![](media/image1.jpeg){width="6.489583333333333in"
height="1.15625in"}**Legislative
Bulletin...........................................March 18, 2007**

> **Contents:**
>
> **H.R. 1361** --- RECOVER Act

H.R. 1361 --- RECOVER Act (*Velazquez, D-NY*)

**[Order of Business]{.underline}:** The bill is scheduled for
consideration on Wednesday, April 18, 2007, subject to a structured rule
([H.Res.
302](http://www.rules.house.gov/SpecialRules_details.aspx?NewsID=2589)).
The rule self-executes a manager's amendment and allows for two
additional amendments (summarized below).

**[Summary]{.underline}:** H.R. 1361, the Relief for Entrepreneurs:
Coordination of Objectives and Values for Effective Recovery Act of 2007
(or "RECOVER" Act) would amend the Small Business Act to make various
changes to loan and grant programs administered by the Small Business
Administration (SBA) and require the SBA to develop a "comprehensive"
disaster response plan, among other provisions. The specific provisions
of the bill are as follows:

-   Requires the SBA to develop, implement, and maintain a comprehensive
    written disaster response plan, which must include the following
    elements:

1)  "For each region of the Administration, a description of the
    disasters most likely to occur in that region.

2)  "For each disaster described in the provision above:

    a.  an assessment of the disaster;

    b.  an assessment of the demand for Administration assistance most
        likely to occur in response to the disaster;

    c.  an assessment of the needs of the Administration, with respect
        to such resources as information technology, telecommunications,
        human resources, and office space, to meet the demand referred
        to in subparagraph (B); and

    d.  guidelines pursuant to which the Administration will coordinate
        with other Federal agencies and with State and local authorities
        to best respond to the demand referred to in subparagraph (B)
        and to best use the resources referred to in that subparagraph."

-   Requires the first plan to be completed within 180 days of
    enactment; thereafter, it requires the SBA to update the plan on an
    annual basis and following any "incident of national significance
    (as declared by the President or his designee)."

-   Requires the SBA to carry out the above provisions "through an
    individual with substantial knowledge in the field of disaster
    readiness and emergency response."

-   Requires the SBA to maintain a "disaster reserve corps" for the
    purpose of performing the functions of the SBA related to disaster
    response; it requires the corps to consist of at least 1,000
    individuals who: do not ordinarily have the duties of a full-time
    officer or employee of the Administration, but are able to assume
    duties related to disaster response when the SBA requires.

-   Requires the SBA to provide annual training to the above mentioned
    individuals "in one or more functions relating to disaster response"
    and must ensure training functions differ from year to year (as much
    as practical), so as not to duplicate individual training.

-   Requires the SBA to ensure that no more than 30 percent of the
    individuals in the corps reside in any one region of the SBA.

-   Requires the SBA to develop long-term plans to secure additional
    office space to accommodate an expanded workforce in times of
    disaster.

-   Requires the SBA to ensure that the disaster assistance programs of
    the SBA are coordinated with the disaster assistance programs of the
    Federal Emergency Management Agency (FEMA) to "the maximum extent
    practicable."

-   Requires the SBA, in consultation with FEMA, to establish
    regulations to ensure that each application for disaster assistance
    is submitted as quickly as practicable to the SBA or directed to the
    appropriate agency; also requires that the initial regulations be
    completed within 9 months, and thereafter revised annually.

-   Establishes a new Associate Administrator for Disaster Assistance
    position at the SBA, appointed by the President, by and with the
    advice and consent of the Senate, from among individuals who have:
    "proven management ability" and "substantial knowledge in the field
    of disaster readiness and emergency response."

-   Establishes a new Director for Disaster Planning position at the
    SBA, appointed by the SBA from among SBA personnel, which shall a)
    develop and implement the Administration's plans for responding to
    disasters, and b) direct the Administration's disaster training
    exercises.

-   Requires the SBA to coordinate with the Associate Administrator for
    the Office of Disaster Assistance of the Administration, the FEMA
    Director, and other federal, state, and local disaster planning
    offices, as necessary.

-   Establishes a new Director for Disaster Lending position at the SBA,
    appointed by the SBA from among SBA personnel, which will direct all
    aspects of the disaster lending program under section 7(b) of the
    Small Business Act.

-   Requires the SBA to ensure that the Associate Administrator for
    Disaster Assistance, the Director of Disaster Planning, and the
    Director of Disaster Lending have adequate resources to carry out
    the duties defined in the Act.

-   Allows SBA disaster loans for private non-profit organizations when
    responding to an "incident of national significance" as declared by
    the President.

