[Senate Hearing 109-453]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-453 

     STRENGTHENING HURRICANE RECOVERY EFFORTS FOR SMALL BUSINESSES

=======================================================================

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP



                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 8, 2005

                               __________

      Printed for the use of the Committee on Small Business and 
                            Entrepreneurship


 Available via the World Wide Web: http://www.access.gpo/gov/congress/
                                 senate









                                 _____

                 U.S. GOVERNMENT PRINTING OFFICE

27-288                 WASHINGTON : 2005
_________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government 
Printing  Office Internet: bookstore.gpo.gov  Phone: toll free 
(866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2250 Mail:
Stop SSOP, Washington, DC 20402-0001











            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
NORMAN COLEMAN, Minnesota            JOSEPH I. LIEBERMAN, Connecticut
JOHN THUNE, South Dakota             MARY LANDRIEU, Louisiana
JOHNNY ISAKSON, Georgia              MARIA CANTWELL, Washington
DAVID VITTER, Louisiana              EVAN BAYH, Indiana
MICHAEL B. ENZI, Wyoming             MARK 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 Entrepreneurship, and a United States Senator from 
  Maine..........................................................     1
Vitter, The Honorable David, a United States Senator from 
  Louisiana......................................................     5
Kerry, The Honorable John F., a United States Senator from 
  Massachusetts..................................................     7
Landrieu, The Honorable Mary, a United States Senator from 
  Louisiana......................................................     9
Thompson, The Honorable Bennie G., a United States Representative 
  from Mississippi...............................................    26

                           Witness Testimony

Barreto, The Honorable Hector V., Administrator, U.S. Small 
  Business Administration........................................    35
Rothwell, Gregory D., Chief Procurement Officer, U.S. Department 
  of Homeland Security...........................................    46
Johnson, Major General Ronald L., Deputy Commander, U.S. Army 
  Corps of Engineers, Department of the Army.....................    58
Isaacson, Walter, Vice-Chairman, Louisiana Recovery Authority....    94
Cooper, David E., Director of Acquisition and Sourcing 
  Management, U.S. Government Accountability Office..............   107

          Alphabetical Listing and Appendix Material Submitted

Allen, The Honorable George
    Prepared statement...........................................   126
Barreto, The Honorable Hector V.
    Testimony....................................................    35
    Prepared statement...........................................    40
Bayh, The Honorable Evan
    Prepared statement...........................................   127
Brian, Danielle
    Prepared statement with attachment...........................   142
Cooper, David E.
    Testimony....................................................   107
    Prepared statement...........................................   109
Enzi, The Honorable Michael B.
    Prepared statement with attachment...........................   129
Glover, Glenda B., Ph.D.
    Prepared statement...........................................   149
Isaacson, Walter
    Testimony....................................................    94
    Prepared statement...........................................    98
Johnson, Major General Ronald L.
    Testimony....................................................    58
    Prepared statement...........................................    60
Kerry, The Honorable John F.
    Opening statement............................................     7
Landrieu, The Honorable Mary
    Opening statement............................................     9
    Prepared statement with attachments..........................    12
    Testimony of Dr. and Mrs. Edward M. Lang.....................    17
    Letter from Janice Hamilton, Evans Industries, Inc...........    19
    Testimony of David Guidry, Guico Machine Works, Inc..........    21
    Letter from Taquilla Fedison Hamilton, Cosmetology Business 
      Management Institute.......................................    23
    Chart on SBA Disaster Close Out Figures, FY 2004-FY 2005.....    25
Rothwell, Gregory D.
    Testimony....................................................    46
    Prepared statement...........................................    47
Small Environmental Business Action Coalition
    Prepared statement submitted by Paul Goldsmith with 
      attachment.................................................   158
Snowe, The Honorable Olympia J.
    Opening statement............................................     1
Thompson, The Honorable Bennie G.
    Opening statement............................................    26
    Prepared statement...........................................    29
Thune, The Honorable John
    Prepared statement with attachments..........................   130
Vitter, The Honorable David
    Opening statement............................................     5
Wilfong, Henry T., Jr.
    Prepared statement...........................................   147
Wilson, Donald
    Prepared statement...........................................   154
























 
     STRENGTHENING HURRICANE RECOVERY EFFORTS FOR SMALL BUSINESSES

                              ----------                              


                       TUESDAY, NOVEMBER 8, 2005

                               U.S. Senate,
  Committee on Small Business and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:01 a.m., in 
room SD-428A, Dirksen Senate Office Building, The Honorable 
Olympia Snowe (Chair of the Committee) presiding.
    Present: Senators Snowe, Thune, Isakson, Vitter, Kerry, 
Landrieu, and Pryor.

  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, please. Thank 
you.
    Good morning and thank you all for being here this morning. 
This is a very important hearing today. It is the second 
hearing that we are holding to examine the Small Business 
Administration's management of disaster loans and the SBA's 
overall disaster response. Regrettably, it is clear that strong 
and specific measures must be taken immediately to rectify the 
unacceptably slow service the SBA has been providing to small 
business owners in desperate need of assistance in a region 
that cannot afford to have its economic recovery held hostage 
to the plodding processes of paperwork.
    The recent hurricanes are repeatedly and appropriately 
described as disasters of ``unprecedented proportions.'' The 
SBA, therefore, has the responsibility to provide a response of 
unprecedented proportion.
    We will hear from several administration witnesses, 
including Administrator Barreto, representatives of the 
Department of Homeland Security, the Army Corps of Engineers, 
the Government Accountability Office, as well as others from 
the Gulf region in an effort to find solutions and move forward 
with relief and rebuilding.
    This hearing will also review contracting practices of 
Federal agencies and prime contractors to ensure that the 
interests of small business are met as Federal contracting 
dollars are spent in the Gulf region.
    I have been working with the Ranking Member, Senator Kerry, 
and our colleagues on this Committee, most specifically Senator 
Vitter and Senator Landrieu, obviously representing Louisiana, 
and they have been invaluable in providing guidance and 
recommendations on drafting legislation that is now currently 
pending in the Senate as, well as providing other significant 
and invaluable advice and counsel as to how we should proceed 
and what responses are necessary from the SBA to provide for 
the appropriate response. I want to thank Senator Vitter, who 
is here, for being very helpful to this Committee and for 
providing us with the kind of support that we need to make sure 
that we have an effective and efficient response.
    We also heard from many in the region during the previous 
hearing: small business owners who represent Mississippi, 
Louisiana, and Alabama, and their challenges in rebuilding 
their businesses and their communities. I have also been 
consulting closely with Senators Lott and Cochran as we work to 
rebuild the entire Gulf region.
    Yet, regrettably, even as the current problems in the Gulf 
persist, we unfortunately have the SBA that is continuing to 
oppose the legislation that I have introduced along with 
Senator Kerry, Senator Vitter, Senator Landrieu, Senators 
Cornyn and Talent (the Small Business Hurricane Relief and 
Reconstruction Act of 2005) that would give the SBA broader 
authority and flexibility to assist small businesses devastated 
by these hurricanes. What the SBA fails to mention or even 
recognize is the fact that the Agency's own objections have 
hampered our ability to rebuild the Gulf region with some of 
the specific tools that are included in that legislation.
    As the primary Federal agency providing loans to 
individuals and businesses after a disaster, the Small Business 
Administration plays a pivotal role in disaster response and 
recovery efforts. It is absolutely vital that assistance is 
delivered quickly, effectively, and efficiently.
    While some improvements have been made, the evidence 
suggests that almost 2 months after our first hearing, the 
SBA's response thus far has been insufficient to meet the needs 
of our small businesses. I find it deeply disconcerting that we 
are at the point that we are required to have a hearing to 
examine many of these issues. I know that the Agency in the 
recent weeks has made much improvement. We hope to hear from 
Administrator Barreto today on what has changed and what will 
continue to change to address this overwhelming problem.
    But the fact is what has hampered our response, as well, is 
that SBA employees have responded that SBA does not want to 
change horses in midstream. Well, what better time for a new 
strategy than when something is not working? Clearly, the SBA's 
initial disaster response plan was not comprehensive and 
flexible. The SBA has taken 40 days or more to change many of 
its burdensome rules and policies, to expedite the disaster 
loan process, demonstrating a lack of urgency in its initial 
response.
    For example, it has just started simplifying parts of the 
processing system, including its credit elsewhere test that 
adds hours to the process, and it has only recently initiated 
efforts to reach out to the private sector for assistance. The 
SBA should be proactive in responding to disasters.
    The agency waited 2 months after Hurricane Katrina struck 
to ask trade groups for assistance in obtaining lending 
officers and loss verifiers, a veritable eternity given the 
magnitude of the hurricanes and given the key role these 
employees have in completing the loan requests. Applications 
have been languishing for 8 to 10 days before being even 
entered into the computer for processing. The SBA should have 
immediately planned for a disaster assistance work force far 
larger than the current 3,952 workers and should have hired new 
employees from the public, sought referrals from trade groups 
and perhaps even requested employees from other Federal 
agencies.
    Looking forward, it is absolutely essential that the SBA 
develop a comprehensive disaster response plan that would 
accommodate different scales of disasters. In addition, the SBA 
should work with State governments to determine their 
individual requirements on an annual basis so that they can 
coordinate their disaster relief efforts.
    The numbers speak for themselves. As you can see in this 
chart that we have here on display, of the more than 225,000 
loan applications received by the SBA, both from individuals 
and small businesses, only 38,000, or 17 percent, have been 
resolved by either being denied, approved, or withdrawn. Thus, 
187,000 applications remain unresolved and are pending. Only 
5,728 applications have been approved.
    The figures are even worse when you consider small 
businesses exclusively. As of yesterday and our data that we 
have, only 10.1 percent of applications from small businesses 
have been resolved, and only 3 percent of business applications 
have been approved. Of the 28,500 small businesses that have 
requested loans, only 840 have been approved.
    Over the last 20 days, the SBA has received about 5,400 
applications per day and has resolved only 1,235 daily, which 
suggests that each day, about 4,100 more applications have been 
received than settled.
    So consequently, in spite of the faster rate of resolving 
applications, and even if no more applications are submitted, 
it would require almost 4 months to complete all the pending 
applications. Can there seriously be any question of the 
necessity for SBA to move in a more effective direction? 
Additional personnel and alternative approaches are warranted 
to respond to this overwhelming demand.
    The full resources of the Federal, State, and local 
governments must be brought to bear to deliver immediate 
relief. I repeat that I am committed to doing whatever is 
necessary and essential to providing meaningful support to the 
region.
    Two weeks ago, I sent Committee staff to the Gulf region to 
examine the SBA's disaster loan processing facilities to 
determine the nature and extent of the reported delays in loan 
approvals. They returned with several recommendations that I 
have endorsed along with Senators Kerry, Vitter, and Landrieu.
    Today, this Committee is eager to measure how they have 
been implemented. Some of our short-term recommendations 
include: the SBA should hire 1,000 additional employees for the 
Fort Worth processing center, including business loan officers 
and data entry staff to meet the current demand. The SBA should 
hire 450 additional loss verification officers to analyze 
damaged homes and businesses. The SBA should streamline credit 
tests for disaster loan applications to make them less 
burdensome. The SBA should hire at least five additional full-
time procurement center representatives and five additional 
full-time commercial market representatives as well as leverage 
existing personnel and expertise to help small businesses with 
prime and subcontracting opportunities. The SBA and its 
resource partners should increase one-on-one business 
counseling and services to small businesses affected by 
disasters. The SBA should enhance its disaster loan computer 
system, the Disaster Credit Management System, to make it more 
efficient and effective for future disasters and expedite 
implementation of online loan applications.
    I look forward to the administration's response to these 
recommendations as we discuss many of these issues today.
    Finally, we will examine the serious problems faced by 
small businesses who seek to obtain Federal contracts, and 
here, we have representatives from the Army Corps of Engineers, 
the Department of Homeland Security to describe their 
reconstruction contracting for small businesses.
    The Small Business Act directs the SBA to provide small 
businesses a fair opportunity to bid on government projects. To 
meet this standard, 23 percent of contracts must go to small 
firms.
    Again, as indicated in this chart that I have here that we 
will display, what Secretary Gutierrez said recently at a small 
business conference, he said that 72 percent of Federal 
contract dollars for post-Katrina recovery, not including 
subcontracts. Well, that claim is astounding, and I question 
how the administration arrived at such a figure.
    The executive branch is responsible for informing Congress 
and the public about Federal contracting through its Federal 
Procurement Data System. But the system does not include up-to-
date post-Katrina contracting information, and at the end of 
October, FEMA has yet to finalize the terms of $1.6 billion in 
no-bid contracts. How can the administration assert 72 percent 
of its contract dollars have gone to small businesses when this 
critical information is omitted?
    Now, I know Administrator Barreto is going to say it is now 
45 percent, but again, it is going to show 72 percent on one 
hand or 45 percent on the other, and we have to address this 
gap. And what is the information that is available that is 
going to buttress and substantiate either of the figures? 
Because it is something that we have to get to the bottom of, 
because it is the lifeline for economic restoration in the Gulf 
region.
    And so, in the final analysis in either case, the 
Administration has either neglected small business contractors 
or completely excluded them. For example, none of its Katrina 
supplemental requests provided any funding for additional 
procurement center representatives and commercial market 
representatives in the Gulf region despite this Committee's 
request to do so.
    Small businesses have proven to be capable partners in 
Federal contracting. With so many losses for businesses already 
after the hurricanes, it is imperative that every Federal 
agency involved in disaster recovery meets and even exceeds the 
statutory goals for small business prime contracting.
    Along with the House Small Business Chairman, Don Manzullo, 
I have requested the Government Accountability Office to 
investigate whether small and minority-owned businesses have 
been given a fair opportunity to compete for Federal and 
federally funded relief contracts and subcontracts.
    The challenges confronting the victims of these hurricanes 
is so great, and the hardest work is still ahead. We must 
assist the people of the region to return to a normal way of 
life and to restore the businesses so that they can create an 
environment in which they can live and prosper. I will continue 
to work with Administrator Barreto, the Majority Leader, Bill 
Frist, the Administration and my colleagues, Senator Kerry, 
Senators Vitter and Landrieu so that we can continue to 
leverage the authority of the SBA to provide relief to those 
left without the means to rebuild their lives.
    I urge the SBA to focus on finding a remedy for all of 
these problems that prevents and delays its front line 
employees from working in the disaster zones from assisting 
victims. With that, I would be glad to recognize Senator 
Vitter.

   OPENING STATEMENT OF THE HONORABLE DAVID VITTER, A UNITED 
                 STATES SENATOR FROM LOUISIANA

    Senator Vitter. Thank you, Madam Chair. I want to thank you 
and the Ranking Member for having this hearing today. It is 
very important.
    Helping small businesses recover is one of the most 
important parts of Louisiana's recovery from Hurricanes Katrina 
and Rita. Never before has our Nation seen the situation that 
Hurricane Katrina has caused: an entire major metropolitan area 
evacuated and completely closed for weeks. And then, a few 
weeks later, we were hit again with another major storm. We 
must get jobs back now so that people can return. Small 
businesses are the life blood of our economy, and we need to 
help them get back up and running and provide opportunities for 
them to grow as we recover from the storms.
    Clearly, the Small Business Administration can provide help 
``to get us back on track'' with its programs to help 
homeowners recover with home rebuilding loans and with disaster 
loans for small businesses, but to this point, and I have to be 
frank, and I absolutely have to agree with the Chair, the 
assistance has been nearly non-existent.
    I hope we can hear from Administrator Barreto today about 
what we can do, what his agency needs to get these loans moving 
much, much, much faster. Whether it is more staff, more 
funding, anything we can give you except more time, we are 
ready and willing to do. It is just unacceptable for small 
businesses to wait 60-plus days for emergency disaster loans 
for a disaster of this scale.
    Every day, businesses are making decisions about whether or 
not to return to the area, and in fact, they are making 
decisions about whether or not they can continue. With zero 
cash-flow in the vast majority of cases, these small businesses 
need help in the form of grants and loans, and they need it 
now.
    Now, apart from the timetable, the slowness of current SBA 
action, there is another real issue, which is that the 
traditional and current menu of SBA help has real gaps in it, 
at least with regard to this unprecedented situation of 
Hurricanes Katrina and Rita. That is why I have been pushing 
hard to pass our Committee's bill for small business recovery, 
which would provide funding for bridge loans, allow for larger 
traditional disaster loans, expand other SBA programs, allow 
deferment of payments and other things to get businesses back 
up and running.
    I appreciate all of my colleagues' work, including the 
Chair and the Ranking Member, who have pushed this legislation. 
Louisiana absolutely needs this bill, and we need it now, and 
we need everyone's help: this Committee, the Senate, the 
Congress, and the President, to get this done before we adjourn 
this year.
    Also, I would hope we can look at still other alternatives 
for the future of SBA disaster loans and its program to build 
on the GO Loan pilot that is getting underway. Perhaps instead 
of the SBA being the direct lender for disaster loans, we could 
convert at least a portion of the disaster lending into a 
guarantee program, much like the regular SBA loan program. That 
way, the local financial institutions, who know their customers 
and could more quickly provide for enormous needs, especially 
after the storms of the magnitudes we have seen in Louisiana, 
would have a significant role.
    Along with the SBA, the other agencies with us today are 
absolutely critical to our long-term recovery. The U.S. Army 
Corps of Engineers will be repairing our levees, and again, 
every day, businesses are making decisions about coming back or 
not, with this weighing very heavily in their minds. Not only 
must we quickly repair our hurricane protection systems to 
Category 3 standards, not just pre-Katrina levels, because many 
of these levees had settled to many feet below their design 
grade, but we must also set in motion specific, concrete, 
streamlined plans to get us to higher, Category 5 protection, 
and to get us there quickly in a reasonable timeframe.
    I know we cannot have this level of protection overnight, 
but we need to take immediate steps that start this process. We 
need to have a streamlined process, and we need to communicate 
that to everyone, whether they are in Louisiana or evacuees in 
Houston or elsewhere who are waiting to hear this sign from the 
Federal Government.
    Also, we have DHS's chief procurement officer here. We all 
know that we will be spending large sums of Federal money to 
help in this recovery, and that funding should be providing a 
double hit: reconstruction and local jobs. But so far, the 
amount of local jobs provided through these contracts is 
unacceptably low in comparison to out of State contracts. We 
need to strengthen small business and local contracting goals 
both for the Government direct contracts and for the 
subcontractors to the prime contracts, perhaps with incentives 
to reach or penalties for not reaching these goals.
    I understand the need for fast response. Maybe some of the 
big companies were the only ones who could do it in the 
absolutely immediate aftermath of the hurricanes. But we are 
well past that stage now. So there has to be something in 
between no-bid megacontracts instantly offered and then a 
recompete of those initial contracts that is expected to take 
well over a month. Again, time is critical. Not only do we need 
much recovery work done, but we also need it done by local 
folks so that the economy can get up and running.
    I look forward to hearing how our witnesses are working to 
speed things up, cut red tape, expedite our recovery from the 
largest natural disaster in our Nation's history. And again, I 
want to thank Senator Snowe for having this hearing, and I look 
forward to continuing to work with the Committee and these and 
other Federal agencies and most importantly small business 
owners in Louisiana to rebuild our State and our economy.
    Thank you, Madam Chair.
    Chair Snowe. Thank you, Senator Vitter, and thank you for 
your invaluable advice that you have given this Committee.
    Senator Kerry.

  OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY, A UNITED 
               STATES SENATOR FROM MASSACHUSETTS

    Senator Kerry. Madam Chairwoman, thank you very much for 
having this hearing today. Congressman, thank you for bearing 
with these opening statements, but this is an important 
hearing, and you know, I almost do not know where to begin.
    I know there is sort of a perception that the 
Administration comes up to these hearings, and Senators sort of 
vent, and then, everybody goes back to business as usual. Well, 
I am kind of tired of it. And somehow, we have got to find a 
way to get this process to mean something more, because real 
people's lives and real people's businesses and the economy of 
our country is at stake. This is not a game.
    I almost, you know, hesitate to ask questions of the 
Administrator, because frankly, we have not been given the 
straight answers over the course of time. On September 21st, 
weeks after the end of August when the hurricane hit, we had a 
hearing, and we nicely and appropriately and responsibly asked 
questions about what the response would be. And I remember 
specifically asking how long it took to get disaster loans 
processed, and we were told by the Administrator that it takes 
21 days. And we were confident, the Administrator said, of our 
ability to be able to deliver.
    It has not happened. It has not happened for all of the 
obvious reasons that every single of one of us sat here and 
said. There are problems, and there are going to be problems. 
And it is really only a symptom of a larger problem. You know, 
the challenges faced by small businesses that are trying to 
participate in Hurricane Katrina contracts are problems that we 
see throughout the procurement system. There is a lack of 
transparency, a lack of accountability by agencies, and very 
little leadership by the Administration to try to correct the 
problems.
    Mr. Administrator, you have presided over a reduction in 
the budget of the SBA, and you have presided over a reduction 
in the capacity of the SBA to deliver in America. You may shake 
your head and say no, but the budget has gone from $1.1 billion 
in 2001 to $593 million, and on May 20 of this year, the SBA 
Inspector General stated that approximately 87 percent of the 
contracts reported to the SBA as potential bundlings are not 
reviewed, not reviewed, 87 percent.
    This is the accountability for the American people. The 
Committee has repeatedly pressed the SBA to increase the number 
of procurement center representatives. There are currently 58 
individuals with PCR duties and fewer than 35 full-time PCRs to 
monitor over $300 billion worth of Federal contracts. 
Currently, only 4 PCRs are assigned to small businesses in the 
Gulf region to ensure that they get their share of the $40 
billion of emergency recovery funds. There is one PCR assigned 
to Louisiana, two assigned to Mississippi, and one assigned to 
Alabama. That is a disaster in the making, not unlike the 
hurricane itself.
    Madam Chair, we all understand that the hurricane posed 
certain problems, but I do not know how many people saw Brian 
Williams' report the other night talking about what it was like 
to be down there in the Superdome while people were dying and 
wondering where America's great military prowess and 
helicopters were and just a drop of MREs, just a drop of water 
would have made a difference. It never happened.
    And now, it sort of continues. You know, the most recent 
report available, dated November 7, out of more than 28,000 
applications received from small businesses, only 840 have been 
approved, notwithstanding all of the talk about how urgent it 
is to get people back quickly, how important it is to get 
people on their feet right away, how desperate businesses are 
for an immediate infusion of cash in order to be able to work.
    Only about 2,500 small business applications have even been 
processed, and this is after more than 2 months and increasing 
staff from 800 to almost 4,000 employees, having been told, of 
course, that we would be able to do it without that. Let me 
quote the Administrator. Mr. Barreto testified on September 21, 
quote: ``I would like to address head-on the misguided accounts 
of computer problems in the Office of Disaster Assistance. 
Nothing could be further from the truth.'' Mr. Barreto said. 
``This system has been in use since December of 2004. All of 
this is an improvement over our old system, and we have used it 
successfully already for over 15,000 applications.''
    Well, talk to the small businesspeople and see if they see 
any indications that the SBA was ready to fully scrap the old 
system and rely on the new system, and we still do not see 
indications that there is in place the management to oversee 
the various components of the disaster loan program in an 
efficient way.
    We sent staff down there to the region, bipartisan, 
including Mr. Nigel Stephens of my staff, to see how this was 
working. Sitting in Fort Worth were stacks of applications just 
waiting to be entered into the data system, applications that 
took a whole week before arriving in Fort Worth and then sat 
awaiting data entry for 10 to 14 days. In Louisiana, no one 
knew who the contracting specialists were or even how to 
contact them.
    In follow-up meetings, SBA pointed fingers at the IRS and 
FEMA and indicated a serious disconnect between headquarters in 
DC and the offices in Louisiana and Fort Worth, out of touch 
with the gaps at the local level. In fact, SBA's Washington 
staff made recommendations that the Fort Worth staff said they 
did not need.
    Contracting opportunities for small businesses are equally 
as challenging. We have all heard the preliminary reports that 
approximately 90 percent of contracts as of October 3 were 
awarded to companies outside of the affected area. Today, we 
still hear from the Army Corps of Engineers and the Department 
of Homeland Security, the two agencies responsible for the 
majority of the contracts, that this is the situation. We will 
hear from them in awhile.
    So I do not know. I am pretty sure of what I am going to 
hear today. I am not sure of what is going to happen tomorrow. 
I am confident of the protestations to the contrary that will 
be put forward today. I am not confident of the changes that 
will be put in effect and the response that Americans deserve.
    So Madam Chair, I am glad we are here today. It is 
important to have these oversight hearings, but it is much more 
important not to have them at all because things are working 
well. It is much more important to have real leadership that 
puts in place the processes and puts the oversight in place. 
And I just think this is a tragedy for the SBA, and more 
importantly, it is a continuing tragedy for far too many people 
whose lives depend on the response of Government.
    Thank you.
    Chair Snowe. Thank you, Senator Kerry.
    Senator Landrieu, and I want to express my appreciation to 
you, as well, for your tireless commitment to bring relief to 
your State and guiding us on the Committee and how best to do 
it.
    Senator Kerry. Before Senator Landrieu speaks, I will just 
mention one thing you were not aware of: You and I have worked 
diligently with this Committee to get an emergency hurricane 
response. It passed the U.S. Senate 96 to 0. It has been 
sitting in limbo between the House and Senate, and just last 
Friday, it was cut out of the Commerce, Justice, and Science 
appropriations conference by the Republicans.
    It has an emergency response, emergency lending. It has 
what we need, and it was cut by the Republicans. I just want to 
make that absolutely clear. I raised this issue with Senator 
Frist on the floor last week, and we get this talk about how we 
are going to look around. It is all politics. Politics as usual 
in Washington, D.C. is screwing a lot of Americans, and they 
deserve better.
    Chair Snowe. Senator Landrieu.

  OPENING STATEMENT OF THE HONORABLE MARY LANDRIEU, A UNITED 
                 STATES SENATOR FROM LOUISIANA

    Senator Landrieu. Thank you, Madam Chair. I will try to be 
as brief as I can. There are so many things I want to say, but 
I will try to be brief, because I am looking forward to the 
panels, and Congressman, thank you for being here and being so 
patient. I know you have a difficult schedule, but this is a 
very important matter.
    I would like to go on the record following up on something 
that Senator Kerry said to begin with, to commend the 
leadership of this Committee. Madam Chair, you could not have 
acted more quickly. We called a hearing on this Committee I 
believe within 2 weeks of the storm; got the SBA executives 
here to talk about what they needed, what they could use, how 
we could expedite matters and produced in record time a bill 
that has passed the Senate with over 20 significant items that 
could expand current authorizations that could give immediate 
help to the thousands of small businesses that are desperate, 
desperate along the Gulf Coast.
    They want to get back into business. They want to help 
rebuild their region and their homes and their communities. 
They want to be part of the rebuilding effort. They are willing 
to take risks, as all business men and women do. But they are 
getting very little real support from the Federal Government; a 
lot of talk, a lot of promises, not a lot of support. This bill 
(the Snowe-Kerry-Vitter-Landrieu, et al.) is waiting to be 
passed. We cannot wait much longer.
    When the President came to Jackson Square, he said it is 
entrepreneurship that creates jobs and opportunities. It is 
entrepreneurship that helps break the cycle of poverty, and we 
will take the side of entrepreneurs as they lead the economic 
revival of the Gulf Coast region. This is a tough statement, 
but I am not sure this Administration is on anybody's side in 
the Gulf of Mexico today, and I think that the statistics that 
will come out at this hearing will prove this point.
    Our businesses, thousands of them, were wiped out by a wall 
of water. The SBA assistance is being doled out in a trickle. 
Small businesses in the Gulf are not getting their fair share 
of Government contracts to rebuild the region that they love, 
that they have lived in for decades and that they want--and 
they are proud to be able to rebuild.
    I am going to show some statistics very quickly and to 
talk, because the general points have been made, but I want for 
the record, because these businesspeople cannot all be here 
today, but for the record, Dr. Edwin Lang, a podiatrist, had 
eight employees before the storm. He had 5 feet of water. His 
building was completely devastated. They applied to the SBA. 
The SBA has told them it would take 2 to 3 months for a loan 
officer to even look at the application.
    Dr. Lang has been contacted by hospitals in other States, 
and the latest is in Great Britain, who wants to recruit his 
whole business to come to Great Britain, and I hate to tell 
you, Madam Chair, this business might make the decision to go. 
The chances of Louisiana getting this podiatrist back--I just 
want to show you a picture of the operating room. Now, he has 
been in business successfully for many years. Please show the 
files, too, that were underwater.
    Let me go real quickly to Evans Industries. Janice Hamilton 
is the owner and CEO. This company did all the right things 
after Katrina. They made temporary repairs, acquired generators 
to test their equipment, got their employees FEMA trailers, 
which is a hard thing to do, so they could move in on company 
property, company property.
    Rita hit. They got wiped out again. This is her quote: ``It 
is simply taking the SBA too long to process our loan 
applications. If something is not done, there are a lot of 
companies that are not going to survive, including ours.''
    Let me give you the final from David Guidry. I think he 
testified before Senator Vitter's excellent field hearing in 
Louisiana. He says, ``I cannot tell you how many struggling 
businesses are counting on the cavalry to arrive. Instead, the 
running joke is that SBA disaster funds loans are like UFOs. 
Everyone knows they are out there, there have been some 
sightings, but I do not know if anyone has actually seen one.'' 
This man says that he has counted on the SBA to help build his 
business where it is. He likes the SBA. He has worked with the 
SBA, and now, in his hour of desperate need, Madam Chair, he 
cannot find them.
    I will end with this: we have cut back the SBA. The 
streamlined programs we have put in place are not working. We 
have computers making decisions about whether to lend people 
money or not. We need human beings with heart. We need human 
beings with compassion. And we need a lot of human beings with 
intelligence to help us get our entrepreneurs set back up.
    If we cannot do this and also invest in the levee system 
that our delegation has been talking about, I frankly do not 
see how we are going to rebuild the Gulf. Finally, we are going 
to show statistics today that show that none of the States are 
being treated very well, not Mississippi, not Louisiana, or 
Alabama, but the ratio of help to Louisiana is even less when 
our need is so much greater. And I am going to submit this, 
Madam Chair, to the record. But you can see that for all the 
storms in the past, the rate of application approval has been 
up to 45 percent. Hurricane Ivan, I think, was 35 percent. We 
are still down 14 percent, 23 percent for Katrina.
    So something, Madam Chair, is not working. Either the 
systems that we put in place are not working and really 
shortchanging us, or there is just a lack of political will, or 
I am not sure. But we need to get to the bottom of it. We need 
to pass your bill and then move on to other things that might 
be helpful.
    Thank you.
    [The prepared statement and attachments of Senator Landrieu 
follow:]


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Chair Snowe. I thank you, Senator Landrieu.
    Senator Pryor.
    Senator Pryor. I do not have anything, Madam Chair.
    Chair Snowe. Thank you.
    Chair Snowe. Our first witness is Congressman Bennie 
Thompson from Mississippi's Second District. As Ranking Member 
of the House Committee on Homeland Security, which holds 
jurisdiction over FEMA, and an elected official from a 
hurricane-torn district in Mississippi. Representative Thompson 
is uniquely positioned to discuss many of the issues that we 
will be addressing here today, and I know he has been a leader 
in the House on Federal Government disaster response, relief, 
and preparedness as a result of these three hurricanes.
    So thank you, Congressman Thompson. If you want to 
summarize your statement, we will include the entire statement 
in the record. Welcome.

STATEMENT OF THE HONORABLE BENNIE G. THOMPSON, A UNITED STATES 
                REPRESENTATIVE FROM MISSISSIPPI

    Representative Thompson. Thank you very much, Chairwoman 
Snowe, Ranking Member Kerry, other Members of the Committee. I 
appreciate the opportunity to come and give you a little 
personal opinion, like most of you have, about the response.
    I come here today wearing two hats. First, I represent the 
Second District of Mississippi, which was affected by Hurricane 
Katrina. While we were spared the brunt of Katrina's force, the 
wind and rain which accompanied the hurricane caused major 
interruptions of services. The second is I am the Ranking 
Democrat on Homeland Security with some of the jurisdictional 
responsibilities for disaster preparedness and terrorism 
response.
    Basically, I agree with everything that has been said by 
each Member who has talked so far. Absolutely, FEMA's response 
was totally inadequate. I was very disappointed by what I saw, 
like many other people. But what we need to do now is move 
forward to try to correct it.
    What Congress did initially was to respond by appropriating 
$62 billion in disaster response, humanitarian relief and 
recovery assistance to the victims of the tragedy. 
Unfortunately, as we looked at how these funds have been spent, 
clearly, there has been accusations of mismanagement, waste, 
fraud, and abuse. I have also watched how the Department has 
followed, if at all, the Stafford Act, which provides a 
preference to locally owned businesses in contracting following 
a natural disaster. The Act recognizes that contracts awarded 
to small, disadvantaged, and local businesses stimulate the 
local economy. The Act assures that the businesses affected by 
disaster are given the first chance to rebuild their towns and 
cities and their owners' lives.
    Contracts awarded, according to the Stafford Act, help to 
recharge the engine of local economic development, not only by 
providing jobs to residents, but also by creating a multiplier 
effect through spurring business to business transactions. 
Unfortunately, the preference afforded under the Stafford Act 
has been disregarded by most of the agencies charged with that 
responsibility.
    Indeed, in certain instances, it appears that the agency 
has purposely gone out of its way to avoid the small business 
requirement. In my written testimony, I provide several 
examples of how hurricane contracting has run amok at the 
Department and related agencies.
    It is clear to me that the Federal Government, especially 
FEMA and the SBA, must make a major shift in both policy and 
implementation if the lives of the people of the Gulf Coast are 
to be effectively rebuilt and restored. It seems that I read 
almost daily an award of sole source, no-bid, multi-million 
dollar contracts to large corporations, and we know that the 
work required under these contracts will only be possible 
through subcontracting.
    And one of the problems with the subcontracting for the 
Committee, as you know, is many of the people who undertake the 
subcontracts often take them at a below market rate, which 
ultimately puts them in worse shape than they were in before. 
And for me, being from Mississippi, I know sharecropping when I 
see it, and that is absolutely what some of the subcontracting 
amounts to under the hurricane response.
    We know about the 23 percent Federal procurement 
requirements that have not been met. Let us look at FEMA as one 
of those areas. As far as my information can gather, they have 
given 1,600 contracts worth over $4 billion. Less than 3 
percent of those contract dollars have gone to small, 
disadvantaged, women, or minority-owned businesses. Well, as we 
look at the announcement FEMA is talking about now for 15 
contracts worth $1.5 billion, that sounds good, but as we look 
at FEMA's proposal, they will be in $100 million increments. 
Unfortunately, very few small businesses can work with $100 
million increments.
    The contracts are for a very limited class of work: 
maintaining and dismantling trailers. I have spoken a great 
deal about the problems. In the interests of time, let me talk 
about some suggestions Congress can do to help. First, we 
should require FEMA to immediately set forth and implement a 
detailed strategy to award contracts for small and 
disadvantaged businesses.
    Second, we should require that the SBA take stringent steps 
to ensure that businesses that gain contracts under a small 
business designation are authentically small businesses. We 
must end the system of self-certification that allows large 
foreign corporations to pose as small businesses.
    Third, we should require the Department of Homeland 
Security to establish a permanent data base of small 
disadvantaged businesses that can be used as prime contractors.
    My reason for going toward this rather than the loan 
program is that my experience is when we work local businesses, 
that is part of the recovery effort. Congress mandated that we 
do that. The loan programs are absolutely important, but we are 
spending billions of dollars in the recovery effort. If we 
could hire companies from those areas, Madam Chair, I am 
convinced that the area would come back faster.
    Many of the problems that have been identified, we could 
work with them. The loan program is a disaster. The testimony 
that you shared, I agree with. For the first month in my State, 
we had no real SBA programs functioning. They were just 
attending the meetings and say, ``Well, you can apply, but we 
do not have any directions from Washington.'' That is not how 
you address a disaster.
    And unfortunately, the staffing is so small until this 
date, my office, all the counties I represent in the Second 
District of Mississippi have been declared disaster counties. 
There has been little outreach toward my office or other 
Members of Congress as to what SBA or any of the other roles 
are doing. To give you a good example, the only two outreach 
meetings identified in many of the reports by the Federal 
agencies were meetings that I set up, and surely, a Member of 
Congress' meetings should not be claimed as the work product 
for the agency. The agency should be doing outreach also.
    So let me indicate that the work you do in this oversight 
hearing is significant. All of us are very frustrated. We hear 
every day from people who are just trying to get on with their 
lives. They need a little help from the Government, and in many 
cases, they are not getting it. I will stop there, Madam 
Chairman, and submit the rest for the record.
    [The prepared statement of Representative Thompson 
follows:] 


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


    Chair Snowe. Thank you, and it will be included in the 
record.
    Thank you very much, Congressman Thompson. I thank you for 
your insight, your recommendations. I agree with the proposals 
that you have suggested in strengthening our ability to conduct 
oversight of the contracting process and making sure that small 
business has access to Federal contracts that heretofore that 
they are being denied indisputably. And it is one of the issues 
that we have to get to the bottom of. I hope to be able to work 
with you in the future on some of these issues.
    We have asked the Government Accountability Office, GAO, to 
review many of the issues concerning compliance with Federal 
contracting. Obviously, it is subpar, substandard, far below 
where we need to be if we are going to ensure that economic 
restoration takes place in the Gulf region.
    So I certainly appreciate your insights, and I also concur 
with you about the fact that oversight is not an academic 
exercise. It is part of our responsibilities, and we have to 
make sure it is done for the people who depend on it. So I 
thank you for being here and for your testimony today.
    Senator Kerry.
    Senator Kerry. Thank you very much, Congressman. I 
appreciate your testimony. Thanks also for working with us on 
thinking about some of those responses early on.
    Representative Thompson. Thank you.
    Chair Snowe. Thank you.
    Chair Snowe. All right; the second panel will include 
Administrator Barreto. We appreciate your being here today, 
Administrator. Obviously, there are a number of questions that 
need to be answered. We have some serious issues and we hope 
that in the final analysis we can rectify many of these 
problems to have an action plan from the Small Business 
Administration, so that once and for all, we can put the 
rebuilding of the region on course with the appropriate role 
that SBA should be playing. And obviously, all of us here today 
have raised some serious and significant questions, and 
hopefully, we can address them, and we hope we can get answers.
    We are also going to include the other two witnesses as 
well: Major General Ronald Johnson, current Deputy Commander of 
the U.S. Corps of Engineers. Major Johnson [sic] is responsible 
for the oversight and management of the Army Corps' contracting 
functions, and Gregory Rothwell, who is the chief procurement 
officer for the Department of Homeland Security. He examines 
the serious problems facing small businesses who seek to obtain 
Federal contracts during this disaster reconstruction effort.
    So we will begin with you, Administrator Barreto. You can 
summarize your statement. We will include your entire statement 
in the record. Please begin.

