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44–819 PDF 2008

ROLE OF THE FEDERAL GOVERNMENT 

IN SMALL BUSINESS DISASTER RECOVERY 

(110–166) 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND 

EMERGENCY MANAGEMENT 

OF THE

COMMITTEE ON 

TRANSPORTATION AND 

INFRASTRUCTURE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 12, 2008 

Printed for the use of the 

Committee on Transportation and Infrastructure 

( 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

JAMES L. OBERSTAR, Minnesota, Chairman 

NICK J. RAHALL, II, West Virginia, Vice 

Chair 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

BOB FILNER, California 

EDDIE BERNICE JOHNSON, Texas 

GENE TAYLOR, Mississippi 

ELIJAH E. CUMMINGS, Maryland 

ELLEN O. TAUSCHER, California 

LEONARD L. BOSWELL, Iowa 

TIM HOLDEN, Pennsylvania 

BRIAN BAIRD, Washington 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

BRIAN HIGGINS, New York 

RUSS CARNAHAN, Missouri 

JOHN T. SALAZAR, Colorado 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

NICK LAMPSON, Texas 

ZACHARY T. SPACE, Ohio 

MAZIE K. HIRONO, Hawaii 

BRUCE L. BRALEY, Iowa 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

MICHAEL A. ACURI, New York 

HARRY E. MITCHELL, Arizona 

CHRISTOPHER P. CARNEY, Pennsylvania 

JOHN J. HALL, New York 

STEVE KAGEN, Wisconsin 

STEVE COHEN, Tennessee 

JERRY MCNERNEY, California 

LAURA A. RICHARDSON, California 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

JOHN L. MICA, Florida 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee 

WAYNE T. GILCHREST, Maryland 

VERNON J. EHLERS, Michigan 

STEVEN C. LATOURETTE, Ohio 

FRANK A. LOBIONDO, New Jersey 

JERRY MORAN, Kansas 

GARY G. MILLER, California 

ROBIN HAYES, North Carolina 

HENRY E. BROWN, JR., South Carolina 

TIMOTHY V. JOHNSON, Illinois 

TODD RUSSELL PLATTS, Pennsylvania 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

JOHN BOOZMAN, Arkansas 

SHELLEY MOORE CAPITO, West Virginia 

JIM GERLACH, Pennsylvania 

MARIO DIAZ-BALART, Florida 

CHARLES W. DENT, Pennsylvania 

TED POE, Texas 

DAVID G. REICHERT, Washington 

CONNIE MACK, Florida 

JOHN R. ‘RANDY’ KUHL, JR., New York 

LYNN A WESTMORELAND, Georgia 

CHARLES W. BOUSTANY, JR., Louisiana 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

THELMA D. DRAKE, Virginia 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

ROBERT E. LATTA, Ohio 

(II) 

SUBCOMMITTEE ON ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND EMERGENCY

MANAGEMENT

ELEANOR HOLMES NORTON, District of Columbia, Chairwoman 

MICHAEL H. MICHAUD, Maine 

JASON ALTMIRE, Pennsylvania 

MICHAEL A. ARCURI, New York 

CHRISTOPHER P. CARNEY, Pennsylvania, 

Vice Chair 

TIMOTHY J. WALZ, Minnesota 

STEVE COHEN, Tennessee 

JAMES L. OBERSTAR, Minnesota 

(Ex Officio) 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

CHARLES W. DENT, Pennsylvania 

JOHN R. ‘RANDY’ KUHL, JR., New York 

JOHN L. MICA, Florida 

(Ex Officio) 

(III) 

(V) 

CONTENTS Page 

Summary of Subject Matter .................................................................................... vi 

TESTIMONY 

Bourne, Marko, Director of Policy and Program Analysis, Federal Emergency 

Management Agency ............................................................................................ 10 

Braley, Hon. Bruce, a Representative in Congress from the State of Iowa ........ 4 

King, Hon. Steve, a Representative in Congress from the State of Iowa ........... 2 

Mitchell, Herbert, Assistant Administrator of the Office of Disaster Assistance, U.S. Small Business Administration ........................................................ 10 

PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS 

Braley, Hon. Bruce L., of Iowa ............................................................................... 26 

Graves, Hon. Sam, of Missouri ............................................................................... 32 

