[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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            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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