[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
DISASTER ASSISTANCE: IS SBA MEETING THE RECOVERY NEEDS OF DISASTER
VICTIMS?
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD
NOVEMBER 30, 2011
__________
Small Business Committee Document Number 112-046
Available via the GPO Website: www.fdsys.gov
_____
U.S. GOVERNMENT PRINTING OFFICE
72-209 WASHINGTON : 2011
-----------------------------------------------------------------------
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) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
ROBERT SCHILLING, Illinois
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
JANICE HAHN, California
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
----------
OPENING STATEMENTS
Page
Bartlett, Hon. Roscoe G.......................................... 1
Velazquez, Nydia................................................. 2
WITNESSES
Mr. James Rivera, Associate Administrator, Office of Disaster
Assistance, United States Small Business Administration,
Washington, DC................................................. 3
Mr. William Shear, Director, Financial Markets and Community
Investment, United States Government Accountability Office,
Washington, DC................................................. 5
APPENDIX
Prepared Statements:
Mr. James Rivera, Associate Administrator, Office of Disaster
Assistance, United States Small Business Administration,
Washington, DC............................................. 26
Mr. William Shear, Director, Financial Markets and Community
Investment, United States Government Accountability Office,
Washington, DC............................................. 29
Questions for the Record:
None
Answers for the Record:
None
Additional Materials for the Record:
Agility Recovery Statement for the Record.................... 41
DISASTER ASSISTANCE: IS SBA MEETING THE RECOVERY NEEDS OF DISASTER
VICTIMS?
WEDNESDAY, NOVEMBER 30, 2011
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1 p.m., in room
2360, Rayburn House Office Building, Hon. Roscoe G. Bartlett
(Member of the Committee) presiding.
Present: Representatives Bartlett, Mulvaney, Tipton, West,
Barletta, Schilling, Velazquez, Chu, Cicilline, Richmond, and
Owens.
Mr. Bartlett. Good afternoon. In the absence of the
chairman, it is my privilege to call this meeting to order.
After disaster strikes, victims want to know that they will
have the financial resources to recover. Immediate disaster
assistance is led by State governments, along with assistance
from the Federal Emergency Management Agency, or FEMA. However,
long-term recovery is the responsibility of the Small Business
Administration. Disaster assistance offered by the SBA helps
homeowners, renters, businesses, and nonprofit organizations by
offering long-term recovery loans.
When working properly, SBA programs help people rebuild
their homes and businesses after they have been destroyed. SBA
loans also help businesses that suffer economic losses
resulting from a community struggling to get back on its feet.
What victims do not need is endless paperwork,
misinformation, and delays. It is essential that SBA maintain
the capacity to get money quickly into the hands of people who
need the funds to rebuild. By properly planning and continually
reassessing how it offers assistance, SBA can be better
prepared to respond in times of emergency. Our role is to
oversee SBA's implementation of statutory changes to the
disaster loan program and to ensure that it is meeting the
needs of disaster victims.
I find it troubling that in 2009, almost 4 years after
Hurricane Katrina, GAO reported that they were not comfortable
that SBA could meet the challenges of another disaster on the
scale of Katrina. Today GAO continues to report that laws
passed in 2008 are not fully implemented. While I appreciate
the progress that has been made, SBA needs to make disaster
recovery a higher priority. There are too many people relying
on SBA for assistance to rebuild their homes and their
businesses for us not to get this right.
With that, I look forward to receiving an update on SBA's
implementation of statutory changes and how those changes have
helped SBA respond to recent disasters. I am also interested in
hearing what else can be done to make sure SBA is prepared to
respond to any disaster we might face in the future.
I would now like to yield to my good friend and ranking
member, Ms. Velazquez, for her opening remarks.
Ms. Velazquez. Thank you, Mr. Chairman, thank you for
yielding. With so much of the national attention focused today
on the holiday season, it is easy for Americans to lose sight
of the risks posed by Mother Nature, but the reality is that
natural disasters can occur in times and places where they are
least expected. From fires in Texas to an earthquake in
Virginia and a hurricane in the Northeast, the events of the
past summer have shown the need for disaster readiness in every
part of the country.
Today we will examine whether the SBA's disaster assistance
program is prepared to meet this challenge and whether reforms
enacted in the 110th Congress have been fully implemented by
the agency.
Since the agency's creation in 1953, the SBA has performed
its disaster assistance mission. Today the SBA's disaster loans
are the primary form of Federal assistance for the repair and
rebuilding of private sector losses and are not limited to
small businesses. SBA loans help homeowners rebuild their homes
and can help every disaster victim replace damaged personal
possessions. SBA loans can even help businesses cover the
economic losses they experience as a result of a disaster.
For those of us who have been on the committee for some
time know that SBA also has a history of struggles with its
disaster assistance programs. Nowhere was this more apparent
than under the disaster loan program which faced significant
challenges following Hurricane Katrina. At the time we asked
GAO to take a look at the program and evaluate the agency's
response to the hurricane. The resulting reports led to the
passage of the Disaster Response and Loan Improvements Act.
That law laid the foundation for important reforms to the
disaster assistance program. It fixed the shortcomings
uncovered by Katrina and gave the agency new tools to better
leverage its resources and coordinate with the private sector.
In 2009, a full year after the passage of the Disaster
Response and Loan Improvements Act, the committee held hearings
to evaluate the agency's progress in making reforms. At that
time the SBA had yet to fully implement 13 out of 26 provisions
contained in the act. In the 2 years since then, some progress
has been made toward full compliance with the law, but as we
will hear today, a great deal of work remains to be done.
In addition to obstacles in effective disaster planning,
SBA has struggled to meet deadlines on critical reports.
Additionally, the agency has chosen to implement new bridge
loan initiatives on a trial basis, even pilot programs that
were not called for, and perhaps most notably, the agency has
made very little progress in implementing its private disaster
assistance program. It is important that these issues be
resolved. Should another major disaster strike, it will be
critical that the agency have a framework in place to deliver
bridge assistance and private loans to victims.
In examining the current state of the disaster assistance
program, it is clear that there is still significant work to be
done. And the stakes could not be higher. It is estimated that
between 40 and 60 percent of businesses fail to recover from a
natural disaster. This is why it is so important that the
agency get it right. Our economy is counting on small firms to
drive growth and create jobs. We simply cannot afford to lose
these engines of growth. In making sure they are able to do
that, we need an SBA that can step up to the plate and meet its
mission to deliver disaster assistance where it is needed most.
I would like to thank both Mr. Rivera and Mr. Shear for
being here for this discussion, and I know we all look forward
to hearing what they have to say. Thank you, Mr. Chairman.
Mr. Bartlett. Thank you very much. Our first witness is
James Rivera, Associate Administrator of the Office of Disaster
Assistance at the Small Business Administration. In this role
Mr. Rivera is responsible for all aspects of the SBA disaster
loan-making programs. During this time Mr. Rivera has worked at
modernizing the disaster relief applications process, including
the implementation of the electronic loan application. Mr.
Rivera, welcome to our committee, and we look forward to your
testimony.
STATEMENTS OF JAMES RIVERA, ASSOCIATE ADMINISTRATOR, OFFICE OF
DISASTER ASSISTANCE, UNITED STATES SMALL BUSINESS
ADMINISTRATION; AND WILLIAM B. SHEAR, DIRECTOR, FINANCIAL
MARKETS AND COMMUNITY INVESTMENT, UNITED STATES GOVERNMENT
ACCOUNTABILITY OFFICE
STATEMENT OF JAMES RIVERA
Mr. Rivera. Good afternoon, Congressman Bartlett, Ranking
Member Velazquez, and Chairman Graves, and the distinguished
members of the committee. Thank you for inviting me to discuss
SBA's disaster assistance programs.
SBA's Office of Disaster Assistance provides financial
assistance in the form of low-interest loans. Earlier last week
SBA reached a milestone in providing more than $50 billion in
disaster loans. We are proud to help homeowners and businesses
get back on their feet after a disaster.