-   Allows the SBA to make or guarantee a mitigation loan to a small
    business that receives a loan under section 7(b)(1)(A) (disaster
    mitigation) for the damage or destruction, by reason of an incident
    of national significance (as declared by the President or his
    designee), of property owned by the small business; stipulates that
    the amount of this loan cannot exceed 20 percent of the total amount
    of the cost of the damage or destruction (and states that the total
    amount must be calculated without regard for any costs for which the
    small business is reimbursed under any insurance policy).

-   Allows the SBA to carry out the above mentioned disaster mitigation
    loans for private non-profit organizations that were located in an
    area affected by Hurricane's Katrina, Rita, or Wilma (the bill
    specifically defines those areas affected).

-   Requires the SBA to develop, implement, and maintain a centralized
    information system to track communications between SBA personnel and
    applicants for disaster assistance, and requires that the system
    shall ensure whenever an applicant for disaster assistance
    communicates with SBA personnel on a matter relating to the
    application, the following information is recorded: the method and
    date of communication, the identify of the personnel, and a summary
    of the subject matter of the communication.

-   Requires that every applicant for disaster assistance receives, by
    telephone, mail, or electronic mail, follow-up communications from
    the SBA at all "critical stages of the application process,"
    including: when the SBA determines that additional information or
    documentation is required to process the application, when the SBA
    determines whether to approve or deny the loan, or when the primary
    contact person managing the loan application has changed.

-   Requires the SBA to carry out a new program, known as the Immediate
    Disaster Assistance program, under which the SBA participates on a
    deferred (guaranteed) basis in 85 percent of the balance of the
    financing outstanding at the time of disbursement of the loan if the
    balance is less than or equal to \$25,000 for businesses affected by
    a disaster. This provision further stipulates that a person who
    receives a loan under section 7(b) must use the proceeds of that
    loan to repay all loans guaranteed under subsection (a), if any,
    before using the proceeds for any other purpose. SBA must also
    ensure that each loan application under this program receives a
    decision approving or disapproving of the application within 36
    hours upon SBA's receipt of the application.

-   Allows the SBA to provide disaster victims with an option of
    receiving a deferment period, up to four years, for disaster loans.

-   Requires the SBA to provide a minimum loan deferment period of 12
    months (for loan repayment under 7(b)), and requires that the
    repayment period begin from the date that the final loan
    disbursement is made.

-   Requires the SBA to disburse loan amounts (under section 7b) in
    stages as follows:

    a.  For loans up to \$150,000:

    -   the first disbursement shall consist of 40 percent of the total
        loan amount (or a lesser percentage of the total loan amount if
        the SBA and the borrower agree on such a lesser percentage)

    -   the second disbursement shall consist of 50 percent of the
        amounts that remain after the first disbursement, and shall be
        made when the borrower has produced satisfactory receipts to
        demonstrate the proper use of the first half of the first
        disbursement; and

    -   the third disbursement shall consist of the amounts that remain
        after the preceding disbursements, and shall be made when the
        borrower has produced satisfactory receipts to demonstrate the
        proper use of the first disbursement and the first half of the
        second disbursement.

        b.  For loans of \$150,000 to \$500,000:

    -   the first disbursement shall consist of 20 percent of the total
        loan amount, or a lesser percentage if the Administrator and the
        borrower agree on such a lesser percentage;

    -   the second disbursement shall consist of 30 percent of the total
        loan amount remaining after the first disbursement, and shall be
        made when the borrower has produced satisfactory receipts to
        demonstrate the proper use of the first half of the first
        disbursement;

    -   the third disbursement shall consist of 25 percent of the total
        loan amount remaining after the first and second disbursements,
        and shall be made when the borrower has produced satisfactory
        receipts to demonstrate the proper use of the first disbursement
        and the first half of the second disbursement; and

    -   the fourth disbursement shall consist of the amounts that remain
        after the preceding disbursements, and shall be made when the
        borrower has produced satisfactory receipts to demonstrate the
        proper use of the first and second disbursements and the first
        half of the third disbursement.

        b.  For loans greater than \$500,000:

    -   the first disbursement shall consist of at least \$100,000, or a
        lesser amount if the Administrator and the borrower agree on
        such a lesser amount; and

    -   the number of disbursements after the first, and the amount of
        each such disbursement, shall be in the discretion of the
        Administrator, but the amount of each such disbursement shall be
        not less than \$100,000.

-   Prohibits the SBA, when making a business loan under section 7(b) of
    \$100,000 or less, from requiring the borrower to use the borrower's
    home as collateral.