King, Hon. Steve, of Iowa ....................................................................................... 38 

Norton, Hon. Eleanor Holmes, of the District of Columbia ................................. 44 

Oberstar, Hon. James L., of Minnesota ................................................................. 46 

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Bourne, Marko ......................................................................................................... 49 

Mitchell, Herbert ..................................................................................................... 67 

SUBMISSIONS FOR THE RECORD 

Bourne, Marko, Director of Policy and Program Analysis, Federal Emergency 

Management Agency, responses to questions from the Subcommittee ........... 66 

Mitchell, Herbert, Assistant Administrator of the Office of Disaster Assistance, U.S. Small Business Administration, responses to questions from 

the Subcommittee ................................................................................................. 71 

vi 


44819.001
vii 


44819.002
viii 


44819.003
ix 


44819.004
x 


44819.005
(1) 

ROLE OF THE FEDERAL GOVERNMENT IN 

SMALL BUSINESS DISASTER RECOVERY 

Friday, September 12, 2008 

HOUSE OF REPRESENTATIVES, COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE, SUBCOMMITTEE ON ECONOMIC DEVELOPMENT, PUBLIC

BUILDINGS AND EMERGENCY MANAGEMENT, Washington, DC. 

The Subcommittee met, pursuant to call, at 10:14 a.m., in Room 

2167, Rayburn House Office Building, Hon. Eleanor Holmes Norton 

[Chair of the Subcommittee] presiding. 

Ms. NORTON. Good morning and welcome to today’s hearing on 

the role of the Federal Government in small businesses disaster recovery. 

The American people must be assured, in the midst of yet another hurricane season—and if I may say so, yet another hurricane—and in the aftermath of devastating floods affecting the Midwest, of the tools available from the Federal Government effectively 

to recharge the economic engine of America’s small businesses. 

While small business recovery is not covered by the Stafford Act, 

it is important to assure that FEMA works with the Small Business Association to assure implementation of the small business 

policies of the Federal Government in order to hasten an expedient 

recovery. 

The Small Business Association Act of 1958 created the SBA as 

an independent agency to ensure that—and here is the quote from 

the Act—′′The Federal Government should, insofar as possible, aid, 

counsel, assist, and protect the interests of small business concerns 

in order to preserve free competitive enterprise, ensure that a fair 

portion of the total purchases and contracts for supplies and services for the government is placed with small businesses, and maintain and strengthen the overall economy of the Nation.′′ 

The SBA was given authority to coordinate and cooperate with 

government procurement officers to better utilize the unique capabilities of American small businesses and to act as a advocate for 

the concerns of the small businesses. 

The roughly 25 million small businesses in the United States account for 50 percent of America’s private gross national product 

and create between 60 and 80 percent of new jobs in America. PostKatrina small businesses turned to the SBA, particularly for belowmarket interest loans. In Iowa, for example, SBA recently announced the approval of $153 million in disaster loans to Iowa 

homeowners, renters and businesses damaged by floods in the 

spring of 2008. 

2 

This Subcommittee will work closely with FEMA and SBA to ensure that small businesses recover as rapidly as possible and play 

an active role in the recovery of their areas. We are particularly 

concerned that small businesses have ready access to contracting 

opportunities as allowed under the Stafford Act. Contracting with 

the Federal Government has the dual purpose of benefiting both 

small businesses and the communities in which they are located, 

particularly during a disaster. The goals of disaster recovery and 

the desire of small business to do business with the government 

are mutually beneficial. 

I look forward to hearing from our colleagues and to hearing 

from our other witnesses. 

I insist this hearing not last more than an hour because of urgent commitments that I have as well. 

I want to hear first from our colleagues, Steve King of the Fifth 

District of Iowa and Bruce Braley of the First District of Iowa. 

Which of you would like to go first? 

Mr. KING. Thank you, Madam Chair. 

Ms. NORTON. I ask all the witnesses to summarize their remarks 

and to keep them to 5 minutes. 

TESTIMONY OF THE HON. STEVE KING, A REPRESENTATIVE IN 

CONGRESS FROM THE STATE OF IOWA 

Mr. KING. Thank you, Madam Chair. I appreciate you holding 

this hearing today. 