Although SBA is not a first responder agency, we are on the
ground immediately following a disaster. SBA's primary focus is
providing low-interest, long-term loans as part of the recovery
efforts in coordination with other government partners at the
Federal, State, and local levels. Additionally, SBA offers
economic injury disaster loans to small businesses, small
agricultural cooperatives, and most private nonprofit
organizations who have suffered economic injury caused by a
disaster. These loans provide working capital to a business or
organization until normal operations can resume following a
disaster.
Since the 2005 Gulf Coast hurricanes, SBA has made dramatic
improvements in our operation, and we see a great deal of
success because of that. SBA is now better prepared to process
loans faster, provide a better quality of service, and be more
helpful to disaster survivors. To ensure overall preparedness,
the disaster program has increased the number of work stations
from 366 to 1,750 in our Fort Worth, Texas, operation, and we
have added a surge center in Sacramento, California, with 350
additional work stations, our core staff of 850 regardless of
activity, and we have a pool of over 2,000 disaster reservists
who we can draw from.
During Hurricane Irene and Tropical Storm Lee we peaked at
1,750 staff. On top of this, we have increased the disaster
credit management systems capacity from 800 to 10,000
concurrent users. Throughout the year we have invested in staff
to increase their skills, streamlined the loan process,
improved technology, reduced contracting costs, and implemented
a new staffing strategy for ODA.
Under the newly implemented staffing strategy we were able
to increase staff, train and deploy an additional 900 employees
within 3 weeks in many of your congressional districts during
the response to Hurricane Irene and Tropical Storm Lee. From a
loan processing perspective, we are currently exceeding our
processing goals by approving or declining loan application
requests within 8 days for homeowners and 10 days for business
owners during fiscal year 2011. Our goal is 14 days for
homeowners and 18 days for businesses. In response to Irene and
Lee, SBA is processing loan applications in less than 10 days
on average.
To put this in perspective, the average processing time
during the Gulf Coast hurricanes was 74 days for disaster home
loans and 66 days for disaster business loans. Additionally, in
August of 2008, SBA introduced an electronic loan application
which allows disaster survivors to apply for assistance online.
SBA has also revamped the post-approval process and
improved processes and tools for loan closing and funding
disbursements. To ensure coordination and collaboration across
the board, SBA also works closely with our sister agencies. For
instance, SBA and FEMA have consistently worked together in
order to effectively provide assistance to disaster survivors,
including implementing internal agency agreements for continual
electronic data exchange.
Since the beginning of Hurricane Irene and Tropical Storm
Lee, SBA has approved more than $355 million in disaster loans
to help more than 9,200 homeowners, renters, businesses and
nonprofit organizations recover and rebuild from the
devastation caused by Irene and Lee.
Additionally, SBA has responded to the needs of residences
and business owners by deploying 600 SBA disaster staff workers
and field inspectors to staff 163 disaster recovery centers
located throughout the East Coast to assess damage to homes and
businesses in 12 States and Puerto Rico. At these centers SBA
representatives are providing one-on-one service to disaster
survivors and have personally met with more than 16,000
disaster survivors to answer questions, explain SBA's disaster
program, help complete loan applications, and close disaster
loans. In addition, homeowners and businesses can call our
disaster call center in Buffalo, New York, which has handled
over 61,000 calls relating to Hurricane Irene and Tropical
Storm Lee.
In closing, we appreciate the opportunity to share with the
committee the role SBA plays in the small business disaster
recovery efforts, and we believe that the reforms we have
instituted and the new tools Congress has provided to us will
allow us to effectively and efficiently respond to the needs of
our Nation's citizens. I look forward to further describing
these efforts and answering your questions. Thank you.
[The statement of Mr. Rivera follows on page 26.]
Mr. Bartlett. Thank you very much. Our second witness is
Bill Shear, who is Director of the Financial Markets and
Community Investment team at the U.S. Government Accountability
Office. Mr. Shear is a frequent guest before this committee,
providing testimony on a broad range of SBA oversight issues.
Mr. Shear, welcome back to the committee, and we look forward
to your testimony.
STATEMENT OF WILLIAM B. SHEAR
Mr. Shear. Mr. Chairman, Ranking Member Velazquez, and
members of the committee, it is really a pleasure to be here
today to discuss our work on reforms made to the Small Business
Administration's disaster loan program. After the 2005 Gulf
Coast hurricanes, many deficiencies were exposed in the program
and demonstrated the need for reform. Since then SBA has taken
several steps to reform its program, which includes creating an
online loan application and increasing the capacity of its
disaster credit management system.
In June 2008, Congress enacted the Small Business Disaster
Response and Loan Improvement Act, which places new
requirements on SBA to ensure that it is prepared for future
catastrophic disasters. We first reported to this committee in
July 2009 on SBA's actions to address the act's requirements,
and in our report we made five recommendations to SBA to
facilitate progress in meeting and complying with these
requirements and improve the disaster loan program. My
statement today provides updated information on SBA's actions.
SBA has continued to make progress in addressing provisions
of the act, although continued attention to certain provisions
will be important for sustained progress. SBA has met
requirements for 16 of 26 provisions of the act and partially
addressed six. Four provisions do not require any action at
this time.
For example, in terms of progress made, SBA updated its
disaster recovery plan annually, most recently in June 2011.
SBA also has taken steps to address the act's requirements for
region-specific marketing and outreach. The agency has begun a
dialogue with the State directors of small business development
centers in the Gulf Coast about disseminating disaster planning
information in the five most hurricane-prone States before the
hurricane season.
Additionally, SBA officials told us that the agency has
issued some public service announcements in disaster-prone
areas. SBA has issued annual reports to Congress on disaster
assistance in 2009, 2010, and 2011, as required by the act.
As we have reported in the past, the biggest challenges SBA
appears to have experienced in its attempt to fully address the
act's requirements involve making extensive changes to current
programs or implementing new programs. In particular, SBA still
plans to implement pilots before finalizing regulations for two
programs that would involve private lenders making short-term
loans to applicants awaiting assistance.
With respect to recommendations we made in our 2009 report,
SBA has taken steps to implement three of the five
recommendations. These three recommendations address fulfilling
the act's region-specific marketing and outreach requirements;
completing its annual report to Congress; and issuing an
updated disaster recovery plan. Beginning 12 days ago, on
November 18th, SBA has been providing us information responsive
to these recommendations, and we have continued to receive
information since my written statement was completed and
provided for this hearing.
Our final two recommendations were for the agency to,
first, develop an implementation plan and report to Congress on
its progress in addressing all of the act's requirements; and,
second, to develop and implement a formal process to identify
problems in the disaster loan application process and make
improvements for future applicants. Here SBA officials and we
have agreed to continue a dialogue on actions that could lead
to improvements in the disaster loan program.
Mr. Chairman, Ranking Member Velazquez, and members of the
committee, it is really a pleasure to be here, and I look
forward to your questions.
[The statement of Mr. Shear follows on page 29.]
Mr. Bartlett. Thank you very much, both of you, for your
testimony. As is usually my practice when I chair a committee,
I reserve my questions until the end, hoping that they will
have been asked by my colleagues, so I yield now to our ranking
member, Ms. Velazquez.
Ms. Velazquez. Thank you. Mr. Shear, given everything that
you have reviewed in your past reports, are you today, are you
comfortable that the SBA is prepared for another disaster on
the scale of Hurricane Katrina or a major earthquake on the
West Coast?
Mr. Shear. Two years ago when I was here before this
committee, you asked that question, and my answer at that time,
I think, was more negative than the answer you will hear from
me today, but let me divide it into three pieces.
First, I say it is relative. I think SBA is better prepared
than it has ever been to deal with any disaster, including one
of the scale of Katrina. I think they have made improvements in
their program.
The second part of this is that when we looked at the 2008
floods, again at your request for this committee, even though
those were on a much smaller scale, we did see that the
responsiveness of the agency to those disasters was much
greater than we had seen in the past, so, again, it is
consistent with improvements in the program.
The third part of this is what causes me to say we are
still uncertain, so I will say I hope SBA is prepared for
another Katrina. But the third part of this, which is part of
what was passed in the act, which is to perform simulation
exercises, and the simulation exercises and the after-action
reports were not completed at the time we reported to you 2
years ago. We have had interactions with SBA since then, but we
still have not seen the results of those simulation exercises,
and given that you haven't had another Katrina since then, the
results of those exercises, at least in principle, should allow
SBA to address your question and to really give a good answer
because that is the part of the evidence that is missing for
us.
