[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                       DISASTER SAVINGS ACCOUNTS:
                    PROTECTIONS FOR SMALL BUSINESSES
                           DURING A DISASTER

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

                           HEARING BEFORE THE

                    SUBCOMMITTEE ON FINANCE AND TAX

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                           SEPTEMBER 17, 2008

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 110-112
 Available via the GPO Website: http//www.access.gpo.gov/congress/house


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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


HEATH SHULER, North Carolina         STEVE CHABOT, Ohio, Ranking Member
CHARLES GONZALEZ, Texas              ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington              SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona               TODD AKIN, Missouri
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas                 STEVE KING, Iowa
DAN LIPINSKI, Illinois               JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin                LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa                   DAVID DAVIS, Tennessee
YVETTE CLARKE, New York              MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana              VERN BUCHANAN, Florida
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii

                  Michael Day, Majority Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                    SUBCOMMITTEE ON FINANCE AND TAX

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               VERN BUCHANAN, Florida, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania

                                  (ii)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Bean, Hon. Melissa, Chairwoman...................................     1
Buchanan, Hon. Vern..............................................     2

                               WITNESSES

Brown, Mr. Charles G., CEO Insignia Bank, Sarasota, FL...........     3
Murphy, Ms. Cynthia, Pies & Plates Prepped & Ready, Punta Gorda, 
  FL.............................................................     6
Mize, Ms. Maryann, CCIM, Sr. Vice President, Charlotte State 
  Bank, Port Charlotte, FL.......................................     8
Grayson, Ms. Kate, Owner, Steelgate, Inc., Bradenton, FL.........    10

                                APPENDIX


Prepared Statements:
Bean, Hon. Melissa, Chairwoman...................................    18
Buchanan, Hon. Vern..............................................    20
Brown, Mr. Charles G., CEO Insignia Bank, Sarasota, FL...........    23
Murphy, Ms. Cynthia, Pies & Plates Prepped & Ready, Punta Gorda, 
  FL.............................................................    27
Mize, Ms. Maryann, CCIM, Sr. Vice President, Charlotte State 
  Bank, Port Charlotte, FL.......................................    30
Grayson, Ms. Kate, Owner, Steelgate, Inc., Bradenton, FL.........    37

                                 (iii)

  


