or a multitude of
contracts that had previously been performed by small
businesses into one large contract that really only large
companies realistically can compete for. Although
subcontracting quotas and goals are in place, they are rarely
realized in a realistic manner anyway. It totally changes the
picture. I believe all efforts toward prime contracting
opportunities for small business would really go a long way.
Chair Snowe. Prime, yes. Right. Absolutely. Then you don't
have those problems.
Mr. Swindall. Yes, ma'am.
Chair Snowe. You have the one, and I agree with that and we
really need to work on that.
Ms. Wilkerson.
Ms. Wilkerson. One thing, since the cat is out of the bag,
so to speak, about the timing, I would like to go ahead and
say. I understand----
Chair Snowe. I am glad it is, because--I am sorry it is. I
mean, I am glad it is, but I am sorry it is a problem.
Ms. Wilkerson. I think it is important, and we felt it was
important to manage people's expectations of when they really
are going to get money, and when you talk to the people in
Florida and you talk to the people in North Carolina and the
people that have been through these disasters, the fact is,
that is what they are telling us, too. I mean, they are telling
stories that occasionally, there are still some loans that have
not been funded and we are talking about a year. Those are
isolated incidents, but it does happen and people should not
expect it to happen in 21 days. It probably won't.
Chair Snowe. I guess the fact is we are trying to get the
loans to rebuild the city. It is inconceivable in the 21st
century that is what we are grappling with, is a losing a city,
but that is where we are. The machinery of government has to
keep pace to make it happen, and there is no reason why this
should take that long in getting money to people so we can
start this process. It doesn't take that much to write a check.
I am just glad they came out today, because that is one of
the issues we will rectify here because it is going to hold up
everything. I mean, that tells me that it is probably
replicated in all the other agencies and FEMA and so on and we
can go on endlessly thinking about the possibilities here about
how that will materially affect the ability to have a viable
rebuilding effort in a timely fashion. I mean, it is not going
to be easy under any circumstance, but certainly if the
government is not providing the wherewithal to do it in a
timely fashion.
What is it here that you have heard today that you think
works or doesn't work? Is there anything that we have discussed
in the earlier panel with the Administrator or anything? What I
am hearing from you is bridge loans, grants, time, obviously
now. A lot of the suggestions you have raised--I am going to
comb through your testimonies, Mr. Rowland, as well. I mean, we
will read your testimonies for all the suggestions, so we will
do that. Is there anything that really is so important that you
want to make sure that draws the attention of this Committee
with respect to how we are working these programs or what
works?
Mr. Rowland.
Mr. Rowland. A lot of people have lost all their records--
--
Chair Snowe. Yes.
Mr. Rowland [continuing]. Which doesn't give them the
ability to back a lot of, obviously, money that they are going
to go after. Certainly, no one expected this to happen, so that
is definitely something that is going to have to be addressed
and a big concern. If somebody wants to get a bunch of loans
and they don't have anything to back it, what is going to
happen, because they are completely wiped out, all their
databases and everything else. That is definitely a big
concern, I would think.
Chair Snowe. All right. We are going to follow up on that
particular issue and have a plan to handle that and so on. We
will look at that, definitely, absolutely.
Mr. Rowland. Thanks.
Chair Snowe. Ms. Wilkerson, do you have any suggestions on
that and what generally has worked in the past or hasn't
worked? No?
Ms. Wilkerson. With respect to----
Chair Snowe. The loss of documents, not having any
documentation----
Ms. Wilkerson. Clearly, we need the IRS to have a rapid
turnaround with those transcripts. We are making those
requests, but it would be also helpful if we could have the
IRS, local, housed with us, and they do talk about that in the
Business Recovery Center where it is just going to be business.
They did talk about having the Commissioner of Insurance and
the IRS and those people, but we clearly need the IRS firmly on
board, firmly committed to a 72-hour turnaround.
Chair Snowe. Okay.
Ms. Wilkerson. If I had to make a comment, the portability
grants----
Chair Snowe. Yes.
Ms. Wilkerson [continuing]. I mean, I think it is critical.
Chair Snowe. Absolutely. We correct that, too----
Ms. Wilkerson. We can help people on the ground, because
the difference is we are going to walk them through the process
and talk about whether the other funding programs, and the
young woman who did not know her self-employed husband could be
unemployment insurance. If we had not told her that, she
wouldn't know it. We will walk them through all the processes.
We definitely need to be able to get that.
We need those tax credits. We need that loan deferral. We
also need the ability to roll the existing debt, and they do
say in some cases, but we need a broader roll existing debt
into the disaster loan, because if you pile debt on top of debt
with a 3 percent profit margin, you have just doomed them to
fail. If you can roll that in, then that gives them that long-
term strain to look at getting that paid for. I think that
would be very helpful to a lot of really small businesses.
Chair Snowe. Do you have the resources to do your job?
Ms. Wilkerson. Well, I have about 30 people--the answer is,
no, we are flooded. I mean, when we have got----
Chair Snowe. Right. So you relocated.
Ms. Wilkerson. I personally moved myself to Baton Rouge so
that I could work with Louisiana Economic Development and the
SBA.
Chair Snowe. I see.
Ms. Wilkerson. I am by myself down there, except I do have
a couple of centers, and I am moving the UNO SBDC into the LSU
SBDC to help people.
Chair Snowe. Has SBA offered any additional assistance or
personnel for you?
Ms. Wilkerson. No, ma'am.
Chair Snowe. No? How do they expect all this to be done?
Ms. Wilkerson. I don't know. That is my point. When he kept
talking about a partnership with our program, that is great,
but we serve 14,000 people a year with $2.2 million now.
Chair Snowe. Okay. That is another issue we will have to
address.
Ms. Wilkerson. Yes.
Chair Snowe. Did you have something to add?
Mr. Wilson. Yes, Madam Chair, Don Wilson with the ASBDC. We
are bringing in--we trained 250 people in Baltimore 2 weeks ago
and they are all----
Chair Snowe. How many?
Mr. Wilson. Two-hundred-and-fifty. They are all experienced
loan packagers and processors. They are procurement
specialists. They are what needs to be in Louisiana and
Mississippi. Those States where those 250 people are from are
saying, ``We will pay their salaries and we will pay their
benefits, but we don't have the money to pay the money to send
them down there, to pay their housing and pay their food.''
Mary Lynn wants to bring in those folks. She doesn't have
the dollars to do it. ASBDC has given both Mary Lynn and
Mississippi a $75,000 bridge loan so they can begin to bring
them in. Mr. Gurley in Mississippi already has 11 people on the
ground from Ohio, from Tennessee, from Florida, from North
Carolina, and we will be sending in 10 to 15 every week to help
them.
You see, when SBA asks for supplementals, they always ask
for the additional dollars for loans and for their home people.
They never ask for any additional dollars for their partnership
people, but yet we are the ones that end up--they are handed
off to us because we are the people who help reconstruct their
financial backgrounds.
Chair Snowe. Okay.
Mr. Wilson. If IRS could also put actually an IRS person in
an SBDC----
Chair Snowe. Good point, good point. That is a very good
point.
Mr. Wilson [continuing]. If it is 72 hours, I will be very
surprised. If the counselor is right there with an IRS----
Chair Snowe. Right, one-stop shopping.
Mr. Wilson [continuing]. The counselor can work with the
client to begin to process those loans right there.
Chair Snowe. Absolutely.
Mr. Wilson. You saw how many--and Herb, let me say, Herb
has been super and the Administrator has been super in working
with the Association, but you saw how many loans are out there
and how many have been returned. That is because so many people
find the application daunting. They need an SBDC person or a
Women's Business Center person or a SCORE person to help them
fill those out. SCORE and SBDC, under your amendment, thank
God, there is additional resources there----
Chair Snowe. Right.
Mr. Wilson [continuing]. $21 million for us and $4.5
million for the women. That has got to get through so that
these bodies can get on the ground----
Chair Snowe. I see.
Mr. Wilson [continuing]. In Mississippi and Louisiana to
help these people fill out----
Chair Snowe. That is our goal.
Mr. Wilson. They have only got 76. We are talking about a
21-day turnaround on the loans or whatever it will be. Well,
they processed 76 in 3 weeks out of 12,000 in. That is not a
criticism. Loan processing is not instantaneous. Our background
historically has been----
Chair Snowe. They have a million applications.
Mr. Wilson [continuing]. When an average client fills out
an SBA disaster loan, about 40 percent of them get approved or
filled out--I mean, that are filled out. With 9/11 in New York
and with Hurricane Floyd in North Carolina and with the
hurricanes last year in Florida, with the assistance of trained
counselors, those rates went up between 70 and 80 percent
approved. That is the reason we have got to get additional
SBDC-trained people who have been through the hurricane
experience and 9/11 in Mississippi and Louisiana to----
Chair Snowe. It is recruiting them from around the country,
where they are already trained, helping to recruit from around
the country to bring them in.
Mr. Wilson. We have got the counselors already signed up.
We are ready to come.
Chair Snowe. You are ready to come. You need the expenses.
Mr. Wilson. We need the dollars to bring them there, the
airfare, the food, and the housing.
Chair Snowe. Well, okay. That is something we can----
Ms. Wilkerson. Plus FEMA has all the hotels and the RV park
spaces in our State.
Chair Snowe. That is another additional issue, the housing
question.
Ms. Wilkerson. Right, right.
Chair Snowe. Well, no, you have identified some significant
issues here that need to be quickly addressed, and first and
foremost is to get a bill through and all of these questions
and get it through immediately so you have got the resources at
your doorstep to begin this process. The idea of having an IRS
person there along with SCORE and the Women's Business Center
and everybody to help is a great idea to expedite this process.
Yes, I am concerned. We have a million applications and
only 76 approved out of all of that so far. Now, there are a
number of issues, but at some point, it is going to create a
serious backlog here, if it hasn't existed already, given the
gap and the time-consuming nature of the process, which we have
got to also improve upon.
I thank you. I am sorry you are all here under these
circumstances. I know the Committee, and I speak for all of us,
truly appreciates the fact that you were able to be here under
these circumstances and the personal and professional hardships
that you are enduring as a result of the hurricane. I truly
appreciate it.
I want you to know that we are going to do everything we
can to help in every way we can and as soon as we can to at
least assist you in this one dimension with the difficulties
that you are experiencing. I truly regret that. The fact that
you have taken time to come up here to Washington is really
magnificent on your part, to share your stories and your
personal stories.
We pledge to you we are going to do everything that we can
to help in every way possible, so thank you and God bless you.
Thank you.
This hearing is adjourned. Thank you.
[Whereupon, at 1:28 p.m., the Committee was adjourned.]
APPENDIX MATERIAL SUBMITTED
U.S. Small Business Administration,
Washington, DC, Nov. 10, 2005.
Mr. Weston Coulam, Staff Director,
Committee on Small Business and Entrepreneurship,
U.S. Senate,
Washington, D.C.
Dear Mr. Coulam: Thank you for your letters of October 17, 2005 and
October 18, 2005, requesting further information from the September 22,
2005 hearing on the Impact of Hurricane Katrina on Small Businesses.
Attached please find a complete set of answers to your questions.
Please accept our apologies for the delay in returning these to you.
Should you have any further questions please contact our Office of
Congressional and Legislative Affairs at (202) 205-6700.
Sincerely,
C. Edward ``Tee'' Rowe,
Associate Administrator for
Congressional and Legislative Affairs.
______
Responses by C. Edward ``Tee'' Rowe to Questions from Committee on
Small Business and Entrepreneurship
Question 1. How is the SBA making sure that its assistance is
provided to the areas in the Gulf Coast that have suffered the most
damage from Hurricanes Katrina and Rita?
Answer. The SBA is committed to assisting the victims of the Gulf
Coast hurricanes. The region is suffering from the triple misfortune
caused by Hurricanes Katrina, Rita and now Wilma.