 STATEMENT OF THE HONORABLE HECTOR V. BARRETO, ADMINISTRATOR, 
               U.S. SMALL BUSINESS ADMINISTRATION

    Mr. Barreto. Good morning, Chair Snowe, Ranking Member 
Kerry, distinguished Members of this Committee. Thank you for 
inviting me to discuss the Small Business Administration's 
Office of Disaster Assistance's continuing efforts to provide 
relief to the victims of Hurricanes Katrina and Rita. We are 
making progress, and today, I want to announce our new program 
to encourage commercial banks to make loans to small business 
in the recovery.
    I also want to mention that we are also very focused on 
contracting. I heard the Congressman's concerns loud and clear, 
and I hope to clarify some of the things that we are doing and 
some of the opportunities that we are going to be pursuing for 
contracting for small businesses in the Gulf area. Today, I am 
also accompanied by Herb Mitchell, the Associate Administrator 
for Disaster Assistance, and also by Mike Sorrento, who is the 
chief of the Office of DCMS operations, the technology system 
that we keep referring to.
    It is clear to all of us today that Hurricanes Katrina and 
Rita unleashed an unprecedented tragedy on the Gulf Coast, 
demanding an unprecedented response from the Federal 
Government, including the SBA. The numbers are staggering. In 
just 70 days, the SBA has received 220,000 disaster loan 
applications. In just 10 weeks, that is already 5.5 times the 
total number we received the year following Hurricane Andrew. 
To put this in perspective, after the 4 hurricanes last year, 
SBA received 202,102 applications, one-half of what we expect 
now and less than what we have received in the first 70 days.
    The disaster affected over 90,000 square miles and 5 
States. We have already mailed out nearly 2 million 
applications to residents and business owners on the Gulf 
Coast. SBA expects that we may yet receive another 160,000 
applications, requiring us to process 10 times the number we 
received following Hurricane Andrew. The largest disaster SBA 
has ever dealt with was the Northridge earthquake, and that 
disaster had 250,000 applications.
    That is a huge number, but we have already surpassed that 
in the first 70 days following Katrina and will dwarf that 
response in the days to come. At no point thusfar has anyone in 
the press or elsewhere put the magnitude of this disaster into 
scale, acknowledged the overwhelming task my employees face, or 
even laid out the simple facts about SBA's Disaster Loan 
Program.
    The SBA Disaster Loan Program is designed to facilitate 
long-term recovery. It was not designed or intended as a source 
of immediate cash, and it is not a grant program. If SBA has 
done anything, it has become a victim of its own success. In 
smaller disasters, Hurricanes Opal and George, we responded 
with a speed that cannot be duplicated in an event the size of 
Hurricane Katrina.
    Despite this massive disaster and the velocity of the 
volume that has reached us, SBA has responded. A month ago, the 
Office of Disaster Assistance had doubled its staff. Now, it 
has doubled its staff again and continues to grow. SBA now has 
over 3,900 employees in disaster assistance. They are working 
nonstop, 7 days a week, 18 hours a day to handle the volume. We 
have over 225,000 square feet of operations at our Fort Worth 
loan processing center. We have literally exhausted the market 
for business loan officers, and we are temporarily transferring 
experienced SBA lending staff to our processing centers.
    We also initiated a program called Lend a Lending Hand that 
asked our lenders nationwide to lend us, the SBA, their loan 
officers. Additionally, SBA has been working with our lending 
partners to expedite the 7(a) and 504 lending. SBA has 
guaranteed loans of over $100 million in the affected areas. 
Last week, SBA lending exceeded over $10 million.
    But we do not think that is enough, and I am announcing a 
new pilot program to strengthen and expand the role of local 
commercial banks in accelerating the recovery and rebuilding 
the small businesses. This new program is called GO Loans, and 
it employs streamlined, expedited processing driven by banks 
under the direction of SBA. GO Loans will allow banks that are 
PLP and express lenders to use simplified loan procedures, 
their own forms and underwriting, to get working capital into 
the hands of small businesses in the Gulf region. These loans 
will be available to up to $150,000 and have an 85 percent 
guarantee, and applicants will have a decision in 24 hours or 
less.
    GO Loans respond to the eagerness of the private sector, 
the banking community, to play an important role in the 
rebuilding of small businesses. It will unleash the liquidity 
and expertise of commercial banks, and the program will be open 
for business this week.
    Chair Snowe, I would like to thank you and your staff for 
working with us so that we may implement this pilot as soon as 
possible. In recent weeks, I have heard a great deal about how 
our processing system is faulty. There could be nothing further 
from the truth. The system was designed to handle 5,000 
applications a day on a sustained basis and to be scaled up if 
necessary. As designed, the system is accepting over 5,000 
applications a day. There are 180,000 applications in the 
system. 35,000 are fully processed. If the system had been this 
functional during Hurricane Andrew, we could have entered the 
entire year's worth of applications in 1 week. In the last 7 
days, we entered 39,000 applications alone. You cannot do that 
on a bad system.
    We have 2,900 users on the DCMS system, expanded from the 
original 1,500 user capacity. We will add 100 more users, which 
will double the original capacity, and we are presently 
expanding the system to handle an additional 5,000 users beyond 
that. You cannot double the capacity on a broken system. Your 
staff saw our scanning operation in the processing center, and 
we appreciate their willingness to see the situation for 
themselves before rendering judgment.
    At that time, we could scan hundreds of pages in an hour. 
Now, we are scanning 70,000 pages a day, one page a second in 
an 18 hour day. By the time I finish my remarks to you today, 
ODA will scan in roughly 40 applications. SBA has established a 
pilot program with the IRS to replace the laborious process of 
faxing forms back and forth. Under the old system, we could 
input 1,500 tax transcripts a day. Now, SBA has access to 5,000 
transcripts a day, and we have the ability to exceed that.
    SBA has also modified processes to improve the efficiency 
with our loan verification system. ODA teams have completed 
over 50,000 verifications, despite the fact that our loss 
verification teams had absolutely no access in many places 
until after Hurricane Rita. Those lost weeks are time we cannot 
get back, and unfortunately, our teams are still hampered. I 
was in Plaquemines Parish 2 weeks ago, and there were still 
ships still blocking the roads almost 2 months after the 
hurricanes.
    I have heard concerns about the number of declines. SBA's 
underwriting standards have not changed. We do not change our 
standards from year to year, from disaster to disaster. What 
has changed, however, is SBA's ability to give a more accurate 
account. Under the old system, employees screened out obvious 
declines and referred the applicants to FEMA. Those declines 
were not entered into the system. Under DCMS, all applications 
are counted.
    I must also reiterate many applicants come to the SBA 
specifically for a decline in order for people to avail 
themselves of the FEMA grants and other assistance programs. We 
process these declines quickly, as we have always done, to help 
those people obtain assistance.
    SBA has approved over $400 million in loans to over 6,000 
homeowners and businesses, more loans than we approved in 
Hurricanes Opal and George or Isabel. We are currently 
approving nearly $20 million a day, and that number is 
increasing with each passing hour. Even though the SBA's 
Disaster Loan Program is a long term recovery program, we are 
working to speed processing, thinking outside the box, to look 
for any way to shorten processing while still maintaining our 
fiduciary responsibility.
    We expedited our business loan processing by reducing the 
information needed. We implemented a new system to speed 
preapproval of business borrowers. However, we cannot shoehorn 
short-term needs into a long-term recovery program, nor can the 
SBA simply approve loans and worry about the underwriting 
later. For the short-term needs of small business, we have 
worked with the States to assist them in their bridge loan 
programs and coordinate the purposes of the programs and 
establish a co-payer relationship to refinance through the 
Disaster Loan Program.
    I also want to talk about Government contracting. A month 
ago, SBA assigned four procurement center representatives, the 
PCRs, to Hurricane Katrina-related contracting, and I detailed 
Judith Rusell, an experienced career employee from New Orleans, 
to coordinate our contracting outreach efforts. There are now 
five PCRs dedicated to this effort. I have assigned several 
career senior executives with procurement experience to work on 
initiatives to bring more small businesses into the vendor 
pool.
    At every level of SBA, we are engaged. SBA is committed to 
making sure that small businesses receive opportunities in the 
reconstruction effort. Working with the Department of Homeland 
Security and the Federal Emergency Management Agency and the 
Army Corps of Engineers, we will expand the number of small 
businesses, including local 8(a) and Hub Zone firms 
participating in these contracts. SBA is also actively 
collaborating in the area with the President's Urban 
Entrepreneur Partnership, which is helping local minority firms 
prepare for and prepare on Government and private sector 
contracts, particularly through the Ewing Marian Kauffman 
Foundation's Intrusive Coaching Program.
    Finally, the SBA has worked with the Department of Commerce 
and other agencies to establish the Hurricane Contracting 
Information Center. SBA has been helping to make this portal a 
single location for small businesses to access assistance and 
contract information from the various contracting agencies. 
During the center's first 3 weeks, contracting specialists have 
taken 3,476 phone calls, and HCIC's Website has had 56,712 
visits to date. During the week of October 30th, HCIC fielded 
over 1,081 calls, and the Web site received 15,683 visits.
    To date, small business has been awarded over 45 percent of 
the contracting dollars put out for Hurricanes Katrina and Rita 
cleanup and recovery. Last Friday, and the Congressman 
mentioned this, SBA and FEMA announced $1.5 billion in 8(a) and 
small business setaside contracts. That is only one large 
example.
    The General Services Administration has reported over $260 
million in small business contracting; the Department of 
Homeland Security, over $257 million; EPA, over $34 million. 
SBA initiated business matchmaking events in the Gulf region to 
assist small businesses whose customer base has been affected 
by Hurricane Katrina. SBA started this initiative on November 
1, 2005, with an 8-day, six-city mobile registration tour of 
the affected areas which will register affected small 
businesses.
    Along with SBA, small business development centers, and 
score counselors and a specially equipped RV donated by 
Microsoft, we are providing instant electronic registration. 
The initiative's dedicated procurement experts will work to 
align the information with procuring agencies. As a last note, 
SBA is also working to assist our partners at the Small 
Business Development Centers in the region. We have encouraged 
them to apply for additional funding through the portability 
grants that you established, Chair Snowe. This will help them 
pay for the additional counseling and outreach costs.
    Chair Snowe, I appreciate the opportunity to testify before 
you today, and I look forward to answering any questions that 
you might have.
    [The prepared statement of Mr. Barreto follows:]

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chair Snowe. Thank you, Administrator Barreto.
    Mr. Rothwell.

 STATEMENT OF GREGORY D. ROTHWELL, CHIEF PROCUREMENT OFFICER, 
                  U.S. DEPARTMENT OF HOMELAND 
                            SECURITY

    Mr. Rothwell. Madam Chair, Ranking Member Kerry, and the 
rest of the Members of the Committee, thank you for the 
opportunity to come here today to discuss the Department of 
Homeland Security's support of the small businesses and the 
small business program. I am Greg Rothwell. I am the Chief 
Procurement Officer for the Department of Homeland Security. I 
am a career executive with 33 years of Federal service. As the 
chief procurement officer, I give procurement oversight to the 
eight procurement shops within the Department of Homeland 
Security, including FEMA.
    I guess my statement will be very short. Very, very simply, 
we support small businesses because small businesses support 
homeland security. From the very beginning, we have had a very 
significant success in terms of our dealings with small 
businesses. In fiscal year 1903, we gave 40 percent of our 
prime contract dollars to small businesses. In fiscal year 
2004, we gave 38.5 percent to small businesses. We have been 
recognized by many, many groups for our small business program, 
which I believe is a wonderful thing.
    Very recently, I think about a month ago, Congresswoman 
Vasquez of the House Committee on Small Business basically gave 
us the highest grade that she gave throughout the Federal 
Government for our small business program, and that was a B as 
in Bravo. We received the highest honor that SBA gives during 
fiscal year 1904 called the Gold Star Award, and there are 
several awards. I do not really want to go into that too much 
other than to simply say, we understand that this is an 
important program.
    Recently, the FEMA organization has awarded about $3 
billion in contracts in support of the Hurricane Katrina relief 
effort. Over 50 percent of those contracts or $1.6 billion, has 
gone to small businesses. We are working daily, you know, every 
day to make sure that we give awards to local businesses, to 
small businesses, and to all of the small and disadvantaged 
businesses in the area.
    There is much that has to be done yet, and we are committed 
to supporting small businesses and local businesses. I thank 
the Committee for your aid in this effort, and I look forward 
to working with you, and this concludes my statement. Thank 
you.
    [The prepared statement of Mr. Rothwell follows:]


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chair Snowe. Thank you, Mr. Rothwell.
    General Johnson.

STATEMENT OF MAJOR GENERAL RONALD L. JOHNSON, DEPUTY COMMANDER, 
      U.S. ARMY CORPS OF ENGINEERS, DEPARTMENT OF THE ARMY

    General Johnson. Madam Chair and Members of the Committee, 
thank you for the opportunity to be here today. I am Major 
General Ron Johnson. I am the Deputy Commanding General of the 
U.S. Army Corps of Engineers, and I am honored to be here to 
share with you pertinent information about our contracting 
activities in response to Hurricane Katrina and our efforts to 
involve small and disadvantaged businesses in the work we are 
doing in the region. I will summarize my statement here and ask 
that my complete testimony be entered into the record.
    Chair Snowe. Without objection, so ordered.
    General Johnson. As the Corps continues to work in response 
to the recent hurricanes, we are absolutely committed to 
carrying out our missions while keeping in mind the importance 
of utilizing small and local businesses wherever possible. 
Under the leadership of our Chief of Engineers, Lieutenant 
General Carl Strock, we practice a concept of openness, and we 
strive to maintain transparency in our contracting activities, 
and we welcome your oversight and anyone's oversight of our 
activities.
    Lieutenant General Strock and I are personally committed to 
using small businesses in performing our work in the normal 
course of business and even more importantly in times of 
national disaster. We always strive to use small, small 
disadvantaged, women-owned, Hub Zone, and service disabled 
veteran-owned firms to the maximum extent possible. The Corps 
of Engineers typically awards more than 40 percent of its prime 
contract dollars to small firms.
    As part of the National Response Plan, the Corps of 
Engineers is in support of FEMA in the aftermath of hurricanes 
and any emergency disaster. We utilize several prepositioned 
contracts for ice, water, and some of the initial debris 
removal services which were competitively awarded in 2003. Many 
of these awards were to small firms.
    After Katrina, the needs for service were greater than our 
ability to respond with preplaced contracts, and we began 
awarding additional contracts using emergency procedures. We 
maximized competition and the use of small businesses as much 
as possible without delaying urgently needed supplies or 
services. At the same time, we began developing plans to 
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.
    We use normal contracting procedures whenever possible, 
adjusting as necessary to assure that critical life, safety, or 
health needs are met. Such changes might involve things like 
limiting competition or shortening normal advertising or 
proposal times to avoid any delay in award. For work associated 
with major disasters or emergency assistance activities, 
another special consideration is added to our normal 
contracting procedures. There is an additional preference for 
local firms that, quote:

          Preference shall be given to the extent feasible and 
        practicable to those organizations, firms, or individuals 
        residing or doing business primarily in the area affected by 
        such a major disaster or emergency.

    So in accordance with the Stafford Act, we require our 
prime contractors to give preference to firms 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 these operations. Based on 
very preliminary data, large firms are reporting that they are 
awarding more than 50 percent of subcontractor dollars to local 
firms.
    We are continuing to award new contracts as additional 
needs are identified, as well as overseeing the ongoing work. 
Meanwhile, we are concurrently reviewing the activities of our 
staff, reviewing our contracts, assessing performance, and 
capturing lessons learned that can improve our response and our 
contracts in the future.
    From the earliest days of the event, the Corps moved 
quickly to assure we provided information to the public. We 
immediately began posting information to our home page and 
provided points of contact for our prime contractors so that 
local and small firms could apply to do work for those large 
contractors. We established a registration site where firms who 
wished to help could provide information on their capabilities. 
We have provided a listing of our contract awards, as well as 
making updates when appropriate. Now, we are supporting the 
Hurricane Contracting Information Center as they provide a one-
stop communications portal for the public.
    We are indeed enhancing opportunities for small and local 
firms by requiring large businesses awarded one of the 
contracts to implement aggressive subcontracting strategies and 
report their level of success in awarding subcontracts to small 
firms. The initial value for debris removal after Hurricane 
Katrina was estimated at nearly $2 billion, far beyond the 
value of our prepositioned emergency 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 contracting plan with aggressive goals 
for each small business category. I have asked my team to 
divide work whenever practical so that we can target work for 
appropriate small business and other programs. For upcoming 
levee repair work, we hope and are encouraged to contract some 
of the work to minority, service-disabled, veteran-owned or Hub 
Zone small business prime contractors. Other small firms may 
win additional contracts under the Small Business 
Competitiveness Demonstration Program.
    In summary, the U.S. Army Corps of Engineers is committed 
to assuring that small firms play a vital role in the award of 
contracts, that we are alert to areas that we can improve in 
the future and that we are responsive to FEMA as it 
orchestrates disaster response effort.
    Madam Chair, this concludes my statement.
    [The prepared statement of General Johnson follows:]