-   Allows the SBA to carry out a program which permits banks and other
    financial institutions to process, approve, close, and service
    disaster loans under section 7(b) for a fee not to exceed two
    percent of the total loan amount; stipulates that the SBA *must*
    provide this program during 1) any period of an incident of national
    significance (as declared by the President), or 2) any period during
    which the average time for the SBA to approve disaster loans in
    response to any single disaster is 30 days or more.

-   Allows the SBA to exclude certain lenders from the above program (or
    the preferred lenders program) if their default rate is "inordinate"
    (as determined by the SBA).

-   Requires the SBA to ensure that a facility is in place for disaster
    loan processing that, whenever the SBA's primary facility for loan
    processing becomes unavailable, is able to take over all disaster
    loan processing from that primary facility within two days;
    authorizes to be appropriated such sums as may be necessary to carry
    out this provision.

-   Allows the SBA to make a grant of up to \$100,000 to
    disaster-affected small businesses (defined in the bill by specific
    disaster declarations and areas), that meets certain requirements;
    authorizes to be appropriated such funds for grants as may be
    necessary.

-   Permits the SBA to waive the prohibition on duplication of benefits
    for any victim of Hurricanes Katrina, Rita, or Wilma.

-   Increases the legislative limit in the Small Business Act (15 USC
    636(b)(3)(E)), currently at \$1.5 million, to \$3 million.

-   Prohibits the SBA, in making section 7(b) loans, from requiring the
    borrower to pay any non-amortized amount for the first five years
    after repayment begins.

-   Adds "private non-profit organization" to the list of qualified
    entities that qualify for disaster assistance.

-   Expands the current provision that allows certain businesses (which
    are a major source of employment prior to a disaster) to qualify for
    disaster loans beyond the current statutory limit to allow business
    that "subsequently are a major source of employment following a
    disaster."

-   Requires the SBA to establish a process under which a small business
    may file a preliminary application for assistance before the date on
    which an essential employ is ordered for active duty.

-   Expands the current definition of incidents of "economic injury" to
    include "ice storms and blizzards" and "lack of snowfall," thus
    expanding the eligibility for disaster loans under these
    circumstances.

-   Requires the SBA, within 45 days after the end of a fiscal year, to
    submit a report to Congress on the SBA disaster assistance
    operations for that fiscal year, and stipulates certain information
    the report must include, such as total number of personnel involve,
    SBA's effectiveness in responding to disasters, and a description of
    SBA's disaster plans for the upcoming fiscal year.

-   Requires the SBA, during an incident of national significance (as
    declared by the President) to submit a report to Congress monthly on
    the disaster assistance operations of the SBA relating to the
    incident of national significance, and stipulates that the report
    must include 1) the number of applications distributed, 2) the
    number of applications received, 3) the average time for the
    Administration to approve or disapprove an application, 4) the
    amount of disaster loans approved, 5) the average time for initial
    disbursement of loan proceeds, and 6) the amount of disaster loan
    proceeds disbursed.

**[Additional Background]{.underline}:** The SBA was originally
established in 1953, and has been subsequently expanded and reauthorized
numerous times in the last four decades, most recently within the 2005
Consolidated Appropriations Act (H.R. 4818; P.L. 108-447) in the 108^th^
Congress. Also, H.R. 4745 in the 109^th^ Congress provided for emergency
supplemental appropriations for the SBA's disaster loan program,
providing \$712 million by transferring the funds from previously
appropriated FEMA Disaster Relief Funds (P.L. 109-62, the Second Katrina
Supplemental). This amount is in addition to \$441 million that was
provided to the SBA program in the Second Hurricane Supplemental. [Click
here](http://www.house.gov/hensarling/rsc/doc/LB_021506_sba.doc) for the
RSC's Legislative Bulletin on H.R. 4745.

For additional information about the creation and history of the Small
Business Administration, please visit the [SBA
website](http://www.sba.gov/aboutsba/history/index.html). For additional
information that is critical of the current role and usefulness of the
SBA loan program, please visit the [American Enterprise Institute
website](http://www.aei.org/publications/pubID.24224/pub_detail.asp).

**[RSC Bonus Fact]{.underline}:** A little known fact is that the SBA
does not directly make loans to businesses, with the exception of
disaster loans. As noted by CRS, its stated purpose is to provide
guarantees for private business loans that lenders would not otherwise
be willing to make under desirable terms of maturity and interest rate.
Also, the SBA website states that SBA's "current business loan portfolio
of roughly 219,000 loans worth more than \$45 billion makes it the
largest single financial backer of U.S. businesses in the nation."