The SBA now has nearly 3,800 employees in the Office of Disaster
Assistance working exclusively on helping the Gulf Coast and Florida
recover. This is four times the number of employees that were in this
office before the Hurricanes struck.
As of November 8, SBA has approved over $400 million ($426,731,600)
in disaster loans to more than 6,293 individuals and businesses in the
Gulf region.
Of those, $365,070,000 in disaster loans has been approved to 5,368
homeowners and renters in the region.
Some 543 Business Physical Disaster loans have been approved for
$39,387,300 and 382 Economic Injury Disaster Loans have also been
approved for $22,274,300.
The SBA has assigned Field Staff to each of the 130 Disaster
Assistance Centers in the region. As you know, these centers are
situated in accordance with the levels of hurricane damage present in a
given locality.
The SBA is working hard to help the region recover and offer aid to
citizens that need relief. SBA assistance is available on an equitable
basis regardless of an applicant's place of residence. The procedures
for each type of assistance are the same for all citizens when applying
for hurricane relief.
Question 2. Where is the SBA focusing its attention, ut terms of
the services it is providing and the counties and parishes it is
serving?
Answer. Victims and evacuees of Hurricanes Katrina and Rita are
able to get SBA assistance at 130 Disaster Recovery Centers and 9
Business Recovery Centers throughout the hurricane affected areas. Of
those, 103 Disaster Recovery Centers are in the affected Gulf States. A
toll-free SBA Customer Service line (1-800-659-2955) is open 24-hours a
day, 7-days a week. Victims may also receive assistance through a
dedicated electronic mailbox, as well as the SBA website, where
business applicants may download an application.
Question 3. What is the SBA's general prognosis for the pace of the
recovery of small businesses in the affected region?
Answer. It is difficult for the SBA to give a definitive answer
concerning the pace of economic recovery in the Gulf region. In human
terms, the tragedy has been immense and widespread. The social and
economic dislocation suffered by the citizens of the Gulf Coast has
affected the entire Nation.
The Federal Reserve Bank of Atlanta has experience analyzing the
economic damage from hurricanes and the amount of time needed to
recover. Jack Guynn, the Bank's President and CEO, agreed this week
with analysts that the devastation caused by Hurricanes Katrina and
Rita will subtract about \1/2\ of a percentage point from the GDP
growth the U.S. would have seen in the third and fourth quarters of
2005.\1\
---------------------------------------------------------------------------
\1\ Mr. Guynn's October 20, 2005, discussion of the economic impact
of Hurricanes and monetary policy is attached.
---------------------------------------------------------------------------
However, Federal Government and insurance payments will provide the
region with an economic rebound. Post-hurricane reconstruction spending
will boost national economic output by \1/2\ a percent in early next
year, he says.
The shock to aggregate demand is likely to be temporary and growth
should pick up again in the region as investment flows in to rebuild
homes and infrastructure. This economic upswing will help businesses
large and small to recover from their losses.
Question 4. In general, how long does the SBA estimate it will take
to return the small business economy in the Gulf Coast region to the
level it enjoyed prior to the hurricanes?
Answer. It is too early to tell, with specificity, how soon the
small business economy will recover to the levels enjoyed prior to the
hurricanes. The SBA is working hard to help the region return to its
pre-hurricane levels as quickly as it can. Small businesses will
benefit from the economic upswing fed by the investments made in
rebuilding the region.
Question 5. In addition to providing small business owners with
advice on rebuilding and restarting their businesses, what is the SBA
doing to help small businesses be better prepared for future
catastrophes?
Answer. The SBA helps by enabling borrowers to mitigate the impact
of future disasters on their businesses. When providing a disaster loan
for uninsured recovery costs, SBA has the authority to increase the
loan amount by up to 20 percent so that the borrower can invest in
disaster mitigation technologies such as sea walls and storm shutters.
The Administration has proposed to raise the amount that can be
provided for disaster mitigation by basing the calculation on the total
damage caused by the disaster. (For example, a business that receives
$100,000 of damage may have $80,000 covered by insurance and $20,000
covered by an SBA disaster loan. Typically, SBA's mitigation loans
would be limited to 20 percent of the $20,000. The Administration's
proposal would raise eligibility to 20 percent of the $100,000 damage--
in this case increasing by fivefold the amount of disaster loan lending
eligible for mitigation.)
The SBA also provides materials on its Web site to help small
businesses prepare for potential disasters. They include issues for
small business owners to consider and prepare for before disaster
strikes, such as keeping a backup copy of critical business records at
a secure offsite location at least 50 miles away from the business
location.
Small businesses have access to the SBA's ``Be Aware and Prepare''
page with links to information on business disaster prevention,
disaster recovery, and business continuity issues. The information can
be found at http://www.sba.gov/disaster recov/prepared/getready.html.
sba disaster program
Question 1. What is the average length of time that a disaster loan
application being filed for Hurricane Katrina or Hurricane Rita will
take to be completed by the applicant?
Answer. Generally, the home application takes 2 hours to complete,
and the business application takes a total of 3 hours to complete.
Question 2. For victims of Hurricane Katrina and Hurricane Rita,
(a) what has been the average time between an applicant's submission of
an application for an SBA disaster loan, and the point at which the
applicant is told his or her application is approved or denied, and (b)
what has been the average duration between the notice of a loan's
approval and the disbursement of that loan's funds?
Answer. Based on the loans processed so far, the average time
between an applicant's submission of an application for an SBA disaster
loan and the point at which the applicant is advised of approval or
denial is generally within 30 days. (b) Based on the loans approved so
far, the average duration between the notice of a loan approval and the
initial disbursement of the loan funds is generally less than 20 days.
Disbursement time is dependent upon the borrower, who controls when the
closing documents are returned. Loan documents are prepared within 24-
48 hours of approval and disbursements are made within 5 days of return
of signed loan closing documents.
Question 3. What allowances is the SBA making to compensate for the
difficulty that storm victims have in obtaining documentation to
support their applications?
Answer. Recognizing that many applicants may have difficulty
providing financial documentation, SBA has eased its filing requirement
for 3 years' Federal income tax returns to 1 year, and will accept the
application without that return if it is not available. In the absence
of any other information, SBA will base its repayment decision solely
on the information provided by the Internal Revenue Service (IRS). Our
Customer Service Representatives are also helping applicants to
estimate simple balance sheets and income statements if necessary.
Additionally, SBDCs located throughout the disaster area are assisting
applicants to recreate lost financial information and complete the SBA
disaster loan application.
We have also increased the loan amount that can be disbursed
without a title search from $25,000 to $50,000. This allows us to
disburse more quickly without compromising loan integrity.
Question 4. Based on the number of referrals made by FEMA thus far,
and the SBA's experience of making loans after other disasters, what is
the SBA's estimate of the number and dollar amount of disaster loans
the SBA will make in response to Katrina and Rita?
Answer. Projected Approvals:
------------------------------------------------------------------------
Avg.
# Loans Loan Total Approved Amt.
Amt. ($000s)
------------------------------------------------------------------------
Home (82 percent)............. 68,305 $26,213 $1,790,479.0
Business (10 percent)......... 8,330 $19,752 $164,534.2
EIDL (8 percent).............. 6,664 $30,913 $206,004.2
-----------------------------------------
Total Projected Approvals. $83,299 $2,161,017.4
------------------------------------------------------------------------
Question 5. How quickly after the hurricanes were SBA offices
assisting victims of the hurricanes?
Answer. SBA already had Disaster Recovery Centers (DRCs) in Alabama
and the Florida panhandle for Hurricane Dennis. Evacuees from Hurricane
Katrina came into these centers to talk to FEMA and SBA as soon as they
arrived in the locale.
In Mississippi, Louisiana, and elsewhere in Alabama, SBA was onsite
within 2 days of the disaster. SBA located personnel at every DRC
opened by FEMA and the state. The decision of opening dates for DRCs is
made by FEMA in concert with the State, and depends on conditions
(accessibility, security, utilities) in the disaster locale.
When Rita came ashore, SBA was already located in several DRCs for
Katrina in Louisiana and Mississippi, and was able to provide services
to evacuees from other areas. New DRCs in Texas, as well as DRCs that
were forced to evacuate for the new storm, opened as soon as conditions
allowed.
Question 6. What did the SBA do to prepare for the hurricanes?
Answer. SBA plans continuously for disaster response. Prior to
hurricane season, SBA anticipates requirements for supplies, equipment
and staff needs.
As Katrina approached, SBA began to contact potential re-hires and
disaster reserve personnel, and implement plans for recruiting new
hires. We assessed expected needs for computers, supplies, and
equipment. We designated field management personnel and began searching
for lodging in the disaster areas.
We are constrained by regulations which prohibit us from committing
funds, hiring, securing space or lodging, or traveling to the disaster
area before a disaster declaration is actually made. However, because
we had nearby centers in operation for earlier disasters (prior to
Katrina, operations existed for Hurricane Dennis in Alabama and the
Florida panhandle; prior to Rita, operations were in place for Katrina
in Alabama, Mississippi, and Louisiana), we were able to use those
centers to facilitate moving personnel and supplies into the new
disaster area.
Once the disasters were declared, we began hiring customer service
representatives, loss verifiers, loan processors, and others, both
nationally and in the local disaster areas. Supplies and equipment were
deployed, and we located personnel in each DRC as it was opened by FEMA
and the State. We expanded our toll-free customer services lines to
accommodate the large volume of calls, and established a dedicated
electronic mailbox for disaster inquires. We also opened Business
Assistance Centers in several locations, and partnered with SBDCs, who
are providing assistance in reconstructing financial records and
completing applications in the disaster locales.
Question 7. Did the SBA participate in or assist Florida's small
business emergency bridge loan program that followed the hurricanes in
that State in recent years?
Answer. SBA has a successful history of working with the private
lending community and, as recently as the 2004 Hurricanes, with the
State of Florida and its Bridge Loan Program, benefiting several
thousand disaster victims over the years. We look forward to the
opportunity ofworking with any disaster-affected State on such an
endeavor.
There are some important considerations to keep in mind. (1) While
many bridge loans can and will be repaid by our program, SBA cannot
guarantee that bridge loans will be repaid with approved disaster loan
funds. The use of disaster loan proceeds is governed by statute. The
majority of bridge loans are granted in the early stages of recovery
from a disaster and there is no way to know if the borrower will also
be approved by SBA and/or if the funds will be used for eligible
disaster related purposes; (2) More specifically, SBA loan proceeds can
only be authorized and disbursed to repair or replace disaster-related
losses. Accordingly, individuals and/or business owners will be
required to document that the funds of their interim loan were spent
for SBA-eligible disaster-related purposes; (3) SBA cannot pay off
interim loans for individuals or business owners whose disaster loan
applications were declined by or have not yet been processed by SBA.
Nevertheless, SBA can help those disaster victims who have an
approved SBA loan or have secured an interim bridge loan, and can
document that the proceeds of that loan were used for eligible disaster
related purposes.
Question 8. What concerns, if any, does the SBA have about the
combination of State and Federal programs to assist hurricane victims?
Answer. The SBA stands ready to work with State and local officials
to combine program assistance when appropriate. Concerns may arise when
programmatic standards, definitions and regulations vary across
differing levels of jurisdiction.
However, the SBA looks forward to working with the Committee along
with State and local officials to improve the coordination and
effectiveness of government's response to large-scale disasters.
The Office of Disaster Assistance (ODA) is always concerned about
duplication of benefits from other programs and constantly monitors new
programs at the Federal and State levels to be sure we are aware of
them.
In addition, ODA is concerned that it is only a source of long-term
recovery loans for businesses and homeowners, and that the victims need
to be mindful of other sources of short-term assistance (grants or
loans) that might be available for short-term needs.
Question 9. Mr. Barreto testified that in order to meet the demand
of this disaster the SBA is currently hiring over 200 employees per
day. Understanding the vital need to bolster the staff and resources,
does the SBA have sufficient administrative funds to sustain these
disaster employees over an extended period of time?