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chair Snowe. Thank you, and I thank you all for your 
testimony, and Administrator Barreto, I would like to begin 
with you. We will probably have several rounds here with the 
witnesses.
    You indicate that the Small Business Administration has 
been making substantial improvement, particularly in this last 
week, but I think the case remains as to how efficiently the 
SBA is going to address the pending 220,000 applications, and 
that there are anticipated to be another 160,000 applications. 
Our current projections are that it is going to require at 
least 4 months, and that is in addition to what else comes in. 
That is just what has come over the transom at this point, as 
illustrated by these charts here today.
    So that is the issue. It is the issue of how we are going 
to get this done, and does SBA have a plan for accomplishing 
this? It does not matter what you are doing. The question is 
what is the end result? We need the end result. We need to know 
what it is, because it has been more than 70 days since the 
first hurricane, and here we are finding that applications are 
languishing. Irrespective of what is happening, what the 
problems have been, we have been obviously, hoping that SBA--we 
have been working with your office every day, because we have 
wanted to know what can we do to provide the resources?
    Frankly, the bridge loans should have been done from day 
one. Bridge loans, that is something that, you know, in fact, 
it passed, and regrettably now has been removed from the 
appropriations conference on Commerce, Justice, State, that 
would have included the bridge loans as part of this overall 
package. We happen to think that whole package are the tools 
that SBA requires.
    So we do not want to be sitting here next month, the month 
after as to what the additional problems are. You need more 
people. I mean, I think that is the bottom line. You mention 
new procurement representatives, but there are not any new 
ones. They are what they are. You might have assigned one to DC 
to split their time, but you have two in Alabama, one in 
Louisiana, zero in Mississippi, and one in DC. So there are not 
any additional ones. We have recommended five additional ones 
to help in the contracting process.
    But let us start with the numbers, because that is 
essential here. You have approximately 180,000 or 190,000 
pending. It is going to require 4 months. So what do you have 
in place today that is going to suggest that you are going to 
get this done in an expeditious fashion? Do you have anything 
in place?
    Mr. Barreto. I think starting with the numbers is a great 
place to start, Senator Snowe. In fact, I have a chart that I 
am going to ask them to put up there in terms of our processing 
time.
    Let me start with this number: 55 percent of the 
applications have been received in the last 3 weeks; let me say 
that again, 55 percent of the applications have been received 
in the last 3 weeks. So these are not applications that have 
been sitting around on a desk someplace.
    Also, what you see here----
    Chair Snowe. Well, you know, can I just say, the staff was 
down there, and many of the applications were pending for 8 to 
10 days; they had not been entered because there were no data 
entry people.
    Mr. Barreto. I have already established the fact that we 
are dealing with a volume that is 10 times bigger than anything 
we have ever dealt with before.
    Chair Snowe. We have to move the process along.
    Mr. Barreto. And one of the things that we have also 
established is that we have doubled the size of the agency 
twice already. We are continually hiring more and more people. 
In fact, I mentioned in my statement that I believe that we 
have probably exhausted most of the folks that have loan 
experience.
    One of the things, if you are going to underwrite a 
business loan, you are going to need somebody that knows how to 
do that. And one of the things we are doing is we are bringing 
people on and training them. Again, we have close to 4,000 
people on board. We are hiring more people every single day. I 
am transferring some of our own people that we have in our 
regular loan operations to work on this, and we are also 
working with the lending community to get some folks from 
there.
    But one of the things that you will see here, and maybe I 
could have that chart turned a little bit more so that the 
Senators could see it, is that these are the average processing 
times for disasters that the SBA has ever dealt with. The 
average time to get a decision from application receipt to 
decision is the lowest of any disaster that we have responded 
to. The second line----
    Chair Snowe. What is the time? Excuse me, what is the time, 
then?
    Mr. Barreto. Well, if you will notice, the total time is a 
little over 20 days. That is the total of all of the 
applications that were received for 2005 hurricanes. That is 
the first block that you see there. That second block is what 
it is taking to process home loans; the next block is what it 
is taking to do business loans; the next block is economic 
injury.
    The green line is what we were processing last year. Last 
year, it was taking us almost 30 days, so 50 percent longer to 
process the loans last year. The top line is the biggest 
disaster that SBA has ever dealt with before. That was the 
Northridge earthquake, and we dealt with that disaster over a 
year, not 70 days, over a year. And we have already received 
more applications than we received for them. But you will 
notice there it was averaging about 45 days to get to a 
decision on the Northridge earthquake.
    So in terms of responding, we are responding. We are 
responding at an unprecedented level, and what you will also 
notice, because we provided some charts, is that the level of 
velocity of approval has increased for every week for, like, 
the last 7, 8 weeks, and that is, you know, documented with 
real numbers and some additional information that we are 
providing you.
    We are processing business loans faster now and getting to 
decisions. We are processing economic injury loans faster now. 
And that is going to continue occurring as we get more and more 
people trained and focused in on these loans.
    Chair Snowe. But the point is you are referring to the 
38,000 applications that have been resolved; is that correct?
    Mr. Barreto. That is right; of the applications resolved.
    Chair Snowe. Right, but there are currently 187,000----
    Mr. Barreto. Fifty-five percent was received in the last 3 
weeks.
    Chair Snowe. Yes, but 187,000 remain unresolved; is that 
correct? And 159,000 of them are 30 days overdue. I am just 
telling you what we are being told.
    Mr. Barreto. I understand, and I am trying to document to 
you what the reality is. And the other thing that I want you to 
be very clear----
    Chair Snowe. So I think the bottom line is what do you 
need? I think that is more than anything else what we are here 
today to say is what do you need to get this done in a timely 
fashion, because we have asked----
    Mr. Barreto. I need more experienced loan processors who 
have experience processing business loans. That is what I need.
    Chair Snowe. And one of the things we recommended to you 
several months ago was to work with the private sector. We 
understand that you need loan officers and verifiers and so on, 
but the fact is we are here. That is what we have been 
offering, asking. What do you need to get this done? We do not 
want to wait 2 or 3 more months to find out what you need. That 
is what we were saying. That is what we have recommended. And 
you could have done it on a timely basis.
    Mr. Barreto. We are asking, and we have been asking from 
the very first days of the hurricane: we have had meetings with 
our trade association. I had a meeting with the trade 
association a couple of weeks after the hurricane. We are in 
regular contact with all of our lenders. We have got everybody 
in capital access working on this. I cannot make the lenders, 
you know, give us loan processors. I hope that a lot of them 
will.
    And we are also doing a wide, wide outreach through 
Monster.com and through other placement agencies to identify 
people. By the way, this could be somebody who is already 
retired from Government. This could be somebody that is already 
retired from the banking industry. This could be somebody that 
is out there that has some level of expertise. So, I mean, 
will, if anybody has any loan processors they want to send 
understand, we are happy to talk to them and bring them on 
board immediately.
    Chair Snowe. Well, I would hope that you would be seeking 
them aggressively----
    Mr. Barreto. We are.
    Chair Snowe [Continuing]. From the private sector.
    Mr. Barreto. We are.
    Chair Snowe. I mean, the point is do you have enough people 
currently overall?
    Mr. Barreto. We have double what we had a month ago, and we 
are hiring at a clip of 200 a day, so it is going to take a----
    Chair Snowe. The point is how many do you need, because we 
have recommended more than 1,000.
    Mr. Barreto. Right, and we agree, we are going to go after 
those 1,000. We think we need at least another 1,000. We are 
prepared to hire another 1,000.
    Chair Snowe. But you understand, recognizing that this was 
unprecedented from the outset, this should have been happening 
long before now. That is the point of all this.
    Mr. Barreto. Well, it has been happening.
    Chair Snowe. It has not been happening, and that has been 
the problem. I understand; we are trying to look forward here. 
The question is we do not want to come back here in 2 months to 
find out that the agency is languishing in this ability----
    Mr. Barreto. It will not languish.
    Chairman Snowe [Continuing]. To respond in a timely 
fashion. We know this is unprecedented.
    Mr. Barreto. That is right.
    Chair Snowe. So it requires an unprecedented response.
    Mr. Barreto. That is right, and that is what we have given 
it.
    Chair Snowe. It is as simple as that. You have to move with 
the times.
    Mr. Barreto. Absolutely.
    Chair Snowe. The demand, so that we can do it, but we have 
been asking, and the problem is here and just looking at that 
some of the increases in staff is just not reflective and the 
daily increases for disaster employees. When you look at the 
different offices, whether it is in Buffalo for the calls, 
Atlanta, Fort Worth, Sacramento; I mean, that is the problem. I 
mean and we cannot shortchange this effort.
    Mr. Barreto. I agree.
    Chair Snowe. Because the problem is going to compound 
itself with the additional applications that are flowing in.
    Mr. Barreto. We agree.
    Chair Snowe. So, where are we?
    Mr. Barreto. We are hiring people as fast as we possibly 
can.
    Chair Snowe. How many people? Give us a number today what 
you need.
    Mr. Barreto. Well, I agree with you. I think we are looking 
at bringing at least another 1,000 people on board. I want to 
bring them on yesterday. If somebody can identify them and send 
them to us, we will hire them. You know, we are doing 
everything that we can.
    I mentioned to you that we have doubled the size of the 
disaster office twice already. This is an unprecedented 
increase. And by the way, when you hire somebody, especially 
somebody who has not worked for SBA before, you have got to 
train them; you know, you have got to train them, and you have 
got to monitor them and make sure that the will of the product 
that they are putting out is a good quality. So we are doing 
all of those things: we are hiring them; we are training them--
--
    Chair Snowe. I know, but could it not have happened sooner? 
I think that is the point here. A lot of this could have 
happened sooner. I mean, we were talking about this in early 
September.
    Mr. Barreto. We have doubled the size of the agency----
    Chair Snowe. That is the problem.
    Mr. Barreto [Continuing]. Twice already.
    Chair Snowe. Yes, it does not matter if you double them; if 
you have to triple that, I mean, that is the point. Solve the 
problem.
    Mr. Barreto. I would be happy to if I could find those 
experienced loan processors. That is what I need. I need 
experienced loan processors.
    Chair Snowe. That is one part of the equation. You need 
other additional offices as well in different capacities.
    Mr. Barreto. Well, if we want to approve loans----
    Chair Snowe. The point is, you reached out to the private 
sector once you exhausted your other sources----
    Mr. Barreto. I have.
    Chair Snowe [Continuing]. For additional help and other 
agencies, for that matter.
    Mr. Barreto. Right.
    Chair Snowe. You know, we want to solve this problem.
    Mr. Barreto. Me, too.
    Chair Snowe. And the sooner the better.
    Mr. Barreto. Absolutely.
    Chair Snowe. It's 70 days, and we are counting.
    Mr. Barreto. We agree.
    Chair Snowe. And the applications are piling up.
    Mr. Barreto. Yes.
    Chair Snowe. And we do not want to see these charts here, 
because the gap is tremendous----
    Mr. Barreto. It is.
    Chair Snowe [Continuing]. Between what has been received 
and what has been approved.
    Mr. Barreto. Fifty-five percent in the last 3 weeks.
    Chair Snowe. Senator Kerry.
    Senator Kerry. Fifty-five percent of what?
    Mr. Barreto. Fifty-five percent of the applications that we 
are processing right now have been received in the last 3 
weeks.
    Senator Kerry. Fifty-five percent of the ones you are 
processing now were received in the last 3 weeks?
    Mr. Barreto. That is correct.
    Senator Kerry. Or have been processed?
    Mr. Barreto. Fifty-five percent of the 225,000 applications 
that we are processing have been received in the last 3 weeks?
    Senator Kerry. What does that tell us?
    Mr. Barreto. It is something in excess of 140,000; 150,000.
    Senator Kerry. Right, it tells us there are a lot of 
applications. It does not tell us----
    Mr. Barreto. Absolutely.
    Senator Kerry. Right, it does not tell us that a lot of 
them have been approved.
    Mr. Barreto. Well, we have approved 6,000 of them, and we 
are approving more every single day.
    Senator Kerry. It just tells us you have received a lot of 
applications in the last few weeks.
    Mr. Barreto. Absolutely, yes it has.
    Senator Kerry. And it says 55 percent of them came in in 
the last 3 weeks; big deal.
    Mr. Barreto. Well, the point is that these are not 
applications that have been sitting there for months. They have 
just been received, and we are staffing up every single day to 
be able to address those applications.
    Senator Kerry. Are you finished?
    Chair Snowe. Yes, Senator Kerry, you can continue.
    Senator Kerry. Well, first of all, can you explain to me 
how you are processing home loans faster than business loans?
    Mr. Barreto. Well, 10 times of the applications; in other 
words, the ratio right now, Senator Kerry, is 10 to 1, OK? We 
have received 10 percent or less of all the applications have 
been for businesses, and that is very unusual, by the way. 
Usually, for any disaster that we have had before, it is 
usually a ratio of two to three to one, which you would expect, 
because obviously, more people that own homes than own 
businesses.
    But this has been off the charts. And the way we process 
these applications is on a first-in, first-out basis. We are 
not, you know, discriminating about, you know, applications. As 
they come in, we process them.
    Senator Kerry. Yes, but for instance, I mean, that is sort 
of again--frankly, I think this is a phony chart, and I will 
tell you why it is a phony chart: this is a single event, this 
big one where you show huge amounts of times.
    Mr. Barreto. Right.
    Senator Kerry. That is a single event. Here, you have all 
hurricanes of 2005 lumped together.
    Mr. Barreto. Well, there were two hurricanes that occurred 
right next to each other.
    Senator Kerry. I understand that, but what we are talking 
about here is Katrina. You do not have a Katrina line. You do 
not have a Katrina line compared to Northridge, do you?
    Mr. Barreto. Well, I will be happy to provide you with a 
Katrina line and a Rita line.
    Senator Kerry. But the point is that, you know, you are 
trying to sort of say all of the hurricanes' response somehow 
mitigates what we are here to talk about which is Katrina, and 
it does not. Katrina is Katrina.
    Mr. Barreto. Absolutely, and what I have been asked to do 
is to provide an unprecedented response, and we have provided 
an unprecedented response.
    Senator Kerry. Do not give us an unprecedented phony chart, 
because it is not a one-to-one comparison.
    Mr. Barreto. Actually, the lines there actually make it 
even more significant that it was over a year period. We are 
dealing with this in 70 days.
    Senator Kerry. Mr. Barreto, it is not a comparison of 
Katrina to Northridge, No. 1, and Katrina is what we are here 
to talk about.
    Mr. Barreto. I would be happy to provide you with a line 
for Katrina, and the line----
    Senator Kerry. Are you going to tell me----
    Mr. Barreto [Continuing]. And the line is going to be a lot 
smaller than what it was for Northridge or those other 
hurricanes that we dealt with.
    Senator Kerry. Well, let me ask you this: you have 197,000 
loans that have been received on home loan approvals?
    Mr. Barreto. One hundred ninety-seven thousand 
applications.
    Senator Kerry. Correct.
    Mr. Barreto. Not loans but applications we have received.
    Senator Kerry. Applications.
    Mr. Barreto. Yes.
    Senator Kerry. And you have 4,888 that have been approved 
thusfar. It is a 2.5 percent approval rate. Is that adequate?
    Mr. Barreto. Absolutely not.
    Senator Kerry. OK; in business loans, you have got 28,540 
applications received. You have got 840 loans approved. That is 
a 3 percent approval rate. Is that adequate?
    Mr. Barreto. Absolutely not.
    Senator Kerry. Now, with respect to this philosophy you 
have put forward in your opening statement that SBA has been 
criticized for its response, do you think it should have been?
    Mr. Barreto. Well, what I think should be is that we should 
be reporting accurate information, and I never read an article 
that has accurate data or accurate information.
    Senator Kerry. That is not what I am asking you. Do you 
think SBA should be criticized for its response?
    Mr. Barreto. Well, I cannot speak for the people that are 
criticizing us. Everybody has different reasons for criticizing 
us.
    Senator Kerry. Well, do you self-criticize yourself? Do 
you----
    Mr. Barreto. Every day.
    Senator Kerry [Continuing]. Come here with any humility----
    Mr. Barreto. Every day.
    Senator Kerry [Continuing]. That suggest you have not done 
the job?
    Mr. Barreto. Every day.
    Senator Kerry. Well, the question I am asking you is you 
suggest that SBA disaster loans--this is a defense--that 
everybody, we all misunderstand what you are doing, you said in 
your previous testimony SBA disaster loans were always designed 
for long-term recovery.
    Mr. Barreto. That is right.
    Senator Kerry. What is in the Snowe-Kerry-Vitter-Landrieu 
Small Business Hurricane Relief and Reconstruction Act?
    Mr. Barreto. A number of different items are in there.
    Senator Kerry. Can you tell me? What they are?
    Mr. Barreto. Well, I think the items that we are in 
concurrence with is the expansion of the budget authority of 
the SBA; we think that would be very important; the increasing 
of the surety bond levels; we think that would be important; 
the incentives to bring small businesses back into the area, we 
think that would be important; realizing that people are going 
to need more time to pay back these loans, and we are going to 
have to be more flexible with our terms, we think that that 
would be important.
    Senator Kerry. What about bridge loans?
    Mr. Barreto. We are not in support of bridge loans right 
now.
    Senator Kerry. Why not?
    Mr. Barreto. Well, one of the reasons is that we have just 
put forward a proposal today that we think is going to be able 
to help these folks a lot quicker than what we could do with 
bridge loans. SBA does not do bridge loans. We have never done 
bridge loans before.
    Senator Kerry. So you are telling me that a proposal that 
you have put forward today is going to help people more than a 
bridge loan we could have given 6 weeks ago?
    Mr. Barreto. Well, you know, some bridge loans----
    Senator Kerry. I do not understand that logic.
    Mr. Barreto. Some bridge loans have been given, and they 
have been given by the States. The States have put funds 
forward.
    Senator Kerry. Well, if the States are doing it, and it is 
a good idea for them, why is it not a good idea for us to help 
them?
    Mr. Barreto. Well, you know, the SBA has never done bridge 
loans before.
    Senator Kerry. I do not care if they have never done it. Is 
it a good idea to help people in Katrina, or is it not?
    Mr. Barreto. It is a good idea to help those folks in every 
way possible.
    Senator Kerry. And that is a way that is possible, is it 
not?
    Mr. Barreto. That is one of the ways that is possible.
    Senator Kerry. Why do you oppose it?
    Mr. Barreto. We just do not feel that that is the best way 
to do it for us; I mean, the States may do it; other folks may 
do it, banks may want to do it, but for us to be involved with 
it; right now, what our disaster program is intended for is 
long-term recovery, and we also have loans that can provide 
working capital, and we want to make those available.
    Senator Kerry. Is that why the SBA put a hold on this bill?
    Mr. Barreto. Well, as I said, I think that we agree on the 
majority of the items.
    Senator Kerry. Why do you not negotiate in good faith to 
try to work a compromise to get it through?
    Mr. Barreto. We have been negotiating.
    Senator Kerry. We have not had a serious negotiation.
    Mr. Barreto. We have been negotiating.
    Senator Kerry. You have? With whom?
    Mr. Barreto. Our folks have been in conversations with all 
the Members of this Committee----
    Senator Kerry. No, all they do is sit there and say what 
they oppose. They do not offer any solution. They do not talk 
about a compromise. They just say we are opposed to this. That 
is not a negotiation. We have met with OMB; we have met with 
SBA; no progress. I do not understand it. Are you just opposed? 
Is that it?
    Mr. Barreto. No, I think we are in concurrence with the 
majority of the provisions that are a part of that legislation, 
and we would love to work with you to move those forward, 
because we agree, I think they could have a lot of benefit to 
the folks who are in the affected States.
    Senator Kerry. When are you going to start working with us 
to do that?
    Mr. Barreto. I promise that we will work with you every 
day. We can meet on this every day. We can discuss any ideas 
that you have. We would like some support for the GO Loans.
    Senator Kerry. Are you empowered to negotiate for the 
Administration?
    Mr. Barreto. We are empowered to discuss any options that 
you might have on this legislation.
    Senator Kerry. Are you empowered to negotiate for the 
administration?
    Mr. Barreto. We are the representatives of the 
Administration.
    Senator Kerry. I do not want to have a discussion. I want 
to negotiate it and get it done.
    Mr. Barreto. I am happy to take any information that you 
would like me to take back directly to the White House and 
discuss what you would like to do on that.
    Senator Kerry. Well, let me ask you with respect to this 
Lend a Hand program that you have put forward, the lenders that 
you have asked to lend a hand do not think it is a very good 
idea. Do you see a conflict of interest at all in your having 
lenders come in and work for the SBA somehow as temporary 
employees when you are supposed to have oversight over them?
    Mr. Barreto. We would love to have those lenders come and 
work with the SBA. We think that there is a lot of lenders----
    Senator Kerry. How would you do that? Who is going to pay 
them?
    Mr. Barreto. We are going to pay them. The SBA is going to 
pay them.
    Senator Kerry. What happens to their benefit programs? Do 
they transfer to the SBA?
    Mr. Barreto. Remember, these are going to be short-term 
situations. You know, the banking employees will not become 
permanent SBA employees. They will be detailed over to the SBA 
over a period of time. We think that it could be a big help for 
us if we had some of these folks even for periods as short as 
90 days. We think that could help us to get----
    Senator Kerry. Would it not be simpler----
    Mr. Barreto [Continuing]. Through a lot of this, a lot of 
the overflow of the applications.
    Senator Kerry. Would it not be simpler and perhaps more 
effective and less conflict of interest if there were actually 
a lender fee program where they, in fact, engage in it, and you 
simply supervise the process?
    Mr. Barreto. Well, again, you know, we are talking about 
different kinds of loans. The kinds of loans----
    Senator Kerry. Why would that not be faster? Do they not 
bring that expertise to the table?
    Mr. Barreto. Who does?
    Senator Kerry. Lenders.
    Mr. Barreto. If they have experience doing business loans, 
they could be a big help to us.
    Senator Kerry. Well, why not simply engage them to do this 
on an emergency basis?
    Mr. Barreto. We have engaged them on the GO Loans. We think 
that would be a significant opportunity. I mentioned to you in 
my testimony that we have already done $100 million in our 
regular working capital loans, and we think we could do a lot 
more through these GO Loans. In fact, the GO Loans are actually 
a response to a lot of the lenders in the Gulf community who 
were asking us for a program that would expedite the paperwork, 
that would increase the guarantee. And that is why we think 
that these GO Loans are going to be a way for us to get a lot 
of money a lot quicker in people's hands.
    Senator Kerry. Well, let me just say, I know my time is up: 
the lenders we have talked to say that even if they wanted to 
do this, the initiative is largely unworkable as described. 
Many of them believe in a longer term approach in which you 
have them actually process those loans, and you guys would have 
an oversight role. Let me ask you this: has the SBA compared 
the cost of paying lender fees to process loans versus hiring 
the lenders?
    Mr. Barreto. I am not sure if that analysis has been done, 
but I would be happy to follow up on it.
    Senator Kerry. Do you not think it would be worth doing 
that----
    Mr. Barreto. Absolutely.
    Senator Kerry [Continuing]. Before you engage in this 
program?
    Mr. Barreto. Sure; whatever we can do, whatever makes 
sense, whatever is the most efficient, that is what we want to 
be doing. But we think that if we got some of these folks--
again, remember, it may not just be employees that are 
currently at the lender. It may be an ex-employee of a lender. 
It may be somebody who is transitioning out. It may be somebody 
who worked for the SBA before. You know, we have had some of 
our previous SBA employees come back to us wanting to volunteer 
to help us process these loans. So we are going to take the 
help from wherever we can get it.
    Senator Kerry. Thank you, Madam Chair.
    Chair Snowe. Thank you, Senator Kerry.
    Senator Vitter.
    Senator Vitter. Thank you, Madam Chair, and thank you, Mr. 
Administrator, for being here.
    In my mind, it is very simple what we need to focus on two 
things: the speed of the current SBA activity, No. 1; and gaps, 
significant gaps and unmet needs that the current SBA menu does 
not address, No. 2. So I really want to focus on those two 
things, following up on many of the other questions.
    First of all, timeline, current SBA activity. As I 
understand it, today, there are about 188,000 SBA hurricane 
loan applications outstanding, correct?
    Mr. Barreto. That is correct.
    Senator Vitter. And as I understand it today, those are 
being processed, the most current number, which has been 
building up, at about 1,600 per day; is that correct?
    Mr. Barreto. I think it is a little bit more than that that 
we are actually processing. I can get you an exact number on 
it. And that processing is increasing every single day as we 
get more and more of our people online. I have said this a 
couple of times already, we have literally doubled the size of 
the disaster operation twice already, and we will continue 
increasing more and more people.
    The reason I mention that is because as more people come on 
board that have this experience, we can process more loans, and 
we can process them quicker.
    Senator Vitter. Sure, if 1,600 is not the accurate number, 
what is the accurate number?
    Mr. Barreto. I will get that for you immediately, but we 
are processing more loans every single day. I think just over 
this weekend----
    Senator Vitter. Surely, in preparation for this hearing you 
know----
    Mr. Barreto. No.
    Senator Vitter [Continuing]. The current number. I mean, 
surely, you know what the number is today.
    Mr. Barreto. Sure.
    Senator Vitter. I really want to do the math----
    Mr. Barreto. Absolutely.
    Senator Vitter [Continuing]. And see if there is any 
solution in sight.
    Mr. Barreto. And I think I provided you a chart----
    Senator Vitter. If the number is 1,600, it will take, at 
those numbers, and I realize they are changing arguably, but 
the other number is changing, too. So at those numbers, it will 
take about 4 months, correct?
    Mr. Barreto. I cannot tell you how many we are going to 
process more in the weeks to come.
    Senator Vitter. I can tell you what 188,000 divided by 
1,600 is. It is about 4 months.
    Mr. Barreto. Well, it will not exactly be that, because one 
of the things that I have provided is a chart that shows the 
increasing velocity of those processes and of the approvals 
that we are doing. It is a line that is going straight up. It 
is not going to be a static number. It will not be a static 
number that we will process 1,600 every single day.
    Senator Vitter. That will not be a static number.
    Mr. Barreto. That is correct.
    Senator Vitter. Nor will the 188,000 be a static number.
    Mr. Barreto. That is correct.
    Senator Vitter. That is going up, too.
    Mr. Barreto. That will go up.
    Senator Vitter. In fact, you are saying that 55 percent in 
the last 3 weeks--I hate to tell you, that is not the good 
news. That is the bad news, because that means 188,000 is 
continuing to go up significantly.
    Mr. Barreto. Could be 400,000.
    Senator Vitter. So the question is, where do you expect 
both numbers to end up, and when you do the math, what is the 
timetable.
    Mr. Barreto. I cannot tell you that. It would be a 
product----
    Senator Vitter. If you cannot tell us that, you do not have 
a solution identified that we know will work. That is my 
concern. If you cannot tell us where the 188,000 is headed 
roughly, and if you cannot tell us where the 1,600 a day is 
headed roughly, then, we have no assurance that we have 
identified a solution.
    Mr. Barreto. Well, the solution is for us to get more 
business loan processors as soon as possible.
    Senator Vitter. Correct, and you have also testified that 
you have exhausted the market for business loan officers.
    Mr. Barreto. That is right. That is why we are going to the 
lending community. That is why we are redirecting SBA 
employees. That is why we are calling people out of retirement, 
that is why we are going to the other agencies to see if we can 
get loan processors for them. We are exhausting every possible 
option that we have. If somebody has a better idea of where we 
can get those loan processors, we would love to talk to them.