**[Possible Conservative Concerns]{.underline}:** As described above,
the bill significantly expands SBA loan and grant programs and
eligibility requirements, as well as creates several new programs and
offices within the SBA regarding disaster relief and recovery. Some
conservatives may be concerned by the scope of these expansions and
additions which further engage the federal government in local disaster
relief and recovery. The federal government has not proven particularly
effective in times past in providing rapid, efficient relief for victims
and businesses affected by disasters relative to assistance and
opportunities provided by the private sector and local and state
governments and institutions. Further, some conservatives argue that the
current SBA loan programs are duplicative of private-sector efforts and
opportunities and are counterproductive to fostering competitiveness,
growth, and ingenuity in U.S. small businesses.

**[Amendments]{.underline}:** Below are the summaries of the three
amendments made in order under the rule. [Note]{.underline}: Summaries
are based on RSC staff's review of actual amendment text.

**Manager's Amendment (self-executing under the rule):** Strikes section
211 of the underlying bill, which waives the current prohibition on
duplication of loan benefits from SBA (CBO noted this provision would
increase mandatory spending by \$215 million and thus creates a PAYGO
violation). Inserts a new section 211, which allows the SBA to carry out
a program to make grants to victims of Hurricanes Katrina, Rita, or
Wilma who already receive disaster assistance as a result of those
disasters. The amendment authorizes to be appropriated such sums as may
be necessary to carry out the provision -- which makes the program
discretionary and subject to appropriations (and therefore removes the
PAYGO violation).

In effect, this amendment would narrow the scope of the original section
211 in the bill by eliminating the SBA's retroactive authority to alter
*existing* disaster loans and preserving the SBA's authority to provide
victims of Hurricanes Katrina, Rita, or Wilma with grants to replace
compensation that has been taken by the SBA as a duplication of
benefits. The amendment would also modify section 218 to require the SBA
to submit a report to Congress assessing the need and ability of the SBA
to provide economic injury disaster loans for businesses affected by a
***lack of snowfall***.

**1. Chabot (R-OH).** Strikes section 211 of the bill, which waives the
current prohibition on duplication of loan benefits. The sponsor states
that the net effect of this amendment would be to "require anyone
receiving both a grant and a disaster loan to use the grant to repay the
disaster loan thereby preventing the government from compensating the
same person twice for the same disaster."

**2. Chabot (R-OH).** Strikes section 210 of the bill, which allows the
SBA to make grants up to \$100,000 to small businesses affected by
disasters (under certain conditions). The amendment sponsor states this
would eliminate the authority of the SBA to offer grants to certain
small businesses that were affected by Hurricanes Katrina, Rita, or
Wilma but that were denied disaster loans.

**3. Jindal (R-LA).** Provides disaster victims of Hurricanes Katrina,
Rita, and Wilma with the option of receiving an increased four-year
deferment period for disaster loans. The amendment sponsor notes that
section 204 of underlying bill extends this option to future disaster
victims, while this amendment would make it retroactive to the 2005
hurricanes.

**[Committee Action]{.underline}:** H.R. 1361 was introduced on March 6,
2007, and referred to the Committee on Small Business. The bill was
marked-up on March 15, and reported (amended) to the House by a vote of
17-9 the same day. (House Report
[110-82](http://www.congress.gov/cgi-lis/cpquery/R?cp110:FLD010:@1(hr082):)).

**[Cost to Taxpayers]{.underline}:** According to CBO, H.R. 1361 will
authorize \$217 million in FY08 and \$371 million over the FY07-FY12
period. The base bill would have increased direct spending by \$140
million in FY07 and \$215 million over the FY07-FY12 period, ***but this
has been addressed in the self-executing manager's amendment.***

[]{.mark}

**[Does the Bill Expand the Size and Scope of the Federal
Government?]{.underline}:** Yes, as noted above, the bill expands
current programs and creates new programs, positions, and offices.

**[Does the Bill Contain Any New State-Government, Local-Government, or
Private-Sector Mandates?]{.underline}:** No.

**[Constitutional Authority]{.underline}:** The Small Business
Committee, in House Report
[110-82](http://www.congress.gov/cgi-lis/cpquery/R?cp110:FLD010:@1(hr082):),
cites constitutional authority in Article I, Section 8, Clause 18 (the
congressional power to make all laws necessary and proper for carrying
into execution the foregoing powers listed in the Constitution), but
fails to cite a foregoing power of authority.

House Rule XIII, Section 3(d)(1), requires that all committee reports
contain "a statement citing the *specific* powers granted to Congress in
the Constitution to enact the law proposed by the bill or joint
resolution." *\[emphasis added\]*

**[RSC Staff Contact]{.underline}:** Derek V. Baker;
[derek.baker@mail.house.gov](mailto:Derek.baker@mail.house.gov);
202-226-8585

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