Answer. SBA's current estimates show that the Disaster program
currently has adequate administrative resources through the end of
January 2006. This estimate assumes that there are no further disasters
of significant magnitude declared before then.
Question 10. How is the SBA ensuring that employees are properly
trained to use the new Disaster Credit Management System?
Answer. Field Inspection Team: Prior to the transition to DCMS, the
Field Inspection Team identified a core group of 43 employees and
brought them into the SBA Field Operations Center in Atlanta for 5 days
of training with the DCMS. Training for this core group consisted of a
comprehensive instruction on the application within DCMS related to
verification actions from the assignment of files to the review and
completion of the product. Training included extensive hands-on
training with the DCMS tablets used for field verifications.
Loan Processing: Employees receive class room training followed by
on-the-job training. Employees are assigned to processing teams of 8-10
with one supervisor providing daily guidance.
Customer Service: New hires in the Call Center receive one full
week of classroom/mentoring training. Subject matter experts on the
staff conduct the training. Team leaders continually monitor the
employees for quality and quantity of work performed. Training/
performance issues are discussed and recorded every month with each
employee.
Question 11. Given the reports that the real estate records of many
local governments in the Gulf area have been flooded, and that the
records of some banks may also have been destroyed, how is the SBA
responding to loan applicants who are unable to provide necessary
documents to support their applications?
Answer. SBA is using whatever vehicle is available to prove
eligibility and/or ownership. Online property searches, tax appraisal
records, title companies, direct phone verification with third parties,
FEMA records, insurance companies and banks arc examples of alternative
resources.
Question 12. How many ``temporary'' disaster employees does the SBA
typically have in reserves? How many of disaster employees were in
reserve prior to Hurricane Katrina?
Answer. Prior to Katrina we had approximately 617 regular temporary
ODA employees onboard nationwide; however, the formal Disaster Reserve
(DR) had not yet been established. To date, we have the following:
DR Customer Service Representative: 371 qualified; 335
selected for tentative reserve appointments (20 declinations and 11
with suitability issues).
DR Construction Analyst Loss Verifier: 125 qualified; 117
selected for tentative reserve appointments (7 declinations and 16 with
suitability issues).
Currently ODA has approximately 300 DR applications on file which
have not been rated. On 10/25/05, ODA closed the DR announcement and
expects to reopen it once The present disaster activity subsides.
Question 13. How long is the training for disaster field employees?
Disaster Area Office employees? Please describe the training for these
employees.
Answer. SBA typically maintains a core of cadre employees, and
hires temporary employees for the duration of a disaster. A variety of
training methods are used for new and returning employees.
Former employees that return to work with SBA may live in
locations all over the country. Normally they have already been trained
and only need to be updated on new procedures and policies currently in
use. SBA provides that type of update training via telephone, fax and
email. After they travel to the disaster location, they work with Team
Leaders that were already employed and receive ``on the job'' update
training.
New Customer Service Representatives (CSRs), Loss
Verifiers (LVs) and other employees are hired nationwide, and in the
disaster locale. The new employees are trained in the office for four
(4) days and sent to the field to begin the ``on the job'' portion of
their framing under the direction of their assigned Team Leader.
We also hire new employees that are located in the
disaster area. Often these new employees are also disaster victims.
Since they are located in the disaster area and there is usually no
facility available to train employees in the disaster area, we provide
a more direct ``on the job'' training. These new employees are
typically assigned to a more experienced employee to work closely to
learn the program and procedures. Since they live in the disaster area
they don't need the administrative and travel policies and procedures
training at that time.
In addition, we hire new employees from around the country
that respond to job announcements. These employees are typically hired
and sent directly to the disaster area and trained ``on the job'' under
the same procedure as locally hired employees.
The training for CSRs is briefly described as follows:
SBA disaster loan program knowledge, policy and field
procedures.
Administrative and travel policies and procedures.
SBA Field Operations applications and forms
completion.
Importance of customer service and how to work with
stressed disaster victims.
SBA's role in relation to FEMA and the State.
The referral process if an applicant is declined by
SBA in the field due to repayment ability and referred to the
FEMA/State Grant program.
How to review the completed application with the
disaster victim on site.
Various other miscellaneous training points.
Initial training for the field inspectors is a
comprehensive 3 day training course. In addition to administrative,
travel, and organizational topics, the course includes an overview of
the DCMS and hands-on training in all aspects of the computer tablets
used to complete the original on-site inspections. When dispatched to
the field the field inspector is assigned to a team leader who will
provide additional training and technical support as required. This may
include teaming the new field inspectors with an experienced field
inspector for one-on-one training during actual on-site inspections.
Training for Processing & Distribution Center (Formerly
Area Office) employees consists of 3 days of formal classroom training.
In addition to administrative and organizational issues, the course
includes hands-on training in using the DCMS as well as the technical
aspects of the specific job, such as understanding the disaster
program, how to read credit reports, tax returns, income calculation,
and how to calculate eligibility. The employee is then assigned to a
team leader who will review the new employee's work and provide
technical assistance and additional training.
Question 14. Does the SBA plan to make any analysis of whether the
current Disaster Loan program is meeting all of the pertinent needs of
hurricane victims? If so, when might this be completed?
Answer. ODA is constantly reviewing and analyzing its program,
policies and procedures to determine if the program overall is meeting
the pertinent needs of disaster victims. The program is intended to
provide long-term recovery financing, and is not a short-term emergency
needs lender. We are continually looking at ways, therefore, to speed
up the delivery of the program without compromising integrity.
Question 15. Does the SBA have a policy of not disbursing any
disaster loan funds in New Orleans, and other Gulf Coast areas
protected by levees, until the levees have been built to a standard
sufficient to successfully resist a ``Category 5'' hurricane? If so,
what is the source of this requirement?
Answer. SBA has no such policy. We do require the appropriate
building permits, construction contracts, and other documentation
required by Federal law or local building authorities.
Question 16. Please provide an up-to-date chart showing the number
of loan applications the SBA has received from hurricane victims, and
the number that have been approved, disbursed, or withdrawn.
Answer. See Appendix A.
Question 17. In reviewing loan applications, has the SBA
prioritized the processing of applications from businesses that wished
to participate in bidding for contracts to rebuild the Gulf Coast
region?
Answer. ODA has no way of determining which loan applicants are
seeking to bid on Federal contracts to rebuild the Gulf.
Question 18. In reviewing loan applications, has the SBA
prioritized the processing of applications from businesses and
homeowners who wished to receive the disbursement of funds for their
loans immediately, rather than those businesses and homeowners who
planned to delay the disbursement until a later time?
Answer. To the extent possible, SBA processes loans in the order
they arc received. Because of the many decision factors involved, SBA
cannot know in advance whether the loan will be approved and when an
applicant wishes to take disbursement of all or part of their loan. It
is common for SBA to disburse personal property funds for necessities
soon after closing, while real estate funds may not be disbursed until
the borrower is ready to begin construction, and has the necessary
state and local permits to do so.
Question 19. Does the SBA prioritize, for processing, evaluation,
or disbursement purposes, certain types of disaster loan applications?
Answer. To the extent possible, SBA processes applications in the
order of receipt. SBA has designed processes that expedite applications
through the evaluation process as appropriate. For example, an initial
repayment analysis is performed before an application is issued to
expedite an IHP grant referral for those homeowners and renters who
clearly cannot repay a loan. Also, a credit check is performed as soon
as an application is entered to speed IHP grant referral of homeowners
and renters with adverse credit history. Verification of damage occurs
for those applicants for whom there is a reasonable chance that a loan
will be approved.
We have also implemented initiatives to expedite the processing of
business loans.
If an applicant is declined for loan assistance, they may ask for
reconsideration twice within a specified period of time, so that
additional information may be considered which may result in an
approval.
Question 20. Please provide the approval rates (percentage of
applications received that were approved) for at least 5 previous
disasters, including Hurricane Andrew in Florida, Hurricane Charley in
Florida, and the Northridge Earthquake in California, and provide the
approval rate for Hurricane Katrina and Hurricane Rita applicants as
well.
Answer. See Appendix B.
Question 21. For the five disasters referred to in the previous
question, and for Hurricanes Katrina and Rita, please provide:
a. the average response time to the disasters.
b. the average approval time.
c. flow many applications were submitted?
d. How many applications were approved?
e. How many applicants were received and of those how many were
approved, declined or pending 60 days, 90 days and 120 days after the
disasters?
Answer. For items a, b, c, and d, see Appendix B. SBA is unable to
provide historical information in response to item e.
sba's financing programs
Question 1. The hurricanes will almost certainly create an
increased level of loan defaults for borrowers in the Gulf Coast region
that already have loans in the SBA's 7(a) and 504 Loan programs. (a)
How much of an increase over normal loan defaults does the SBA expect
as a result of the hurricanes? (b) How much does the SBA expect the
program's fees might have to change to compensate for these defaults
and still maintain a zero subsidy?
Answer. (a) At this point it is difficult to predict what the
ultimate effect will be. The 7(a) and 504 portfolio of loans in
existence prior to the hurricanes is a small part of the overall
portfolio in both programs. While the experience with the New Orleans
portfolio is likely to be unique, the precedents for the other
devastated areas would indicate that some portion of those existing
borrowers will see a significant increase in business volume as they
supply the goods and services demanded by recovery. The New Orleans
situation will be significantly affected by the speed (and ultimate
success) with which rebuilding efforts actually occur. In the worst
case scenario, where many residents and businesses do not choose to
return in the immediate future, it is likely that the Agency's
delinquency and loss experience may exceed that of previous disasters
already included in our baseline.
(b) Because of the size of the hurricane affected portfolio
relative to the portfolio as a whole, and because the existing
portfolio is spread out over many cohort years, it is unlikely to have
a significant effect. While the principal and interest deferments will
result in less revenue during the deferment period, the fact is that in
the case of those loans that resume payment in the subsequent year, the
cash collected from the on-going fee will be higher than predicted in
the model because the loan balance on which the fee is based will be
higher than assumed in the original model.
Question 2. Will the SBA have a policy of not approving loans under
the 7(a), 504, or Microloan programs in the Gulf Coast region if the
borrowers are in an area protected by levees, but the levees are not
sufficient to withstand a Category 5 hurricane?
Answer. SBA's standard loan authorization requirement is that any
business in a flood plain must purchase flood insurance. The Agency has
no intention of altering that policy.
Question 3. Has the SBA decided to defer the payments owed by
borrowers to it under the 504 loan program for 1 year if the borrowers
are adversely impacted by the hurricanes? If so, how many borrowers
will be eligible for this deferment?
Answer. SBA has deferred payments on SBA-serviced 504 loans in the
disaster areas. In addition, all borrowers in the affected areas have
the option of requesting a deferment as appropriate for their
business's circumstances. Because of the unique nature of the 504 loan
repayment structure, a deferment requires that a 5-year ``catch up
plan'' be designed.
entrepreneurial development
Question 1. Given the overwhelming and daunting task facing many
small business owners in the affected area, how is the SBA interacting
and coordinating with resource partners and others to provide economic,
financial, and business management guidance?
Answer. The Small Business Development Center (SBDC) Program has a
long history of providing assistance to business disaster victims to
help them plan their business resumption, prepare disaster loan
applications, etc. SBA is working closely with the SBDC national
network and its trade association to be sure that adevinte staff and
resources are available to the SBDCs in the affected areas. This has
included taking steps such as approving plans for staff from nearby
SBDCs to work on a temporary basis in the affected areas and inviting
the SBDCs in the affected areas to apply for grants under the
portability program enacted last year and intended to assist
communities that are economically challenged as a result of a business
or government facility down sizing or closing which has resulted in the
loss of jobs or small business instability.