                       DISASTER SAVINGS ACCOUNTS:
           PROTECTIONS FOR SMALL BUSINESSES DURING A DISASTER

                              ----------                              


                     Wednesday, September 17, 2008

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 2:00 p.m., in 
Room 1539 Longworth House Office Building, Hon. Melissa Bean 
[chairwoman of the Subcommittee] presiding.
    Present: Representatives Bean and Buchanan.
    Chairwoman Bean. The recent onslaughts of hurricanes in the 
southeast, wildfires in California, and floods in the Midwest 
have served as stark reminders that natural disasters have the 
ability to devastate local economies. These catastrophes have 
wreaked significant fiscal havoc, particularly on America's 
small businesses. For entrepreneurs with tight profit margins, 
natural disasters can have very serious financial consequences.
    Small businesses are the backbone of our economy, creating 
over 60 percent of our nation's jobs, and it's important that 
they are able to stay afloat following a natural disaster. Yet, 
an estimated 40 to 60 percent of small businesses fail to 
recover from natural disasters. Today's hearing will examine 
one potential method of mitigating small business risk.
    The first 48 hours following a natural disaster are 
critical. They determine whether a small business will be able 
to mitigate losses, or be forced to close their doors. The SBA 
plays a critical role in this disaster recovery process. SBA's 
disaster loan program, for example, provides low interest loans 
and working capital for businesses. This loan plan has been a 
lifeline for hundreds of thousands of entrepreneurs. By 
providing the resources necessary for both long and short-term 
repairs, SBA loans give small businesses the tools they need to 
get back up and running.
    As invaluable as SBA's loans are, some feel that there are 
occasions when additional assistance is needed, and it would be 
helpful to have a supplement to SBA's program. In today's 
hearing, we'll examine the role that Disaster Savings Accounts 
could play in providing such resources.
    Proponents contend that by encouraging small businesses to 
prepare for future emergencies, Disaster Savings Accounts are a 
viable means of bridging the gap between disaster and relief. 
According to advocates, Disaster Savings Accounts could cover 
both preexisting and future disaster-related expenses, as well 
as preventative measures, such as hurricane-resistant doors or 
windows.
    The SBA already provides entrepreneurs with a number of 
essential disaster resources. Today we will discuss whether or 
not those services should be augmented. And, if so, by what 
means.
    I'd like to thank our witnesses for coming here to share 
your personal experiences and perspective on these issues, look 
forward to your testimony. And now I'll yield to Ranking Member 
Buchanan for his opening statement.
    [The prepared statement of Chairwoman Bean is included in 
the appendix at page 18.]
    Mr. Buchanan. Thank you, Madam Chair. Good afternoon. I 
want to thank our friends from southwest Florida. It's a region 
of the country that we deal with these things every year. 
Growing up in Michigan, you never thought much about hurricanes 
and these other things, but you had tornadoes. But I appreciate 
you coming here and being here today.
    We want to take the time--I know you've been busy, 
appreciate you taking the time out of your busy schedules to 
come before this Subcommittee. I know all of you have traveled 
a long distance, so we're grateful for that.
    I'd like to thank Chairwoman Bean for this opportunity for 
us to focus on some of these challenges small business face in 
the wake of natural disasters.
    At this very moment, the Gulf Coast region of our country's 
cleanup following Hurricane Gustas and Ike, and the cost and 
torment of the damage inflicted has yet to be finally realized.
    Let's not fool ourselves into thinking that to recover from 
these or other natural disasters will be easy, or that every 
business will escape foreclosure or failure. The hurricanes 
that have engulfed our nation will undoubtedly lead to a flood 
of applications of SBA disaster loans, but even this lifeline 
for many might be too little too late.
    Today we meet to discuss ways to bridge that gap, to hear 
the testimony of those who have actually endured the worst 
nature has to offer, and to add some of their own thoughts to 
this discussion. From my personal experience, both as a small 
business owner in this area, and as a representative of 
thousands of Florida's small business entrepreneurs that have 
been devastated by Charley, I believe one of the most practical 
solutions would be to enable small business owners to plan 
ahead by investing in a Disaster Savings Account.
    I envision these accounts as a rainy day fund administered 
by the state of the Federal Charter Banks with tax deferred and 
interest deferred accruals similar to that of health savings 
account, the 529 qualified education savings account, or 
401(k). So when disaster strikes the money will be there for 
you, not waiting, not wondering, not worrying, because many 
times people get in and never make it out of the business.
    The estimate that I read is 40 to 60 percent of businesses 
fail after a disaster, so it's a big thing. That's what we were 
talking about today at lunch, is if you didn't have the 
support, you wouldn't even be here today. That is completely 
unacceptable.
    Today we can take an important step in empowering small 
businesses to meet the challenges of the unexpected with 
confidence. The establishment of a Disaster Savings Account 
seems to be a common sense mechanism that has numerous 
advantages, and very few distractions. It's one of those things 
that when you hear about this, you think about why not, why 
didn't we do it sooner?
    I do want to just say personally, myself having businesses 
in that area, as you know more than anybody, because a lot of 
you worked in the Charlotte County area, I was on vacation 
actually outside of Washington traveling, and I remember that 
storm Charley coming up in our region. It was a Category 2, I 
remember, on the Weather Channel. It went to a Category 4 like 
that. And then it was supposed to go into Tampa, north of 
Sarasota-Bradenton, and it came right into Charlotte Harbor, 
where nobody was really as prepared as they needed to be. So 
these things--and growing up in Michigan, I always thought to 
myself it hits the shores, but as many of you know, it went all 
the way up through Arcadia and up to Orlando. It went all the 
way across the state, so they have a big impact.
    So, again, I just want to thank you for the opportunity to 
come and visit today, and I, Madam Chair, yield back.
    [The prepared statement of Mr. Buchanan is included in the 
appendix at page 20.]
    Chairwoman Bean. Well, I think we're now going to move to 
testimony from our witnesses. Each of you will have five 
minutes to deliver prepared statements. The timer begins when 
the green light is illuminated, and when one minute of time 
remains, the light will turn yellow, and then the red light 
will come on when your time is up. And I'll yield back to Mr. 
Buchanan to introduce and recognize our witnesses.
    Mr. Buchanan. Thanks. Charlie Brown comes to us from 
Sarasota Florida. He's also for quite a while in Charlotte 
County, so he knows that area very well, as well. You're south, 
maybe, what, 50 miles south of Sarasota or so. But he serves as 
Chairman and CEO of Insignia Bank. Mr. Brown's previously 
served as Chairman of Tier II Banks for the Florida Bankers 
Association. He's been Chairman of the Florida Bankers 
Education Foundation. He's a frequent speaker on the topic of 
disaster recovery plans, and we appreciate the opportunity for 
you to be here today. And I'm excited about having two banks, 
because I think community banks could have the biggest impact, 
positive impact to help small business get back on your feet. I 
know that's been the way you've led in terms of your banks over 
the years. So thank you, Mr. Brown, for being here today.