    Senator Vitter. Well, it seems to me you are saying you 
have exhausted the market for business loan officers. You are 
looking at these other options. We have no idea if these other 
avenues will produce anything significant.
    Mr. Barreto. That is right.
    Senator Vitter. So we do not have a solution in sight; that 
is my concern. If we do not have a solution in sight, we need 
to blow past this traditional box and do something 
significantly different like engaging the private bank 
community in a newer way. But surely, we should discuss this 
now; should have discussed it at least a month ago. But surely, 
we should discuss it now and not 3 months from now.
    Mr. Barreto. Absolutely; that is why we have proposed that 
we have this new loan program that engages the lending 
community in the Gulf States to do more of our working capital 
loans. Again, I want to emphasize that the loans that we do--
and again, please remember 10 that times more homeowners have 
applied to us than businesses have applied to us at this point. 
But the loans that we do are for long-term rebuilding. They are 
not short-term cash infusions. They are not grant programs. 
They are not bridge loans. Long-term rebuilding is what those 
loans are intended for.
    Senator Vitter. Well, I am going to get to that in a minute 
in terms of point No. 2.
    What I would like in terms of a plan is a projection from 
you, and I understand it cannot be exact; we do not have a 
crystal ball, but a projection from you where you think this 
188,000 will go, No. 1, a projection from you where you think 
this 1,600 a day will go and how it is going to get there----
    Mr. Barreto. OK.
    Senator Vitter. That is a simple----
    Mr. Barreto. Sure.
    Senator Vitter [Continuing]. Division equation that is 
going to yield the average time. Right now, it is 4 months.
    So if those projected numbers do not divide into each other 
and yield something below a month, we still have a problem with 
no solution in sight. So either it is going to be solved by 
looking for these new loan officers in non-traditional avenues, 
and quite frankly, I do not think there is any chance on the 
face of the earth that it is going to be solved that way based 
on these numbers, or we need to do something different right 
now.
    So can you get us those projections----
    Mr. Barreto. Sure, absolutely.
    Senator Vitter [Continuing]. And tell us what that would 
yield in terms of----
    Mr. Barreto. No problem at all.
    Senator Vitter [Continuing]. The average times? Because 
right now, it is 4 months.
    Mr. Barreto.--Senator, and again, some of the charts that 
we have provided today are showing you the trend lines that we 
have seen over--from the beginning of the disaster to right 
now, and you see that, and we are going to use that information 
to also be projecting forward, and I will make sure that you 
have that immediately.
    Senator Vitter. OK; what I see in the trend lines is that 
the loan application trend line is growing quicker than the 
resolution trend line.
    Mr. Barreto. What you see on the charts is that actually, 
the applications that we have received spiked up, and they are 
actually starting to go down now. Now, we cannot assume that 
they will continue to go down, because the point is there are a 
lot of people out there who have not decided to apply yet. 
There are hundreds of thousands of people who could be eligible 
for these loans, but they have not decided what they are going 
to do yet.
    The reason I give you that number is because usually, for a 
disaster, usually for a disaster, we see a 20 percent return 
rate. A 20 percent return rate on 2 million applications is 
400,000 applications that we could receive. We have sent out 2 
million applications. Now, we have only received 10 percent of 
those back, but a regular return rate is 20 percent, so we 
could see more. We have not seen it yet, and we have seen some 
of the volume starting to go down; especially on the business 
loans, we have seen that to start go down. But again, we have 
to prepare for the onslaught of a lot more applications.
    Senator Vitter. Well, let us just take the figure 400,000. 
If it reaches that, it seems to me there is no way that we are 
going to get the average time down to anything reasonable based 
on adding loan officers in an environment where you have, 
quote, ``Exhausted the market for business loan officers'', 
close quote. Am I missing something?
    Mr. Barreto. I think it is a product of how many people we 
can get on board to process these loans. I agree with that.
    Senator Vitter. Let me quickly move on to the second topic, 
which is the need for bridge loans or something like that. What 
is the difference between our bill's bridge loans and your 
pilot GO Loans?
    Mr. Barreto. Well, one of the things is that we can do the 
GO Loans immediately. One of the other things is----
    Senator Vitter. What is the difference in terms of 
requirements, demands, ability to get money to businesses?
    Mr. Barreto. Yes; the lenders have said to us, ``Look, we 
want to do loans up to $150,000. We want an 85 percent 
guarantee. We want to use our own form. We want to expedite the 
decisionmaking process. We want to transmit information to you 
electronically. If you do those things, we can do these loans a 
lot quicker, and those loans will be profitable to us.'' What 
they have said to us is, ``We are not philanthropic 
organizations. We have got to make money on our loans. This is 
the best way that we think we can do that.'' That is what we 
did with SBA Express. That is the reason that the loans that 
the SBA has done over the last few years have doubled. The 
number of loans and the dollars have doubled.
    Senator Vitter. You're describing process, the difference 
between the process of bridge loans and GO Loans.
    Mr. Barreto. Right.
    Senator Vitter. What is the difference between the 
substance of the bridge loans and the GO Loans? Because I do 
not care what we call it.
    Mr. Barreto. Yes, exactly, and, you know, again, look: I 
have been down to the Gulf States four times in the last 6 
weeks, and every time I go down there, somebody will tell me 
something different. I mean, the truth of the matter is some of 
these small businesses are not even sure that they want loans. 
They are applying for loans, but they are not sure they even 
want to go into debt. Some folks would rather we just give them 
grants. We explained to them we cannot give them grants. We 
explained to them that our loans are not working capital and 
are not intended to be working capital.
    And so, you know, when we----
    Senator Vitter. Is a GO Loan a working capital loan?
    Mr. Barreto. Yes, it is.
    Senator Vitter. So it is, again----
    Mr. Barreto. It is, it is.
    Senator Vitter [Continuing]. I want to understand what a GO 
Loan looks like substantively, not process----
    Mr. Barreto. It is our----
    Senator Vitter [Continuing]. Compared to what we are 
calling bridge loans.
    Mr. Barreto. It is our 7(a) loan up to $150,000 with an 85 
percent guarantee and streamlined processing so they can do 
these loans quicker.
    Senator Vitter. Would significantly fewer businesses be 
eligible for your GO Loans than for our bridge loans?
    Mr. Barreto. I do not know. I do not know what the actual 
criteria of the bridge loans that you are describing. We are 
going to use our criteria that we have for our working capital 
loans, but we think a lot of folks are going to be able to 
qualify for those loans. Twenty billion dollars----
    Senator Vitter. Why did you call the GO Loans a pilot? What 
is the size and the parameters of the pilot?
    Mr. Barreto. Well, it is for the Gulf States. It will be 
over, you know, a period of time. We are going to use the 
existing PLP lenders and the express lenders. We are willing to 
bring more lenders onto the equation as well. But, you know, we 
think this could go a long way to getting money in people's 
hands immediately.
    Senator Vitter. Do you have a maximum dollar amount that is 
devoted to this?
    Mr. Barreto. No, we do not. We do not have a maximum dollar 
amount. One of the reasons that we are also supportive of the 
legislation that we have talked about in the past is because we 
think we ought to increase the lending into the Gulf States by 
an additional $10 billion on our 7(a) loans and $5 billion on 
the 504 loans. We think that would go a long way. So we are 
asking for $15 billion that could just be dedicated to the Gulf 
States. A lot of that could go through these GO Loans.
    Senator Vitter. Would you support the same amount of money 
devoted in our bill to your GO Loan concept as we have it 
calling it bridge loans?
    Mr. Barreto. Well, I think that what we are talking about 
is a much larger amount in our GO Loans. I mean, we are not 
putting a cap on it. It could be billions of dollars that could 
go into these loans, billions of dollars.
    Senator Vitter. Where is that money coming from? Do you 
have it in your budget?
    Mr. Barreto. It is part of our budget authority. It is our 
budget authority that we have. And of course, we are hoping 
that we are going to get a much larger budget authority; again, 
we are asking for an additional $10 billion just for the Gulf 
States on the working capital loans and $5 billion on the----
    Senator Vitter. As a way to break the impasse on this bill, 
can we consider looking at the same amount we have in the bill 
for the bridge loans going toward your GO Loan concept to be a 
guaranteed minimum that would be used for this purpose?
    Mr. Barreto. Now, remember, our loans are a zero subsidy 
loan, so the fees that are generated on our loans pay for the 
program. But I would be happy to look at that, and we can run, 
you know, whatever numbers that we need to run and see what we 
can do on it. I would be happy to talk to you about it. I do 
not know what the implications of that would be. I know with 
the GO Loans, we can do those immediately. We can get money in 
people's hands. I know that the lending community in the Gulf 
States want these loans. They want this legislation. This is a 
way to get them engaged.
    Senator Vitter. I did not understand your responses before. 
Why are you opposed to the bridge loans in the bill?
    Mr. Barreto. We just think that there are two different 
things. You know, the SBA Disaster Program has never done 
bridge loans. We would rather use the regular----
    Senator Vitter. Is the point not that they are two 
different things?
    Mr. Barreto. Yes, they are.
    Senator Vitter. Is not the point not that there is a gap 
and a need----
    Mr. Barreto. Yes.
    Senator Vitter  [Continuing]. That is not currently 
addressed by the traditional SBA menu?
    Mr. Barreto. Well, and we think that these GO Loans go a 
long way toward filling that gap.
    Senator Vitter. So these GO Loans are short-term working 
capital loans.
    Mr. Barreto. Absolutely.
    Senator Vitter. If it is different versions of the same 
thing, again, why are you so opposed to the bridge loans?
    Mr. Barreto. Again, we just did not feel in our disaster 
program that we should be adding bridge loans to that. We think 
that we can fill that gap with the regular loans that we have. 
These GO Loans, again, and this is in consultation with the 
lending industry. This is what the lending industry has told us 
that they want. And so, we believe this is the better way for 
us to go. We can get money a lot quicker, a lot more money.
    We have had a lot of success with these kinds of loans over 
the last 4 years. We have doubled the number of loans that we 
do, precisely because we have made these kinds of changes. 
These kinds of loans now represent 60 percent of the portfolio 
of the SBA, 60 percent now is what these kinds of loans 
represent for us. So we have a lot of experience doing these. 
We understand these. We can work with the lending industry. The 
lending industry wants this. We think this is a great way to 
fill that gap.
    Senator Vitter. Thank you, Madam Chair. I would love to 
come back if we have the opportunity for more questions.
    Chair Snowe. Oh, yes, absolutely.
    Just to clarify something, because I think it is very 
important for the record: we have had a bill pending since 
September that passed the Commerce, Justice, State 
Appropriations. Now, did SBA oppose that?
    Mr. Barreto. Oppose what?
    Chair Snowe. Oppose our bill as an amendment to the CJS? 
Because it was lost in conference. I just want to know if you 
were seeking expanded budget authority. We have expanded budget 
authority and more in this legislation, and it was unfortunate 
it was dropped out at conference. It is pending as a unanimous 
consent request in the Senate so that we can get it through as 
well as in the House so that we could move forward in giving 
you the tools that are necessary.
    I just want to make sure we clarify for the moment right 
here that we are seeking considerable expanded budget 
authority, and there were bridge loans. And the SBA opposed the 
bridge loans, which would have been an efficient way. So on one 
hand, you cannot say, well, we do not have this authority; we 
do not have this ability; ours are long-term recovery disaster 
loans and then on the other hand oppose the bridge loans.
    Now, you have come up with a new modification in these 
recent days. That is well and good, but we have lost 70 days in 
the meantime. So, I just want to be sure that we understand 
what we are talking about here, because we were long on the 
road for giving you the tools that you needed months ago, and 
as a matter of fact, it passed on September 15th, OK? So here 
we are, and we have now lost it in conference.
    So I just want to be clear on that subject. We could have 
been way ahead of the game by now. And for whatever reasons, 
you and the Administration opposed this bill. And I simply do 
not understand why. I simply do not understand why there any 
objections to this legislation. I simply do not. But we are 
where we are today.
    Mr. Barreto. We are actually in agreement with most of it.
    Chair Snowe. But you have, at least as I can count up, I 
would say about 10 provisions that you are opposed to from what 
I understand, OK? And I see it goes on ad infinitum here. I 
mean, we can sit here and pass around different projects and 
everything. The bottom line is we need to get it done. And we 
tried to. We tried to through the appropriations process. We 
tried through unanimous consent, and all we heard are 
objections, so we cannot move it. And one was the bridge loans. 
I kept hearing, well, you have been down there, and people are 
asking you for things that we cannot do as the SBA.
    So we gave you the tools, tried to give you the tools, and 
you did not want these tools, and you are objecting to these 
tools. And so, here we are.
    Mr. Barreto. We want most of the tools.
    Chair Snowe. You know, 70 days plus later. I just want to 
be clear----
    Mr. Barreto. Sure.
    Chairman Snowe. Because we have attempted in many ways.
    Senator Landrieu.
    Senator Landrieu. Let me follow-up with that, and the 
reason I think our Members seem exacerbated [sic] or 
exasperated--I cannot even think, I am so aggravated.
    Mr. Barreto. Exacerbated.
    Senator Landrieu. Or whatever.
    Mr. Barreto. Frustrated.
    Senator Landrieu. We are losing--we are frustrated. We are 
losing our patience.
    Mr. Barreto. Yes.
    Senator Landrieu. Because for Senator Vitter and for 
myself, this is more than just the politics of Washington. I 
mean, this is really whether our State is going to be able to 
pull itself up with partnerships and with help and move on, 
because the disaster is of such a magnitude, Mr. Administrator, 
as you know, 81,000 business have been affected, 41 percent of 
all of the businesses in our State.
    So if this does not work, in large measure, the rebirth of 
South Louisiana is not possible. If you assume, which we 
understand, that small business is the heart and soul of the 
economy, entrepreneurship is where it begins and ends, we agree 
with that. We are trying to help you get these entrepreneurs 
stood back up.
    We understand that your current design does not meet the 
immediate needs of businesses, but as Senator Vitter pointed 
out so appropriately, if we do not come up with a design, these 
81,000 businesses may go away and not come back. And that 
causes our long-term recovery to be more difficult.
    So this is what we are pressing you for: the Chairman said 
7 weeks ago, we gave you more authority. You have rejected it. 
Now, 7 weeks later, you have come back with a program that is a 
pilot, not been tested, and you do not have the money in the 
supplemental, I understand, the $15 billion that we need to get 
it done.
    Mr. Barreto. That will not require----
    Senator Landrieu. So we need no money to do this.
    Mr. Barreto. That is right.
    Senator Landrieu. We need no money to do it.
    Mr. Barreto. That is correct.
    Senator Landrieu. This is another pilot program----
    Mr. Barreto. Yes.
    Senator Landrieu [Continuing]. That does not cost the 
Federal Government any money.
    Mr. Barreto. Absolutely.
    Senator Landrieu. So it does not cost the Federal 
Government any money. It can be done. The question is if it did 
not cost us any money, why did we not do it 7 weeks ago? That 
is No. 1: if it did not cost us any money, and it is basically 
painless, and you could get it implemented, and it cost nobody 
any money, why did we not do it 7 weeks ago?
    Mr. Barreto. Well, as I mentioned before, we have been 
doing it over the last 7 weeks. We put $100 million through our 
regular loans into the Gulf area over the last couple of 
months, $100 million working with the lenders. We did $10 
million just last week working with the lenders. But as we work 
with the lenders, and we say, ``What else can we do? What else 
do you want? How can we get you to even do more?'' They keep 
coming back and saying, ``Increase that loan up to $150,000. 
Make it an 85 percent guarantee. Streamline the process, let us 
make the decisions ourselves just like we do with our express 
loans.''
    And that is why we are coming back. This is a direct 
response to what the lending community is telling us that they 
want. So we have been responsive. We have done $100 million of 
these kinds of loans, and now, we are enhancing the program to 
make it even a better situation for the lenders and for the 
small businesses.
    Senator Landrieu. Because time is of the essence, we may 
want to consider doing both, trying to pilot a bridge loan 
program or, because this is what our State is really asking 
for, and there are limits, because the State is putting up $10 
million. It is not a lot of money, but because the State's 
budget is $1 billion short, scrounging for every State dollar 
we can, but the State is making some attempt to put up money. 
Perhaps following on what Senator Vitter suggested, we could do 
a bridge loan program and this new GO Loan program and see 
which one works best. I do not see how one does not cost 
anything and the other one does.
    Mr. Barreto. Well, the bridge loan program actually would 
require funding in the bill. The GO Loan would require no 
funding in the bill.
    Senator Landrieu. I want to just say for the record that 
the bridge loan program is a partnership between the 20 
regional banks, and it is, you know, something that the 
Department of Economic Development not just in our State but 
throughout the Gulf Coast have really asked for, because it is 
quick, and within the first week, they exhausted----
    Mr. Barreto. I know.
    Senator Landrieu. You know, within 1 week, they exhausted 
the money that we had.
    But again, not just to stand on the point, but we have to 
get some help immediately. So if it is this GO Loan program 
that does not cost the Federal Government anything, that can 
get money out there, we might be willing, Madam Chair, to 
redirect our effort.
    But again, we have 20 provisions in the bill that was 
passed 7 weeks ago, and the Small Business Administration, 
instead of saying we can pass these 10 and not the others, or 
we will change it, has basically been saying no. So meanwhile, 
our businesses are not getting the help.
    And this is not about the reputation of the Small Business 
Administration. We are part of a Committee that wants you to be 
good. The better you are, the better it is for our business. 
But this is about survival for businesses along the Gulf Coast, 
and once they go away, it is going to be very hard to get them 
back.
    So let us get on with making whatever compromises are 
necessary to get the job done. Thank you, Madam Chair.
    Chair Snowe. Thank you, Senator Landrieu.
    Senator Thune.
    Senator Thune. Thank you, Madam Chair, and I appreciate 
being able to listen to the discussion.
    Obviously, the Senators from Louisiana are the folks who 
are most impacted by all this, and we obviously want to be as 
responsive as we can to their needs and to the needs of the 
people that they represent, and I know they have more first 
hand knowledge than any of us about what the needs in the 
region are and how some of these programs are currently 
working.
    I guess I would just ask a couple of questions, 
Administrator Barreto, with respect to some of the contracting 
down there. I know that there has been a lot of focus on some 
of the larger contracts in the hurricane recovery efforts that 
are going to larger companies. Is there evidence that small, 
local businesses are being used as subcontractors in some of 
these larger contracts as well?
    Mr. Barreto. Yes, there is Senator. I mentioned in my 
testimony that we have had significant announcements made by 
FEMA; for example, last Friday, we made an announcement that 
$1.5 billion was going to be set aside just for small 
businesses, half of that to minority small businesses. Of 
course, we have new numbers from GSA. We have new numbers from 
the Corps of Engineers. We believe as much as 45 percent of the 
contracting so far has gone to small businesses and minority 
businesses, so well in excess of the 23 percent.
    But we are not complacent about this. We are doing a number 
of different things down there right now. We have introduced 
our business matchmaking initiative down there to identify 
companies that can do contracts, and, you know, they do not 
have to be large, complicated contracts. Some of these small 
businesses just need something, you know, to keep going.
    Because, you know, one of the things that--listen, I know, 
and I understand, because I have gone down there, and I have 
met with officials at every level. There is a tremendous amount 
of frustration and a tremendous amount of fear, because a lot 
of these businesses do not know what they are going to do. They 
do not have places to live. There are places that do not have 
electricity yet. They have lost all their employees. They have 
lost their vehicles. There is still debris and ships in the 
roads. There are areas where they still cannot go back to.
    All of these things compound the issue. A lot of these 
small businesses are saying look: I do not want to go into 
debt. I do not want to take on a loan that I cannot pay back. 
Help me get some business. So these contracting initiatives are 
critically important, and they are going to be important for a 
long, long time. That is one of the best ways, I think, that we 
can help to save some of these small businesses.
    You know, they are going to have to change the way they do 
business, simply because two-thirds of the people are gone, and 
we do not know when they are coming back.
    Senator Thune. Following up on the line of questioning that 
you were hearing from the Senators and from the Chair is that 
obviously, capital and being able to recover and having bridge 
financing and these sorts of things to get back on their feet, 
but it also would seem to me that a critical component of that 
would be creating business and work for them to do.
    Mr. Barreto. That is right.
    Senator Thune. Because that, as much as anything, in an 
area where everything has been wiped out, if we can help them 
recovery by providing a good scope of work and contracts that 
they could participate in, along with some of these other 
larger contractors down there, and there perhaps are a lot of 
things, I think, that the small businesses could perform.
    And right now, as it was noted earlier, so much of the 
economy not only in that area, across the country, and my State 
of South Dakota is no exception, is driven by small businesses. 
When the small business sector starts to come back and is able 
to get back on its feet again, I think that is going to be so 
critical to the recovery of the economy of the region.
    Now, my understanding is that at least in terms of the 
broader perception that we view from here that there is a 
pretty good evidence that the Federal agencies involved in the 
recovery efforts are coordinating somewhat well in that effort 
and are presenting a united front to small businesses. My guess 
is that from a small business standpoint, they do not always 
care to know the intricacies of the way that Washington works.
    But they are dealing with kind of one entity, and I guess 
my question is what is happening beneath the surface reflective 
of sort of what we see, and that is the agencies seem to be 
working pretty well together.
    Mr. Barreto. There is no doubt about it. There has been so 
much attention that has been paid to this over the last couple 
of months, I do not think you can go to any agency right now 
and find them not to be doing something within their own 
operation to try to find opportunities for the small businesses 
in the affected area. And some of that has been evidenced by 
some of the numbers that we are starting to see. Again, as much 
as 45 percent of it could have gone to small business already.
    By the way, we get those numbers off of FPDS. This is the 
contracting data base where all of the Government agencies 
report into. So this is the most current, accurate information 
that we have. It is showing as much as 45 percent of it is 
going. And again, this is not something that is going to go 
away. One of the things we have also done, as you probably are 
aware, is that we are working with the Department of Commerce 
on the Hurricane Contracting Information Center, HCIC, as kind 
of a focal point, a one-stop to facilitate all these 
opportunities, to bring these opportunities in and try to get 
them connected in with the small businesses.
    So, I mean, of course, SBA is doing its own work through 
its Government contracting. I have got everybody in my agency 
focused on this. Last week, I took every one of my district 
directors and all my senior managers into New Orleans, and this 
was the biggest topic of our meeting that we did there over 
2\1/2\ days is how can each one of those district directors, 
even in South Dakota or wherever they are from, help identify 
contract opportunities for the small businesses that are there?
    So there is a high level of interest and focus on this, and 
we will make sure that that continues ongoing, not just for 1 
month, or this year but ongoing until we get some of those 
small businesses back on their feet.
    Senator Thune. Regarding the legislation that was passed in 
the Senate and that was referenced here this morning and some 
of the changes that are being made to it--and I go back to what 
Senator Snowe said earlier about the Administration's 
resistance to adopting that--if that is not the model, are 
there tools, powers, authorities that you could let us know 
what you need?
    Mr. Barreto. Sure.
    Senator Thune. It seems to me at least that we have tried 
to come up with what we think is a solution that will enable 
you to better fulfill the tasks that we have down there. But we 
have not yet seen final action on that, and I think the reason 
that was noted, that has been dropped out of different 
conference settings is that there is resistance from the 
Administration to that.
    So I know you have covered some of this ground already 
prior to my arrival here, but could you elaborate a little bit 
more on what----
    Mr. Barreto. Sure, absolutely.
    Senator Thune [Continuing]. You could use that we could 
enact?
    Mr. Barreto. There is a tremendous amount that we agree on, 
Senator, and we have talked a little bit about that. We would 
like expanded budget authority, as much as $15 billion 
additional budget authority for us to make our regular SBA 
loans into that area. We have already done $100 million into 
that area over a very short period of time. We guaranteed $10 
million of it just last week.
    This GO Loan legislation--not legislation but GO Loan 
change that we are making we think can help us increase that 
number even more, and again, as Senator Vitter said, that will 
help us fill a gap. The disaster loans are long-term recovery. 
They are not intended for short-term cash infusions. I think 
there is a lot of confusion about that.
    Another confusion is that oftentimes, people confuse our 
regular SBA budget with our disaster operation, and as you well 
know, having worked at SBA and being part of the House 
Committee and the Senate Committee, is those are two different 
funding sources. We have enough resources right now. We had a 
significant amount of money that was carried over from last 
year into this fiscal year.
    So we have enough money to hire all the people that we need 
to hire, to buy all the technology, to do everything that we 
need to do. We also have enough budget authority on the 
disaster loan side to do a couple of billion dollars worth of 
loans. We have only done $400 million to this point, and we 
think that we are going to do close to $2 billion in this area.
    So the thing that we would like to focus in on are those 
areas of the legislation where we agree: the expansion in 
budget authority in our regular loans, the expansion of our 
surety bonds, incentives to bring small businesses back, to 
allow small businesses a longer timeframe to pay these loans 
back, some tax credits that could be part of that. Those are 
things that we agree on and we would like to move on 
immediately.
    With regards to the things we can do short term, I think 
utilizing the tools that we already have that we know are 
successful, our regular working capital loans, and the 
enhancements that we have made through these GO Loans that we 
just introduced today I think could go a long way to filling a 
lot of those gaps.
    Senator Thune. Well, I appreciate your answer on that, and 
I guess I would just simply add that everyone, of course, is 
watching. And we want to make sure that we get this right, and 
as I say, folks in my State, like I think most Americans, feel 
great compassion and great sympathy toward the victims of that 
area, and to the degree that we have programs here that work, 
we want to make them work. But to the degree that they do not 
work or need additional authority, we want to make that 
available.
    And I certainly would defer to my colleagues like Senator 
Vitter, who as I said, are intimately acquainted with what 
those needs are on the ground, and I hope that we can take 
steps legislatively that will give you those tools, because it 
is absolutely critical that we get the small business sector up 
and going again and creating jobs if we are going to revive 
that economy in that region.
    So I thank you, Madam Chair.
    Chair Snowe. Thank you.
    Just a couple of questions of Mr. Rothwell and Mr. Johnson. 
Administrator Barreto, before I move to them, on this whole 
issue of contracting claims, as I mentioned in my initial 
statement, Secretary Gutierrez said it was 72 percent back in 
October being awarded to small businesses. You are saying 45 
percent, and yet, as I understand, the Federal Procurement Data 