Ms. Velazquez. So what are the reasons given to you since
you finalized your report for not doing the exercise of the
simulation?
Mr. Shear. I think the agency has done simulation
exercises. We have never actually explicitly asked for the
results of them because we haven't had ongoing audits of those
programs. We are certainly--we would be glad to look at them
either at the initiative of SBA or this committee, we would be
glad to look at them and to have discussions about what is
ready for public consumption and things of that nature, but we
haven't explicitly asked for them because we haven't had an
ongoing audit where the results were necessary for us to
complete our work.
Ms. Velazquez. Okay. SBA, Mr. Shear, failed to make use of
its authority to defer or refinance loans for businesses
affected by Hurricane Katrina, Rita, or Wilma. My question to
you is, if they had, do you believe that the Gulf Coast region
would have recovered more quickly?
Mr. Shear. I can't answer the question explicitly and
directly, but these are the things I would point to. SBA
disaster loans have certain requirements, certain underwriting
requirements, collateral requirements, and one of our
experiences from our work we have done in the Gulf Coast over
the years is that there was felt a need such as in Louisiana to
have State-run programs. So I would say that to fill part of
the void there were State loan programs and grant programs that
were run to try to address the needs that SBA could not
address, and then there were community development block grant
funds provided by HUD that were used to support some of that
State activity.
So it is clear that the SBA disaster loans did not fulfill
what was considered necessary for the recovery of the Gulf
Coast, but given that those State programs are there, I don't
know how much extra would have resulted from an additional
Federal program. So, again, something more than SBA disaster
loans seem to be needed, but to some degree it was addressed by
the State-run programs.
Ms. Velazquez. In your testimony you noted difficulties
that the SBA has had in making its annual report to Congress in
a timely fashion as is required by the statute. What is causing
the agency to repeatedly miss these deadlines? Is it a lack of
staff or a failure to prioritize?
Mr. Shear. I want to put that in relation to our experience
with open recommendations. We are not quite sure whether it is
due to communication problems within the agency in terms of the
liaison function, the congressional relations function or more
substantively with the program functions. So those are things
that, based on personal experience, I can point to, but it does
seem like there is a lack of prioritization in terms of saying
what is necessary and what is required and make sure that we
are--that the agency is meeting those requirements.
Ms. Velazquez. Okay, thank you. Mr. Rivera, with the
economic recovery still at an early stage, the effects of a
natural disaster can be especially challenging. Section 12068
of the Disaster Response and Loan Improvements Act gave victims
of the most severe disaster the option of longer payment
deferrals. With many people still struggling, will your agency
make use of this authority?
Mr. Rivera. Congresswoman Velazquez, we currently have the
authority to grant deferments, and we do on a case-by-case
basis.
Ms. Velazquez. So you have done it?
Mr. Rivera. Yes, ma'am. A good example is the BP oil spill.
We provided many deferments to existing SBA homeowners and
businesses in the impacted area.
Ms. Velazquez. Okay. I have more questions, so in the
second round I will be making those questions. Thank you.
Mr. Bartlett. Thank you. Mr. Schilling.
Mr. Schilling. Thank you, Chairman. Welcome, fellows. I
guess I will start out with Mr. Rivera. The SBA covers losses
not covered by insurance, and how closely does the SBA work
with insurance companies to make sure the costs are allocated
properly?
Mr. Rivera. Congressman Schilling, what we actually do is
we send out a field inspector, and the field inspector goes to
the property and they come up with an estimate of what it is
going to cost to repair or replace the damaged property. We
encourage disaster survivors to go ahead and apply first and
not wait for an insurance recovery. That way we can go ahead
and get the funds and the rebuilding process through quicker,
and then we can work with the insurance companies once the
settlement is made. The difference between when we do an
inspection and when an insurance company does an inspection is
we do it based on fair market value, where most insurance
companies will take a depreciated value approach, so there is a
gap, and usually that is what our loan entails.
Mr. Schilling. Oh, very good. And then also disaster
victims still report that there are numerous paperwork burdens
between, related to the IRS paperwork. How closely do you guys
work to improve that gap?
Mr. Rivera. Yes, sir, that is something that we also hear.
We have worked closely with the Internal Revenue Service. We
actually have a one-page form, not to get technical here, but
it is called an IRS Form 8821. What it does is once a disaster
survivor signs that one-page form, it enables us to go directly
to the Internal Revenue Service, and we get copies of their tax
transcripts, certain items, so we have streamlined that
process. Where in the old days we used to ask for, you know, 3
years of Federal tax returns, paper copies, bring that in, we
currently have that as part of our streamlined process where
they fill out that one page, they sign it, and we can provide
that to the Internal Revenue Service, and they can provide us
with copies of their tax transcripts.
Mr. Schilling. Very good, that is streamlining. Awesome.
Mr. Rivera. Thank you.
Mr. Schilling. Mr. Shear, just a couple questions. Has the
SBA developed a system to make improvements based on customer
services, you know, from surveys that you might be getting
back?
Mr. Shear. SBA has taken--they have some good tools, they
have taken some actions in that there is an annual survey of
customers where they receive information. Mr. Rivera and others
state that when they are out in the field, they do listen to
people. What we are looking for is more of a formal process.
Whether it is the resource partners like the small business
development centers and others involved in the process, when we
conduct our audit work, we hear of certain pain points. Some of
them have to do with the topic you just brought up, having to
do particularly with the business loans, but we think that it
would be useful for the agency to have more of a formal process
to try to deal with these pain points, whether it comes from
the annual survey or whether it comes from other sources, and
to have a formal process to act on it.
Mr. Schilling. Very good. And then lastly, since most
disaster victims first must apply for FEMA assistance, are the
applications you feel falling through the cracks when being
transferred between the two agencies or is that something we
have got a pretty good grip on also?
Mr. Shear. You are asking me? Okay. We saw that this
process was very badly broken after Hurricane Katrina, and that
was the one time we looked really in depth at that process, and
part of the problem was when FEMA referred to SBA that SBA took
so much time to reach a decision, and especially if it was a
declined decision, it was hurting the recipient or the victim.
It was harming them by not getting a rejection to be able to go
back to FEMA. So that process was broken. We have not looked at
that process since our work following Hurricane Katrina.
Mr. Schilling. So would you say that since Katrina have we
had any disasters that would really help us test the system out
to see how tuned up it is?
Mr. Shear. We have, and this, I will refer to my answer to
Ranking Member Velazquez that we have some windows, including
the report we did for this committee when we looked at the 2008
disasters. It gives a window as far as how responsive is SBA,
how are things working, coming up with certain recommendations
having to do with loan application process and things of that
nature. So we have a certain window, but we do not quite see
the extent of a disaster anywhere of the magnitude of Katrina.
But we have seen, for example, looking at the act that there
have been certain regulations for working with FEMA, so we
haven't gone out and tested those regulations, but we do
observe that there is regulations in place to address that
problem.
Mr. Schilling. Okay, very good. I yield back my time. Thank
you.
Mr. Bartlett. Thank you. Mr. Owens.
Mr. Owens. Thank you, Mr. Chairman. I have a couple of
questions on the interest rate calculation. You indicate in
your testimony or maybe in the report that interest rates are
determined based upon the availability of credit from other
sources. Can you describe for me exactly how that formula
works? Either one who would like to take a stab at it.
Mr. Rivera. Sure, I will take that one. The interest rate
calculation, it is a credit elsewhere test is what we do. It is
a very simplified test. Basically it looks at the available
cash flow and the available assets of an individual or of a
business, so in I would say 90--85, 90 percent of the time the
individuals get the lower rate. In the case of Hurricane Irene
and Tropical Storm Lee, that is
2\1/2\ percent for homeowners and 4 percent for businesses, and
the credit elsewhere rate is 5 percent for homeowners and 6
percent for businesses.
Mr. Owens. Is that in any way tied to, if you will, the
cost of funds to the government for these loans?
Mr. Rivera. The substantive calculation does have a
connection with the, you know, the credit elsewhere
determination or actually the number of loans that are made.