  STATEMENT OF CHARLES G. BROWN, CHAIRMAN AND CEO OF INSIGNIA 
                    BANK, SARASOTA, FLORIDA

    Mr. Brown. First of all, I want to applaud the Committee. I 
think as Chairwoman Bean mentioned in her opening statement, in 
these very unusual economic times, but also in unusual times as 
it pertains to natural disasters, this ought to be something 
that ought to be first and foremost on our mind.
    Secondly, from a tax incentive standpoint, I'm a big 
believer in using tax incentives to create positive behavior. 
And especially as it pertains to things like savings accounts. 
There's a tremendous multiplier effect that takes place when 
that money is re-loaned into the community. It's just a 
positive thing for economic stimulus, not to mention in this 
case, it would be a fantastic safety net.
    Small businesses, I know I'm preaching to the choir here, 
but I'm just a big fan. I think we all know when we walk into a 
small business, you see the passion in the eyes of the small 
business owner, typically resulting in a very positive customer 
service experience. And when I ask-I have a habit as a banker 
asking the other customers in that room what do you think about 
this business? Why do you come here? And it always has 
something to do with the owner being very involved.
    With that HSA, or with the DSA product in mind, though, I 
think the devil is going to be in the details. And, again, this 
is part of the process to find out what the initial reaction 
might be from the business community.
    I still believe as a banker our number one challenge with 
small businesses is funding. You can call it capital, depending 
on what form it takes, or debt. We all know a lot of businesses 
use home equity loans to the extent they were still available, 
and credit cards, but one of the things that I've experienced 
in the past has been profitability models that will, I guess, 
entice lenders, whether they be banks or private lenders, to 
lend to small businesses, and to assist them in situations like 
this. So, as an aside, I just encourage the Committee to 
consider things like tax incentives for lenders to small 
businesses.
    We were a large SBA lender, one of the largest in the state 
back in the early `90s. And back then, we were discussing this 
today, the funding just flowed very freely by using the SBA 
program, but there was a tax of source that was put in place to 
share in some of that revenue. And, sure enough, we closed up 
all of our loan production offices and pulled out of the 
program. In fact, Mrs. Mize, who is testifying today, was my 
successor in that program, did a great job of running it. So, 
as with anything, I'd encourage you to look at what the 
profitability would be to the small business, but also to those 
that might be providing the service.
    With something like a DSA, anything that we put in place is 
going to have to be regulated and monitored. We know that. That 
is a fact of life. The one issue in the package that I received 
from the Committee that did a wonderful job, by the way, of 
outlining what you had in mind here, that concerned me was the 
reference to HSA, Health Savings Accounts.
    I would implore the Committee not to follow the structure 
of HSAs. If you dig into HSAs a little bit further, you're 
going to find that the regulatory burden that had been placed 
on the banks, and I realize there was also a statement in the 
package that said it would not be on the banking industry, 
rather, the small business owner. But the HSA regulatory burden 
has literally shut down many community banks from even getting 
into the programs. And I think if you were to go do some 
research in that area, you'd find that across the board.
    Again, it's back to that profit motive. When they looked at 
what the penetration rate of that product might be, versus the 
regulatory, I guess, burden that comes with it, it just didn't 
make sense any more.
    One other aspect I'll mention, and I would encourage you to 
get a banking regulatory official in here, because if you will, 
especially in these times right now, imagine an account that 
has been earmarked for disaster. A disaster, we'll go ahead and 
use hurricanes because that's what we're talking about, comes 
through town. The entire group of funding would then be used 
immediately from the banking system. And my concern there is, 
and I'm not quite sure what the answer to it is, that it might 
be considered something a little bit different than your 
typical deposit. So I think it would be very important for the 
banking industry to weigh in on that.
    The other aspect is this; if 35 percent of the businesses 
are using business interruption insurance, we need to make sure 
that this product would penetrate at a much higher level. So I 
would encourage focus groups and surveys to business owners 
laying this plan out, and finding out from them how much of 
them would actually use it.
    So, in addition to that, promoting the program, and maybe 
even the name of the program might be something that would be 
under consideration. I understand DSA, HSA works in Washington 
to get bills approved, but it may not be as favorable when it 
comes to marketing, as I found products with the word 
``disaster'' in them don't typically do as well.
    So what do I think the solution is? These are some of the 
challenges. I believe one of the solutions is the Bridge Loan 
Program that I saw work exceptionally well in Florida 
immediately after the hurricane. And the reason it worked well 
was it was a local program, using local resources through the 
EDC and local bankers.
    I would encourage the Committee to take a look at that 
program as a beta, if you will, on something that could be 
rolled up to a federal level. And if you look at the math and 
the economics that come along with that program, I think you 
might find that the funding requirement is very minimal, if 
anything, after all the numbers have been run.
    So I know I've taken my time, but I'd be more than happy to 
help with this process in the future. As a small bank with less 
than 40 employees, I have great passion for my business, for 
small business, and most importantly, for our country. So thank 
you very much.
    [The prepared statement of Mr. Brown is included in the 
appendix at page 23.]
    Mr. Buchanan. Thank you, Mr. Brown.
    Ms. Murphy, I'm excited that you're here, because you 
represent really small business of America. I know when my 
experience with the Sarasota Chamber in our area, we had 2,400 
businesses, a lot of them, 90 percent were 50 employees or 
less.
    But Ms. Murphy is an owner of a unique gourmet store in 
Punta Gorda, Florida called Pies & Plates. Cindee has a 
Bachelor's degree from the University of Florida in Public 
Relations, and a Marketing Minor, a law degree from the 
University of Florida. Before opening her business, Cindee 
practiced law for 12 years, was board certified in two 
different specialities. Appreciate you coming in and giving 
your real world experience about really what happens when you 
get hit by a storm like Charley.

  STATEMENT OF CYNTHIA MURPHY, OWNER OF THE BUSINESS "PIES & 
                 PLATES", PUNTA GORDA FLORIDA;

