[House Report 106-33]
[From the U.S. Government Publishing Office]



106th Congress                                                   Report
1st Session             HOUSE OF REPRESENTATIVES                 106-33
_______________________________________________________________________


 
              DISASTER MITIGATION COORDINATION ACT OF 1999
                                _______
                                

 March 1, 1999.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Talent, from the Committee on Small Business, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 818]

      [Including cost estimate of the Congressional Budget Office]

      The Committee on Small Business, to whom was referred the 
bill (H.R. 818) to amend the Small Business Act to authorize a 
pilot program for the implementation of disaster mitigation 
measures by small businesses, having considered the same, 
report favorably thereon without amendment and recommend that 
the bill do pass.

                                Purpose

    The purpose of H.R. 818 is to establish a pilot program for 
making loans to small businesses for the purpose of 
implementing techniques and technologies that will mitigate the 
effects of natural disasters. The Small Business Administration 
(SBA) currently administers a disaster loan program that lends 
to small businesses and homeowners affected by natural 
disasters. Implementation of H.R. 818 will enable the SBA to 
lend to small businesses in disaster prone areas and help them 
avert and lessen the costs of future disaster inflicted 
damages.

                          Need for Legislation

    Since 1953, the Small Business Administration has 
administered the disaster loan program authorized by Section 
7(b) of the Small Business Act. This program provides loans to 
help small businesses and homeowners to rebuild after natural 
disasters. In past years the loan program has spent billions of 
dollars helping small businesses recover from natural 
disasters. In fiscal year 1998, the SBA lent $728 million for 
30,154 disaster loans; in 1997 it lent $1.1 billion for 49,515 
disaster loans. The SBA's highest demand for disaster loans 
came in 1994, when it loaned over $4.1 billion due to the 
Northridge Earthquake in California.
    The cost of disaster assistance has risen over the past 
several years due to increases in construction and other costs. 
By implementing a program to help small businesses use 
techniques that would lessen damage in the event of natural 
disasters the possibility exists to save millions of dollars in 
potential losses. The Federal Emergency Management Agency 
(FEMA) currently manages ``Project Impact'' which works in 
conjunction with communities and businesses on mitigation 
policies and techniques. Passage of H.R. 818 will complement 
and further these efforts at mitigation by offering small 
businesses low interest loans for disaster mitigation.

                            Committee Action

    During the 105th Congress, the Committee on Small Business 
passed H.R. 3412, a bill to make technical corrections to the 
Small Business Investment Company Program. This bill passed the 
House of Representatives on March 24, 1998. When it passed the 
Senate, on September 30, 1998, it included language 
substantially similar to H.R. 818. Unfortunately, H.R. 3412 was 
not taken up again by the House during the 105th Congress due 
to time constraints.
    In the 106th Congress, the Committee on Small Business held 
a hearing on February 24, 1999 to discuss the fiscal year 2000 
budget submission for the Small Business Administration. As 
part of this hearing, Aida Alvarez, the Administrator of the 
Small Business Administration, testified concerning the SBA's 
request for $934 million dollars in disaster loans for 
anticipated damage in the coming year. She also discussed FEMA 
and SBA's current efforts at mitigation and stated that FEMA 
estimates a $2 saving for every $1 spent on mitigation. The 
Administrator expressed strong support for H.R. 818.
    H.R. 818 was introduced on February 24, 1999. On February 
25, 1999, the Committee on Small Business met for the purpose 
of considering and reporting H.R. 818 and H.R. 774. H.R. 818 
was introduced, considered as read, and opened for amendment. 
No amendments were offered. Chairman Talent then moved to pass 
H.R. 818 and report it to the House. At 11 a.m., by a unanimous 
voice vote, a quorum being present, the Committee passed the 
bill, H.R. 818, and ordered it reported.

                      Section-by-Section Analysis

Section 1. Short title

    This act may be cited as the ``Disaster Mitigation 
Coordination Act of 1999''.