Mr. Owens. Really what I am asking is the--currently
borrowing rates for the government are 1 percent or less in
general, and I am asking whether or not the interest rate
calculation is based upon the cost of funds to the government.
Mr. Rivera. Right. The interest rate calculation is
statutorily, I mean it is a formula that we follow, and it is
basically, the home rate is based on treasuries, and the
business rate is based basically like the 7(a) loan, it is
based on prime plus the spread that we get on a 7(a) loan.
Mr. Owens. All right, thanks. The other issue that the
testimony and report raised was the issue of collateralization
of these loans. How do you make that determination if someone's
home has essentially been destroyed or their business has been
destroyed? What is the collateral that they can offer or is
that collateralization determined based upon the anticipated
rebuild?
Mr. Rivera. In collateral, it is a real simple calculation,
I mean, it is a real simple approach. Basically what we do is
we take the best available collateral. So if you have a home
that has been damaged, and let's say you had, and it is worth
$100,000 and we make--you know, you have a $50,000 mortgage and
we make $100,000 worth of repairs, we will take a second lien
position. The homeowner will be upside down, but that is why we
enable, you know, the loan to be for 30 years, but we don't
have to be in a first lien position, we don't have any loan-to-
value collateral, I mean loan-to-value ratios. We take whatever
is best available from the applicant.
Mr. Owens. So, in effect, you could have a piece of
property that currently has a fair market value of $25,000 had
a cost of $100,000, and you would give a loan based upon the
cost?
Mr. Rivera. We would give a loan based on what it costs to
repair or replace the damage, and then we would attach a lien
on the amount of that loan, whether it is $50,000 or $200,000.
Mr. Owens. Okay. Good. Thank you. I yield back.
Mr. Rivera. Thank you.
Mr. Bartlett. Thank you. Mr. Tipton.
Mr. Tipton. Thank you, Mr. Chairman and Ranking Member. Mr.
Shear, Mr. Rivera, thanks for being here. Mr. Shear, could you
maybe give me a little more background. I apologize if I missed
it. The GAO report came out with 26 items that they had listed.
You were alluding to five that you had been working on, but I
believe there were another six provisions that they had
suggested, and one of immediate interest to me right now is
establishing immediate disaster assistance program for getting
dollars back to small businesses. Can you tell me how that is
progressing?
Mr. Shear. Our understanding on that program was when we
were before this committee in the past that SBA wanted to pilot
that program, and we are very sympathetic with pilots when you
don't quite understand how a program is going to work and what
the risks are of a particular program. As of the information we
have just gotten for this hearing, the regulations are in
place, but the pilot hasn't occurred yet, and I think that is
related to its operation by the Office of Capital Access at
SBA, and they have been quite busy, our understanding is, with
the Recovery Act provisions. So that pilot has not occurred as
of yet, and it seems these other private loan programs are to
some degree--those not being implemented are to some degree
related to the pilot on the immediate disaster assistance loans
not being used yet. That is our understanding of it.
Mr. Tipton. It is a work in progress. Mr. Rivera, disaster
loans are made directly to, by the SBA, not through the network
of lending partners, and I would just like to get your
thoughts. Do you think that is a good idea, bad idea?
Mr. Rivera. Well, we have been doing it this way since
1953, and we feel we have the capacity and the ability to
provide this service to the disaster victims. We cut out having
to go through, you know, a guaranteed loan, for example, like
on the 7(a) side, so we deal directly with the disaster victims
because it is a unique situation. It is not a working capital
loan, it is not an expansion loan, it is usually debt on top of
debt, and so we have established this relationship, and we feel
like we are prepared, and we feel like we can do it
comfortably.
Mr. Tipton. Okay. You know where you get a little bit of
crossover, I would like to just maybe have your thoughts on it
between SBA loans, some of the private loans particularly, and
disaster relief. Dodd-Frank has obviously helped free some of
the credit markets that are out there. Are you seeing some real
impacts when we are talking about seeing recovery and response
after a disaster?
Mr. Rivera. We have seen a weakness in the economy in 2008
and 2009, no doubt about that. But we continue to, you know,
provide assistance to the individuals based on, you know, their
available cash flow from that perspective and inadequate
credit. We are the most aggressive lender in town, we will make
the loans that the lenders won't make. From the perspective of
a lender providing the service, if there is a lender out there
that is providing bridge loans, we will definitely look at
taking out that bridge loan. So I mean, we work with some
lenders across the country that have that bandwidth.
Mr. Tipton. Is it your thought, since you first have to
apply to FEMA and then ultimately to the SBA, is there a way to
be able to bridge that or is that creating more problems?
Mr. Rivera. Well, it is actually a seamless process. The
reason we want disaster survivors to apply first with FEMA is
that we want them to be available for all types of resources
that are available on behalf of the Federal Government. There
is crisis counseling, there is medical, dental, funeral, there
is all kinds of available immediate assistance that is
available to help them with minimal repairs to their home, you
know, from that perspective. So once they go through that,
there is a minimum income test, and if they are below that
threshold, the individual disaster survivor, they stay with
FEMA and they move over to the grant program.
Mr. Tipton. Where you say that is seamless, I guess what I
am curious about is just some of the time frame.
Mr. Rivera. So somebody will register with FEMA today, you
will call the 1-800 FEMA phone number, and you will register
today with FEMA, they will take some preliminary information,
and then they will turn around and they will send us the
referral that same day. Our computers are linked up. That is
something that we have done since KRW. We have a computer
matching agreement where we get several dumps throughout the
day, if I can use a computer term, where they actually provide
us this information.
Once we get this information, we mail out an application,
and we are looking at ways of being a little bit more
proactive. For example, we can call them, you know, these are
some of the process improvements we are currently looking at,
as far as like maybe giving them a call and saying, you know,
you just registered with FEMA, we are with SBA and we provide
the loan program, and you need to provide an application with
us, and then we go through that process. Once we actually get
the application back, we are processing in 10 days.
Unfortunately, you know, Katrina wasn't our best day from a
disaster perspective. We were doing, you know, 60 to 70 days
just to decline or approve a loan. What we have done is we have
reengineered that process where we don't take an applicant
through the entire process. We can tell pretty much upfront who
is an obvious decline, and we go and refer those individuals
back to FEMA.
Mr. Tipton. Thank you, sir.
Mr. Rivera. Thank you.
Mr. Tipton. Yield back, Mr. Chairman.
Mr. Bartlett. Thank you. Ms. Chu.
Ms. Chu. Thank you. Mr. Rivera, I was in New Orleans at the
beginning of November at a hearing pertaining to the BP oil
spill. There were many Asian-American, particularly Vietnamese
fisherman there, and they shared many of their stories about
the aftermath. Of course, they have had a hard time getting
back on their feet, and they did not seem to know much about
SBA disaster loans and were unclear about whether or not they
could still apply for it.
As you may know, the literacy rate in the community is very
low, as well as their understanding of English for many of the
fishermen. How do you ensure that small businesses like this
are aware of your loan program and that they can actually
understand the language on it as well?
Mr. Rivera. Thank you, Congresswoman Chu. We actually work
closely with FEMA on presidential declarations. I know the BP
oil spill, from an administration's perspective, we did an SBA
declaration based on the Governor's certification that there
were five businesses which sustained substantial economic
injury, but in the case of the BP oil spill, we actually went
into communities, and if we found a pocket, for example, if
there was a Vietnamese language or whatever the language was,
we often have the skill set within our existing staff, and if
we don't, we will pick up an interpreter there locally that can
help us communicate. We have--usually an interview takes
anywhere from 5 to 10 minutes, explaining the program with the
disaster victim or face to face, but if it takes us an hour, if
it takes us longer than that, we have the time and we spend the
time to get that application back with the information that we
need and to communicate that. We also do town hall meetings,
and we will also meet with the local small business development
centers, the resource partners on the ground, who in the BP oil
spill were very instrumental in helping us with businesses that
may not have had the financial aptitude to be able to provide
us with the information, so we had an SBDC partner right next
to us, and they were able to help us with, okay, this is what
we mean when we want a financial statement, this is what we
need from a balance sheet, this is what we need from an income
statement, and they were able to really help us provide that,
bridge the communication gap from that perspective.
Ms. Chu. And if they were monolingual in another language
or primarily spoke some other language, what happened there?