During its more than 40 years of counseling and training small
businesses, SCORE also has been an active provider of disaster recovery
assistance. Of particular value in a disaster situation is SCORE's
online counseling data base of more than 50 counselors with disaster
recovery expertise--www.score.org. Available 24/7, and not limited by
geographic boundaries, this service can help small business owners
wherever they may have temporarily or permanently relocated, even when
a ``brick and mortar'' location is not available. SCORE has mobilized
specialized business counseling/coaching in addition to the 24/7 online
counseling assistance. Developing recovery plans, inventory
assessments, business interruption recovery plans, property and loss
assessments, backup computer systems, and providing assistance with
disaster loan applications are all part of the services provided by
SCORE face-to-face counselors at sites in the region and where evacuees
have relocated. The Atlanta SCORE chapter is helping Gulf Coast
entrepreneurs by providing 7-day-a-week business counseling at three
major evacuee centers outside Atlanta. Many other chapters, including
those in Mobile and Baton Rouge, have also increased their services.
Additionally, SCORE has added links on its homepage (www.score.org) to
Federal recovery programs, including SBA and FEMA. SBA has worked
closely with the National SCORE Association and, on a local basis with
the local SCORE chapters to encourage and facilitate the provision of
disaster recovery services to affected small businesses.
Flooding from Hurricane Katrina forced both the SBA's Louisiana
District Office and the Women's Business Center in New Orleans (Urban
League of Greater New Orleans Business Resource Center) out of their
offices. Both entities temporarily relocated to Baton Rouge where they
shared space, and where each provided limited assistance to local
business disaster victims, as well as those that were also displaced
from New Orleans and other hard-hit areas. SBA's Louisiana DO recently
returned to New Orleans, and made space available to the WBC so that it
can again offer limited services to support the long-term recovery of
the New Orleans business community. The operations of the WBCs in
Mississippi and Alabama were not severely impacted by the hurricanes,
and continue to provide services in their areas. In addition, a number
of women's business centers across the country are reporting that they
are reaching out to hurricane victims that have permanently or
temporarily relocated to their areas. Many WBCs and other contributors
have joined with the Association of Women's Business Centers to raise
funds to help the WBC in New Orleans to rebuild its own operations.
Question 2. Since many people may not know where to get help, what
is the SBA doing to provide more outreach and market its services and
the services of SBDCs programs to small business owners in the affected
area?
Answer. SBA has embarked on a media campaign, including issuing
numerous press releases and both audio and video public service
announcements, to make small businesses in the affected areas aware of
the recovery services available from the Agency and its resource
partners. In addition, SBA personnel in the affected districts are
working closely with local media, lenders, chambers of commerce,
business organizations, and other entities to make sure that the
message gets out about the assistance available from SBA and its
partners, including the SBDCs. In addition to SBA's outreach and
marketing efforts, many of SBA's partners, such as the SBDCs, also
publicize the availability of their assistance through their own
websites and other media.
Question 3. Currently the SBA has $1 million available in
``Portability Funds'' to be used by Mississippi and Louisiana in
Federal FY '06. These funds are for non-matching grants for special
projects however each grant is capped at $100,000.
a. Have any SBDC's requested these portability funds beyond the
maximum level?
b. Which SBDC's?
c. What are the requirements to apply for these funds?
During the first week of October, SBA used the Grants.gov site to
invite applicants to apply for the approximately $1 million in Portable
Assistance Grant funds. To date, only the Mississippi SBDC has
requested Portability funds, and its application is within the
statutory maximum.
Under the legislation, SBA is authorized to provide grants not to
exceed $100,000 per grant to SBDCs in communities that are affected by
business or government downsizing or closing resulting in loss of jobs
or small business instability. To be eligible, an applicant must be a
Lead SBDC that can demonstrate its ability to provide a quality
portable assistance project for the specific purpose of providing
programs and services to small businesses in communities suffering from
economic hardship attributable to the downsizing or closing of
businesses or government facilities. The requirements for application
are more fully set out in the grants.gov posting.
Question 4. How much additional funding will the Mississippi,
Louisiana and Alabama SBDCs need in order to provide assistance to
small business for the short term and long term?
Answer. State SBDC Directors in both Mississippi and Louisiana have
requested staffing support from SBDCs across the country experienced in
providing disaster-related technical assistance. SBA has supported this
effort by allowing staffs from neighboring SBDCs to temporarily
supplement the staff of the SBDC in Mississippi. Similar activity is
expected in Louisiana. In addition, to help provide additional staff
support for the Gulf state SBDCs, two large corporations have donated a
total of $200,000 to be used by the SBDCs in Louisiana and Mississippi
($75,000 each), and Alabama ($50,000).
SBA has no plans to request additional SBDC program funding for the
disaster recovery effort. However, the Agency is working closely with
the local SBDCs, and is exploring ways to direct existing program
resources in the form of unexpended regular program funds to the
disaster areas. In addition, SBA has issued a program announcement for
the new portability program grant funds, and the Mississippi SBDC has
already applied under this announcement. SBA is expecting to also
receive applications from other Gulf state SBDCs. [It must be noted,
however, that all applications received under the announcement will be
evaluated in accordance with the criteria contained in the Program
Announcement.]
Question 5. How many SBDC employees are currently working in
Louisiana and Mississippi? How many additional employees were hired to
respond to the hurricanes? How many employees from other states
volunteer to assist? Which states?
Answer. According to the most recent information we have, the
Mississippi SBDC has 22 counselors and trainers on staff, including six
formerly part-time employees who were converted to full time status,
and two new hires. The Louisiana SBDC has 24 counselors and trainers on
staff, and another four contractors hired on 90-day contracts. In
addition, numerous staff persons from SBDCs in other parts of the
country have volunteered to go to the duster areas to assist the local
SBDCs. In total, 44 counselors and trainers from other states have
volunteered to go on 2-week rotational assignments in the affected Gulf
States. These counselors have come from the following states: FL, GA,
AZ, SD, MD, MI, OH, NC, NE, NM, PA, and TN. Some of the members of this
volunteer cadre have already completed assignments in Mississippi.
Question 6. What additional services has SCORE and the Women's
Business Centers provided in response to the Hurricanes?
Answer. Flooding from Hurricane Katrina forced both the SBA's
Louisiana District Office and the Women's Business Center in New
Orleans (Urban League of Greater New Orleans Business Resource Center)
out of their offices. Both entities temporarily relocated to Baton
Rouge where they shared space, and where each provided limited
assistance to local business disaster victims, as well as those that
were also displaced from New Orleans and other hard-hit areas. SBA's
Louisiana DO recently returned to New Orleans, and made available space
to the WBC so that it can again offer limited services to support the
long-term recovery of the New Orleans business community. The
operations of the WBCs in Mississippi and Alabama were not severely
impacted by the hurricanes, and continue to provide services in their
areas. In addition, a number of women's business centers across the
country are reporting that they are reaching out to hurricane victims
that have permanently or temporarily relocated to their areas. Many
WBCs and other contributors have joined with the Association of Women's
Business Centers to raise funds to help the WBC in New Orleans to
rebuild its operations.
SCORE also has been an active provider of disaster recovery
assistance. Of particular value in a disaster situation is SCORE's
online counseling data base of more than 50 counselors with disaster
recovery expertise--www.score.org. Available 24/7, and not limited by
geographic boundaries, this service has been helping small business
owners when a ``brick and mortar'' location is not available. SCORE has
mobilized specialized business counseling/coaching in addition to the
24/7 online counseling assistance. Developing a recovery plan,
inventory, business interruption, property and loss assessment,
developing backup computer system, assistant in disaster loan
applications are all part of the services provided by SCORE face-to-
face counselors at sites in the region and where evacuees have
relocated. Atlanta SCORE is helping Gulf Coast entrepreneurs by
providing 7-day-a-week business counseling at three major evacuee
centers outside Atlanta. Many other chapters, including Mobile SCORE
and Baton Rouge SCORE, have increased their services. Additionally,
SCORE has added links from its website (www.score.org) to various
recovery assistance sites including SBA and FEMA.
government contracting
Question 1. With regard to the SBA's disaster loan processing,
please provide to the Committee the following information:
(A) The name and contact information for the vendor or vendors,
including subcontractors, that have been involved in creation and
operation of the SBA Disaster Credit Management System (DCMS), as well
as in the conversion of the Automated Loan Control System and the Loan
Officer Report System to DCMS;
(B) Any contract or contracts, together with any related
contractual amendments, related to the DCMS;
(C) Any contract award evaluation documents related to the DCMS,
such as those that would be available for production to the Government
Accountability Office in proceedings under the Competition in
Contracting Act; and
(D) The names, titles, and contact information for SBA officials
responsible for award and administration of any DCMS-related contracts.
Answer: See Appendix C. SBA Official Contacts: Herbert L. Mitchell,
Associate Administrator for Disaster Assistance, (202) 205-6734;
Michael Sorrento, Director, DCMS Operations Center, (703) 487-3642; and
Janet Strong, Deputy Director of Contracts, (202) 205-7307.
Question 2a. In your testimony, you indicated that the SBA has
assigned 4 Procurement Center Representatives (PCRs) to assist small
firms with Katrina-related contracting. However, according to the SBA's
own information, it already had 3 PCRs in the region prior to the
disaster. Of these PCRs, the SBA assigned no PCBs in Mississippi, only
one in Louisiana, and only two in Alabama. In addition, the SBA had 1
PCR assigned to cover the Homeland Security Department in Washington,
DC, along with the Department of Agriculture and the Defense
Contracting Command.
Have you, or have you not, assigned any additional PCRs to the
Hurricane Katrina contracting beyond the above-mentioned PCRs?
Answer. The four PCRs in the region and the PCR at the Department
of Homeland Security are dedicated to Katrina-related contracting.
Question 2b. If you have assigned additional PCR's, please state
how many additional PCRs have been assigned, and whether these
additional assignments created any temporary or permanent PCR
vacancies?
Answer. The four PCR's in the region and the PCR at the Department
of Homeland Security are dedicated to Katrina-related contracting.
Question 2c. In light of the significant contracting activities
following the disaster, please advise whether you intend to seek
funding for additional PCRs to ensure that each affected State and the
Department of Homeland Security headquarters in Washington have at
least one dedicated PCR?
Answer. At this time SBA does not see a need to seek funding for
additional PCRs.
Question 2d. Please provide to the Committee your best available
data concerning the number of small businesses assisted by the PCRs
with regards to Katrina contracts, the number of appeals filed by the
PCRs and the SBA with regard to consolidated contracts related to the
Hurricane Katrina, as well as the number and dollar volume of contracts
set aside for, or awarded to, small business concerns as a result of
this assistance.
Answer. Contracting information is being tracked by individual
agencies through the Federal Procurement Data Center-Next Generation
(FPDS-NG), the central repository of statistical information on Federal
contracting. As of October 17, 2005, according to the data obtained
from the FPDS-NG, the small business dollars obligated for Hurricane
Katrina are well over the governmentwide 23 percent goal. However, we
believe this only represents a portion of the work that has been
awarded to date. As you know, many contracting offices supporting
Katrina, particularly those relocated to the disaster recovery area, do
not have access to their normal contract writing systems and thus, have
not been able to populate FPDS-NG contemporaneously with the contract
awards they have made. Still, others have not had time to enter data
due to the tempo of operations. As the operations tempo improves, we
expect that the data will be entered and thus the accuracy in terms of
total contracts awarded, and dollars obligated, will increase.
Question 3a. Federal disaster-relief agencies have been claiming
that small businesses will receive fair opportunities to subcontract on
Katrina-related projects. However, it appears that the demand for
subcontracts exceeds the current capacity to manage the requests from
small businesses. One prime contractor was reported by The Washington
Post to field over 6,300 calls from interested firms. Yet, according to
the SBA's own information, the SBA employs just one Commercial Market
Representative (CMR) in the State of Louisiana (who also doubles as a
PCR), and none in the States of Alabama or Mississippi.