Section 2. Pilot program

    (a) This paragraph authorizes the Administrator to 
establish a pilot program to make loans to small businesses and 
homeowners for the purpose of mitigating the effects of natural 
disasters. These loans will be made in support of a formal 
mitigation program established by the Federal Emergency 
Management Agency. These mitigation techniques will be varied 
and include a variety of activities including building 
improvements, relocation, etc.
    (b) This paragraph authorizes SBA to lend up to $15,000,000 
each year through 2004 in support of the disaster mitigation 
pilot program. These funds will come from existing Section 7(b) 
disaster loan appropriations and will be subject to 
appropriations available for that program.
    (c) This paragraph requires the Administrator of the SBA to 
report to Congress on January 31, 2003. The report will 
document the number of loans made, the areas served by the 
pilot, and the estimated savings to the government as a result 
of the program.

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, February 26, 1999.
Hon. James M. Talent,
Chairman, Committee on Small Business,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 818, the Disaster 
Mitigation Coordination Act of 1999.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark Hadley.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

               CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

H.R. 818--Disaster Mitigation Coordination Act of 1999

    Summary: H.R. 818 would establish a pilot program to make 
direct and guaranteed loans to small businesses for preventive 
measures that would reduce the long-run costs of disasters. The 
bill would authorize a program level of $15 million (for the 
total of direct and guaranteed loans) for each of the fiscal 
years 2000 through 2004.
    Based on information from the Small Business Administration 
(SBA) and the historical experience of SBA's loan programs. CBO 
estimates that the SBA would require an annual appropriation of 
$3 million to cover the subsidy costs of the proposed program. 
Outlays would be about $2 million in 2000 and $3 million in 
each year during the 2001-2004 period, assuming appropriation 
of the necessary amounts.
    H.R. 818 would not affect direct spending or receipts; 
therefore, pay-as-you-go procedures would not apply. H.R. 818 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act (UMRA) and would 
not affect the budgets of state, local, or tribal governments.
    Estimated cost to the Federal Government: For the purposes 
of this estimate, CBO assumes that H.R. 818 will be enacted by 
the beginning of fiscal year 2000 and that the necessary 
amounts will be appropriated for each year. The estimated 
budgetary impact of H.R. 818 is shown in the following table. 
The costs of this legislation fall within budget function 450 
(community and regional development).

----------------------------------------------------------------------------------------------------------------
                                                                  By fiscal years in millions of dollars--
                                                          ------------------------------------------------------
                                                              2000       2001       2002       2003       2004
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level............................          3          3          3          3          3
Estimated Outlays........................................          3          3          3          3          3
----------------------------------------------------------------------------------------------------------------

    Basis of Estimate: Under current law, the SBA lends to 
homeowners and businesses that have been victims of disasters. 
In 1998, SBA approved about $623 million in post-disaster loans 
to homeowners and businesses. H.R. 818 would authorize a new 
pilot program to make direct and guaranteed loans to small 
businesses for preventive measures that would reduce the long-
run costs of disasters. To be eligible for such a loan, a small 
business must be unable to obtain a loan elsewhere for the 
purpose of such pre-disaster mitigation.
    The Federal Credit Reform Act of 1990 requires 
appropriation of the subsidy costs and administrative costs for 
credit programs. The subsidy cost is the estimated long-term 
cost to the government of a direct loan or loan guarantee, 
calculated on a net present value basis and excluding 
administrative costs. Based on information from SBA, CBO 
estimates that the subsidy costs of making loans under the 
proposed mitigation program would be similar to the subsidy 
costs of making loans under the existing disaster program, or 
about 22 percent of the original value of the loan. Borrowers 
under the mitigation program would not be as likely to default 
as similar businesses under the disaster program because they 
would not yet be victims of disasters. However, the disaster 
program also lends to homeowners, which are generally less 
risky borrowers than small businesses, and the mitigation loans 
would only serve small businesses that are unable to obtain 
loans elsewhere. Finally, loans for disaster mitigation would 
not increase the gross receipts of a borrower, but would 
increase payments for debt.
    At a 22 percent subsidy rate, the SBA would need 
appropriations of about $3 million a year to make the 
authorized loans and loan guarantees. CBO estimates that 
subsidy outlays would be $2 million in 2000 and $3 million each 
year during the 2001-2004 period. SBA would also incur some new 
administrative costs, both for managing the program and 
preparing a report that would be required by the bill. CBO 
estimates that such costs would be well below $500,000 in any 
year.
    Pay-as-you-go considerations: None.
    Intergovernmental and private-sector impact: H.R. 818 
contains no intergovernmental or private sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Mark Hadley.
    Estimate approved by: Robert A. Sunshine, Deputy Assistant 
Director for Budget Analysis.