Mr. Rivera. We also have the ability, we have a service, a
national call line service where when those individuals talk
with our call agents up in Buffalo, New York, at the call
center or at our processing center in Fort Worth where we have
a call service where we can actually have an interpreter walk
us through or explain, you know, interpreter--from disaster
survivor to interpreter to us, and we are very sensitive to the
language requirements in different parts of the country, but we
go in, and from a FEMA perspective, they also assist us because
they will go in with community relations group, and they will
hit the different pockets, and they will go door to door, and
we usually assist them there, too.
Ms. Chu. Do you have translated documents?
Mr. Rivera. No, ma'am. What we do is our forms are
currently in English and Spanish, but in the event that a
local, you know, there is the Vietnamese community, they will
also assist us in translating the documents for us, so we don't
have--because the dialects change. I mean, I am from Texas, I
am a Mexican American, my Spanish is different than, you know,
somebody from New York or the dialects are different from, you
know, across the different parts of the country, so we rely on
the local community to help us with the translation services,
and they are usually pretty receptive to providing that help to
us.
Ms. Chu. Do you know how many fishermen applied for the
economic injury disaster loans?
Mr. Rivera. I don't have that information with me in my
book here, but I will be glad to get that information back to
you.
Ms. Chu. Yeah, I would like to know what that is, and I
would also like to know, many of the fishermen on the Gulf
operate on a cash basis, and they lost documents during
Hurricane Katrina, and some then lost whole livelihoods based
on the oil spill, and they might not have the documentation
required for typical loans. What kind of flexibility do you
have there?
Mr. Rivera. And if I can go back, we approved about $41
million in bridge loans for the BP oil spill, and obviously,
you know, the Gulf Coast claims facility was the facility that
was in place to help BP, and I think they provided like $5 or
$6 billion worth of service. But how do we deal with
individuals? We deal with a lot of businesses, and we in the
old days, we used to require individuals to bring in copies of
their tax returns, and as I mentioned earlier, what we do now
is we actually have them sign an IRS Form 8821, and we can get
copies of their tax transcripts. Being a Federal agency, we
give them credit for whatever they report to the Federal
Government, and then that kind of allays any issues as far as,
you know, being a cash business or whatever type of business
they are. Whatever they report to the Federal Government, to
the IRS is what we give them credit for.
Ms. Chu. And that would be adequate for the loan then?
Mr. Rivera. Yes, ma'am, that is what we use for repayment
ability or for part of our repayment analysis.
Ms. Chu. Thank you. I yield back.
Mr. Rivera. Thank you.
Mr. Bartlett. Thank you. Mr. Barletta.
Mr. Barletta. Thank you, Mr. Chair. Mr. Shear, after the
combination of Hurricane Irene and Tropical Storm Lee hit
northeastern Pennsylvania, my district experienced the worst
flooding in its history, and they are still dealing with it as
we speak. I just came back with Chairman John Mica who came to
see the damages, Speaker John Boehner was there as well, and
many of the businesses in our area are making decisions of
whether or not they even want to go back in business again. I
traveled throughout the district and talked to many of the
business owners, and I told them what the United States will do
through the Small Business Administration is if you can get
credit elsewhere, we will provide you with a 6 percent loan. I
could tell you the reception was not very warm when I told them
this is the help we have to offer, especially when a business
is trying to decide whether or not they are even going to stay
in business again.
The United States gave Pakistan for flood disaster relief
$215 million in the last 2 years. The interest rate that we
charged the flood disaster victims in Pakistan was 0, with no
payback. Do you believe a 6 percent loan is meeting the needs
of disaster victims here in the United States?
Mr. Shear. I don't have a basis to answer your question. I
have to rule out not knowing what our assistance to Pakistan
was. I will make the----
Mr. Barletta. Well, how about just the 6 percent loan?
Mr. Shear. Just the 6 percent loan, I will make the
observation that SBA is part of our recovery framework, so
there are other Federal programs involved, as I alluded to in
work in the Gulf Coast, so I can't comment on it directly. I
would say there it is a question for the Congress. At GAO, we
don't make value judgments when we evaluate programs as far as
how much assistance should be provided and at what cost, so the
question really is----
Mr. Barletta. How is the interest rate determined?
Mr. Shear. The interest rate, and Mr. Rivera can speak to
the interest rate much better than I can, the credit elsewhere
requirement I think is intended to make it a lower cost program
than it would be, and the 6 percent interest rate makes it a
lower cost program than if a lower interest rate were offered.
So it is--there are certainly trade-offs there, and but except
for observing that, we don't have audit work that would let me
respond directly.
The one thing that I will say that does relate to our audit
work is that, and it gets to these pain points that many times
the victims of disasters feel is that SBA is saying apply to us
and apply to us, and it is good that SBA is out there and
reaching out in these disaster recovery centers and the like,
but it is important to know what the pain points are and to
make sure that SBA is being very transparent about what is
being offered and not offered, so that gets to our audit work.
Mr. Barletta. See I am very concerned, especially with
unemployment over 9 percent, and we are trying to create jobs
and keep jobs here in America, and when a disaster strikes, and
I have said this here in this committee before, and I am going
to say it again, when disaster strikes, America is the first
country to come to the aid of other countries around the world,
and I am very proud of that, I am very proud of that fact, but
when you see disasters strike the people in your neighborhood
and your friends and relatives and you know that we are
sometimes doing more for people we don't even know, sometimes
countries that don't even like us than we are for Americans, I
just believe that we should take care of Americans first.
I am hoping to change the way America deals with disasters.
I am introducing a bill that would give a 1 percent loan for 30
years. It would cover the administrative costs, but let's get
Americans back up on their feet again, and hopefully they will
stay in business and create those jobs that we are trying to do
here every day.
Mr. Shear. I think you raise a very good point, and I hope
you just understand that we are a fact-based agency and we can
only comment, I can only comment based on the facts from the
audit which we have conducted.
Mr. Barletta. I am not upset with you, Mr. Shear, I am just
frustrated after spending so much time with these people and
seeing how hard they have worked and knowing that we can do
more for Americans, and I hope I will find many colleagues here
that will agree with me. Thank you.
Mr. Shear. Thank you.
Mr. Bartlett. Thank you. Mr. West.
Mr. West. Thank you, Mr. Chairman, and our ranking member,
and gentlemen, good to see you today.
Mr. Shear, a question. I saw back in 2009 that GAO did a
report, and they had some provisions that had to be worked out,
I think it was about 14 of the 26. Have we gone back and
recertified to make sure that those provisions, as far as this
program, have been worked out and been rectified?
Mr. Shear. Well, in the statement submitted for today, we
have 16 of the 26 provisions have been addressed by SBA. There
are five provisions still left. I hope I am remembering the
number right. It is, and partially addressed six of them. So
there are still six provisions that have not been fully
addressed.
Mr. West. So is there a plan to make sure we can close that
out? Because one of the things, we just come out of hurricane
season down in our neck of the woods, and so I would want to
hope that we can rectify these things before we go into the
next hurricane season.
Mr. Shear. Just over the last couple of weeks we have had
some interactions with Mr. Rivera and his team, and we think
that SBA is getting close on some of the provisions, and the
ones that seem to be, remain the biggest challenges have to do
with loan programs involving private lenders.
Mr. West. Okay. Mr. Rivera, Hurricane Wilma, pretty
important to us down there, and that was the last major storm
that we had in the southeast Florida area. Do you have any
information that we could get later from you as far as what
were the relief that you gave to small businesses as a result
of Hurricane Wilma, and maybe we can go back and track and see
how those businesses are doing today?
Mr. Rivera. Oh, absolutely, we can get you that
information.
Mr. West. Okay, I appreciate it. The other thing, you know,
being from military, I saw that a major disaster response plan
is to conduct a disaster simulation exercise at least once
every 2 years. Can you kind of give us an idea of what that
simulation exercise is like, and have you kept on par doing it
every 2 years, and what did you learn from it?