I have my written testimony before me. I think I will speak off 

of my memory, recollection and my motivation here. 

We’re here to discuss H.R. 6641, which amends the Stafford Act 

to qualify small businesses of 25 or less for grants within those otherwise definitions of the existing Stafford Act. My motivation on 

this goes back to deep and profound experience, having been a 

business owner throughout 28 years. 

In 1993, many will remember that Iowa was underwater multiple times in the floods of ’93. You can look at the State of Iowa 

from satellite, and it looked like ocean from outer space. We had 

so much water, more water than ever before. It was at least a 500- 

year flood event. 

In my business, I had four different construction projects going 

on simultaneously. They had been underwater intermittently all 

spring; and on July 9th, the day that the Des Moines water works 

was taken out and the water supply for the capital city of Iowa was 

out of business, on that day I had all of my projects underwater 

simultaneously. There was nothing I could do to help myself at 

that period of time. 

We loaded up some men and equipment, and we went clear over 

to eastern Iowa to help some businesses out over there. A business 

in Keokuk that was a for-profit company couldn’t receive any help. 

They had their inventory under 7 feet of water. They needed some 

help to get that inventory out. We put our equipment and our manpower over there without expectations of pay to try to help that 

business survive, even though the National Guard couldn’t help 

them, FEMA couldn’t help them, and small business couldn’t help 

them because they were for profit. That was my first exposure to 

this. 

3 

When I went back home to try to pump the water down on my 

projects and I looked around and realized what was going on, we 

have structured from the Federal Government relief in grant form 

for every sector of our economy except for private enterprise and 

sectors that are not necessarily sectors of our economy except for 

private enterprise, and the ones that are the most vulnerable are 

small businesses. There is grant money available for residences, for 

example. FEMA can go down the street and offer help for people 

that have their basements flooded, and they do. It is common. 

We do recognize they help a small business. It provides low-interest loans to businesses. But, aside from that, there is grant money 

available even to private-sector transportation such as railroads, 

not-for-profits. Even some churches qualify for grants, every level 

of government, political subdivision from city to county to State. 

Of course, the Federal Government can receive bailout money to 

rebuild back to pre-flood conditions. All of the links in the economic 

chain that are part of this—the educational institutions, the institutions of government, some of the religious institutions, transportation links that are privately owned and publicly owned—all of 

them and residences qualify for some form of Federal grant except 

the evil capitalist small business people that are in business to 

make a profit and make a living, the ones that create the jobs and 

pay the taxes. 

So I, as a business owner, want to emphasize there is nothing 

in H.R. 6641 that, had it been enacted back before 1993, would 

have helped me or my business, because those are construction locations. But the businesses—for example, like let’s take a flower 

shop that might be on the edge of a residential area. Maybe it is 

a partnership. And a house owned on the right and on the left of 

the flower shop might be the partners. Their homes can receive 

grants to bail them out if they are flooded, but the business cannot. 

This bill, H.R. 6641, provides that opportunity for grants to small 

businesses so that they can get that stipend up to the statutory 

limit that is under Stafford today, which would be, effectively, 

$28,800. If we can’t do that here in this Congress when we look at 

the most essential link in the economic chain as the business link 

and the most important from the job perspective is a small business link, what is the point in setting up the rest of society, the 

rest of the community that has been devastated by a flood if the 

jobs that are provided can’t be protected in the sense of small business? 

So I am submitting that whatever there may be for technical difficulties on the part of FEMA and small business, I haven’t heard 

them suggest a way that there is a problem that can’t be worked 

out. We are the United States Congress, and we can make changes, 

and we must look at the people in this country and provide equity. 

Cedar Rapids gripped my heart. It is outside my district, and my 

district has pretty much recovered from this. We have some places. 

But the eastern part of Iowa, particularly Cedar Rapids, Mr. 

Braley’s district, and Loebsack district and also Mr. Boswell’s district in central Iowa are examples of this. But nationwide we have 

got to help the small businesses. That is what this bill does. 

4 

I appreciate the opportunity to testify, and I’d be happy to answer any questions, and I would yield back the unbalance of my 

time. 

Ms. NORTON. Thank you very much, Representative King. 

Representative Braley. 