    Ms. Murphy. Thank you. It's been a rough week for much of 
the U.S., the last couple of weeks, I guess, with Hurricane 
Fay, Hannah, and Ike, or Gustav, Hannah, and Ike, four 
hurricanes hitting the U.S., and also heading at some point in 
time for the State of Florida, not all of them hitting 
directly, some of them skirting by.
    But, Madam Chairwoman, and Members of the Committee, thank 
you for inviting me to speak here today. My name is Cindee 
Murphy. My husband, Dennis, and I own a retail store and 
restaurant in Punta Gorda called Pies & Plates.
    On August 13th, 2004, Hurricane Charley devastated our 
community, and seriously damaged our home and business. 
Hurricane Charley caught us by surprise, as you mentioned. We 
expected it to pass miles off shore. It was going to be a 
Category 2. We were expecting just windy, rainy weather that 
day. And, of course, it turned into a Category 4 and slammed 
right into us head-on, devastating our community. Over the next 
six weeks, Florida would suffer direct hits from Hurricanes 
Frances, Ivan, and Jean, four major hurricanes in a row.
    Damages from the 2004 storms exceeded, I think, $42 
billion. I'm not 100 percent that's the accurate figure, but 
it's close to that. And since then, Florida has been ravaged by 
hurricanes Dennis, Wilma, and Fay.
    I have to tell you that we were one of the lucky ones. We 
had windstorm insurance. There were a lot of businesses who 
didn't. And we were treated pretty fairly by our insurance 
company, even though it took 90 days before we received our 
first check, and took many more months to fully settle our 
claim. Except for the nearly $15,000 in deductibles, we were 
pretty much made whole.
    What I did not have that I desperately needed immediately 
after the storm was readily available cash. My business was 
young. We'd only been open for 16 months, and we had invested 
most of our savings into it. I had not set up a line of credit 
at the bank yet, because I hadn't needed one.
    My business was damaged, our home was damaged, my mother's 
home was totally destroyed. I had homeless employees that 
needed assistance from us. Bills kept arriving in the mailbox 
even though there was no income flowing into the business. But 
the Good Lord was looking out for us. About four days after 
Charley hit, two women from Sun Trust Bank walked into my 
business and asked me if I wanted to apply for a Florida Small 
Business Emergency Bridge Loan.
    They right then and there sat down with the application, 
helped me apply, and with just in the matter of maybe 48 hours 
or so I had a check for $25,000 in my hand. It was incredible. 
It was far from what I needed, but it was a good start.
    I don't know what we would have done without those funds. 
I'm not even sure that our business would have survived if we'd 
to wait on insurance proceeds and conventional loans. The funds 
enabled us to reopen the restaurant part of our business, not 
the retail part, but the restaurant part in just 18 days. 
Coffee therapy was badly needed in Punta Gorda, and we became a 
gathering spot for people seeking emotional support in our 
community.
    The importance of restoring small businesses like mine 
quickly after a disaster can't be overstated. Small businesses 
are the life blood of the community. Not only do we provide 
needed goods and services, but we also provide employment, and 
help retain residents in the community. Hurricane Katrina has 
shown us that when residents are forced to leave a community, 
recovery is very slow.
    So I'm here to tell you that I think Disaster Savings 
Accounts are a good idea. The concern that I have is that in 
today's economy, small businesses like mine can't afford to set 
aside money for a rainy day. Our purse strings are stretched to 
the limit. For many small business, it's already raining. Until 
we finish weathering this financial storm, it may be hard for 
businesses to set aside funds for a disaster that may or may 
not happen.
    That doesn't mean you shouldn't pursue this legislation. 
Sunnier times are ahead of us, our economy will recover. My 
only request, as a small business owner, is that you make this 
legislation user-friendly. Allow me to pay for the installation 
and removal of storm shutters, even if the storm threatens, and 
then quietly passes us by. Don't make the use of the funds 
contingent upon a national or state disaster declaration. Allow 
me to use the funds to replace food damaged by hurricane 
outages, to purchase generators and gasoline to run them. Allow 
me to use my savings account to hire a public adjuster or 
attorney to negotiate my insurance claim. Let me buy portable 
hard drives, or pay for off-site digital storage that I can 
protect my business and financial records. Keep it simple and 
reasonable.
    A good rule of thumb, in my opinion, would be that if it's 
an expenditure that I would not have made at that time but for 
the disaster, or the threat of the disaster, the expenditure 
should be allowed.
    Finally, don't make the amount that I can set aside so 
small that it's not worth bothering with, and don't make it 
difficult for me to prove my expenses, or require me to 
complete an onerous amount of paperwork. Remember, I'm a small 
business. I do my own books. The IRS scares me. Keep it simple.
    Thank you for conducting this hearing and listening to the 
voice of a small business owner. I'd be happy to answer 
questions.
    [The prepared statement of Ms. Murphy is included in the 
appendix at p. 27.]
    Mr. Buchanan. Thank you. I think the IRS scares all of us.
    Ms. Mize, we've got a unique opportunity, we were talking 
at lunch, is that you had the opportunity to work with so many 
businesses after Charley, so I'm interested in what you've got 
to say. It was interesting today at lunch. But I wanted to 
mention Ms. Mize is from Punta Gorda. She's Senior Vice 
President and Senior Credit Officer for Charlotte State Bank, 
was right in the middle of Charley right after that. She 
graduated from Florida Southern College, and LSU graduate in 
banking. She's been an active participant in the community, 
many community organizations, such as Special Olympics in 
Charlotte County, the Technical Center, and served as past 
President of the Charlotte Chamber of Commerce. Thanks for 
being here, and I look forward to your testimony.