Mr. Rivera. Yes, Congressman. We actually do more than one
every 2 years. We partner with FEMA, and they have a national
level exercise every year. But, for example, as a requirement
of the farm bill we do a biennial exercise. There is a peer of
mine, his name is Steve Smith, he is with the Office of
Disaster Planning. He actually creates the simulations. So if
we go back to 2008, at the time FEMA had done the Chesapeake
Bay hurricane, it was a mock hurricane that came through the
National Capital Area here. We simulated the exact same type of
disaster. So the test goes like this, you know, it is a 1-day
exercise, but in the morning what we will do is we will look at
the track of the hurricane, the impact, and we have, for
example, we have models, FEMA has these models that tell us the
number of businesses, the number of units, structures impacted
in the path of disaster. Then we go through a scalability model
internally where we know pretty precisely how many field
inspectors we need, how many customer service reps we need on
the ground, how many loan officers we need, how many case
managers we need, so we go through that whole process. We bring
in all my staff, my senior management staff from all my
centers, and then the office of field operations brings in the
district directors and regional administrators from the
impacted area, and then we have the administrator, the deputy
administrator, and the senior team that is there who has dealt
with this.
For example, for Hurricane Irene and Tropical Storm Lee, we
were watching both of these storms, and actually we had
Tropical Storm Marie that also hit Puerto Rico. We are actually
watching these storms days before they come out. That is one
nice thing about a hurricane, it gives you plenty of warning
time. So we were positioning, prepositioning, calling up
reservists, and we were going through that whole process. So
the simulation is a kind of a scope from that perspective. So
what happens after this is that there is, they call it a hot
wash. I am not sure why they use that term.
Mr. West. Yes, I know what a hot wash is.
Mr. Rivera. So we had a hot wash, and they actually
explained you could do this better, you could do that better.
We have actually had several of these simulations. I am not
sure why. I was a little bit surprised that a lot of these
requirements have not been closed out because we thought we had
closed out all but three, but we are committed to work with GAO
and Mr. Shear on getting these finally resolved because in our
mind we have really actually gone through the process, but the
simulation, it is a good exercise. It tests us, and there is
independence between the Office of Disaster Planning and the
Office of Disaster Assistance.
Mr. West. Last question. Did you find out, you know, when I
talk about my colleague Congressman Barletta, did things work
smoothly in rectifying a lot of the situations that he had in
his area?
Mr. Rivera. Well, we actually had an early-on conversation
with Congressman Barletta. He was gracious enough to let us
know where the pockets of businesses that we could possibly set
up a business recovery center, so we were early into the
conversation with him, and we set up a couple of business
recovery centers in the disaster impacted area, you know, and
FEMA helps us with disaster, the Governor's office in the
States help us with disaster recovery centers between the
State, FEMA, and SBA, but we also, when we have situations like
we had in Congressman Barletta's backyard, where there is
businesses, there is a pocket of businesses that we can help,
so we set up a couple of business recovery centers to try to
see what we could do from that perspective.
Mr. West. Thank you very much. I yield back, Mr. Chairman.
Mr. Bartlett. Thank you. Mr. Richmond.
Mr. Richmond. Thank you, Mr. Chairman; thank you, Ranking
Member.
Mr. Rivera, I am a member from, born and raised and live in
New Orleans, and I don't have to tell you about the Katrina
experience, but I say that to say that I have seen the agency
probably at its worst, and I see it now at a different place,
and I would just urge you to be as candid and honest with us as
possible to tell us what you need to get up to full compliance
with where you need to be with our 2008 act, but we need to
make sure that we have a functioning SBA after tragedies, and
to that extent I can follow up on Mr. West's question about
your reserves. Do you think you have an adequate workforce, and
I won't use Katrina because that may be a little overwhelming,
but let's use Rita or Gustav or Ike. Do you think you have an
adequate workforce if those were to happen next hurricane
season, that you could ramp up and be there?
Mr. Rivera. Congressman, we are prepared. There is no doubt
about it in my mind. When you look back at Katrina and you look
at today, there is several key differences that we have. One is
I mentioned the infrastructure. You know, we only had 366 seats
for individuals to process loans. Now we have 2,100. We only
had, we could only get people on our staff on our computer only
800 at a time. Now we can get 10,000 people on the system at a
time, and we didn't have a reserve force. We had 866 employees
when Katrina hit, so we had to go out and we had to hire all of
this, these employees, local hires, schedule As. It was a very
ad hoc approach. Now we have an ODA staffing strategy that
actually has 850 core employees, and we have 2,000 reservists
that we have that we can call on, and they are ready, they are
readily available within 24, 48 hours.
The Hurricanes Gustav and Ike, we processed about 100,000
applications, a little bit short of 100,000 applications, and
we approved about a billion dollars worth of loan activity. I
need to go back and double check, but my recollection from 2008
is we had about 2,500 employees. We weren't as efficient back
then as we are today with all the process improvements, so we
feel that we have a very comfortable bandwidth from 0 to 3,000
employees; as we go in to surge and surge-plus week, we have
the capability of pulling in contracts, talking to private
lenders, and working through that process. So we feel that, as
Mr. Shear said earlier, we are as prepared as we have ever
been, from an agency perspective.
Mr. Richmond. The other question, in looking at going all
the way back really to Andrew and when Katrina first happened
they said it would be a 10-year recovery period, which I truly
now know that it is a true 10-year recovery period, but for
those small business programs that have time periods in which
people or businesses can participate in them, do you think it
would be wise to give the administration discretion that when
we have a federally declared disaster that that time period is
tolled or frozen?
For example, let's consider the 8(a) program where in
Louisiana those businesses were shut down for 2 years. They
lose those 2 years in the 8(a) program, and they still graduate
out on schedule. Do you think it would be wise to give the
Administrator the ability in any federally declared disaster
where recovery is over a certain number of years to extend a
person's length of participation in the program?
Mr. Rivera. In reference to the 8(a) program, Congressman?
Mr. Richmond. Yes, or any other program that there is a
specific time period.
Mr. Rivera. I would have to go back and have a discussion
with the associate administrators over those different
divisions. I mean, as you know, I have been with the disaster
program for 22 years, so I wouldn't feel comfortable making a
statement on behalf of, you know, of the 8(a) program as far as
the certification process.
Mr. Richmond. Okay. Let's shift to BP, the Deep Water
Horizon oil spill. How are things going with the loan process
for the fishermen and the oystermen down there as they still
wait on the claims center to process claims, which is slow if
not, just not moving at all?
Mr. Rivera. The BP oil spill we provided, I recall, about
$40, $41 million in disaster assistance. It was bridge loans
for economic injury disaster loans. So the application period
is a little bit longer. We were actually on the ground helping
disaster, businesses actually fill out BP or Gulf Coast claims
facility applications. Our declaration period for applying for
assistance is closed, but we still get reports from BP, and I
will be glad to, you know, put you in touch with somebody with
the Gulf Coast claims facility.
Mr. Richmond. Well, I am in touch with them all the time,
and in closing, Mr. Chairman, I would just advocate that the
claims center is not working as it is designed, and that
facility and that process is really on BP because it is a
private actor, and they are doing it, but I think we have a
role as government to make sure that we are still there with
the process for people to borrow money from the SBA, waiting
for those BP claims because here is what is happening in
reality: The interim payments are so slow that they don't get
them at all, and then BP comes or the claims center comes, and
they offer them little or nothing for a final claim, but they
will offer the final claim without offering any interim, so
people are so desperate right now that they are taking really
pennies on the dollar in terms of their final claim, and I just
think that if they had the ability to rely on an SBA to back
them up in the meantime while they are waiting on it, then they
wouldn't be at such an unfair playing field to take those
claims. I mean, we had a field hearing down there, and people
who were owed $150- and $200,000 were settling for $5,000
simply because they had bills they had to pay right then and
there.
So if we could look at opening that up and creating some
program that would offer them the ability to stay on their feet
awaiting the Gulf claims center and the BP process, that would
be very, very helpful, and I think it would change the lives of
a lot of the fishermen in that entire Gulf Coast area.
Thank you, Mr. Chairman, and I will yield back.
Mr. Bartlett. Thank you. Mr. Mulvaney.