TESTIMONY OF THE HON. BRUCE BRALEY, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA 

Mr. BRALEY. Thank you, Madam Chairwoman, and thank you, 

Ranking Member Graves, for holding this important hearing today 

and inviting me to testify. 

I am very pleased the Subcommittee is holding this hearing to 

examine the role the Federal Government in helping small businesses recover from natural disasters, because in the spring and 

summer of 2008 Iowa was hit hard by tornados, storms and flooding of epic proportions, causing the greatest level of widespread 

damage in our State’s history, with even 500-year floodplains affected. 

Iowa has suffered damages that place this disaster within the top 

dozen or so all-time national disasters. Eighty-five of Iowa’s 99 

counties were declared Presidential disaster areas for both individual and public assistance, and the rebuilding and recovery from 

these storms and floodings will take place for years. 

These storms have affected nearly everyone in Iowa, causing unprecedented damage to our homes, our lives, our property and our 

livelihoods. Iowa’s small businesses have been particularly impacted by the storm and face an uncertain future because of lack 

of capital, revenue gaps and a weakened ability to generate revenue. In fact, unemployment in Iowa has jumped from 3.9 percent 

in May to 4.3 percent in July, largely because of these natural disasters. 

According to the data from the Iowa Department of Economic Development, the Iowa Finance Authority and the Iowa Homeland Security and Emergency Management Division, small and intermediate businesses alone have sustained $5.36 billion in total assessed damages. Approximately 48 non-manufacturing small businesses and 800 intermediate businesses were impacted. Large businesses experienced an additional $100 million in losses, and these 

businesses will sustain hundreds of millions of additional dollars in 

lost revenue. 

Although the data is not final and continues to be updated, the 

Rebuilding Iowa Advisory Commission just released its preliminary 

report that the total unmet need for damage to small and intermediate businesses just in Iowa is estimated at $2.78 billion. These 

businesses provide jobs and are critical to the local economy but 

will struggle to survive without some additional assistance. 

Small businesses were devastated and will never reopen in many 

of the towns that I represent. Local governments, in addition, face 

extraordinary challenges to sustain a tax base that is in jeopardy 

as a result of loss in housing and the local economy; and the closing 

of these small businesses, as we will talk about, have an especially 

detrimental impact on the small towns and livelihoods that I represent. 

5 

The Iowa impact indicates that the SBA has provided approxi- mately 3,500 loans for $222 million just from this event, which is 

greatly appreciated, but the issue that we are talking about today 

is that small businesses have few other places to look than the 

SBA for flood relief support, and they provide only loans. When 

these businesses are going through such a difficult transition, there 

is a reluctance on the part of the small business owners to take on 

additional debt. 

Others have taken loans from SBA, but the amounts are not 

nearly enough to cover their damages. For example, Mike Tully, 

who is a constituent of mine, is president of an aerial services business; and among the things that company does is aerial mapping 

and imagery. They have submitted nearly $2 million of losses in 

physical damages but have only received $308,000 of insurance proceeds and a $213,000 SBA loan, which doesn’t even cover a third 

of their total loss. 

Or consider Don and Vicky Bowers, who own Tapken’s convenience store in Anamosa, which had flooding that covered its entire 

athletic fields and its wastewater treatment facility. The Tapken’s 

lost more than $120,000 to the floodwaters. But the only reason 

they are now open for business is because of the generosity of people in their community who donated time and materials to fix up 

their store. And they face additional challenges as they continue to 

rebuild their business. 

Although SBA is the only source of financial assistance directly 

to small businesses affected by these disasters, there are other 

agencies that could indirectly aid small businesses. FEMA can reimburse State and local governments for debris removal and even 

on commercial property. HUD provides community development 

block grant funding that can be used to create jobs for expansion 

and retention of businesses. 

That is why the Iowa congressional delegation came together in 

a bipartisan manner and worked with the President to quickly pass 

a $2.65 billion flood relief package which included funding for SBA, 

FEMA, HUD and other agencies. That will go a long way to helping Iowa families, farmers and businesses to rebuild, but the cost 

of recovery is increasing every day. Unfortunately, much of that 

money is tied up in red tape. 

It is important that small businesses have the assistance available to recover apart from loans, which is why I was happy to cointroduce, along with my colleague, Mr. King, H.R. 6641, the Small 

Business Owner Disaster Relief Act of 2008. This important bill 

would amend the Stafford Act to allow these emergency assistance 

grants for small businesses of 25 or fewer employees. 