System excludes Defense and Homeland Security. So how could you 
get even 45 percent? There is no documentation of these numbers 
anywhere that I can foresee, and the two agencies are being 
excluded. And Gutierrez is saying 72 percent in October. You 
are saying 45 percent.
    This Committee would like to have documentation of all of 
these numbers.
    Mr. Barreto. Sure, be happy.
    Chair Snowe. Because we have no documentation. So how do 
you get----
    Mr. Barreto. We would be happy to provide you with that.
    Chair Snowe. With Defense and Homeland Security excluded 
from those numbers, how do you get 45 percent? It is 45 percent 
of the rest of the agencies.
    Mr. Barreto. These are the numbers coming out of the FPDS.
    Chair Snowe. Yes, but they do not include Defense and 
Homeland Security, so many of the contracts that go out to 
small businesses----
    Mr. Barreto. Right.
    Chair Snowe [Continuing]. Are not included in those 
numbers.
    Mr. Barreto. Right.
    Chair Snowe. So it is 45 percent, I assume, of the rest of 
the agencies, excluding two major agencies.
    Mr. Barreto. I would be happy to provide you with that 
documentation.
    Chair Snowe. OK; well, we certainly should, because----
    Mr. Barreto. We will.
    Chairman Snowe [Continuing]. There are major disparities in 
these numbers.
    Mr. Barreto. Yes, I will make sure you have it.
    Chair Snowe. I think we all should be speaking from the 
same numbers and what it is.
    Mr. Barreto. I agree.
    Chair Snowe. Because ultimately, it is the victims and the 
small businesses that are not going to be able to get back on 
their feet if we are not giving them the assistance, and 
certainly in the billions of dollars that are being 
administered by the Federal Government through the contracting 
process.
    And I think that they are doing an end run around small 
business. I mean, I think it is pure and simple. And that is 
regrettable. We have to get to the bottom of that. It is 
unacceptable. Small business has to be part and parcel, front 
and center----
    Mr. Barreto. We agree.
    Chair Snowe [Continuing]. Of delivering, that's right, and 
administering these contracts, and they are not.
    Mr. Barreto. Well, on Friday, we announced a $1.5 billion 
set-aside for small business.
    Chair Snowe. The question was the totality is $1.5 billion. 
I mean, that is $1.5 billion--of what?
    Mr. Barreto. $1.5 billion from FEMA on housing and 
maintenance and some other contracting issues related to the 
recovery. And that is just one. But we made that announcement 
on Friday.
    Chair Snowe. Well, I will be interested in seeing all of 
those figures.
    Mr. Barreto. Sure.
    Chair Snowe. And I will ask Mr. Rothwell and Mr. Johnson.
    Mr. Barreto. Sure.
    Chair Snowe. Because I think this is a critical part----
    Mr. Barreto. We agree.
    Chair Snowe [Continuing]. Of the overall recovery program 
for the Gulf region, because small business is going to be the 
lifeline, and I think that is without question.
    Now, Mr. Johnson, let me just start with you and the Army 
Corps of Engineers. As I understand it, they recently awarded a 
$47 million contract for delivery and installation of temporary 
classrooms for the Alaska Native Corporation that is based in 
North Carolina. Our Committee asked the Government 
Accountability Office to investigate this contract, and our 
review has been provided to you this morning.
    It appears that the Alaska firm was given a sole-source 
award for over twice the price offered by a Mississippi-based 
company, which was one of the few firms licensed to perform the 
installation of temporary classrooms in the State of 
Mississippi. How did this happen? How was it that an award was 
given to this corporation, based in North Carolina, when there 
was a company that could have provided it in the area which was 
devastated, and second, for far less money; in fact, this is 
going to be a net cost to the Government, a net increased cost 
of $27 million. How did that happen?
    General Johnson. Senator, thank you for the question.
    I have read the preliminary findings of the GAO report, and 
I believe the substantive issue was the fact that we may have 
done what you described as, well, as we may have paid more for 
this service than we should have.
    I have details I would like to submit for the record, but 
to summarize, the Alaska District of the Army Corps of 
Engineers, using the Federal Acquisition Regulation and taking 
into account the urgency of the situation and the need to have 
these classrooms, and they are not classrooms for students and 
schools; some of these were classrooms for the fire department 
and the police department as well.
    We needed to have these things in place in 18 days, and the 
other competitors could not meet those requirements in one 
case, and in another case, we could only lease those trailers 
for 90 days, and we did not know whether 90 days would be 
sufficient before we would have to give those back. We thought 
the fire department, police department, the customer, indeed, 
would need to have those trailers for longer, so we did not 
know.
    So in essence, we ended up probably paying a little bit 
more than we should have, but we adhered to the Federal 
Acquisition Regulation. We have learned in the process that 
maybe our paperwork needs to be a little bit more cleaned up 
and maybe our processes, as well.
    Chair Snowe. Well, how is the Army Corps working with 
respect to providing preferences for local small businesses? We 
are very concerned about the fact, that the Small Business Act, 
the Stafford Act, they are all being bypassed in giving 
preferences to small businesses, and these are requirements 
under the law.
    And the fact is many of the areas have not--almost all of 
the areas in the devastated areas of Alabama, Mississippi and 
Louisiana, are eligible and certainly would qualify in 
conformance with the criteria that are stipulated under those 
two acts alone. So, what is the plan of the Army Corps in 
giving preferences? Because the awarding of these contracts are 
essential.
    And many numbers are being tossed around here today, but 
what we do know are that there are no plans for subcontracting, 
and we do not know what the real problems are with respect to 
the subcontracting and giving preferences for small businesses. 
In fact, we believe that these numbers are overstating small 
businesses' access to these contracts, because we do not have 
any information to suggest otherwise.
    And so, we need to get to the bottom of it. So this 
disparity between 72 percent, 45 percent of some agencies, we 
have a real problem on our hands. And small business is given a 
preference under the law, in several different statutes. And 
so, we want to know what is the plan for including small 
businesses in the contracting and subcontracting?
    General Johnson. Yes, ma'am, good question.
    I think I will answer the question by telling you what our 
performance has been to date, understanding that the 
denominator for these performance metrics changed daily, and as 
those performance metrics are measured each day, we have to be 
aware that we are doing this each and every day, as is the 
culture of the U.S. Army Corps of Engineers.
    We are only restricted in one way of not setting aside for 
small businesses, and so, we do not do it. Specifically, under 
the Small Business Competitiveness Demonstration Program, we 
cannot do setasides for construction. Typically, the small 
business community competes very well in head to head 
competitions in the construction arena.
    I am going to rattle off some numbers, but again, I will 
submit them for the record. To date, the U.S. Army Corps of 
Engineers has awarded in direct contracts about $1.2 billion 
worth of contracts. Our goal, of course, is 23 percent to small 
business. We have awarded 34.83 percent, or about $416.6 
million. Our goal for small and disadvantaged businesses, 
including 8(a) and minority-owned, is 5 percent. To date, we 
have awarded 16.91 percent.
    For women-owned businesses, the goal is 5 percent. We are 
lagging. We have only accomplished 0.38 percent. For Hub Zone, 
our goal is 3 percent, and we are hovering at about 2.7 percent 
as of 6 November. Service-disabled veteran owned, the goal is 3 
percent; and we have awarded about 0.84 percent.
    But what I need to say about that is what we have learned 
over the years with a goal of 3 percent for normal operations 
is that the market really only has about 0.7 percent of these 
folks in this category. So we probably need to look at our 
metric and adjust it accordingly.
    Overall, I can tell you that for local businesses, not just 
including small businesses, we have awarded about $348 million 
or about 29.1 percent. And these statistics I am quoting you, I 
think it is very important to state that we are talking about 
monies that have been obligated, because we are concerned that 
you could measure yourself by commitments, and you could have 
these hollow contracts that just sit there and do not get used, 
so no one is really getting business.
    We think this is a tighter metric, and we know we can 
improve the process; we know we can improve how we track. We 
will continue to work with FEMA, Small Business, HCIC, because 
we know that this is a fleeting--it is either fleeting good 
news or fleeting bad news each and every day. And the U.S. Army 
Corps of Engineers, not only for these operations but in its 
daily operations aspire, because we understand the value of the 
small business community. They do all of our work.
    Chair Snowe. According to one of the charts that Senator 
Kerry had, 99 percent of the small, disadvantaged contracts 
went to the Alaska Native Corporation. Is that true?
    General Johnson. Ma'am, I do not believe that to be true, 
but I do not have the numbers sitting here in front of me.
    Chair Snowe. Why do you not do that, and I think it is 
important, because we really want to concentrate these 
contracts in the areas that have been hit.
    General Johnson. I could probably do the math, but with a 
$1.2 billion total direct awards----
    Chair Snowe. I believe that is troubling if that is true. 
Why would SBA Administrator Barreto approve this contract to 
the ANC? What is your knowledge about it?
    Mr. Barreto. I am not sure we were there when the contract 
was let. Obviously, the ANCs are an approved small business 
segment, and my understanding is that some of those contracts 
now have come back. And so, we are working now with FEMA to 
identify small businesses that can do this work, especially 
small businesses in the area and if possible minority small 
businesses.
    Chair Snowe. According to our charts, it is three different 
occasions on which SBA did approve it. I think the point is, we 
have to get back to the intent and purpose of the law--the 
laws, I should say, because small business is being excluded 
from this process, and second, you have to really give focus to 
those small businesses located in the damaged areas.
    Mr. Barreto. We agree. We absolutely agree. And one of the 
things----
    Chair Snowe. It is not illustrated by this contract.
    Mr. Barreto. One of the other things that is very important 
to recognize is the fact that at the very beginning of the 
disaster, there was a tremendous pressure and rush to find 
companies that could save people, that could remove bodies, 
that could remove debris, that could provide housing. Those 
were the critical needs immediately after.
    As time has gone by, and you have less of those critical 
needs, there has to be opportunities for small business. There 
is [sic] opportunities for small business, and there will 
continue to be. And our role is to help facilitate that and 
help small business. Something that was said, I think, by the 
Congressman which is also true: you have got some small 
businesses there who have lost equipment. You have small 
businesses who lost employees. And now, they may not have the 
same capacity that they had before.
    But they should still have an opportunity to participate in 
these contracts. One of the things that we think is going to be 
important is mentoring opportunities, partnership 
opportunities, bringing small businesses together and maybe, if 
you put two or three small businesses with a little bit larger 
business, they will be able to do some of these contracts.
    So we are looking for every way for that to happen. Just 
because somebody has been damaged or affected should not 
prevent them from being able to go after these contracts, and 
we have to find every way to make that happen.
    Chair Snowe. Mr. Rothwell----
    General Johnson. Ma'am, I hate to interrupt.
    Chair Snowe. Yes.
    General Johnson. But if I could, I did the math. We think 
that contract was awarded at $47 million or thereabouts. I am 
going to give you a range. So it was between $40 or $60 
million. If I do the math, I get a percentage based on total 
direct contracts of one over 30 percent, which is about 0.03 
percent. It is a small amount of the total amount of contracts 
we have awarded directly.
    Chair Snowe. On this case, it was on the disadvantaged. Are 
you talking overall?
    General Johnson. Yes, I am talking total contract awards. 
Now, of the total disadvantaged and small business, I do not 
have the statistics.
    Chair Snowe. Yes, that is what we were saying in reference 
was that--of the overall totals for the small business, the 
disadvantaged small businesses.
    Mr. Rothwell, I understand that at least three companies, 
it was actually four, but three of which were given $1.6 
billion in contracts that were to companies that were recently 
cited in the May 2005 GAO report for overstating small business 
subcontracting achievements in Department of Energy facilities 
management projects. According to the GAO, these companies 
employed accounting gimmicks and generated misleading 
achievement data that did not provide a true picture of their 
performance with respect to small business subcontracting.
    So because of these overstatements, these companies may not 
have been entitled to get the Katrina contracts in the first 
place due to their poor subcontracting accountability. Can you 
shed any light on these contracts of $1.6 billion?
    Mr. Rothwell. Yes, ma'am.
    Chair Snowe. Bechtel and CH2M?
    Mr. Rothwell. With regard to the GAO report, we are aware 
of that report. Our Inspector General is aware of it, and the 
companies are aware of it. And that report covered contracts 
prior to this Katrina matter. But the point is that since 
everyone is aware of it, and GAO has brought it to our 
attention, we are looking at this very, very carefully to make 
sure that this data is correct.
    I would separate that fact from the reason that they were 
given the contracts. They were given the contracts because of 
the impending storm, and there was an ongoing procurement in 
process. They were competitors on that, and they were deemed to 
have the technical capability of actually performing.
    Now that they have these verbal contracts, and we are in 
the process of definitizing them, we are in the process of 
negotiating the subcontracting plans with an eye to what the 
GAO has said so to make sure that they do not overstate them.
    Chair Snowe. You are not recompeting these bids, but I 
gather you are recompeting other bids.
    Mr. Rothwell. I guess the nuance is that we are competing 
the requirement, which is a requirement for about $1.5 billion 
worth of work, that will be awarded to about 15 companies, 8 of 
which would be 8(a) firms, small disadvantaged firms, the other 
7 of which would be small businesses. So the requirement is 
what is being recompeted. Yes, ma'am, that is it.
    Chair Snowe. But in the future, but in these recompete 
nationwide, I understand they are going to be bundled contracts 
except for in the Gulf region; is that true?
    Mr. Rothwell. That acquisition strategy is not final. We 
are looking at that. We are trying----
    Chair Snowe. I hope not.
    Mr. Rothwell. No, what we are trying to do is figure out 
what is the right acquisition strategy. If we just recompete an 
acquisition strategy nationwide in anticipation of something 
that might happen on the West Coast, it is not going to take 
care of today's needs in the Gulf region. So we are actually 
still looking at the acquisition strategy, and we are very 
sensitive to the issue of bundling.
    Chair Snowe. Well, I hope you will look very carefully at 
the GAO's findings and give due regard to the compliance with 
the acts, the Small Business Act, the Stafford Act, and every 
other consideration to small business.
    Mr. Rothwell. Yes, ma'am.
    Chair Snowe. Senator Vitter.
    Senator Vitter. Thank you, Madam Chair.
    Mr. Rothwell, just to go back to that compete, I would say 
recompete, but it was never competed, so initial compete of the 
four big megacontracts, when will that be done by?
    Mr. Rothwell. I just want to make sure--are you talking 
about the ones that I talked about, the $1.5 billion with the 
15 firms? We are looking at 100 days until completion, so it 
would be sometime in February. And again, we have to do two 
things. It is between doing it urgently, as it was done before, 
and doing it under the normal process, which would take a long 
time for a $1.5 billion program. We are trying to get it done 
in 100 days, realizing that when we do get it finished, there 
will be companies that we have to debrief as to why they did 
not get the awards. So even when we award the 15, we just need 
to do it----
    Senator Vitter. And this will replace the current four big 
noncompete megacontracts under FEMA.
    Mr. Rothwell. It will supplement them, sir.
    Senator Vitter. So they will continue?
    Mr. Rothwell. They will continue until we have--if you all 
think of it as 2 things, there is going to be a competition 
that will replace those 4, and then, there will be a 
competition for the $1.5 billion, which will be for the 15 
firms. And the idea is to make sure that we have capability to 
do anything that is required in the Gulf region.
    Senator Vitter. So those four noncompete megacontracts are 
being replaced with a different competition.
    Mr. Rothwell. Yes, sir.
    Senator Vitter. And when will that competition be done?
    Mr. Rothwell. We are looking at 120 days for that. We 
figure that is going to take a little bit longer, so 120 days 
for the small and disadvantaged, about 120 for the full and 
open.
    Senator Vitter. And for the 120 day process, is there any 
requirement of participation by small business?
    Mr. Rothwell. Yes, sir, absolutely. We are looking at 
subcontracting goals of about 40 percent.
    Senator Vitter. And how will that be phrased in the 
contract? In other words, what do you mean by goal? Is it a 
mandate or a goal?
    Mr. Rothwell. Well, it is a goal, but it is going to be 
looked at very, very seriously. Everyone realizes the 
importance of this issue.
    Senator Vitter. Under the contract terms, what will happen 
if a company does not meet the goal?
    Mr. Rothwell. Well, basically, what happens is that the 
company has to come in and meet with either the head of FEMA's 
procurement organization or with me, and we basically work with 
them to make sure that they do meet the goal. It is not 
insignificant, I would just point out. I mean, that is a 
significant step that we would take.
    Senator Vitter. Have you considered using any more 
definitive consequences for not meeting to goal, i.e., money 
off the contract price, et cetera?
    Mr. Rothwell. We are. We are actually working with our 
legal department to see if we can do that, yes, sir.
    Senator Vitter. And what sort of mechanisms like that are 
you considering?
    Mr. Rothwell. It has not really been decided. I would not 
even want to mention it here. I mean, basically, but looking at 
something more disciplined than just the goal concept.
    Senator Vitter. I would certainly encourage that, and we 
have talked about that before. It is great to have goals, but 
consequences for not meeting the goal that have to do with 
profit or contract price get people's attention a whole lot 
quicker.
    Mr. Rothwell. Basically, in Federal procurement, we are not 
really allowed to do penalties. We are supposed to do something 
that is actually more of a liquidated damages thing, but we are 
looking at that. I understand the point, and we are definitely 
looking at it.
    Senator Vitter. Well, I am not sure exactly what you mean 
by liquidated damages, but it sounds like you mean 
substantively the same thing, so it would not matter.
    Mr. Rothwell. Yes, sir, yes, sir.
    Senator Vitter. Within that 40 percent goal, that is for 
any small business. Is there anything specific to small 
business in the disaster area?
    Mr. Rothwell. The way we read the Stafford Act is that we 
are going to put an evaluation criterion in the proposal that 
will give extra points for their commitment to basically award 
contracts in the local area.
    Senator Vitter. OK; and General Johnson, let me tell you 
what I hear from virtually every local government leader in 
Louisiana in the disaster area regarding debris removal: what I 
hear is that they either have ongoing, or could have in a very 
short period of time, a contract for a very fair price with a 
local debris removal company that they can get going 
immediately, but generally, what they are told is that if they 
want to be guaranteed 100 percent payment by the Feds, they 
need to abandon that, work through the Corps, work through a 
major contractor who is inevitably from out of State, and then, 
maybe the locals can subcontract under that local, maybe not. 
And by the way, that bigger contract through the Corps is 
always for a higher price than what they could do locally. Tell 
me why that is a good system.
    General Johnson. Sir, I do not believe it is, and I do not 
believe that we are the ones who are telling those contractors 
to do that. We traditionally, by law, provide FEMA's 
engineering capability for emergency support function No. 3. 
That includes debris removal. When FEMA has an emergency, the 
Corps mobilizes, deploys, and in this case, where one of our 
districts was affected, we can reach out to the entire nation 
or entire assets in the Corps, and we deploy people down, and 
we get contracts in place to do debris removal.
    Senator Vitter. I do not mean to interrupt, but I just want 
to pursue this. But the contracts that you employ are with 
these very large firms, inevitably from out of State, so it 
does, unless I am missing something, it does create the 
scenario I am describing.
    General Johnson. Sir, what happens is when we first go in, 
we use the advance contracts to respond immediately. And I 
think you already know, as we reach a stage, and we still have 
not cleared all the rights of way, we will get to a point where 
all those rights of way are cleared, and then, we will not 
issue task orders on those big contracts. And as we are doing 
that, we are developing new contracts that include small 
business, local business, to include working on setasides for 
those folks.
    Senator Vitter. Are you saying that as you make that 
transition, you can and will go directly to the local 
contractors who, in literally every situation I know about, do 
it for less than the prime?
    General Johnson. Sir, typically, we will use the prime 
where the district--when we get to steady state, for example, 
and this is no longer an emergency operation, and the district 
is operating the way a district works, it is easy to go 
directly from a district to the contractor.
    Senator Vitter. Well, I am not sure what you mean by steady 
state, but anything approaching that description to me is a 
long ways off, so I still have this concern: why not, if you 
have a municipality that can identify a local contractor, even 
get multiple bids, and get it at a price well below your big 
megacontract, why wouldn't you go directly to that local 
contractor?
    General Johnson. Sir, we consider price, we consider 
operational capability; it is a best value thing. It is also a 
challenge for us, I think, from my experience to manage 161 
contracts as opposed to one. Quality assurance, quality control 
becomes an issue for us, because we are required to make sure 
that whoever is delivering that service is delivering what the 
Government is paying for.
    Senator Vitter. Well, I think you have put your finger on 
the issue, that the Corps has decided it is a lot easier or 
better or some combination to manage a big megacontract. I am 
just telling you what the result is: the result is that these 
local contractors are all ready to go, who often have a pre-
existing contract with the local government is kicked out and 
asked to maybe try to be a sub for the big guy, the big out of 
State guy, who is always charging way above what they would do 
the work for to begin with.
    General Johnson. Sir, that is an unintended consequence. 
There are some States, if you look at what is happening in 
Florida, Florida does not come through us. Florida opts to do 
its own debris removal. And so----
    Senator Vitter. I would encourage you to look at other 
options, look at other ways to get help either in house or by 
contracting it out to manage more contracts, because I think if 
you have that capacity, you can greatly increase local 
participation, and you can get the work done for less.
    General Johnson. Sir, I do not disagree with you.
    Senator Vitter. And Mr. Administrator, one final question 
for you: going back to these GO Loans, do I understand right 
that under this GO Loan concept, it is an 85 percent Federal 
Government guarantee?
    Mr. Barreto. Yes.
    Senator Vitter. And do I understand right that you do not 
expect it to cost the SBA or the Government anything?
    Mr. Barreto. Yes.
    Senator Vitter. OK; then, my question is how does that 
work, unless you are giving out these loans basically to people 
who do not need them?
    Mr. Barreto. It works the way that the $20 billion in 
guarantees that we did this year works, on a zero subsidy, 
going through our regular underwriting process, except in this 
case, the underwriting process is streamlined so we can give a 
decision much, much quicker.
    Senator Vitter. My point is if you have an 85 percent 
Government guarantee and no cost to the Government----
    Mr. Barreto. Right.
    Senator Vitter [Continuing]. You are administering the 
loans in a way that has a minuscule failure rate.
    Mr. Barreto. That is correct.
    Senator Vitter. Let me suggest that a loan designed like 
that with that small a failure rate--I am not proposing we, you 
know, try to maximize the failure rate, but a loan like that 
with that small a failure rate is not meeting significant needs 
in the disaster area following a disaster of this size.
    Mr. Barreto. We are going to use what these business were 
doing before. We are not going to be using what their current 
condition is or what their prospects are going forward. And so, 
we believe that we are going to be able to make a lot of these 
loans. I mentioned already, we have done $100 million of loans 
in a very short period of time. The lenders in these 
communities, they know these businesses. They have 
relationships with these businesses. They know who has the best 
opportunity to get going again and become viable.
    And we will work through our lending community to make 
those loans. The lending community, by the way, is making a lot 
of loans on their own, as you know, without an SBA guarantee. 
The State is also making some loans through some funds that 
they have put forward, so there's a number of different, you 
know, responses to the needs that are out there.
    This GO Loan and the SBA disaster loan and the bridge loan, 
any of those by themselves is not going to fill all the gaps. 
But if we have enough of these things going, if we do enough of 
these disaster loans, if we do enough of these economic injury 
loans, if we do enough of these GO Loans, if we do enough of 
our regular loans, if we do enough of the 504 loans, we get a 
lot closer to start filling these gaps.
    Senator Vitter. Well, again, just to summarize the point: 
if these GO Loans have an 85 percent Government guarantee----
    Mr. Barreto. Yes.
    Senator Vitter [Continuing]. And no cost to the 
Government----
    Mr. Barreto. Yes.
    Senator Vitter [Continuing]. That means that they are not 
reaching all sorts of businesses which are on the cusp which 
can be saved, and so, there is still a huge gap in terms of the 
need following this disaster.
    Mr. Barreto. I mentioned before that many of the people 
that apply for loans to SBA actually do not even want a loan. 
They want to go back to FEMA and be able to get a grant. Of 
course, FEMA has made an announcement last week that they are 
going to make that $26,200 available on a much wider scale. 
That might be able to fill some of these short-term needs that 
people have.
    Senator Vitter. Thank you, Madam Chair.
    Chair Snowe. Thank you, Senator Vitter, and thank all of 
you and Administrator Barreto and Mr. Rothwell and Mr. Johnson. 
We appreciate your cooperation here today, and most 
importantly, I hope that we have a plan to address in a 
proactive fashion the serious and significant issues that we 
continue to confront in responding to this disaster of 
unparalleled magnitude.
    So I would like to see a plan in all respects from the 
contracting to you, Administrator Barreto, I would like to see 
a timetable----
    Mr. Barreto. OK.
    Chair Snowe [Continuing]. Submitted to this Committee on 
how the SBA intends to respond in a timely fashion with the 
180,000-plus applications that are still pending and what the 
timetable is, what the resources you have and will require in 
the future. But we need to get it done.
    Mr. Barreto. We will provide it as soon as possible.
    Chair Snowe. And I think that is the purpose of this 
hearing. I know it is an unusual circumstance, but nonetheless, 
we have to measure up to the task at hand. So I thank you, and 
I appreciate it.
    Mr. Barreto. Thank you very much.
    Chair Snowe. Thank you. I appreciate it.
    Chair Snowe. And now, we will have the third panel come 
forward.
    Mr. Barreto. Thank you, ma'am.
    Chair Snowe. OK; would the hearing please come to order? 
Thank you. OK; our third panel, and I thank you for your 
forbearance and patience here this morning. I am sorry that it 
has taken so long, but you can see there are so many issues 
that we are trying to explore with respect to this response, so 
I certainly appreciate the fact that you are both here.
    First, I would like to introduce Walter Isaacson, Vice-
Chairman of the Louisiana Recovery Authority. The LRA was 
created by Governor Blanco to assist with the planning and 
coordination of Louisiana's recovery. I want to thank you, Mr. 
Isaacson, for being here today. It is good to see you again. I 
know we have had the ability to talk about all of these issues, 
and I am delighted to see you in the capacity that you are in. 
I think you will be a great resource and benefit to the State 
of Louisiana.
    Mr. Isaacson. Thank you.
    Chair Snowe. And I would also like to introduce David 
Cooper, Director of Acquisition and Sourcing Management for the 
Government Accountability Office. And Mr. Cooper's 
responsibilities include oversight of the Department of 
Defense, NASA, Homeland Security, and the Department of State, 
and I thank you for the work that you have done with respect to 
this report that we requested, and it is going to be very 
helpful to us as we continue to explore some of the dimensions 
of the subcontracting, contracting issues with Defense and 
Homeland Security in particular. So I thank you, Mr. Cooper, as 
well.
    Mr. Isaacson, would you begin? Thank you.