  STATEMENT OF MARYANN MIZE, SENIOR VICE PRESIDENT AND SENIOR 
        CREDIT OFFICER FOR CHARLOTTE STATE BANK, FLORIDA

    Ms. Mize. Thank you. It's a pleasure.
    Dear Members of the Committee, I'm deeply honored to be 
here to speak on the topic of Disaster Savings Account. This is 
an especially appropriate discussion in light of the riveting 
images of Hurricane Ike slamming into Texas over the past 
weekend.
    With that destruction of Hurricane Ike, I am reminded of 
our own 2004 Hurricane Charley coming through our community 
with a Category 4. It cut a 10-mile swath of destruction 
through our community. There were over 16,000 homes in its 
path, and blue tarps were everywhere, and 13,000 residential 
roofs needed replacing.
    The backdrop of my remarks will be based on the experience 
in the aftermath of that catastrophic event personally. My 
remarks will also have the imprint of my active role in three 
facets of our business community; number one, commercial real 
estate lender. I've been with a local hometown community bank 
for 19 years. Number two, Chamber of Commerce involvement as 
the President of our Charlotte County Chamber of Commerce in 
the immediate aftermath of the hurricane. And, by the way, I 
applaud Mr. Buchanan for his efforts with Chambers of Commerce, 
and the role that they play, important role they play in our 
business community. And, thirdly, the CCIM designation. I'm a 
commercial real estate practitioner that has that designation, 
so you will see the imprint, commercial real estate lender, 
Chamber, and CCIM designation in my remarks and feedback.
    Disaster Savings Accounts are innovative and a good idea. 
And I offer the following enhancements for the Committee's 
consideration. And it's just two points; it's, number one, size 
limitations. The current size limitation at $15,000 simply 
seems too low, and it may not be a relevant safety net for the 
challenges faced by many individuals and businesses.
    Another important point about limits, is how to ascertain 
the balance limits: consider taking into consideration 
insurance deductibles, percentage of gross sales, or income. 
These avenues might provide a better benchmark, and provide a 
more relevant safety net.
    How about bench marking annual increases to the limit, and 
the annual deposits? Right now it's a static limit. Consider 
bench marking annual increases to both the dollar limit and the 
annual contributions based on the CPI. This will help insure 
that the program keeps place with inflation.
    The second point is broadening the program. In addition to 
small businesses, include individuals, and small real estate 
investors in commercial real estate. The success of a small 
business works hand and glove with the owners as individuals, 
and the landlords of their business.
    To illustrate these points, I offer just one of many 
examples of the complexities in the post-hurricane recovery 
environment, and to support those recommendations. Let me tell 
you the story of Jeff Fehr. Jeff Fehr is a respected local 
appraiser, owns his own building where his business is located. 
He's also the owner of a small commercial strip center, and he 
leases that space to small businesses. The hurricane impacted 
every facet of his life. His home was uninhabitable, his 
building where his business was located was uninhabitable, and 
the commercial strip center was also destroyed.
    I'll never forget the first business day after the 
hurricane, Jeff stopped into the bank to see how we were doing. 
And after some nice pleasantries, we asked how he was doing, 
and then we learned the sad truth regarding the scope of his 
devastating losses. Despite this, Jeff remained focused and 
outlined his plan to immediately rebuild. And that's exactly 
what he did, and he did it because he had access to capital, he 
had set aside reserves.
    When I asked Jeff what he thought about DSAs, his immediate 
response was, ``I will be an early adopter, and I will 
encourage others to do likewise.''
    Jeff's story illustrates the importance of including 
individuals and commercial real estate investors in the 
program. Please, number one, don't forget, human capital is the 
most important asset of a business. Employees need to have 
their basic needs met before they can be productive. They also 
need to recognize the importance of saving for a disaster, or 
that rainy day, as Mr. Buchanan mentioned.
    Don't forget our small commercial real estate investors. 
Many small businesses are located in leased space. Access to 
capital for these investors, their DSAs would speed the 
recovery of their buildings, and de facto will help small 
businesses recover.
    Conclusion. In conclusion, thank you for the honor of 
letting me share my thoughts. I applaud this Committee for 
their innovative concept. I support Disaster Savings Accounts. 
A frequently heard quip in Florida to remind citizens to make 
the right decision in preparing for a storm is, ``Be smart. Be 
safe'', and to that I add save. Having funds set aside for a 
disaster is critical to individuals and businesses, and 
Disaster Savings Account is a great way to accomplish that 
goal. Thank you very much.
    [The prepared statement of Ms. Mize is included in the 
appendix at p. 30.]
    Mr. Buchanan. Thank you.
    We have another young lady that's a successful business. 
Ms. Grayson is from Bradenton, Florida north of Charlotte. She 
founded her own company in 1994. Kate has been a consultant in 
the pharmaceutical and biotechnological industry, specializing 
in project management, process re-engineering and systems 
auditing. In response to the needs of her clients and the 
industry she supports, Kate launched Steelgate, a cryogenic 
firm in 2001. Kate's previous experience including systems 
operations management, management consulting. And I appreciate 
you coming today. And you had mentioned if a storm hit and you 
lost your electricity, you'd be out of business, and the 
importance of having something as a backup, so I look forward 
to your testimony. Thank you. Thanks for coming.

  STATEMENT OF KATE GRAYSON, PRESIDENT AND CEO OF STEELGATE, 
                  INC., LONG ISLAND, NEW YORK.