                      Committee Estimate of Costs

    Pursuant to the Congressional Act of 1974, the Committee 
estimates that the amendments to the Small Business Act 
contained in H.R. 818 will not increase appropriations over the 
next five fiscal years. Furthermore, pursuant to clause 
3(d)(2)(A) of rule XIII of the Rules of the House of 
Representatives, the Committee estimates that implementation of 
H.R. 818 will not significantly increase administrative costs. 
This concurs with the estimate of the Congressional Budget 
Office.

                           Oversight Findings

    In accordance with clause 4(c)(2) of rule X of the Rules of 
the House of Representatives, the Committee states that no 
oversight findings or recommendations have been made by the 
Committee on Government Reform with respect to the subject 
matter contained in H.R. 818.
    In accordance with clause (2)(b)(1) of rule X of the Rules 
of the House of Representatives, the oversight findings and 
recommendations of the Committee on Small Business with respect 
to the subject matter contained in H.R. 818 are incorporated 
into the descriptive portions of this report.

                 Statement of Constitutional Authority

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in Article I, Section 8, Clause 18, of the 
Constitution of the United States.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

SMALL BUSINESS ACT

           *       *       *       *       *       *       *


  Sec. 7. (a) * * *

           *       *       *       *       *       *       *

  (b) Except as to agricultural enterprises as defined in 
section 18(b)(1) of this Act, the, Administration also is 
empowered to the extent and in such amounts as provided in 
advance in appropriation Acts--
          (1)(A)  * * *
          (B) to refinance any mortgage or other lien against a 
        totally destroyed or substantially damaged home or 
        business concern: Provided, That no loan or guarantee 
        shall be extended unless the Administration finds that 
        (i) the applicant is not able to obtain credit 
        elsewhere; (ii) such property is to be repaired, 
        rehabilitated, or replaced; (iii) the amount refinanced 
        shall not exceed the amount of physical loss sustained; 
        and (iv) such amount shall be reduced to the extent 
        such mortgage or lien is satisfied by insurance or 
        otherwise; and
          (C) during fiscal years 2000 through 2004, to 
        establish a disaster mitigation program to make such 
        loans (either directly or in cooperation with banks or 
        other lending institutions through agreements to 
        participate on an immediate or deferred (guaranteed) 
        basis) as the Administrator may determine to be 
        necessary or appropriate to enable small business 
        concerns to implement mitigation measures pursuant to a 
        formal disaster mitigation program established by the 
        Federal Emergency Management Agency, except that no 
        loan or guarantee may be extended to a small business 
        concern under this subparagraph unless the 
        Administration finds the concern is otherwise unable to 
        obtain credit for the purposes described in this 
        subparagraph.

           *       *       *       *       *       *       *

  Sec. 20. (a) * * *

           *       *       *       *       *       *       *

  (f) Disaster Mitigation Pilot Program.--The following program 
levels are authorized for loans under section 7(b)(1)(C):
          (1) $15,000,000 for fiscal year 2000.
          (2) $15,000,000 for fiscal year 2001.
          (3) $15,000,000 for fiscal year 2002.
          (4) $15,000,000 for fiscal year 2003.
          (5) $15,000,000 for fiscal year 2004.

           *       *       *       *       *       *       *


                                
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