STATEMENT OF WALTER ISAACSON, VICE-CHAIRMAN, LOUISIANA RECOVERY 
                           AUTHORITY

    Mr. Isaacson. Sure, thank you very much, and I will provide 
a copy of my remarks, which if you would give me permission, we 
can insert into the record so I do not have to read them all to 
you, and I am sure it would be easier.
    Chair Snowe. Without objection, so ordered.
    Mr. Isaacson. Thank you, Madam Chair, and Senator Vitter 
for all your help.
    I want to actually talk from the heart for a moment, which 
is what you are doing is awesomely important. I know you all 
know that, because that is why you are on this Committee, and 
Senator Vitter knows it because of being on this Committee and 
being from Louisiana. But this is what we need the most. We 
need to be able to bring ourselves back, not ask for handouts, 
and it really means getting small businesses back.
    And I know, Senator Snowe, that that has been some passion 
of yours for some long time, but that is why we are all here 
now, and I am somewhat astonished, having listened this morning 
at the defensiveness, the excuses, and the stuff, and the 
ability to say, well, how does this plan differ from that, and 
you cannot get the plan together, when I would have assumed 
that anybody from the SBA would say this is why we were put on 
this planet. This disaster may happen. This is why we go into 
the issue of helping small businesses. Let us be creative and 
do all that we possibly can.
    And I know that there are some complexities between the GO 
Loan program and the bridge loan programs and various things 
and what the State of Louisiana has already done with all of 
the money it could scrounge together, but this is a real 
emergency. Thanks. This is a great Committee here. That was not 
the--and it is just--latte. But I just cannot emphasize enough 
that there are really two priorities we have in Louisiana now: 
one is to get our levees back so that we can start building 
again and the restoration of the coast that goes with it, and 
the other is just small businesses.
    And I cannot tell you how frustrating it was listening to 
some of what you had to do. So thank you both, and thank 
Senator Kerry and Senator Landrieu and Senator Thune and others 
for just really pushing this. Do not let it go. The fact that 
it is pulled out of, you know, that it has been pulled out of 
the reconciliation and stuff, this is an emergency, and I think 
this is why there is such a Committee as this. This is why, you 
know, when the founders created Congressional oversight, they 
had this thing in mind.
    And with the SBA needing some real oversight in this case 
and some juicing up and some push so that we can get this thing 
out and not just lose it is so important to me. I do want to 
thank the Administration for extending the SBA loan deadline. 
That is a first step.
    I also want to thank the Administrator, Hector Barreto. He 
came down to Louisiana. I think he cares. It is just 
frustrating to listen, though. And I was down in Plaquemines 
Parish 3 weeks ago, and they were looking forward so much to 
his visit. I mean, this is a lifeline to all these businesses. 
And I know he has got problems, but I was up and down from 
Empire to Port Sulphur to every other place in that parish, and 
there were not boats blocking the way on all of the highways. 
There were people getting back to work, but they could not get 
the SBA loans.
    And the reason you are not getting the SBA loans is not 
because boats are blocking the highways, as I think he said, 
because we certainly got all over the place, including with 
great respect, the Guam National Guard replacing the North 
Dakota National Guard down there, which is a true sight to 
behold in Plaquemines Parish, Louisiana.
    [Laughter.]
    Mr. Isaacson. So I also want to thank Al Hubbard. We met 
with him at the White House, and he said that he is going to 
get a daily monitoring of SBA loans, because he was, well, I 
will not speak for him, but he was concerned to be on top of 
this case. So I am glad that the White House is really on top 
of this case as well.
    And all of this, you know, is why this is of such 
importance to us. We did a bridge loan program down in 
Louisiana. Governor Blanco, Senator Vitter, and Senator 
Landrieu understand what it was. It was funded by as much money 
as we could get out of the entire rapid response fund, which is 
$10 million. That type of bridge loan is what is desperately 
necessary. As I kept hearing today, the SBA is not prepared for 
disaster assistance. They do not respond to short-term 
emergency needs.
    Well, that is why you have an SBA. That is why you have 
this Committee. Let us figure out how to get this done. We need 
these interest-free, 180-day short-term loans, and the State's 
$10 million is not enough to do the needs, so we were hopeful 
that it was going to come out of the provision that Senator 
Vitter and you, Madam Chair, and Senator Kerry and Senator 
Landrieu put in, and that provision has not been retained 
during the conference. I do not understand what you can do, but 
I just hope you can do something, because we need the bridge 
loan thing to keep going.
    And as I kept hearing this morning, the SBA disaster loan 
programs just are not working. Well, we cannot wait to fix 
them. I mean, we have people, my cousin, my uncles, but 
everybody I know down there waiting to get their businesses 
back, and even if they do not need the loans, they need the 
people, their neighbors, to get the loans. Otherwise, they 
cannot be opening up shops, selling the computers, doing the 
things that, you know, my friends do.
    So I am not going to summarize all the statistics in here, 
because you have heard them, and certainly, you have come down 
hard on them. I will just skip right to our priorities, which 
is please allocate, if you can, somehow figure out how to get 
it out of the conferences and stuff, the $200 million for a 
bridge loan program. That is just a lifeline. You do not let 
people sit there in the choppy waves after a hurricane without 
throwing them a life vest.
    And they will be able to swim. They will be able to get 
themselves back on their feet. But just help with this bridge 
loan program to continue the State of Louisiana's existing 
bridge loan program, because you have not yet come up with a 
way to do that yet at the Federal level. Obviously, you want to 
expedite loan processing. We do need a business recovery fund, 
and I would suggest that it is just the exact same thing that 
you did after 9/11 when I lived in Manhattan.
    I mean, if you can do those type of grants, I know it may 
seem somewhat expensive, but what it does is it brings an 
economy back. We are not talking about money flushed down the 
toilet. We are talking about getting businesses started so that 
they are paying taxes again, so they are employing people 
again. And so, if you can do--just model it over the exact same 
thing that happened for the city of New York. We are not asking 
anything more than that. But it is business retention grants 
and technical assistance programs and stuff.
    And New York officials, I was there: they will tell you, 
that saved them. It was that sort of thing. So I do not quite 
understand why we cannot just say we do not have to reinvent 
the wheel. Let us just use the wheel we used after 9/11 through 
HUD and everything else.
    And the President suggested the Gulf Opportunity Zone. I 
assume these GO Loans are probably a part of that or whatever. 
But this is great. Let us do the Gulf Opportunity Zone. The GO 
Loans are not--they are a pilot program. They are at above 
interest rates. I think Senator Vitter kept pointing out, and, 
I mean, everybody can see, it is not for the people right on 
the brink and on the cusp. But if you want to put that as part 
of the package, fine. Give us the Opportunity Zone.
    We are not asking for handouts. We are just asking to bring 
our businesses back. We are focused really on getting the 
businesses back. That is our priority with the levees. We need 
the loans, the grants, and the other opportunities that are 
just in the normal course of business. I think, and I will 
admit, that we in the State all made a mistake by asking for 
everything at once at the beginning, and it may have hurt our 
credibility a little bit.
    So we set the priorities, and the priorities are very 
clear: this is one of the top two priorities, this and levees, 
small business loans and levees, and then, we will pick 
ourselves up and get ourselves working.
    I want to thank you for the opportunity. I know this is 
more impassioned. I have a much more reasonable and dry 
testimony here which I am sure will be entered into the record, 
but I wanted you to know how much we feel this partnership is 
necessary and how much we feel it is imperative that you keep 
doing what the two of you have been doing, which is the role of 
Congressional oversight that the founders so carefully put into 
our constitutional system and pushing them, getting them back 
to do things.
    [The prepared statement of Mr. Isaacson follows:]


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chair Snowe. Thank you. Thank you very much.
    Mr. Cooper.