    Ms. Grayson. Good afternoon. My name is Kate Grayson. I am 
President and CEO of Steelgate, Inc., a cryogenic specimen 
repository storing frozen specimens, such as blood, on behalf 
of clients engaged in biomedical research. I founded Steelgate 
in 2002 in Long Island, New York. And in 2004, we relocated my 
corporate headquarters to Bradenton, Florida.
    I am honored to sit before this distinguished panel today 
as a representative of Florida's Manatee County small 
businesses, and appreciate the opportunity to share my insights 
regarding the proposed Disaster Savings Account.
    Given the sensitive nature of my business, and the need to 
maintain uninterrupted power for specimen preservation, 
disaster preparedness is a subject with which I have extensive 
experience. Steelgate was built upon a foundation of system 
redundancy that is only one part of a dynamic multi-layered 
business continuity plan. This plan is routinely tested and 
enhanced, and also subject to a thorough audit by each client 
looking to store specimens with Steelgate. Such rigorous 
preparation is what enabled Steelgate to face down the infamous 
power outage of 2003 that struck the Northeast, Midwest, and 
parts of Canada, as well as the overactive 2004 hurricane 
season in Florida that some of my colleagues here have 
discussed.
    But Steelgate is not alone in having to anticipate threats. 
Every year thousands of businesses throughout the United States 
face a whole host of natural disasters that include tornadoes, 
earthquakes, floods, forest fires, mud slides, and every summer 
for those of us who live and work in Florida, hurricanes.
    However, developing and implementing a disaster plan 
represents a financial investment that too often for a small 
business can be a burdensome expense that they choose not to 
incur. The irony being that it might be the one investment that 
could help insure business continuity should a disaster strike. 
And it always strikes, as we have seen, from this very active 
hurricane season.
    Despite ongoing efforts to assess the impacts from 
Hurricanes Gustav, Hannah, and Ike, the 2008 hurricane season 
only just hit its peak on September 10th, with 74 more days 
remaining. However, if history is any indication, hundreds of 
small businesses will have suffered devastating losses from 
which they may never recover. Such losses affect not only the 
business owners, but extend to its employees, clients, vendors, 
not to mention the lost tax revenues that underwrite state, 
local, and federal programs.
    Therefore, I, along with other small businesses applaud 
this Committee's proactive efforts to launch a program to help 
mitigate the devastating effects of post-disaster business 
interruption and closure. A Disaster Savings Account could be 
the one incentive that motivates small businesses to consider 
disaster planning.
    I know that as a self-funded small business, the potential 
for a tax deferred or tax-free plan to further enhance my 
company's disaster planning would be very enticing. It aligns 
with the entrepreneurial spirit, and get it done attitude 
embodied by so many small business owners, and could also 
relieve the government of having to provide greater resources 
for a post-disaster bailout.
    To succeed, the guidelines or regulations of the Disaster 
Savings Account need to be written in a concise and easily 
understood way, further encouraging the widest possible 
adoption. As a small business owner wearing many hats every 
day, the plan must avoid being overly complex, and offer clear 
benefits. It should not require a specialist to interpret, nor 
require an excessive amount of a business owner's time to 
implement. Additional benefits may derive from insurance 
company's offering discounted premiums for businesses with 
Disaster Savings Accounts.
    It is clear that establishing a Disaster Savings Account 
could offer wide-ranging benefits to all those who are affected 
when disaster strikes.
    I'm appreciative of the time you have given me today, and 
will, as a courtesy to this Committee's time, conclude my 
testimony. I would, however, make myself available for further 
questions, either here or at another date. Thank you very much.
    [The prepared statement of Ms. Grayson is included in the 
appendix at page 37.]
    Mr. Buchanan. Thank you. I yield back, Madam Chair.
    Chairwoman Bean. Thank you for your testimony. I have a 
couple of questions, and then I'll come back to you.
    First, I wanted to talk to Mr. Brown. You talked about the 
SBA loan programs that you participated in. And then when the 
fees went up, you essentially closed down the shop, and stopped 
making those available, which is unfortunate. The Committee on 
a bipartisan basis has been very supportive of trying to reduce 
the fees on both borrowers and lenders to encourage building 
those programs, and making capital more available, because at 
this time, economically following the credit crunch, the 
greater necessity to make capital available for our businesses. 
So I was glad to hear your testimony on that.
    But I think it's also interesting that you're here to move 
beyond that, and say that even though SBA has had disaster 
assistance loans available since 1953, that we should be 
considering moving further and extending other options. So I 
appreciate your comments on that. And I also liked your caution 
about regulatory burden associated with the HSAs, so that's 
very helpful testimony.
    I also wanted to comment to Ms. Murphy, to hear the 
positive story that you were able to share about how a local 
bank came in and brought to your attention what available 
resources that you were able to utilize, and potentially keep 
your business alive today to tell us about it.
    Sadly, this Committee heard testimony following Katrina 
from a number of multi-generational businesses who've been 
around for a long time in New Orleans, and their experience was 
entirely different than that, and they didn't have access to 
SBA programs. And we heard a lot about FEMA fallout, and where 
the agency had fallen short, but we really didn't hear in the 
media what we heard in testimony in this Committee about how 
they weren't returned calls to businesses who were seeking 
loans, because as you indicated, their businesses were 
literally under water, not just financially. And their 
employees were out of homes, so I was glad to hear that we have 
made some progress, and that the response time was quicker, and 
there were available resources for you to assist what you're 
doing.
    Really, I didn't have a specific question. I just wanted to 
tell you that your testimony is very helpful to us, and I'll 
yield to Ranking Member Buchanan.
    Mr. Buchanan. Thank you, Madam Chair.
    You had mentioned about tax incentives for banks maybe to 
give these, it keeps the cost for the government maybe down, 
but you said a lot more money would probably flow out if there 
were some incentives, especially in times like this where 
capital is tight, and we've got all these national disasters.
    I think about the disaster we've got kind of in New York 
and the country financially, and then what happened in Houston 
last week, so both of these are very real. But I just, if you 
could comment a little bit more on what your thought is on 
that. Mr. Brown.
    Mr. Brown. Sure. The parallel I was driving to the SBA 
program that Chairwoman Bean had just referenced, was the fact 
that the SBA program in the early `90s was driven by the margin 
of profit. And that's just a fact of the program.
    If you correlate that to tax incentives, and some of the 
tools that were available back then are no longer available, 
but if you were to correlate that to tax incentives, think, if 
you will, municipal bonds. When a municipality is issuing a 
bond, the investor in that bond is able to garner that income, 
or that interest income tax free, so this is now a tax-adjusted 
yield, if you will.
    If we are looking for a way to increase capital flow to 
small businesses, I think one of the ways you might be able to 
do it, and it might be a total or partial tax incentive to 
whoever the lender might be, to increase the yield on that 