It is also why I introduced, along with my other Iowa colleague, 

Dave Loebsack, H.R. 6587 the Midwestern Disaster Tax Relief Act 

to help small business owners affected with the storm and flooding 

get back on their feet. Among other things, it reduces the tax burden for small and mid-sized businesses by substantially increasing 

allowed deductions for the depreciation and expensing of their 

property. 

You can be assured that, along with other Members of the delegation, I will continue to fight to work toward legislation that helps 

Iowa’s small businesses as well as completing a second relief packVerDate Aug 31 2005 14:06 Apr 30, 2009 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 P:\DOCS\44819 JASON
6 

age. We need to ensure that the administration is releasing all currently appropriated funds as soon as possible and work to make 

sure that small business owners get the much-needed relief that 

they do. 

Thank you again for allowing me to testify, and I look forward 

to your questions. 

Ms. NORTON. Thank you, Representative Braley. 

I do want to say that Mr. Graves was unable to remain in Washington this Friday, but he wanted to assure the witnesses he is 

concerned about this issue, and he has asked that his statement be 

placed in the record. 

I only have one question. We sat through multiple hearings on 

Katrina, the total wiping out of a major American city and of an 

entire section of Mississippi; and in all of the time I don’t remember anyone asking us, even given the devastation there, even ever 

suggesting that the Federal Government should give grants to a 

private enterprise, small or large. 

I read in the paper this morning that GM wants loans, and they 

are coming for loans. I don’t know if they will get them, but they 

want some government loans because they want to retrofit their 

cars to keep the car business from going out of existence in this 

country because people didn’t do it when they should have done it. 

There is—the bipartisan support for small businesses in this 

Congress is pretty close to absolute. But I really have to ask you— 

and Mr. King is the author of this bill. He is from the side of the 

aisle who has not exactly been an advocate for giving money to private businesses, small or large. How—particularly after Katrina, 

particularly after devastation in Florida that is recurrent, and particularly given the deficit we have, how are we to convince the Congress that it should offer grants to private enterprises who can get 

insurance, private enterprises to whom the Federal Government offers below-interest loans as it does not to others if they are small 

businesses, how are we to convince for the first time since the Stafford Act was passed, how are we to convince a Congress faced with 

an extraordinary deficit that this is the time to start giving what 

amounts to money to private enterprises? 

Mr. KING. Well, thank you, Madam Chair. And, as you can imagine, I have examined the justice and equity of this thoroughly over 

the last 15 years since I had many of my projects underwater. I 

want to emphasize there is nothing in this bill that would have 

helped my in the circumstances that I was in. But I looked across 

the entire spectrum of the grants that we had. I wasn’t aware at 

the time of what programs were available, but, as I looked at this, 

I could tell you personal anecdotes that go pretty deep inside me. 

But it caused me to look at how can we justify going into grants 

with residences—— 

Ms. NORTON. You really are questioning? You do not see the difference—— 

Mr. KING. No. 

Ms. NORTON. —between a residence and a business enterprise? 

Mr. KING. Well, if I could make my point, I think this, that we 

have justified providing relief for residences. We have justified providing relief for not-for-profits, even some churches who qualify. 

7 

Ms. NORTON. Not-for-profits—and that is an important point you 

make—do qualify for aid under the Stafford Act. 

Mr. KING. And we have justified grants for every political subdivision—city, county, State and, of course Federal; and when I 

look at the entire economic chain the link that is the most essential 

is the private sector that funds everything else. And if we can look 

at this and say to business owners that you are going to pay the 

taxes, including the unemployment of this, and you are going to 

fund all of this, but when things visit you, then we don’t have any 

relief for you. 

As I saw that from the inside, from underwater, from standing 

in the mud and from running in the pumps, and I saw people that 

went broke and sacked up their bats, so to speak, and gave up on 

a lifetime, I came to the conclusion that from a justice and equity 

standpoint we could not say to the business owners, you are out of 

luck because you are for profit and we don’t like you, even though 

you are the ones who pay the tax. 

Now this is minimal, I will emphasize. That it’s capped under- neath the limits that exist, the $28,800. And it is just for small 

businesses, and it would not be enough to save many of them, but 

it is a component like it would be of a series of scholarships that 

you might have to compile the resources necessary to go to college. 