Please describe to the Committee in detail how you intend to cope
with the substantial demand for subcontracts given the limited SBA
personnel resources dedicated to subcontracting currently in the
region?
Answer. The role of the CMR is to identify subcontracting
opportunities. The biggest challenge is matching the opportunities with
the businesses that are able and willing to perform.
Question 3b. Please inform the Committee whether you will seek
additional funding to provide for at least 1 CMR in each affected
State?
Answer. At this time SBA does not see a need to seek funding for
additional CMRs.
Question 4. You stated at the hearing that the statutory Small
Business Act goals apply to Katrina-related contracts. However,
according to data compiled by the Committee, small businesses have been
awarded only 15 percent of the total Katrina-related spending. Further,
press reports indicate that small disadvantaged businesses received
only 1.5 percent of Hurricane Katrina contracts awarded by the Federal
Emergency Management Agency. Please describe in detail the SBA's
efforts to ensure that Federal contracting actions related to the
Hurricane Katrina contracts meet the statutory small business prime
contracting and subcontracting goals?
Answer. Contracting information is being tracked by individual
agencies through the FPDS-NG, the central repository of statistical
information on Federal contracting. As of October 17, 2005, according
to the data obtained from the Federal Procurement Data Center-Next
Generation, the small business dollars obligated for Hurricane Katrina
are well over the governmentwide 23 percent goal. However, we believe
this only represents a portion of the work that has been awarded to
date. As you know, many contracting offices supporting Katrina,
particularly those relocated to the disaster recovery area, do not have
access to their normal contract writing systems and thus, have not been
able to populate FPDS-NG contemporaneously with the contract awards
they have made. Still others have not had time to enter data due to the
tempo of operations. As the operations tempo improves, we expect that
the data will be entered and thus the accuracy in terms of total
contracts awarded, and dollars obligated, will increase.
In the meantime, SBA continues to use a variety of resources to
match small businesses with Hurricane Katrina contracting
opportunities. Since February 2005, the SBA has increased by nearly 30
percent the number of PCRs stationed at acquisition activities
throughout the country to advocate on behalf of all small businesses.
While all SBA PCRs are providing assistance to small businesses
interested in participating in the rebuilding efforts, the SBA has
specifically dedicated five PCRs to work with Federal agencies,
including the Department of Homeland Security and the Federal Emergency
Management Agency, to identify relief and reconstruction contract and
subcontracting opportunities for small businesses. These PCRs, as well
as others, are also working closely with small business vendors to
assist them in locating procurement actions that they may be capable of
performing. Special emphasis is being made to specifically identify
Gulf Coast small business concerns for all Hurricane-related
contracting opportunities.
Additionally, SBA District Office and PCR staff is providing
``hands-on'' assistance to small businesses that are unfamiliar with
the Federal Government procurement process, to obtain necessary
registrations and certifications to be able to compete for prime and
subcontract actions,
The SBA is working with the Army Corps of Engineers to ensure that
opportunities exist for small businesses to participate on contracts
for the Gulf Coast recovery and reconstruction. Our efforts to date
include exploring procurement strategies that we believe will expand
the number of small businesses, including local 8(a) and HUBZone firms,
participating in these contracts. To optimize the participation of
local small businesses, we are also using our field staff and resources
partners to verify the operational capacity of local small businesses,
and then provide listings of theses firms to the Army Corps of
Engineers. In addition, we will expedite the processing of Mentor-
Protege agreements and provide priority processing of 8(a) and SDB
certification applications from firms in the affected area.
Question 5a. The Department of Commerce and the Department of
Homeland Security both announced specialized websites for Katrina-
related contracts. These websites and the registration services they
provide appear to be tailored to small businesses. In contrast, the SBA
has no such website, and it does not maintain a registry of firms
interested in providing disaster-related services.
Why has the SBA failed to lead in this crucial area and ceded
ground to other agencies?
Answer. The SBA has taken a proactive role in this area. In fact,
the SBA is working with Department of Commerce and other Federal
agencies to provide a central point of reference for businesses,
especially minority-owned businesses and women-owned businesses, to
register for and become aware of Federal contracting opportunities in
the Gulf Coast. The National Hurricane Contracting Information Center
ensures that businesses understand the process and are aware when
opportunities become available. The SBA has assigned an employee onsite
at the NHCIC to provide information to small businesses specifically
seeking Hurricane Katrina prime and subcontracting opportunities. The
SBA is tracking the number of inquiries nationwide.
Question 5b. Would the SBA take the initiative to create framework
contracts (including Blanket Purchase Agreements or Government-Wide
Acquisition Contracts) and to negotiate set-asides with Federal
agencies for small businesses interested in providing disaster-related
work now and in the future?
Answer. SBA is committed to ensuring that small businesses receive
their fair share of Federal contracting opportunities.
Question 6a. As you know, I introduced legislation providing for
certain measures to improve access of small firms to Federal disaster-
relief contracts. Please advise whether the SBA supports:
A statutory prime contracting goal of 30 percent and subcontracting
goal of 40 percent for Katrina-related contracts, given the fact that
the Department of Homeland Security and the Army Corps of Engineers
historically exceeded these targets?
Answer. SBA would not object to such a provision.
Question 6b. Designation of areas affected by the Hurricane Katrina
as HUBZones, subject to the discretion of the SBA Administrator?
Answer. SBA believes that HUBZone designation would clearly assist
in fast tracking contract opportunities, jobs and capital investment to
areas affected by Katrina.
Question 6c. Increase of the surety bond guarantee amount to $10
million?
Answer. SBA supports the President's proposal to increase the
amount to $5 million.
Question 6d. Repeal of Section 101 of the Second Hurricane Katrina
Supplemental Appropriations bill, which sought to waive statutory small
business prime contracting and subcontracting provisions on Katrina-
related contracts?
Answer. The Office of Procurement Policy has issued guidelines for
implementation, but a repeal would not be objectionable.
Question 6e. Requirements for small business subcontracting plans,
to be concluded within a reasonable period after award, for contracts
awarded subject to the emergency procurement authorities?
Answer. SBA in consultation with the Office of Federal Procurement
Policy believes that this provision has some drawbacks regarding the
withholding of payment, but does not generally object.
Question 6f. Reinstatement of the statutory and regulatory parity
between the small business reservation and the simplified acquisition
threshold?
Answer. SBA, after consultation with the Office of Federal
Procurement Policy believes this provision is not objectionable.
__________
Responses from Hon. Hector V. Barreto to Questions
from Senator Carl Levin
I want to ask about a concern brought to our attention by the
Michigan Small Business Technology Development Center (SBTDC) which
administers SBA loans. It relates to the ability of evacuees who now
reside in Michigan (or elsewhere) and who intend to re-start their life
by moving or opening a business in the new state, whether temporary or
permanent These individialls want to file for SBA disaster assistance
loans in order to finance the relocation of their business. However, it
is not clear they would be eligible for such loans and I think that
needs to be clarified.
.The problem is SBA's eligibility criteria requirements which say
that in order to be approved for a SBA disaster assistance loan the
relocation has to be mandated or involuntary and that the relocation
cannot be voluntary. What exactly does mandated or involuntary mean?
SBA field officers believe these requirements are far too ambiguous and
in the case of the Katrina disaster will need clarification to avoid
confusion, disappointment and frustration.
What if a business in a Gulf state has suffered severe water damage
and molding and the business owner decides to relocate to another state
rather than try to rebuild the damaged business? This small business
has clearly suffered a disaster and should be eligible for a federally
guaranteed low-interest-rate disaster assistance loan. However, the
business may not be eligible because we don't know exactly what
criteria SBA will be using to judge whether the relocation is
``mandatory.'' or involuntary.
Question 1. How does SBA intend to apply the requirements and how
can it clarify this so that the disaster assistance loans can go to
those that need them?
Answer. SBA considers each relocation request based on the
individual factors involved. 13 CFR Sec. 123.201 sets forth the
regulations which establish our policy on determining whether a
relocation is voluntary, involuntary, or mandatory. 13 CFR Sec. 123.201
(c) states: (c) If your business is going to relocate voluntarily
outside the business area in which the disaster occurred, you are not
eligible for a physical disaster business loan. If, however, the
relocation is due to uncontrollable or compelling circumstances, SBA
will consider the relocation to be involuntary and eligible for a loan.
Such circumstances may include, but are not limited to:
(1) The elimination or substantial decrease in the market for your
products or services, as a consequence of the disaster;
(2) A change in the demographics of your business area within 18
months prior to the disaster, or as a result of the disaster, which
makes it uneconomical to continue operations in your business area;
(3) A substantial change in your cost of doing business, as a
result of the disaster, which makes the continuation of your business
in the business area not economically feasible;
(4) Location of your business in a hazardous area such as a special
flood hazard area or an earthquake-prone area;
(5) A change in the public infrastructure in your business area
which occurred within 18 months or as a result of the disaster that
would result in substantially increased expenses for your business in
the business area;
(6) Your implementation of decisions adopted and at least partially
implemented within 18 months prior to the disaster to move your
business out of the business area; and
(7) Other factors which undermine the economic viability of your
business area.
__________
Responses from Hon. Hector V. Barreto to Questions
from Senator John Kerry
loan application deadline
Question 1. Mr. Barreto, during the hearing, I asked you if you
would extend the application deadline beyond October 28th for physical
disaster loans, referencing letters Senator Landrieu and I sent to you
on September 1st and September 13th. You did not answer the question
and we still have not received a reply. Mr. Barreto, will you agree to
extend this deadline?
Answer. SBA works closely with the Federal Emergency Management
Agency (FEMA) to provide disaster assistance to victims of Presidential
disasters, and SBA physical deadlines conform to those established by
FEMA. FEMA has advised that the deadline for applying for damages from
Hurricane Katrina in Louisiana, Mississippi, and Alabama, and for
Hurricane Rita in Louisiana and Texas, has been extended until January
11, 2006. SBA's deadlines have been extended as well.
ODA has no authority to extend FEMA's deadlines on its own.
disaster loans
Question 1. SBA's disaster loans, for homeowners and businesses,
arc indispensable to economic recovery after Hurricane Katrina. A press
release from SBA, dated September 8, 2005, said that ``SBA is looking
to hire at least 300 damage inspectors and 400 loan officers and
customer service representatives immediately.'' In your testimony, the
numbers grew, noting 2,000 disaster employees on board and the
possibility of hiring another 2,000. As of October 5th, a document from
the SBA showed 2,934 disaster loan employees, with 450 loans made for
homeowners, and 20 made to small businesses. After you left the
hearing, at least three witnesses said they had been told they would
probably wait several months to get loans, not the SBA's promised 21
days.
Mr. Barreto, you spent considerable time in your testimony
countering circulating concerns that the new disaster loan system was
not able to handle a large-scale disaster, arguing it was fully tested
and able to handle the disaster. However, how do you explain the low
loan approvals and the lag times in approved loans?
Answer. Approval rates vary as a result of a number of factors,
including economic conditions in the disaster area. In areas of
distressed economic conditions, many disaster victims may lack
repayment ability and/or have adverse credit history, which results in
a lower approval rate.
SBA has accelerated decline processes designed to expedite the
referral of obvious declines to the IHP grant programs, so that
available Federal assistance may be received as soon as possible. For
these loans, the property loss is not verified and the loan is not
fully processed to a decision. This accelerated process typically
distorts the approval rate early in the disaster. At the beginning of
the disaster, our approval rate was 2 percent or less. As of the end of
October, the approval rate is approximately 15 percent, and can be
expected to increase as more loans are fully processed.
The size of this disaster required that SBA hire and train new
Customer Service Representatives, Loss Verifiers, Loan Officers, and
other personnel to meet the needs of the high number of disaster
victims. As new employees have come into production, we have been able
to more efficiently address the needs of the disaster victims.
Question 2. Based on disaster loans for Hurricane Katrina, what is
the average time from when a small business submits an application for
a disaster loan until they have the money in their bank account?