instrument. So if I were lending to Cindee Murphy's business at 
6 percent, but part of that, or all of that interest income to 
the bank was tax-free, you would end up with a 10 percent yield 
on it.
    Now, lending to small businesses takes an enormous amount 
of overhead. The truth is, it takes as much time to make a 
$50,000 loan as it does a $500,000 loan, and we're all in the 
business of managing fixed overhead. So if all of a sudden you 
can take a business that once yielded 6 percent to the lender, 
and now it's going to yield 10 percent, a couple of things are 
going to happen.
    First of all, you're going to see lenders flooding into the 
small business market, especially to get away from some of the 
commercial real estate market that we're all aware of right 
now. The second thing going to happen is good old-fashioned 
competition, and that 6 percent rate that Cindee now gets, it 
will go down, 5-1/2, 5, because the competition will start to 
chip away at it.
    I think that would be an amazing tool for us to consider in 
some form. And, again, I certainly don't know what all the 
math, and what all the implications would be, but I think you 
have a department for that here in the Office of Management 
Budget.
    Mr. Buchanan. Well, part of my thought on that was just 
simply, is to have the incentives for businesses that are 
struck by disaster, or banks, not necessarily all over the 
country. It might not be a bad idea, because there's no 
liquidity now in the country for a lot of small business, 
especially as it relates to a disaster area like what happened 
there.
    What's your thinking of what, I guess, two things. One is 
SBA, we talked about a little bit what Florida did. They had 
the quick $25,000, you got in 48 hours. Just as bankers, I 
guess, either of you, were you able to access, were small 
businesses able to access any SBA money? Or, if they could, how 
long would it take? Because, obviously, you can't six months to 
get the money. What was your experience?
    Mr. Brown. Well, the story that Cindee Murphy just shared 
was actually the Bridge Loan Program that she was referencing, 
not the SBA program.
    Mr. Buchanan. But I'm talking about the SBA program.
    Mr. Brown. Right. The SBA took quite a while to be able to 
put those funds in place. And, again, I think the difference 
between the two programs is that the Bridge Loan Program is 
locally run through EDC, using local lenders. Where if the SBA 
has to bring in contractual employees to try to now operate in 
a completely foreign environment. So, again, back to my 
suggestion; if there is a way, whether it be through the SBA, 
or through some other entity, to mimic, or to emulate the 
Bridge Loan Program at an SBA level, I think you will have a 
home run.
    And, again, I don't know that the other states have such a 
thing, but I know the one in the State of Florida worked 
amazingly well.
    Mr. Buchanan. Do you know what the repayment back was to 
the State of Florida?
    Ms. Mize. I have it.
    Mr. Brown. Maryann does.
    Ms. Mize. Yes, I have those statistics. For Hurricane 
Charley, we checked with the State of Florida, and the 
repayment was approximately 96 percent recovery of all those 
funds that were lent. In Charlotte County, $4 million was lent, 
and 96 percent of it was returned.
    Getting back to Mr. Brown's comment, that's a pretty good 
repayment, and those funds were back to help another community 
that would be stricken with a catastrophe.
    Mr. Buchanan. When they put the funds out, what did they 
pay, what was the interest on the loan?
    Ms. Mize. Zero.
    Mr. Buchanan. Zero?
    Ms. Mize. Zero percent for the first six months. It was a 
very effective tool. The delivery system was our small 
community banks with the EDC, setting up a little nucleus kind 
of like a SWAT team, where we would actually--there was no 
phones, imagine no phones, no electricity. How do we find the 
other lenders in the community? We knocked on their door, we 
know where they lived. And so we got feet on the street 
delivering the information to business owners like Cindee 
Murphy so that they could have immediate access to capital. 
Within 48 hours of application, we were meeting as a team in 
the dark with no electricity, with no air conditioning in that 
heat, and delivering checks, approving loans, and delivering 
checks to small businesses.
    Mr. Brown. You had banks fighting over wanting to be 
involved in this, because they wanted to do something for the 
community. And I can guarantee you were getting some of the 
best lenders' minds around that table in the dark, so it was 
quite a positive experience.
    Mr. Buchanan. What happens after the six months, interest 
only for six months, and then what happens the next six months?
    Ms. Murphy. Well, that was one of the things that was good 
about it. I mean, the two ladies who came and explained the 
whole program to me were very emphatic about this being a 
short-term solution, and then I would need to take further 
steps, because after six months, I think the interest rate went 
up to about 12 percent. And if you still had that loan after a 
year, it would be 18 percent. And, of course, then they made 
themselves available in case we needed to apply for SBA loans, 
or conventional loans. And really, I paid mine back before I 
got to the point where we were reaching the six month point, 
but I suspect that if I had not, that they would have been in 
contact with me again, reminding me that I needed to take 
action on that. And that's part of it being sort of handled on 
a localized level.
    Mr. Buchanan. Ms. Murphy, what do you think, if you 
wouldn't have got the $25,000, what would have happened?
    Ms. Murphy. Well, I'm not sure that we would have stayed in 
business. It took so long for us to get our insurance money, 
and the funds that we did have, we had only been opened for 
business for 16 months when the storm hit. And a lot of our 
savings had been tied up in the business. We had so many other 
competing needs among family members and things, it was really 
hard to take money that we needed to live and protect our 
family, and pile it back into the business. So, for us, it was 
critical, and it was critical to be able to open really, really 
quickly, because it developed a synergy that kept us going, and 
kind of moved us forward.
    We needed a fairly significant amount; that $25,000 was 
absolutely a minimum of what we needed to sort of kick-start 
our business, so that we could then be ready when season hits, 
and prepared to continue our business.
    Mr. Buchanan. And you mentioned the insurance business. 
What was your experience about getting money when you filed 
your claim from the insurance company? How long did it take?
    Ms. Murphy. Well, I think I was really one of the lucky 
ones, compared to others in the community, because we did have 
a check within 90 days. It took probably another four or five 
months after that. As a result of Hurricane Charley, there were 
so many businesses and individuals who were not getting claims 
quickly, I think that new legislation was passed at that time 
that now makes it so that the insurance company has to respond 
within, I don't know if it's a 60-day or 90-day period, so 
that's been put in place. At that time, that was not there, and 
there were some businesses and individuals who were going a 
year, 18 months before they were getting any satisfaction from 
insurance companies.
    But it takes a while to process a claim, and in the event 
of a hurricane, my insurance adjuster showed up at my door with 
a stack of photocopies of the front of 200 policies. He was 
brought in from another state. I think he was from Missouri. 
That's all he was provided with from the company, was just that 
page one had my address and my policy limits, and had to 
process 200 claims.
    It was overwhelming to them, and a lot of the ability to 
get funds back quickly depended on the ability of the business 
owner to recover records. And that was difficult for a lot of 
Charlotte County businesses, because they didn't expect the 
storm to hit. They weren't as prepared as they should have 