So I look at this from the standpoint of I think it is unjust for 

us to compel businesses to fund every other entity except business 

when we have a disaster, and these disasters are calamitous. 

Ms. NORTON. Mr. Braley? 

Mr. BRALEY. Madam Chairwoman. 

Ms. NORTON. Would you put your microphone on? 

Mr. BRALEY. You are absolutely correct that under the Stafford 

Act that provision does not exist, but when you look at what we 

have recently done to bail out Bear Stearns at a time of national 

crisis, if you look at what we’ve done to bail out Fannie Mae And 

Freddie Mac at a time of national crisis—— 

Ms. NORTON. They are not grants, Mr. Braley. There are some 

big loans and guarantees of loans being proposed, but nobody is 

giving these people money. Now there is a whole big controversy 

as to whether or not we should stand behind them as we have, and 

you want to go much further and say give some money, albeit to 

smaller businesses for whom we have much greater affinity. But in 

a market economy, those could be fighting words. 

Mr. BRALEY. You also made the point these are businesses that 

could get insurance. That is not true in a flooding disaster. 

In Iowa, for example, I have a picture up here of a town, 

Elkader, a county seat town in Clayton County. The flood forecast, 

flood stage is 12 feet. The forecasted flood was at 24 feet, higher 

than it had ever been on the Turkey River before. The flood actually crested at 31 feet, and many businesses outside the flood plain 

who would not have had a need to purchase flood insurance were 

affected, like the grocery store and the bank in Elkader and the 

grocery store and the bank in Greene, Iowa, which also had record 

flooding. 

The problem is these businesses are the lifeblood of a small community. When they are destroyed, it impacts everyone in the community; and it makes people decide whether they want to stay in 

8 

those communities. And as it impacts the financial ability of those 

communities to survive, it impacts the eventual flow of revenues to 

the Federal Government through the forms of businesses that are 

putting money into the hands of taxpayers that pay money. It is 

an unmet need. 

I can tell you from all the time I have spent in the past 2 years 

dealing with people affected by blizzards, by ice storms, flooding, 

the most powerful tornado in the country hit my district this year, 

the number one concern on the minds of small business owners is 

they do not have the resources to survive. When they go out of 

business, it devastates small communities in the same way that 

Katrina devastated New Orleans. 

Even though Cedar Rapids, Iowa, is the largest city in Iowa impacted by this, I drove this week through 400 square blocks of 

boarded-up homes and businesses. If you are living in Elkader, 

Iowa, facing the devastation of that magnitude, you go through the 

same things in your life that the people in New Orleans have gone 

through. And the problem is you have even fewer resources to rebuild because you don’t have large corporations in your community 

that have a longer standing ability to reinvest in the community. 

That is why I would contend, especially in rural parts of America, 

small business owners are ill-equipped without this type of assistance to survive and thrive. 

Ms. NORTON. Both of you made very important points about what 

small businesses do not only to small communities, I must say, but 

do for job creation in our country. I indicated that in my opening 

statement, and I hope you don’t take my own comments to be anything other than my normal cross-examination of witnesses, because there will be great sympathy for what you desire to do. 

I do want to say for the record, Mr. Braley, that Iowa’s claims— 

for this year’s Midwest floods, we asked for the amount in insurance claims to businesses. Because, in fact, the national flood insurance program does not leave people just out there on their own; 

and the amount is very hefty. It is $20,302,272.26 for business 

claims. This is an area that we need to look at more closely, and 

I think that your testimony indicates that that is the case. 

The Chairman may want to—— 

Mr. OBERSTAR. No, you go right ahead. 

Ms. NORTON. I am through with my questions, sir. And I certainly was going ask Mr. Braley and Mr. King if they wished to remain and come sit on the dais. 

Mr. OBERSTAR. I was going to ask unanimous consent that Mr. 

King may be allowed to sit with the Committee, but under Committee rules noncommittee Members are not allowed to ask questions. But we would invite the gentleman from Iowa to remain with 

the Committee, sit at the dais. Sit on our side, if you wish. 

Ms. NORTON. We would be glad to have you, Mr. King. 