Distinguish physical disaster loans from economic injury disaster
loans. How can we streamline the process?
Answer. Based on the loans processed so far, the average time
between an applicant's submission of an application for an SBA disaster
loan and the point at which the applicant is advised of approval or
denial is generally within 30 days. (b) Based on the loans approved so
far, the average duration between the notice of a loan approval and the
initial disbursement of the loan funds is generally less than 20 days.
Disbursement time is dependent upon the borrower, who controls when the
closing documents are returned. Loan documents are prepared within 24-
48 hours of approval and disbursements are made within 5 days of return
of signed loan closing documents.
Question 3. How many of the witnesses who testified have applied
for disaster loans, when did they apply, and have their loans been
approved?
Answer. Approved: Wes Wyman-$733,000. Eight of the witnesses did
not apply for disaster loan assistance. One has been declined. We are
unable to disclose further information under the Privacy Act (5 U. S.
C. 552a).
contracting
Question 1. We have reports from Mississippi that FEMA is passing
the responsibility down to MEMA, the Mississippi Emergency Management
Agency, where small businesses are being told to go online or to call a
1-800 number to find out about contracting opportunities. Considering
that the many small businesses in those areas don't have access to the
internet or telephone service, that system seems unreasonable. SBA
should be the watchdog for small businesses in this process.
In your testimony you talk about some of the things the SBA is
doing on contracting, but this is one example where coordination is not
working and SBA needs to do more. How are you ensuring that small
businesses in the Gulf region are aware of contracting and
subcontracting opportunities related to the rebuilding effort?
Answer. SBA is committed to ensuring that small businesses receive
fair opportunities to help in the rebuilding efforts.
Specifically, the SBA is working with the Department of Commerce
and other Federal agencies to provide a central point of reference for
businesses, especially minority-owned businesses and women-owned
businesses, to register for and become aware of Federal contracting
opportunities in the Gulf Coast. The National Hurricane Contracting
Information Center ensures that businesses understand the process and
are aware when opportunities become available. The SBA has assigned an
employee onsite at the NHCIC to provide information to small businesses
specifically seeking Hurricane Katrina prime and subcontracting
opportunities. The SBA is tracking the number of inquiries nationwide.
Contracting information is being tracked by individual agencies
through the FPDS-NG. As of October 17, 2005, according to the data
obtained from the FPDS-NG, the small business dollars obligated for
Hurricane Katrina are well over the governmentwide 23 percent goal.
However, we believe this only represents a portion of the work that has
been awarded to date. As you know, many contracting offices supporting
Katrina, particularly those relocated to the disaster recovery area, do
not have access to their normal contract writing systems and thus, have
not been able to populate FPDS-NG contemporaneously with the contract
awards they have made. Still others have not had time to enter data due
to the tempo of operations. As the operations tempo improves, we expect
that the data will be entered and thus the accuracy in terms of total
contracts awarded, and dollars obligated, will increase.
In the meantime, SBA continues to use a variety of resources to
match small businesses with Hurricane Katrina contracting
opportunities. Since February 2005, the SBA has increased the number of
Procurement Center Representatives (PCRs) stationed at acquisition
activities throughout the country to advocate on behalf of all small
businesses by nearly 30 percent. While all SBA PCRs are providing
assistance to small businesses interested in participating in the
rebuilding efforts, the SBA has specifically dedicated five PCRs to
work with Federal agencies, including the Department of Homeland
Security and the Federal Emergency Management Agency, to identify
relief and reconstruction contracting and subcontracting opportunities
for small businesses. These PCRs, as well as others, are also working
closely with small business vendors to assist them in locating
procurement actions that they may be capable of performing. Special
emphasis is being made to specifically identify Gulf Coast small
business concerns for all Hurricanes-related contracting opportunities.
Additionally, SBA District Office and PCR staff are providing
``hands-on'' assistance to small businesses that are unfamiliar with
the Federal Government's procurement arena, to obtain necessary
registrations and certifications to be able to compete for prime and
subcontract actions.
The SBA is working with the Army Corps of Engineers to ensure that
opportunities exist for small businesses to participate on contracts
for the Gulf Coast recovery and reconstruction. Our efforts to date
include exploring procurement strategies that we believe will expand
the number of small businesses, including local 8(a) and HUBZone firms,
participating in these contracts. To optimize the participation of
local small businesses, we are also using our field staff and resources
partners to verify the operational capacity of local small businesses,
and then provide listings of theses firms to the Army Corps of
Engineers. In addition, we will expedite the processing of Mentor-
Protege agreements and provide priority processing of 8(a) and SDB
certification applications from firms in the affected area.
Question 2. What are you doing to ensure that small businesses, and
in particular, local small businesses, get their fair share of Federal
contracts?
Answer. See above answer.
Question 3. Do you support the 30 percent goal for prime small
business contracting and the 40 percent goal for small business
subcontracting that was included in the bipartisan amendment we passed
on the CJS bill last week?
Answer. SBA is committed to ensuring that small businesses receive
fair opportunities o help in the rebuilding efforts.
Question 4. In addition to making sure that small businesses are
aware of opportunities, what are you doing to ensure that contracting
officers at the Department of Homeland Security and FEMA. are doing
their best to find qualified small businesses to do the work?
Answer. See answer to the first question above.
Question 5. Please list the company name, date of award, dollar
amount of award, contract description, type of competition, type of
contract (i.e. fixed price vs,. cost plus) and the small business
participation or subcontracting goals of the 10 largest contracts
awarded by FEMA and the Army Corps of Engineers as of October 7, 2005.
Answer. The Committee will need to submit this request to the
respective Agencies.
Question 6. One of the first actions of the SBA to assist small
businesses in the affected region was to transfer four Procurement
Center Representatives to the area to assist in the awarding of
recovery contracts. Given the depleted number of PCRs that have been
responsible for Federal contracting oversight, four officers represents
a significant amount of the PCR workforce. How does the SBA plan to
reorganize the PCR activities that were previously performed by those
four individuals?
Answer. The PCR's have always provided back up to each other and
technology has made it possible to easily shift work loads as most work
is done electronically.
Question 7. On May 20, 2005, the Small Business Administration
(SBA) Inspector General (IG) released an Audit Report which determined
that approximately 87 percent of the reported potential bundlings, with
a value of at least $384 million, identified during the survey were not
reviewed by SBA. One of the major shortfalls discussed in the report is
the lack of resources, particularly the number of Procurement Center
Representatives (PCRs) available to monitor the over 2,000 procurement
locations for the Federal Government. Given the significant shortfalls
in oversight that were occurring prior to the Katrina disaster, and
given the significant amount of contract dollars that are being
allocated to the rebuilding effort, it is my opinion and the stated
opinion of the committee that there is a need for more PCRs. Do you
believe that the SBA should hire more PCRs to monitor the $300 billion
in Federal contracts awarded each year as well as the over $100 billion
expected in the recovery effort?
Answer. SBA does not believe it needs more PCRs. Contracting and
technology have changed over the years. A large part of contracting is
done through Federal schedules and other vehicles other than individual
contracts. Also all contracting is done electronically.
Question 8. Of the 10 Hurricane Katrina consolidated 8(a) contracts
that were awarded by the Army Corps of Engineers as of October 3, 2005,
approximately 99.4 percent of the contracts dollars ($48,931,515 of the
$49,232,371) went to two Alaska Native Corporations (ANCs) through
sole-source contracts What dollar amount and percent of the total
awards that have been allocated to 8(a) companies have been awarded to
ANCs as sole-source contracts? How many dollars (and percent) of total
awards have been allocated to ANCs? Please provide a detailed breakdown
of any subcontracting plan that has been reported to the SBA as a part
of the two ANC contracts awarded by the Army Corps of Engineers as
sole-source 8(a) contracts.
Answer. The Committee will need to request this information from
the Army Corps.
Question 9. The SBA, once again, has failed to meet its
governmentwide goal of 5 percent utilization of women-owned businesses
but continues to delay the implementation of the women's contracting
program. With hundreds of billions of dollars being awarded by the
Federal Government for disaster relief and rebuilding the affected
areas, do you believe that the women's contracting program could give
procurement officers a tool which they could use to help meet their
statutory 5 percent goal?
Answer. SBA is committed to ensuring that all small businesses
including women-owned small business receive their fair opportunities.
sba's efforts and resources to respond
Question 10. As you have acknowledged before this Committee during
your tenure as the Administrator of the SBA, capital is not always the
answer to a small business's needs and that counseling is an important
resource for helping our small businesses succeed. In a disaster, it is
certainly true that businesses need capital and counseling. In that
spirit, the Senate passed legislation that provides $33.75 million
additional funding for SBA's counseling partners.
Given that SBA's entrepreneurial development programs have been
flat-funded and underfunded since 2001, are the SBDCs, the Women's
Business Centers, the Veteran's Business Outreach Center's, temporary
SBA disaster loan centers, etc., adequately funded to handle the
estimated 500,000 small businesses affected in the Gulf region? Please
explain how you reach those conclusions by providing the funding status
of each center in the region, estimated future and past counseling
capacity, and what additional resources the SBA has dedicated to
assisting its entrepreneurial development partners.
Answer. The Louisiana SBDC was funded at $1.3m for fiscal year
2005. This is the same level of funding provided to the SBDC since
fiscal year 2002. The Mississippi SBDC has been approximately level
funded at slightly more than $847,000 since fiscal year 2000. The
Alabama SBDC has also been approximately level funded since fiscal year
2000 at just over $1.25 million. [As you are aware, the annual funding
providing to the SBDCs is based on a statutorily mandated population-
based formula.]
State SBDC Directors in both Mississippi and Louisiana have
requested staffing support from SBDCs across the country experienced in
providing disaster-related technical assistance. SBA has supported this
effort by allowing staffs from neighboring SBDCs to temporarily
supplement the staff of the SBDC in Mississippi. Similar activity is
expected in. Louisiana when the State has addressed its more pressing
personal recovery efforts and is ready to receive such assistance. In
addition, to help provide additional staff support for the Gulf state
SBDCs, two large corporations have donated a total of $200,000 to be
used by the SBDCs in Louisiana and Mississippi ($75,000 each), and
Alabama ($50,000).
SBA has no plans to request additional SBDC program funding for the
disaster recovery effort. However, the Agency is working closely with
the local SBDCs, and is exploring ways to direct existing program
resources in the form of unexpended regular program funds to the
disaster areas, In addition, SBA has issued a program announcement for
the new portability program grant funds, and the Mississippi SBDC has
already applied under this announcement, and SBA is expecting to also
receive applications from other Gulf state SBDCs. [It must be noted,
however, that all applications received under the announcement will be
evaluated in accordance with the criteria contained in the Program
Announcement.]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated
2006
FY 2004 FY 2005 Clients
FY 2004 Clients FY 2005 Award Clients Estimated FY Trained &
Small Business Development Centers Award Amt. Trained & Amt. Trained & 2006 Award Amt. Counseled
Counseled Counseled from
Submitted
Proposals
--------------------------------------------------------------------------------------------------------------------------------------------------------
Louisiana SBDC.................................................. $1,308,515 15,224 $1,308,515 10,539* $1,303,515 13,252
Mississippi SBDC................................................ $799,236** 7,412 $847,168 6,997* $847,168 9,120
Alabama SBDC.................................................... $1,259,646 20,682 $1,235,718** 19,301* $1,259,646 18,411
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Decrease due to implementation of uniform client definitions across all Entrepreneurial Development programs, including changes that allow only one
SBA partner to count clients attending events presented jointly by two or more partners.