   STATEMENT OF DAVID E. COOPER, DIRECTOR OF ACQUISITION AND 
             SOURCING MANAGEMENT, U.S. GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Mr. Cooper. Madam Chair, thank you for the opportunity to 
be here today to discuss GAO's work on Federal efforts to 
respond to the disasters on the Gulf Coast.
    Let me first begin by saying that you can be assured that 
GAO is placing a very high priority on this work. The 
Comptroller General is personally involved in GAO's efforts, 
and we are working very closely with other accountability 
agencies at the Federal, State, and local levels to make sure 
that we look at all significant issues that need attention.
    As provided for in our Congressional protocols, we are 
conducting this work under the Comptroller General's statutory 
authority since it is an issue of interest to the entire 
Congress and to Committees in both Houses. Numerous questions 
are being asked about the Government's ability to effectively 
respond to the disasters. Many of those questions, as we have 
heard here this morning, relate to whether small businesses and 
local firms are getting a fair share of the Federal contracts.
    Ultimately, we need to understand what went right and what 
went wrong and to apply these lessons to strengthen the 
Government's response and recovery operations now and in the 
future. GAO has already had teams in the hurricane stricken 
areas collecting information and gaining the insight that will 
be necessary to identify lessons learned and improvements 
needed for future emergencies.
    In that regard, I would like to share some insights that we 
have gained in reviewing the contract you mentioned earlier 
about classrooms for Mississippi schools. While this is only 
one contract, I believe there is a lot to be learned from the 
way it was done. It offers valuable insights for improving 
Federal contracting efforts and being better prepared to 
respond to future emergencies, particularly as it affects local 
companies and small businesses.
    GAO received a tip through its fraud hotline that the 
Government was paying highly inflated costs for the classrooms. 
In response to that tip, we are reviewing the contract that the 
Army Corps of Engineers awarded on behalf of FEMA to purchase 
450 portable classrooms.
    Our work over the years has shown that three key conditions 
must exist if agencies are to get good acquisition outcomes: to 
ensure successful contracting outcomes, agencies must have 
sound acquisition plans and plans that incorporate and consider 
small businesses and local firms when a disaster occurs; 
significant knowledge, sufficient knowledge to make good 
business decisions; and an adequate means to monitor contractor 
performance and ensure accountability.
    Planning and knowledge are particularly important in 
responding to disasters, because there is a premium on 
responding quickly and effectively. Agencies cannot wait for 
disasters to happen; the planning and the knowledge collection 
has to be done ahead of time, and we have heard from several 
witnesses today that initiatives are now being undertaken to 
address small business and local firms. What I am trying to 
emphasize is those plans need to be in place before the 
disaster occurs.
    In reviewing the classroom contract, we found acquisition 
planning was absent. We found no information in the contract 
files like supplier lists or pricing histories that would have 
helped the Corps contracting staff purchase the classrooms. 
Absent that information and faced with a very short timeframe 
to buy the classrooms, the Corps contracting staff found 
themselves in a very difficult situation.
    To meet the requirement, they placed an order without 
competition, as you have previously noted, on a previously 
existing contract established by the Army Contracting Agency in 
Fort Eustis, Virginia. The agreement was not intended to be 
used for buying classrooms; rather, it was intended to be used 
to acquire and install portable buildings on Army 
installations. Not surprisingly, the agreement did not include 
information that would have been useful in purchasing the 
classrooms; specifically, it did not include prices, designs, 
or specifications for the classrooms that were needed.
    Our review of the contract documents and discussions with 
the contracting officials in Vicksburg clearly indicates to us 
that they were unprepared to buy the classrooms and lacked the 
knowledge needed to do so. We found that a local firm 
approached the Corps contracting staff about providing the 
classrooms. The Corps staff, however, because of time 
pressures, decided to use the pre-existing agreement and 
awarded an order to buy the classrooms for $39.5 million.
    As part of our review of the Federal efforts to respond to 
the hurricanes, we will continue to review this contract and 
others to determine how Federal agencies identified, selected, 
and are managing contractors to meet their response and 
recovery responsibilities, including how they are considering 
small businesses and local firms in their acquisition 
decisions.
    Madam Chair, that concludes my statement, and I would be 
glad to answer any questions you have.
    [The prepared statement of Mr. Cooper follows:]


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chair Snowe. Thank you. I appreciate it. Thank you very 
much. I appreciate both of you being here, and I thank you for 
your patience.
    Obviously, these are critical issues, and we are trying to 
sort through them and determine fact from fiction so that we 
can rectify some of the problems to move this program forward 
in a more timely fashion. Walter, what is your sense on the 
ground there in Louisiana, on the front lines, about what are 
the impediments to small businesses getting access to loans 
from the SBA? What do you think is happening there?
    Mr. Isaacson. I think that they are not using our local 
banks. I mean, one of the things that we did at the LRA when we 
heard from the bankers, and I heard the complex discussion this 
morning, so I am not going to untie that Gordian knot for you, 
but there are a lot of banks in the State of Louisiana doing 
very well and those should be used in the process of handing 
out loans.
    There is a sense that it is an enormous bureaucratic and 
slow and lethargic nightmare and that people just do not get 
it. And every day that a business cannot operate, you know, 
that they do not have the capital, that they are shut down 
means it is less likely that those persons will ever have a 
business again; you know, that that business will just be 
destroyed.
    And I would say that the highest amount of frustration 
comes when we just cannot get a bridge loan or a grant or an 
emergency thing. And people do not really feel that is a 
handout. They feel that is what happened after 9/11. That is 
what happens in big disasters. That is why we have an SBA. And 
I think they would be astonished to hear testimony that, well, 
the SBA really is not geared to do this sort of thing. Well, 
you know, pray tell, we are going to be judged, and we are 
going to judge ourselves by how well we do that sort of thing.
    So it is a sense that maybe you should use the local banks 
a little bit more; maybe you should find some more creative 
solutions instead of everybody saying no to a solution that 
somebody else comes up with and maybe just go down there, and 
it is like right after the hurricane: somebody should have just 
said let us go in there and get some things sorted out. You 
have to have another month or two to try to do that, and all of 
a sudden, money is being pulled out of whatever you call it, 
the conference or the reconciliation.
    Chair Snowe. Yes, and they have been down there a number of 
times. I mean, the Administrator himself has been down there on 
four different occasions. I know the staff, our staff, has been 
down there, and we have identified what we think the issues are 
and what needs to be done. It is just not happening. And I 
agree with you. I think there is a lethargic response to this 
whole issue. You have to really give impetus to the bureaucracy 
to respond to the urgency of the circumstances. You have got to 
move it, and you have got to----
    Mr. Isaacson. I will give them credit, though.
    Chair Snowe. You have to amass the respect to ensure it 
occurs, and it is just not happening. And that is our 
frustration, too, because one of the issues we did identify 
early on was the bridge loans as part of the entire package, 
which we thought would be very useful. In fact, it was 
reinforced by the testimony of small businesses that were 
represented here more than a month ago from the various States 
in the Gulf region that indicated they needed that bridge loan.
    And so, but we had included it in our package, and that is 
what is so disappointing, because I am not sure whether or not 
what this--it may be fine; who knows. But again, we are sort of 
having to sort of try it out.
    Mr. Isaacson. But, I mean, I am going to go down Thursday 
for the big meeting down in New Orleans of the LRA and a big 
AIA conference down there on rebuilding; I mean, can I bring 
some word back that we are going to try to get the bridge 
loans, or is that--that is what people need the most, the 
bridge loans and the----
    Chair Snowe. You are not getting a modification, I know, 
and you know, that is our frustration because of what happened 
in the House-Senate conference on the entire package that we 
have now also pending concurrently in the Senate in hopes of 
being able to pass it under unanimous consent.
    But as I indicated earlier, there are 10 objections from 
the SBA and the Administration within the bill. There are 10 
provisions that they are objecting to, including the bridge 
loans. So they have come up with this modification. Whether or 
not that is going to address the issue remains to be seen.
    Mr. Isaacson. But the modification seems to be for loans 
that are with higher interest rates and that are only 
incredibly safe and are not going to cost anything. Well, heck, 
you do not need--that is not what you need.
    Chair Snowe. Exactly.
    Mr. Isaacson. I mean, heck, I could give those loans.
    So I would just say that what people cannot quite get, and 
I am so astonished, I am not sure I am going to be able to 
explain it to them--everybody realizes you need the bridge loan 
program, which Louisiana already has, but it scraped together 
every bit of money.
    I will say something I probably should not say: I was able 
to get $200 million for loans for the Gaza Strip, because, you 
know, everybody knows we have got to build the Gaza Strip. That 
is easy. You have people coming in like crazy on that. Why you 
cannot act as fast when it is, you know, our folks in 
Mississippi and Louisiana and the Gulf Coast is astonishing to 
me.
    So we need the bridge loans and grants, and maybe it will 
come out that neither Congress nor the Administration can 
figure it out, but that would--that is really bad in the long 
run. It is not just a matter of cost. You are creating 
unemployed people and destroyed businesses. This does not make 
economic sense. We are not saying please build, you know, 
flower gardens for us or something. We are saying just give us 
a bridge loan so our businesses come back.
    Chair Snowe. I know. That was the single most important 
recommendation made by the small business owners who were here.
    Mr. Isaacson. And I did not hear the answer.
    Chair Snowe. I know, it is, and you are right about the GO 
Loans. I mean, the interest rate is going to be market rate, 
and so, it is similar to a regular loan. That may help in some 
instances, but clearly not in a number of them and also for the 
processing of these applications.
    So we are going to continue to try to address these issues 
and these objections, because we still have the entire package 
pending in the Senate in hopes of moving it on a unanimous 
consent basis. In fact, we thought that we were pretty close to 
getting unanimous support for it so that we could just move it 
through and have it signed by the President. But obviously, 
there are objections even within the SBA, and so, it is beyond 
me as well, because we need to get to the heart of the 
situation and get small businesses up and running in the final 
analysis.
    Mr. Isaacson. I mean, can you just give us a little to keep 
the State program going? You know, is it----
    Chair Snowe. How much is the total that you have given? Is 
it $10 million for that?
    Mr. Isaacson. Well, it was $10 million.
    Chair Snowe. Was it $10 million?
    Mr. Isaacson. I feel like I could just go around to a rich 
individual to just do that for us. It is certainly something 
that in our overseas, we are always giving hundreds of millions 
of loan guarantees.
    I would think, I mean, what we are looking for is a $200 
million bridge loan to continue the existing one that is up and 
running and has the offices in place, has the people there 
ready. If we could just do that, just get that going, that 
would tide us over until you all sorted out GO Loans versus 
whatever loans.
    Chair Snowe. Right. We will have to work it through. I 
agree, and we will do everything we can, because I know it is 
the basis of your recovery. That is the essence of all of this.
    Mr. Isaacson. It is going to cost more in the long run if 
all of these businesses go under. I mean, ever since our 
founding, we have had as our backbone small businesses, 
shopkeepers. I mean, it is a Nation of shopkeepers that keep 
our economy going. If you want to destroy those shopkeepers, 
just wait another 2 months and do not give them the bridge 
loans. But then, you will have a real devastated economy, not 
just in Louisiana, but all across the region, and it will 
affect the United States.
    Chair Snowe. I know. It is exactly right, so it will 
reverberate. And so, we are going to try to do everything we 
can to see if we can get this assistance in the final analysis 
and see if we can overcome the objections, because it clearly 
should happen.
    Mr. Isaacson. You know, New York got, what was it, $2.7 
billion in just pure business recovery grant programs? Now, 
this is not something I was against. I think it was fine. But 
that was a much smaller area for a one-time event that was kind 
of manageable. I mean, I was there. I have been in both of 
these places. There is a difference in some ways.
    That is a $2.7 billion grant program. So, just something 
comparable to New York, or even treat us half as good as New 
York, but just something along those lines, just do the same 
type of program. And then, keep our bridge loans going until 
you sort out the Go versus no-Go ones.
    [Laughter.]
    Chair Snowe. If that is possible around here, Go, no-Go.
    From the experience that you have had thusfar in Louisiana, 
has there been a noticeable difference at all with respect to 
small businesses getting up and running, I mean, any impact 
from SBA in the application process? Have you seen any 
discernible difference in the economy?
    Mr. Isaacson. The SBA should be the backbone or the help 
for small businesses. Small businesses are getting back. I 
mean, in Plaquemines Parish, I don't know what the 
Administrator saw, but I went all over there: they are working 
like crazy. People are not just sitting there waiting for 
either the Red Cross or the SBA to show up or something. I was 
astonished at how hard people are working.
    When I would go back to New Orleans or to Plaquemines or to 
Jefferson Parish or Calcasieu, you would see businesses really 
just working. But they are not getting the business loans, so 
about a third of them just cannot make it.
    So it is happening, but not because of the SBA, and that is 
almost retarding it, because they do not have access to 
capital. So it is the biggest crisis. You heard from them when 
they came up here, but every time I am walking around, they 
just--that is the thing people grab me on. Two things people 
grab me on: you have to make sure the levees do not just break 
on us next time, you know, the shoddy construction or whatever, 
and No. 2, can't we get the same thing everybody thought you 
were supposed to get in disasters, which is emergency loans, 
bridge loans, disaster grants, whatever you want to call them?
    That is the only two things they say. And I am kind of 
sorry that the State--it is our fault. We kind of asked in our 
original thing, we kind of squandered some of the good will by 
saying we need this, this, this, this, and this and that. Let 
me tell you: we need two things: we need levees that do not 
break, and we need small business loans.
    Chair Snowe. Well, the small business loans are a 
reasonable request.
    Mr. Isaacson. So are the levees, but that is----
    [Laughter.]
    Chair Snowe. No, that is true, and also the tools to help 
them do their job. We were in that situation 2 months ago where 
we could have given them the tools if they were prepared to 
receive them.
    Mr. Isaacson. Everybody is kind of writing the history of 
this.
    Chair Snowe. And so we will just figure another way, 
because it is critical.
    Mr. Isaacson. There are more books being written about 
this. I keep saying get focused. It is on, you know, it is not 
Red Cross type stuff. It is how do you get businesses back and 
the infrastructure back? And I think history is going to judge 
us pretty harshly if we do not get focused real quick.
    Chair Snowe. I agree, and the other part of this with 
respect to small business is the awarding of contracts to small 
business. Mr. Cooper, I think that you have made some very good 
suggestions and recommendations in your review and report. It 
is clear that the Homeland Security Department and the Army 
Corps did not have any acquisition or accountability plans. Do 
you think they have them in place now?
    Mr. Cooper. Not yet.
    Chair Snowe. Not yet? How long does that take, do you 
think?
    Mr. Cooper. Well, it is probably going to take a long time 
to do that.
    Chair Snowe. A long time?
    Mr. Cooper. We have heard this morning that they are going 
to break out some contracts for small businesses. That is kind 
of an afterthought. It was not anticipated in the planning. I 
think what is needed, you know, we are going to have hurricanes 
in that area again. It is inevitable. And I think in terms of 
contracting, we need to identify those local firms that have 
capabilities that can clean up debris, can provide classrooms, 
and I think classrooms are a classic example of where the 
company that came to the Corps was one of two companies in the 
State of Mississippi that was certified by the State Department 
of Education to provide and install classrooms.
    Chair Snowe. You heard the answer today by Mr. Johnson. 
What is your answer to that?
    Mr. Cooper. I am not sure it was as complete as I would 
like to see.
    Chair Snowe. Yes.
    Mr. Cooper. But I talked to the contracting people at 
Vicksburg. I went down there personally. I talked to the 
companies, people in the companies that were there. And, I 
mean, it is just unexplainable why we did not use a local firm. 
In fact, I think the intent was to use a local firm, at least 
in a subcontract manner. And then, that did not even 
materialize. That went away.
    Chair Snowe. It sounded to me like they had not even made, 
you know, they had not specified the qualifications for this 
particular contract, did not decide how long it was going to 
be, so on and so forth. So it just seemed easier.
    Mr. Cooper. Well, things were done very, very quickly. I 
mean, negotiations virtually took place in 3 days, and 
negotiations is a loose term. The Government accepted whatever 
price the contractor provided here so----
    Chair Snowe. Do you think that is true across the board 
right now?
    Mr. Cooper. You know, this is one example, and I have seen 
this kind of thing happen in a lot of other Federal contracting 
situations, even in nondisasters, you know, the best of time 
situations, and it is a concern to us. GAO has several Federal 
agencies on its high risk list for not getting good contracting 
outcomes. There is just a lot of work ahead of us.
    Chair Snowe. What do you think this Committee could do with 
respect to enforcing the Small Business Act and the Stafford 
Act in designating small businesses for contracts and 
subcontracts?
    Mr. Cooper. I think you need to hold those agencies' feet 
to the fire. I am talking about FEMA. I am talking about the 
Corps, DHS, and have them come back and explain to you what 
they are able to achieve. I mean, you have talked about some 
numbers here this morning that are almost phenomenal to me, 
because I have done work for you in the past and reported on 
small business achievements. Information on small business 
participation in Federal contracts, either at the prime or the 
subcontract level, is hard to come by. And when I see a number 
of 72 percent, that cannot be right.
    Chair Snowe. Well, that was our reaction, too, 72 percent. 
That is three times the rate of awarding contracts in the----
    Mr. Cooper. The other point I would make, and it kind of 
struck me when the SBA Administrator said that he used FPDS 
data for the 45 percent, FPDS data is not accurate and 
reliable. We have made two reports in the last 2 years to OMB 
to try to get better data, more reliable data, so we know where 
Federal contracting dollars are going, and, I mean, I have 
testified before you on contract bundling, and I have provided 
information about large companies getting contracts intended 
for small businesses and report it as a small business award, I 
mean, the data is just not good.
    Chair Snowe. Well, we have a lot of work ahead of us.
    Mr. Cooper. Clearly.
    Chair Snowe. That is clear to me when you think about the 
amount of money, and the fact is it is, again, a key to the 
economic restoration of the region and, you know, making sure 
that many of these contracts are awarded to local contractors, 
small contractors, small businesses, and that is simply not 
happening to the degree that it should and is required under 
the law and plus the fact that is even more--above and beyond 
everything else is that it is costing the taxpayers more money, 
and we are seeing waste and inefficiencies, and unfortunately, 
it is coming down to more dollars on the part of the taxpayer 
than is otherwise necessary or required. So that's 
disconcerting to say the least.
    Mr. Cooper. That is a concern of ours.
    Chair Snowe. Yes, it is a concern, and these numbers are 
not accurate. That is unfortunate. There is no data to document 
what they suggested here today in terms of the awards to small 
businesses, either prime or subcontracting. And that is the 
frustration, and we have got to get to the bottom of it again 
because of the fact that they have no standards for 
acquisition, no accountability within the Defense and the 
Homeland Security Department.
    Mr. Cooper. Right.
    Chair Snowe. I mean, we are talking about significant 
agencies that are responsible for billions of dollars.
    Mr. Cooper. They spend the most.
    Chair Snowe. Hundreds of billions of dollars.
    So, in any event, that is very disturbing. So we will have 
to continue. I really appreciate your work and your guidance, 
and our staff will be following up with you, because we really 
want to see if we can pinpoint some specific issues that we can 
call them to account for, you know----
    Mr. Cooper. OK.
    Chair Snowe [Continuing]. And develop the accountability 
and transparency that is essential in making sure that these 
programs are being done in an efficient fashion.
    Mr. Cooper. We look forward to working with you.
    Chair Snowe. Thank you, Mr. Cooper, and Walter, too. Thank 
you for being here. We appreciate it, and hopefully, we can 
give you some good news on this score, because small business 
is central, we think, to the revitalization of the region. We 
want to make sure that small business and the Small Business 
Administration can be shining at this moment that is so pivotal 
to our Nation and to the Gulf region.
    So thank you. This hearing is adjourned.
    [Whereupon, at 1:10 p.m., the Committee was adjourned.]

                      APPENDIX MATERIAL SUBMITTED


[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]


                                  