been. So it does take a while.
    Mr. Buchanan. Ms. Mize, I was going to ask you, following 
Hurricane Charley, in your estimate, how long did it take the 
community or businesses to get back to some sense of normalcy? 
What was the experience in the community? How long did--and 
some businesses probably never came back. But the businesses 
that did, was it a week, a month, six weeks, six months? How 
long was it? I'm sure it was a little different, because you 
dealt with, my understanding, a lot of businesses in that 
community right after that.
    Ms. Mize. Yes, we did. There were 700 commercial buildings 
in the path of the hurricane. Of those 700 commercial 
buildings, 12 percent of them were destroyed, 77 were damaged, 
so the recovery is going to be directly in relationship to 
whether or not they had a building to be in, or whether they 
could find another building in order to relocate and re-
establish. So based upon that, I would say that Cindee was 
actually probably one of the more exceptional folks in terms of 
her ability to get back up and running within 18 days.
    What we were told was there's three parts to a disaster. 
First it's relief, then it's recovery, and then it's rebuild. 
And right now, we're in year four of a five-year plan.
    Mr. Buchanan. So you guys are still working on it. What do 
you find from small businesses is their biggest concern, or 
their number one issue in terms of working with banks to get 
back on their feet?
    Ms. Mize. I think access to capital is a real serious 
issue. And I'm going to defer also to the other banker on our 
panel here, Mr. Brown. Access to capital is critical for the 
small business, and for the individuals, because of all the 
myriad of demands on that limited capital in a disaster. You're 
trying to put your house back in order, you're trying to put 
your business back in order. Access to capital.
    Those folks that had liquidity did the best. What do you 
think?
    Mr. Brown. Absolutely, I would agree.
    Mr. Buchanan. That's why we're looking at one possibility, 
is to have--I know that small businesses are being taxed, and 
don't have any excess capital, a lot of them are not even able 
to pay their bills. But the thought is, is that as these things 
get turned around back on their feet, maybe they'd have a fund 
where they could draw down, but have something set aside. 
Because I've always heard, and people told me like 30 years 
ago, always try to have one-year's living expenses. Now, that 
doesn't happen with a lot of people, but have some kind of 
reserve set aside. If we could do that on a tax deferred or 
something, would give some opportunity.
    Kate, I just wanted to ask you, your business is obviously 
a little different, unique than a lot of businesses in our 
area. How does this--what's your thoughts on how this would 
affect you if you had a direct hit in a hurricane, that type of 
thing?
    Ms. Grayson. Well, hopefully, with all our preparedness, 
and our testing, and our enhancements that we do on a regular 
basis, we won't be that much affected. But I see it also 
affecting the vendors that support me, the smaller businesses 
that are not in the business of doing disaster preparedness, 
and detailed plans, and testing the plans.
    I have a number of local vendors that I use, everything 
from my air conditioner vendor, to my freezer maintenance, my 
generator maintenance. The list is very long, and I use all 
local small businesses to support me. Where we would run fine; 
however, the services that I depend on, the local vendors would 
be--I'd be creative to find alternate solutions. So this, I 
think, could encourage them to just think of the recovery 
disaster plan, and take more time to put money aside where they 
might not have.
    As part of my plan, I have to take that into consideration, 
and make sure I do have additional working capital. It could 
help me with adding better, or doing different planning if I 
had additional tax-free funds available to me. So I think in 
two parts it could help.
    Mr. Buchanan. Is there anything else based on what you've 
heard today that we could make it better? What do you think 
about this? I'm open to any idea, but I like kind of what the 
state is doing, what the state did. It seemed like it was a 
very successful program. Maybe there's a lot of partnerships 
federal and state has, and maybe that also can be a 
partnership. And maybe instead of $25,000, you said 
proportionality, maybe if a business has got 83 employees, it's 
different than having eight, that maybe they can get up to 250, 
or something like that, because they need more capital.
    But my thought is, is that, Charlie, do you have
    Mr. Brown. I did have a thought on that for you. The SBA 
has done a good job of what is considered a small business by 
industry. You can start there, because that's based on sales, 
typically.
    The other thing that you can do when you devise these 
limits is there's a margin of profit, the RMA, Robert Morris & 
Associates tracks by industry. And you just made me think about 
it, when you talked about a year's worth of reserve. You might 
target by industry 90-days worth of operating expenses. And you 
might end up with something where this type of business would 
be eligible for that much in dollar, for a different dollar 
amount across the business. Mathematically, you could work your 
way back into this very easily, using data that's already 
available.
    Mr. Buchanan. Yes.
    Ms. Grayson. I was just going to add to that, that I think 
it is very important to assess the need, and how you'll measure 
that is key because my business and how I operate, and the 
amount of funds I would need to get going, I mean, to replace a 
generator, or to carry certain operating costs, would be 
significantly larger than a smaller restaurant, or something 
like that. And if you went, I think, by industry, or somehow to 
measure, I think that's very important in the analysis. And 
also keeping it simple, that some of the panel members has 
made. If it takes too much to put in place, I'm not going to 
have the time to do it, unless it's a good benefit.
    Mr. Buchanan. Just on my behalf, I just want to thank all 
of you for coming in. It's important. I know that as we look 
towards what's happened in New York and our country and the 
financial crisis, I mean, we're talking about it's like a 
dumbbell, a barbell, one side we've got a lot of big businesses 
under a lot of pressure, but our small businesses that make up 
a lot of the job creation, and really our vitality in this 
country, and I think the future, the way we compete with China 
and India, we've got to find a way with these big storms. I 
mean, going into Houston, God only knows. I mean, our community 
is a little bit smaller, but you look at a metro area, New 
Orleans, and Houston. We've got to figure out a way to get 
these people back on their feet.
    So, again, I appreciate. I like the idea, the government 
got paid 96 percent back or whatever that percentage was. And I 
know the Chairwoman, we both want to find a way to help 
businesses get back on their feet, help them recover quicker. 
And I think the federal government has definitely a role to 
play. And the sooner we can get you back to work, and start 
generating money, then we get more receipts up here, so it's a 
good thing. It's a win-win for everybody.
    But, again, I want to thank you, especially being from our 
area, our district, for coming in, and appreciate your 
discussion. And I know you've taken time out of your schedule. 
So thanks, and we'll look forward to visiting with you a little 
more in the future. Thanks.
    Chairwoman Bean. I want to thank you, as well, for not only 
sharing your perspective, but speaking on behalf of all the 
small businesses out there who could experience the same type 
of challenges you faced.
    I ask unanimous consent that members will have five days to 
submit statements and supporting materials for the record. 
Without objection, so ordered. This hearing is now adjourned.
    [Whereupon, at 2:57 p.m., the Committee was adjourned.]

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