** Reductions in funding were due to the SBDC not using it's full allotment of funds available.
Flooding from Hurricane Katrina forced both the SBA's Louisiana
District Office and the Women's Business Center in New Orleans (Urban
League of Greater New Orleans Business Resource Center) out of their
offices. Both entities temporarily relocated to Baton Rouge where they
shared space, and where each provided limited assistance to local
business disaster victims, as well as those that were also displaced
from New Orleans and other hard-hit areas. SBA's Louisiana DO recently
returned to New Orleans, and made available space to the WBC so that it
can again offer limited services to support the long-term recovery of
the New Orleans business community. The operations of the WBCs in
Mississippi and Alabama were not as severely impacted by the
hurricanes, and both continue to provide services in their areas, In
addition, a number of women's business centers across the country are
reporting that they are reaching out to hurricane victims that have
permanently or temporarily relocated to their areas, Many WBCs and
other contributors have joined with the Association of Women's Business
Centers to raise funds to help the WBC in New Orleans to rebuild its
operations. The SBA does not have any additional existing resources
available for the WBCs in the Gulf region, and has no plans to request
additional funding for the program.
The table below shows actual and anticipated funding for the Gulf
region WBCs, as well as their recent actual and estimated performance
data.
----------------------------------------------------------------------------------------------------------------
FY 2005 FY 2005
FY 2004 FY 2004 Award Amt. (Qtrs. 1- FY 2005 FY 2006
Award Amt. Clients (from FY '04 3) Est. Total Award Amt.
Women's Business Center (from FY Trained & Approps.) Clients Trained & (from FY
'03 Counseled performance- Trained & Counseled* '05
Approps.) based awards Counseled Approps.)
----------------------------------------------------------------------------------------------------------------
Women's Business Assistance Center, $111,000 603 $70,150 736 1,071 $127,719
Inc., Mobile.........................
Urban League of Greater New Orleans $150,000 1,072 $150,000 390** 476** *150,000
WBC..................................
MS Action for Community Education Inc. $111,000 289 $70,150 107 188 $122,748
(MACE), Greenville...................
----------------------------------------------------------------------------------------------------------------
* Final fiscal year 2005 data will be provided to SBA within 15 days.
** Decrease due to implementation of uniform client definitions across all Entrepreneurial Development programs,
including changes that allow only one SBA partner to count clients attending events presented jointly by two
or more partners.
Question 11. Does the Administration support those provisions
passed as part of the CJS FY 2006 appropriations bill that would
increase funding and waive matching requirements for SBA's
entrepreneurial development programs? Please explain.
Answer. SBA has no plans to request additional funding for the
SBDCs and WBCs in the Gulf region. However, the Agency intends to make
the unexpended regular SBDC program funds available to the SBDCs in the
affected states, and it expects to receive applications from these
states for the funds available through the Portable Grant program
enacted last year.
When considering the funds available for the SBDCs and WBCs to
provide services both in the Gulf region, and to individuals who have
temporarily or permanently relocated outside that region, it is
important to remember that SBA's financial support to the SBDCs and
WBCs represents only a portion of their overall financing. In the case
of the SBDCs, SBA's grants must be matched dollar-for-dollar by cash
and in-kind contributions. In the case of the WBCs, cash and in-kind
contributions must equal one dollar for every two Federal dollars
during the first 2 years of WBC's participation in the program, and
must be matched dollar-for-dollar during the WBCs' remaining 3 years in
the program. Typically many of the centers in both programs actually
overmatch these minimum requirements so that the total amount of
funding may be far greater than double the SBA contribution.
__________
Prepared Statement of the American Small Manufacturers Coalition
Mr. Chairman, Members of the Committee, thank you for the
opportunity to submit testimony on behalf of the American Small
Manufacturers Coalition (ASMC). The American Small Manufacturers
Coalition--a trade association of Manufacturing Extension Partnership
(MEP) Centers located nationwide--strives to advance the
competitiveness of America's 344,000 small manufacturers. Three of
these Centers are located in the region recently devastated by
Hurricane Katrina, including the MEP of Louisiana (MEPoL), Mississippi
Technology Alliance, and the Alabama Technology Network. Since these
Centers were unable to submit testimony as they remain focused on
assessing damage and assisting their small manufacturing clients, the
ASMC is submitting comments on their behalf and on behalf of their
clients.
The more than 11,100 small manufacturers that operate within the
three-state region of Alabama, Louisiana, and Mississippi employ more
than 600,000 employees and provide an annual payroll exceeding $21
billion. Of those 11,100 manufacturers, more than 3,400 have been
served over the past 5 years by the Alabama Technology Network,
Mississippi Technology Alliance, and MEP of Louisiana. As a part of the
Manufacturing Extension Partnership network, these three Centers have
offices throughout the three-state region.
MEPoL estimates that nearly 3,000 manufacturers within the Parishes
were directly impacted by Katrina. These manufacturers had focused on
an array of industries, including machinery, food processing, metal
fabrication, chemicals, shipbuilding, lumber mills, and printing. Only
recently have manufacturers within the community begun venturing back
to their plants in order to assess the physical damage of the
hurricane's deadly force.
The most basic challenge manufacturers face is limited
communication. Many manufacturers, for instance, had no means of
accounting for their employees, and some remain to this day
effortlessly looking for displaced workers. For those that were able to
locate their employees, like Acme Machine in Covington, Louisiana,
business remains interrupted as workers are unable to report to work
due to their own personal home loss.
Crabs, LLC of Lockport, Louisiana, is also experiencing a decline
in employment due to displaced workers. When its doors reopened, less
than 50 percent of its employees reported to work, which contributed to
a significant decrease in productivity and may threaten the firm's
long-term financial viability. Currently, Crabs, LLC is recruiting
workers from Alabama in order to supplement its lost labor force.
Communication barriers also have inhibited manufacturers from
maintaining contact with their suppliers and clients. Nearly 10 days
after Katrina hit, communications remained limited and firms such as V-
labs were still unable to contact many of their clients and suppliers.
Located in Covington, the carbohydrates and polysaccharides
manufacturer is able to receive calls and faxes, but outgoing
communications is non-existent. Thankfully, resources such as MEPoL
came to the aid of V-labs and put the manufacturer in contact with the
local university, which allowed the firm to use its lab and fax machine
in order to make outgoing calls.
Bodin Foods in New Iberia, Louisiana, also lost nearly 50 percent
of its business from clients that were either destroyed or with whom
the firm could not communicate. The Bodin Foods plant remains
operational, but its supply chain was destroyed as most of the
components used to make specialty food products were generated in the
New Orleans area. Bodin is now seeking suppliers elsewhere and in some
cases has had to go so far as California to find them.
Supply chain disruptions to our nation's defense also will be
realized as a result of Katrina. Many shipyards, such as Avondale and
Ingalls, which are suppliers to Northrop Grumman, a prime Department of
Defense suppler, were also damaged. The dislocation of employees and
damage will cause production delays, as well as inhibit these firms'
ability to meet the demands of the national defense program. Large
original equipment manufacturers have lost some of their key suppliers
and, conversely, some manufacturing firms have lost their supply chain
clients. It will be critical in the coming months to establish
mechanisms to support and rebuild these supply chains.
Transportation costs also are inhibiting the ability of businesses
to rebuild. Crabs, LLC, as previously mentioned, is a business that
routinely ships its product by air. Due to the closure of the New
Orleans airport, it has been forced to find a new distribution channel.
The high cost of gas prohibits the firm from shipping by truck, and new
airline routes have resulted in a 40-percent product loss. The railways
also are repairing damage and are not yet an option for timely
distribution, According to the Louisiana Railway Association, many
railways are conducting repairs and service to the New Orleans area
remains limited.
The manufacturing effects of Katrina extend beyond destruction of
industrial buildings. For example, as praline manufacturer Nanny's
Candy, located in Carencro, lost 60 percent of its business due to
destruction of hotels and the resulting dramatic decrease in tourism.
The unexpected profit loss has caused a cash-flow crisis for the firm,
which has had to lay off workers.
Other firms, however, suffered catastrophic losses. Torino Belts, a
manufacturer of high-end leather accessories located in New Orleans,
experienced total destruction. Currently, the firm is working with the
MEP of Louisiana to find relocation opportunities within the Baton
Rouge area in order to retain business within the state. Timing for
this move is critical however, and if a facility is not located soon,
Torino Belts will be forced to relocate in another state.
It is clear from these stories and others that the manufacturers of
the Gulf Coast region are in great need of assistance. This storm's
devastation and destruction will have lasting effects on the region's
economy and the viability of its industry, and those impacts will
translate across the country and beyond. The financial support of
Congress for the region's most primary needs have been greatly
appreciated, but the assistance and support cannot stop there.
Attention must be given to economic recovery assistance, and
manufacturing extension centers can be of great assistance.
ASMC, through the NIST MEP program, proposes to send 300
manufacturing specialists to the effected areas in order to assess the
damage to manufacturers and assist in their redevelopment. The team
would evaluate site viability, assess the need for relocation, identify
new suppliers, and evaluate damaged equipment and identify
alternatives. The field engineers within the national MEP network also
would help manufacturers identify new clients in order to supplement
those lost. That team of 300 field engineers would include roughly 100-
150 displaced manufacturing employees from the region, hired on a
temporary basis, in order to help stimulate the local economy, decrease
the state's unemployment benefits, and leverage the extensive
manufacturing knowledge of those employees to assist effected firms. In
order to provide these services at no charge to the effected
manufacturers, ASMC will be requesting $70 million in supplemental
funding to cover the annual loaded salary of the 300 manufacturing
specialists, provide necessary housing and expenses to locate the
specialists within the most highly effected areas, and assist effected
manufacturing supply chains. This technical assistance will allow the
region to rebuild its industrial economy one manufacturer at a time.
The current needs of this area greatly exceed the capacity of the three
local MEP Centers, and, as it was after 9/11, it is critical that the
Nation come together to support this community recover and rebuild, to
regain the economic strength it once had.
Again, I thank Mr. Chairman and Members of the Committee for
allowing me to submit testimony on behalf of ASMC members and the
manufacturers effected by Hurricane Katrina.
Prepared Statement of John K. Lopez, Chairman, Association for Service
Disabled Veterans and Co-Chairman, Task Force For Veterans
Entrepreneurship
In addition to the human and economic devastation of the recent
Katrina and Rita Hurricanes, there appears to be a coming destruction
of the order and logic of the Federal procurement system.
Service Disabled Veteran Enterprises (SDVE) in the Hurricane Impact
Area (HIA) are reporting that attempts to participate in the
reconstruction effort are being ignored and rejected by the major
contractors and government connected individuals that are recipients of
the billions of dollars in awards that are being distributed by
government agencies.
Resident SDVE that have been disadvantaged as a result of their
sacrifice for our nation, are now being further burdened in their
attempts to rehabilitate themselves by the invocation of ``MAJOR
CORPORATIONS ONLY'' reconstruction procurement policies, that exclude
SDVE.
The U.S. Congress has encouraged and supported the development of
SDVE entrepreneurship by enacting P.L. 106-50 and Section 3 of P.L.
108-183 and the President of the United States (POTUS) has issued
Executive Order 13360 to emphasize total governmental support for the
SDVE initiatives.
However, under the guise of ``Emergency Authority'' the
reconstruction effort in HIA is being carefully programmed to be a
permanent monopoly for agency insiders.
This is an insult to the role and intent of the U.S. Congress and a
subversion of the POTUS initiatives.
The HIA reconstruction effort is a repeat of the IRAQ
reconstruction deception of smaller businesses.
The IRAQ reconstruction effort was characterized by the same method
of deception.
After receiving billion dollars, all encompassing, procurement
awards major corporations then herd smaller businesses into ``HOLDING
PEN'' data bases, where they are neutralized by being reported as
``BEING AVAILABLE'' to the future requirements of the awardees.
The available records show that agencies have not met their
legislatively prescribed SDVE participation goals and there is no
indication that major corporation awardees have attempted to meet their
goals, since reporting requirements have not been made available to
stakeholder scrutiny.
It is crucial in emergency situations to retain perspective and not
invoke ``KNEE (Media) JERK'' reactions that becomes a double felony
when reviewed in a future setting.