Mr. Mulvaney. Thank you, Mr. Chairman. Mr. Rivera, I
believe--down here, sir. I believe I may be unique on this
committee, at least I hope that I am because it is not
something I would wish on anybody, but I have actually
participated in the disaster assistance relief program. I
showed up at work about 6 months after I had started my own
business one morning to find my office furniture floating in
the front yard. We had been through a flood, and I was able to
get a disaster relief loan from the SBA, and my experience was
actually quite good. It was extraordinarily helpful. That was
one of the reasons I was interested in participating in this
committee when I got here was because it was a pretty good
experience for me, but as I was going over preparing for this
hearing, I tried to remember how I found out about the program,
and it occurred to me that I found out through my insurance
agent, and one of the things Ms. Chu and I in her district, on
our subcommittee, one of the things we heard when we were out
in California was the lack of information about SBA programs.
Few people knew what the SBA had to offer. If it hadn't been
for that particularly astute insurance agent that I had, I
probably never would have found out about the program.
So tell me, sir, what it is that you all are doing
generally, what are you doing specifically, how are you making
information about disaster relief programs and assistance
available to the public?
Mr. Rivera. Thank you, Congressman. We have taken a very
aggressive marketing and outreach program. I mean, internally,
you know, within the SBA, SBA has the opportunity, we have an
online disaster tool kit for all the SBA employees, so when a
disaster strikes, we make sure that all of our employees in the
district offices, in the centers know what they need to do. We
have also provided media training for all regional
administrators, district directors, public information
officers. Externally, though, what we have done is we have
worked with the National League of Cities on emergency
training, we actually partnered in 40-plus courses across the
country for a crisis leadership for local officials, and we
have actually set up some really awesome partnerships. For
example, we have agility recovery solutions, we have had 15
monthly webinars over the last 15 months, that provides an
educational tool for small businesses, preparemybusiness.org is
the web site. We have also partnered with the American Red
Cross and started talking about their ready rating system to
homeowners and to businesses, and we also partner with FEMA and
provide the, you know, the information as far as what SBA does.
Branding is a challenge. I mean, there is no doubt about
it. When we get into a disaster area, we actually go and we
meet with the State officials, the local officials, the
congressional delegation, and we try to get as much information
out as we possibly can. We do public service PSAs in all the
disaster-impacted areas. So we continue to send public
information officers into the different areas and try to get
the word out as best we can.
Mr. Mulvaney. Tell me about these partnerships because one
of the things that one of the subcommittees of this committee
deal with, the one that I chair, deals a lot with outsourcing
versus in-sourcing, opportunities that the government has to
outsource things. You mentioned the webinars, you mentioned the
web site, my understanding that is a partnership with a private
entity?
Mr. Rivera. Yes, Agility Recovery Solutions is a small
business.
Mr. Mulvaney. Tell me how that is working out, how you
measure success. Do you consider it to be a success? What are
the metrics? How many visits are you getting? Do you get the
impression that it is actually having an impact?
Mr. Rivera. I really do think we are having a pretty
significant impact. On the monthly webinars, I did one not too
long ago, the title is a little bit interesting, my mom was
really excited about it. It was about the Ten Commandments of
disaster preparedness, I am not sure how we came up with the
Ten Commandments, but anyway, we had about 800 people that
actually got on the webinar and participated in the webinar, so
it is 800 more businesses, I hope, that hear about SBA, and
that is a big challenge that we have been discussing with GAO
and Bill Shear over the years is how do we get, you know, how
do we get as much information out as we possibly can. You know,
I go to a lot of lending conferences, I go to a lot of, you
know, different types of conferences. Most individuals really
don't want to hear about disaster until they have had one, and
they really get it once they are in a disaster, what do I need
to do now. And that is why the ready rating system and the
Agility Recovery Solutions, those are just fabulous partners
because they are talking about what you need to do to prepare.
You may still have that disaster, but if you have the ability
to be prepared, it makes that disaster process, you can go back
to your muscle memory and figure out this is what I need to do
instead of being in panic stage and not being able to help
yourself through the disaster.
Mr. Mulvaney. Well, I am going to commend your group, the
administration, because we have actually done a good bit of
work in South Carolina, the local office has reached out to me.
We have toured my district to put on presentations on how to
not only start your small business, but after you have started
it, what you need to do, and actually I have a list of things
that you can do or you should do when things are pretty good
because the time to prepare for a disaster obviously is not the
day after that you experience one.
So to the extent sometimes it is no fun to come down and
testify before these committees, I want to thank you for what
you folks are doing in this particular area, and with that I
yield back. Thank you, Mr. Chairman.
Mr. Bartlett. Thank you very much. Before we go to our
second round, let me make a little comment and ask a question.
Mr. Barletta mentioned the funds that we vote to give to other
countries or to send to other countries for flood relief; for
instance, some disaster relief. Are those loans, do we expect
to get that money back?
Mr. Rivera. Congressman, I am not familiar with this
foreign loan program. I apologize. I mean, I can go get some
due diligence done and provide information for the record, but
I really have no knowledge of this foreign loan program.
Mr. Bartlett. I am not sure these are loans. I suspect that
they are grants, that they are simply given to them, and I want
to identify myself with Mr. Barletta's observation that charity
ought to begin at home. It frequently doesn't, does it?
Several years ago we had a major drought in the district I
am honored to represent, it is a largely agricultural district,
and there was a near total crop failure, and the Department of
Agriculture came by and said, gee, we want to help, and so they
had some low interest loans that they wanted to give to my
farmers, and one of the farmers got up, he says, you know, I am
now standing on my tiptoes in a sea of debt about 6 feet deep
with my nose barely above water, and you want to add another 2
feet to that sea of debt, I am just going to drown. What he
needed, of course, was not another loan, but he needed a grant,
he needed some help to see him through this crisis. Do we have
that kind of a program available to those for whom a low-
interest loan just can't make it?
Mr. Rivera. In reference to a disaster?
Mr. Bartlett. Yes, disaster relief.
Mr. Rivera. Well, in reference to farmers also?
Mr. Bartlett. No, with reference to anybody, any small
business. Farmers are one type of small business, of course.
Mr. Rivera. You know, a loan isn't always the right option
for some individuals, some homeowners and some businesses. We
are providing debt on top of debt in many cases, and, you know,
we just don't want to burden somebody if they can't repay a
loan. We just don't--you know, if they don't have reasonable
repayment ability and adequate credit, we are just not going to
go that extra step from that perspective because what it does
is it just puts them closer to bankruptcy, and that is not our
objective here. We are just trying to help businesses that can
qualify for loans and try to make them recover from that
perspective.
In the case of businesses, we refer them to the resource
partners, and a local SBDC may be able to work out and figure
out if there is a way that you can assist this business, help
them with their local lender, and maybe they can restructure
their debt, and there is a lot of non-disaster type situations
that an SBDC and our resource partners can help these type of
small businesses.
Mr. Bartlett. I am not a big government advocate, but at
least to some extent with the taxes that we pay, small
businesses, I think, have a right to see, to view some of those
taxes as a kind of an insurance premium payment, and, you know
what we do in insurance, of course, is to spread the risk, each
person pays a little, not everybody will have a disaster, but
those that do can then be recompensed for it. Don't you think
that our small businesses, at least to some extent, could use
some of the taxes they pay as a kind of an insurance premium
that when it is really tough and they are going under, if they
don't get some direct help, not just a low interest loan, if
you are simply burying them deeper in a sea of debt, that is
not going to be helpful, is it?
Mr. Rivera. Congressman, that is a great question. From the
perspective of, you know, the disaster loan program, that is
what I feel comfortable responding to----
Mr. Bartlett. Because you are disaster loans, you are not
in disaster grants, okay. But this is a legitimate question I
think that we need to consider, and I am not an advocate of big
government.
Mr. Mulvaney indicated that he learned about your existence
from his church I think he said. Do you partner with FEMA and
other agencies so that when there is a disaster--you know,
there are many small businesses out there that don't even know
that you exist because they have gone out on their own, they
haven't had a loan from Small Business and don't even know you
exist until they have a disaster, and do you show up with a
desk along with desks of other representatives of the
government to let them know that you are there?
Mr. Rivera. Well, we are collocated with FEMA at all of the
joint information centers, the disaster recovery centers. So
anywhere FEMA is at on the ground, we are actually at on the
ground also. Like I mentioned earlier with Congressman
Barletta, he identified some pockets of businesses, and we set
up a business recovery center that was SBA-only, and it
provided some resource partners like SBDCs and stuff.