It is vital that the U.S. Congress exercise restraint and practice
due deliberation when faced with issues as serious as HIA
Reconstruction.
A carefully tailored, temporary modification of existing law and
regulation is indicated, but those modifications should be temporary
and subject to constant and continuous scrutiny.
__________
Prepared Statement of Lieutenant General Carl A. Strock, Chief of
Engineers, U.S. Army Corps of Engineers, Department of the Army
Madam Chair, thank you for the opportunity to provide testimony on
the Corps of Engineers response to Hurricane Katrina. I am Lieutenant
General Carl Strock, Chief of Engineers and I would like to share with
you information about our activities to involve small and disadvantaged
businesses in the work we are doing in the region.
The U.S. Army Corps of Engineers is continuing to work primarily in
support of the Federal Emergency Management Agency, carrying out a wide
variety of missions in response to Hurricane Katrina. Our initial
efforts focused on closing levee breaches, getting the flood water out
of New Orleans and providing ice, water, temporary power, debris
removal services, and temporary roofing in portions of Louisiana,
Mississippi, and Alabama as requested by FEMA or local governments.
I fully recognize the value that small businesses play in our
national economy, and I am personally committed to using small
businesses in performing our work, both in the normal course of
business, and in times of national disaster such as these. Typically,
the Corps of Engineers awards 40 percent of its prime contract dollars
to small firms. For work associated with Hurricane Katrina and other
disasters, we strive to use Small, Small-Disadvantaged, Women-Owned,
HUBZone and Service-Disabled Veteran Owned firms to the maximum extent
possible, consistent with the urgent need to preserve life and
property.
As a part of the National Response Plan, the Corps of Engineers
supports FEMA when natural disasters such as hurricanes occur. In
addition to the nearly 2600 civilian and military employees who have
responded, we use pre-positioned contracts for urgently needed supplies
and services. The pre-positioned contracts used to support Hurricane
Katrina for ice, water and some of the initial debris removal services
were awarded competitively in 2003. Many of these awards were to small
firms. Unfortunately, the magnitude of this devastating event requires
extensive and immediate response beyond the capability of our pre-
placed contracts. When, as in this case, the needs are greater than our
ability to respond with preplaced contracts, we begin by awarding
additional contracts using emergency procedures. We must respond
quickly and effectively. We maximize competition and the use of small
businesses as much as possible without delaying urgently needed
supplies or services. Very quickly, we begin to develop plans for how
we will satisfy the ongoing needs by using a broader range of
procurement tools, and more normal procurement methods as soon as time
permits us to do so.
I moved quickly to assure we could provide information to the
public, and established a resource page for our private sector
partners. We immediately began posting to our USACE home page links
(www.usace.army.mil) and provided points of contact for our prime
contractors so that small firms could apply to do work for them. We
established a registration site, where firms who wished to help could
provide information on their capabilities; this site can be reviewed by
government contracting officers seeking vendors, and by companies
seeking subcontractors. We also developed a site where vendors could
provide equipment availability information for items such as storm
water pumps, generators, and transformers. The data base is searchable
and can be used by government agencies or contractors who need those
products. We are publishing a listing of our contract awards as well.
We are enhancing opportunities for small and local firms by
requiring any large business that is awarded one of the contracts to
implement aggressive subcontracting strategies and report their level
of success in awarding subcontracts to small firms. An example of our
efforts is related to our need to remove the enormous amounts of debris
left by Hurricane Katrina. The initial value was estimated at nearly $2
billion, far beyond the value of our pre-positioned emergency response
debris contracts. The urgency of the situation required immediate
award, and we advertised the procurement for a reduced time period,
receiving 22 proposals. On September 15, 2005, we awarded four debris
removal contracts. Each contract also requires large business prime
contractors to submit a subcontracting plan with aggressive goals for
each small business category.
In addition to our aggressive subcontracting goals, we are
encouraging use of local businesses as prime and subcontractors. In
accordance with the Robert T. Stafford Disaster Relief and Emergency
Assistance Act, we require our prime contractors to give preference, to
the maximum extent feasible and practicable, to organizations, firms,
or individuals residing or doing business primarily in the area
affected by the disaster. Our large firms have been recruiting in
shelters and have been actively working to locate small firms to assist
in operations. Based on very preliminary data, large firms are
reporting that they are awarding 22 percent of subcontracted dollars to
local firms.
I have asked my team to divide work wherever practical so that we
can target work for appropriate small business and other programs.
Other small firms may win additional contracts under the Small Business
Competitiveness Demonstration Program. Each day, my staff provides me
with status updates on Corps of Engineers contract awards including
socioeconomic data.
I am committed to assuring that small firms play a vital role in
our contracts. Madam Chair, this concludes my statement.
__________
Prepared Statement of Contract Services Association of America (CSA)
Madam Chairman, and Members of the Committee, the Contract Services
Association (CSA) requests that this statement be included in the
official record for your September 22 hearing on ``Katrina and Small
Business.''
By way of introduction, CSA is the nation's oldest and largest
association of service contractors representing over 200 companies that
provide a wide array of services to Federal, State, and local
governments. CSA members perform over $40 billion in Government
contracts annually and employ nearly 500,000 workers, with two-thirds
of those employees being members of private sector employee unions. CSA
members represent the diversity of the Government services industry and
include small businesses, 8(a)-certified companies, small disadvantaged
businesses, women-owned, HubZone, Native American-owned firms and
global multi-billion dollar corporations. CSA promotes Excellence in
Contracting by offering significant professional development
opportunities for Government contractors and Government employees,
including the only program manager certification program for service
contractors.
Small businesses--and competition--are key embodiments of the
American spirit and our free enterprise system. This was highlighted as
far back as 50 years ago with the passage of the 1953 Small Business
Act (P.L. 163-83). The preamble states:
The essence of the American economic system of private
enterprise is free competition. Only through full and free
competition can free markets, free entry into business, and
opportunities for the expression and growth of personal
initiative and individual judgment be assured. The preservation
and expansion of such competition is basic not only to the
economic well being but to the security of this Nation. Such
security and well being cannot be realized unless the actual
and potential capacity of small business is encouraged and
developed. It is the declared policy of the Congress that the
Government should aid, counsel, assist and protect, insofar as
is possible, the interests of small-business concerns in order
to preserve free competitive enterprise, to insure that a fair
proportion of the total purchases and contracts for property
and services for the Government be placed with small business
enterprises, and to maintain and strengthen the overall economy
of the Nation.
Now more than ever, those sentiments ring true. Following the
devastation of Hurricane Katrina, and with Hurricane Rita bearing down
on the South just a few short weeks later, we all need to step back and
see what part we can play to help the devastated areas. Today's hearing
focuses on a critical element of the rebuilding--the role of small
businesses, not only those located in the local community but in the
surrounding region as well. But as the committee reviews this issue,
CSA would challenge you to consider the tools already available to
ensure fair access, and adequate competition, for all businesses that
may be able to play a part in the rebuilding efforts. And also
determine what flexibility is required to get the assistance needed to
the areas, while maintaining the integrity of the acquisition system.
One suggestion for flexibility that CSA would offer is a wavier--
for the immediate affected area--of the Service Contract Act (SCA).
Under the SCA, only the Secretary of the Department of Labor has the
authority to waive the SCA threshold of $2500--a threshold that is far
too low, considering the extent and the expense of the relief efforts.
Furthermore, SCA covers all service contracts no matter the size of the
company, so even the smallest small business is covered if it receives
a contract for more than $2500. Obtaining a wage determination can be a
lengthy process--and in the relief and recovery efforts, time is of the
essence. Finally, waiving SCA would allow the Government to contract
with commercial companies that would not normally do business with the
Federal Government--and may not do so again--but in this instance have
certain valuable skills that the Government should be able to tap.
CSA also would like to submit as part of its record statement, a
commentary that was published in the Federal Times on September 19, and
authored by CSA's Senior Vice President for Public Policy. Thank you
for the opportunity to share this information with the Committee.
______
[Reprinted with permission from the Federal Times, Sept. 19, 2005]
Commentary--The Procurement Executive's Viewpoint
Relief at the Ready--Storm Recovery Effort Needs Contractors'
Efficiency
(By Cathy Garman\1\)
Service contractors answered the government's call after 9/11 and
continue to play a critical role in the war on terrorism. Now in the
latest national crisis--a natural disaster of devastating proportions
with far-reaching, long-term impact--service contractors are stepping
in again to work with government agencies to help those in need put
lives back together and rebuild the areas struck by Hurricane Katrina.
While there is much confusion about post-Katrina emergency
contracting authorities and elevated procurement thresholds, government
agencies and private organizations are publicizing data on what is
needed and on the special authorities available to support contingency
operations. Indeed, most of what is being accomplished to provide
relief and start rebuilding is being done by the business community,
which today performs many of the critical day-to-day support missions
at times such as this. Businesses bring corporate best practices to
bear, such as supply-chain management and logistics. This is an
excellent example of partnership between government and the private
sector.
The American worker always has had a can-do attitude, doing
whatever needs to be done--and, frankly, not waiting for the government
to act. The business community is now displaying that can-do spirit in
many ways. Government contractors with employees in the devastated
areas have organized their own relief efforts to help those employees.
And they are organizing efforts to help the broader community in areas
where they have facilities.
Despite the early action of the service contracting community,
plenty of work remains. Certainly, Federal Emergency Management Agency
and Army Corps of Engineers contractors will garner a large share of
the government's relief work. But untold opportunities for small- and
medium-sized businesses will be available, predominantly at the
subcontracting level. Feeding and housing relief workers, and helping
with demolition and cleanup, are areas where small and medium companies
can step in right away and play a vital role. Significant long-term
work remains as well--a chance to rebuild a city from the ground up--
and service contractors will be there on the forefront.
Unfortunately, the positive impact of the work being performed by
service companies is often ignored by Congress and the media in the
continued hoopla over alleged contracting abuses and the general role
of the private sector. This blame game has already begun in Washington.
But people displaced from their homes, waiting for electricity to come
on and the water to be drinkable, can't wait for the normal procurement
process to be followed. Providing these services 6 months from now
isn't good enough. Clearly the government can't do it alone; it needs
the special capabilities honed by the competitive forces of the private
sector to provide these services now. Good, sound business judgment
should carry the day, with flexible contracting authorities that still
will ensure that critical needs are met quickly--without squandering
taxpayer dollars.
The Contract Services Association has developed a Web site of
contracting information at www.csa-dc.org/news/katrina.asp. The site is
updated constantly and includes information issued by and concerning
various agencies, including:
The Office of Management and Budget has issued guidance to
Federal agencies' chief acquisition officers and chief financial
officers regarding new streamlined hurricane procurement policies
enacted in recent hurricane relief supplemental appropriations.
A General Services Administration memorandum for civilian
agencies outlines the emergency authorities, pursuant to the 2003
Services Acquisition Reform Act, for increasing the micropurchase
threshold to $15,000 and the simplified acquisition threshold to
$250,000.
The Homeland Security Department directs companies with
resources to donate or sell to the response agencies--disaster recovery
services, for example--to register at the National Emergency Resources
Registry at www.SWERN.gov. Also, FEMA, part of the Homeland Security
Department, procures goods and services through the GSA's Federal
supply schedule.
The Interior Department has significant responsibilities
in the hard-hit areas. On Sept. 1, approval was signed for other than
full and open competition required under the Federal Acquisition
Regulation, and for a waiver to FAR publication requirements. This
provides coverage to Interior contracting activities that need
appropriate accelerated procedures.
The Small Business Administration, www.sba.gov, is
developing a community-based network to spread information on disaster
assistance to small businesses, and procurement guidelines for small
businesses.
At a time of national need, America's service contractors stand
ready to help their fellow citizens rebuild and restart their lives.
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\1\ Cathy Garman is the senior vice president of the Contract
Services Association.
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