Mr. Bartlett. So if I am a small business and I have a
disaster and FEMA shows up, either to their right or their left
I am going to see your desk so I know you are there?
Mr. Rivera. Yes, sir, we are always there with FEMA.
Mr. Bartlett. Thank you very much. Ms. Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman. Mr. Rivera, can you
tell the committee what will be the timetable for full
implementation of all the 26 provisions contained in the act?
Mr. Rivera. Congresswoman Velazquez, we feel that we have
completed 23 of the 26, and we will continue to work towards
working with Mr. Shear and GAO. The remaining three loan
programs, the IDAP, the Immediate Disaster Assistance, the
$25,000 loan program, the bridge loan program, we are working
right now with the Office of Capital Access. We have
promulgated regs, we have actual loan authority.
Ms. Velazquez. When do you think you will be ready?
Mr. Rivera. We will continue to work with the Office of
Capital Access, and I know that that is one of their priorities
as we move forward, so hopefully in the near future.
Ms. Velazquez. So next year? We are not going to be
conducting an oversight and you are not going to give me the
same answer?
Mr. Rivera. If we have a hearing next year, hopefully we
will have this program implemented. All we need to do is go out
and do the pilot with the 7(a) lenders, and we are basically in
place from that perspective, so we are pretty close.
Ms. Velazquez. Two years ago, Mr. Rivera, Administrator
Mills appeared before the committee and clearly stated her
commitment to improve the agency's disaster readiness, and I am
concerned that for fiscal year, this fiscal year your agency
has proposed cutting, reducing the personnel of the disaster
loan program by 150 full-time employees, and so my question to
you is, this, based on the assessment that your agency had in
the budget submission, says that we will reduce to 3 weeks the
application, the processing of some of the applications. Study
has shown that when a disaster strikes, if the small business
do not get, doesn't get help, assistance, disaster assistance
within the 3, 4 weeks probably that business will close. So
aren't you concerned that this is going to impact the readiness
of the program?
Mr. Rivera. Well, Congresswoman Velazquez, the fiscal year
2012 budget did go from as comparison to the fiscal year 2011
budget, the fiscal year 2012 budget proposal does go from a
thousand full time equivalents to 850, yes, ma'am. We feel that
that is now our core, and we feel with the core and the surge
and the staffing strategy we have in place, we feel comfortable
that we can do this. We don't keep staff if we don't need them,
so if we don't have disaster activity, we go down to----
Ms. Velazquez. That is the problem. We don't know when the
next Katrina is going to strike.
Mr. Rivera. Yes, ma'am, you are absolutely correct, and
what we have with the staffing strategy is we have the surge
and surge-plus approach where we have these individuals that
actually have signed up with us and are ready to show up in 24
to 48 hours, and these are the 2,000 employees that we have in
the surge pool.
Ms. Velazquez. Mr. Shear, in your prior reports on this
program you have stressed that disaster preparation depends on
the agency's ability to identify and balance risks against
available agency resources. So how do you balance this out in
terms of the reduction of 150; will that compromise the
agency's ability to identify and balance risk?
Mr. Shear. I can't answer the question on the 150 exactly,
but one of the things I have said to this committee before is
that many times I am here before this committee and we are
talking about programs other than disaster assistance, and we
are saying, well, programs are fragmented, we are looking to
get rid of redundancies or programs that don't leverage each
other effectively, but disaster assistance is a different
business, so I will just repeat the points from before. You
want some redundancy in the system, and the thing that if I
were Mr. Rivera or this committee, or I will just say as a
public citizen, that would cause me to lose sleep at night is
that once, whether it is a 9/11 or Katrina, and that is way in
the past, do people forget so much that you don't have the
reserves in place, that they are available. So it is a huge
problem, how do you balance those, because there is a cost of
having reserves in place, but disaster recovery you have to
have some concept of risk management. These simulation
exercises are part of establishing that framework, and you have
to be responsive to the risks that are out there, and we hope
that that is occurring.
Ms. Velazquez. Mr. Rivera, how should this committee and
the American public judge your agency's success in responding
to a major disaster? Should we look at the percentage of loans
disbursed, the number of dollars loaned, customer satisfaction
surveys or something else?
Mr. Rivera. Congresswoman, I think you hit on all the
factors that we look at. I mean, for example, the American--we
do the independent survey with the American Customer
Satisfaction Index. Out of a score of 100 we actually scored 80
percent. It is an independent survey, we have no control, we
contract that survey out. We also believe that we are prepared.
We believe we have a good workforce in place, they are well
trained, we continue to work on process improvements, try to
make ourselves as efficient as possible and continue to
collaborate and work closely with FEMA and other Federal
agencies, HUD, and just go, Internal Revenue Service, and just
continue to try to be as proactive as we possibly can.
Ms. Velazquez. Well, I am glad to hear that this committee
got it right when we passed the legislation in 2008, but now we
need full implementation of those provisions. Thank you, Mr.
Chairman.
Mr. Bartlett. Thank you. Mr. Richmond.
Mr. Richmond. Thank you, Mr. Chairman, again. A quick
question. How much do you think it costs you all to service,
let's say, an SBA loan from Katrina-Rita in a percentage point?
Mr. Rivera. I would have to get back with you. I don't know
that exact dollar. I know that we spend on average about $160
to $200 million a year for the disaster, loan making and
disaster loan servicing perspective, but the actual cost, the
unit cost I would have to get back with you for the record.
Mr. Richmond. Because I guess I am interested in all of the
loans that were done after Hurricane Rita and Katrina, and to
that extent, Gustav and Ike also, that the interest rate with
an SBA loan is above what it costs you to service that loan,
and part of the question becomes what is the rationale for the
difference, where does the money go, does it go in the future
program, in future loans? But to the extent that it can help,
it could help people in terms of reducing their interest
payment, it would just serve wonders to people in those
devastated areas if we could give them some relief on those
interest rates above what it costs us to service them. We ought
not make a profit, and we ought not let government grow on the
backs of people who just went through a disaster. So I would be
interested in what it is costing to service them, what is the
average percentage rate, and what that means in the terms of
real dollars.
Mr. Rivera. Yes, sir, we will get back with you for the
record.
Mr. Richmond. And, Mr. Chairman, that is it. I would like
to thank Mr. Shear and Mr. Rivera for coming today and thank
the SBA for what they do, and my district has been a constant
beneficiary of their work. We don't want to be, but it just so
happens that if it is not one thing it is another, and thank
you for what you do.
Mr. Bartlett. Thank you very much. In its annual report on
top management challenges, the SBA's Inspector General report
said improper payments in the disaster program were
underestimated by close to $1.4 billion. How much of this was
in your area and what is being done to address this problem?
Mr. Rivera. Congressman, the improper payments process that
we had, the audit that we had with the Office of Inspector
General, we took a very proactive approach and have
reengineered how we do the process. Under the old process, the
director in the Texas office had control of the improper
payments and the calculation. Currently we have my director up
in headquarters who is in charge of loan programs that actually
goes through that process, so it is completely reengineered,
and we continue to work on the improper payments and continue
to reduce that percentage.
Mr. Bartlett. So after the next disaster, the Inspector
General will not be able to make a report like this; is that
correct?
Mr. Rivera. Well, that is always our goal.
Mr. Bartlett. Thank you. Okay, as I anticipated, my
colleagues have done a good job of asking the questions. When
we look at the record, we may decide that there are other
questions that we need to ask one or both of you so that we
have a complete record for the future, and we hope that you can
respond for the record if we ask those questions.
I would like to end by thanking both of our witnesses for
appearing today. Providing assistance in the aftermath of a
disaster is a fundamental mission and something that we have
the responsibility to get right. While SBA has improved the
process for many disaster victims, we need to make sure that
these improvements continue and that we are prepared for any
disaster that might come our way. This committee will continue
to monitor SBA's performance to make sure that we are helping
our neighbors when they need it most.
With that, I ask unanimous consent that members have 5
legislative days to submit statements and supporting materials
for the record. Without objection, so ordered. The subcommittee
now stands in adjournment.
[Whereupon, the subcommittee was adjourned at 2:26 p.m.]