Mr. OBERSTAR. And throughout the hearing, because of the intense interest and concern of the gentleman on the subject matter. 

But under Committee rules, as much as I would like to invite the 

gentleman, it is a long-standing practice that noncommittee Members are not allowed to ask questions. He may submit questions to 

the Chair in writing, but I welcome the gentleman’s participation. 

Ms. NORTON. Thank you very much, Mr. Chairman. 

9 

Mr. KING. Madam Chair. 

Ms. NORTON. Yes, Mr. King. 

Mr. KING. Thank you, Madam Chair. If I could enter into the 

record an additional comment—— 

Ms. NORTON. Please do. 

Mr. KING. I want to make also the point that Mr. Braley has met 

with a lot of the business people who had their lives devastated by 

this event that goes beyond a 500-year event. That 500-year event 

already took place in 1993. They were above that level. This is an 

extraordinary anomaly. I looked these people in the eye that for a 

lifetime had built their business and have seen it devastated. And 

they are 63, 65 years old; and they are looking at a 30-year loan 

to keep their business going. 

If we can inject a little bit of capital into that, their salvation 

was, I think I can pass this loan along to the next generation. I 

am going to try to convince my daughter or son to come back and 

pick up this business, but they are going to be saddled with a 30- 

year debt. This is the kind of thing we are dealing with, especially 

in eastern Iowa. 

And the reason that the question probably hasn’t been raised before, a very astute observation that out of Katrina we didn’t hear 

these requests, I think the business people just don’t think outside 

the box they are delivered. It weighs them down. And it is a very 

depressing thing to march through a slow flood. Your adrenaline 

goes up. It diminishes as the water goes down, and you are left 

with the sandbags and nobody to empty them. We have to help 

them empty their sandbags and get their lives back together. 

Ms. NORTON. Well, this county better get ready for it. Houston 

is about to experience something to the likes of which they have 

never experienced before either, and I wonder what small business 

is going to look like when this is all over. 

There is a very important point that you raise. I certainly invite 

you to stay, because the administration does not support this bill, 

and they will offer testimony to that effect. I would ask you, Mr. 

Braley, of course, as a Member of the Committee, if you would both 

like to stay, we would be glad to have you both; and I will go on 

to the next witness. 

Mr. OBERSTAR. Madam Chair, I will ask unanimous consent Mr. 

Braley be allowed to sit. He is not a Member of the Subcommittee 

but he be allowed to sit with the Committee and to ask questions. 

Ms. NORTON. So ordered. 

Mr. OBERSTAR. If I may Madam Chair, I offer a few observations 

while FEMA is getting ready to come to the table. I apologize for 

being delayed this morning not by Committee business but by family business. I was unexpectedly delayed. 

While we all have September 11th and Katrina in our minds, we, 

today, and thanks to your generosity making time on a Friday for 

hearing, we will hear from the SBA and FEMA who are Federal 

partners in disaster recovery. And under the authority of the Small 

Business Act, the SBA provides low interest loans now at 4 percent, with a cap of $2 million for businesses that are stricken by 

disaster. Those are the business physical disaster loans for businesses to repair, to replace, to restore to condition of good repair, 

10 

property damaged by disaster, including the real estate, their inventories, supplies, machinery and equipment. 

Businesses with also receive economic injury capital loans which 

are working capital loans to help small businesses with their financial obligations that cannot be met because of the disaster, and we 

have thousands of those loans over the many years. 

I worked as a staff person, Committee staff and as a Member. 

This year, in Iowa, over 498 loans were approved by SBA totaling 

$65 million. We went to hear FEMA’s response to the issues raised 

by the Members from Iowa, in particular Mr. King, on the issue of 

grant assistance to businesses; and Mr. Braley also shares in that 

concern. 

In the anticipation of and right at the outset of the Iowa floods 

I convened a meeting of the Iowa delegation with FEMA to assess 

their readiness and preparedness to deal with the tragedies, and 

this issue was the principal question that came out of those meetings and subsequent disaster effects. FEMA clearly has responded. They provided over $500 million in 

assistance in Iowa and grants to families, nearly 24,000, 23,300, totaling $127 million in grants. This hearing is not in criticism of 

FEMA or of SBA but to probe further to see how much more we 

can expand properly the assistance under FEMA to those stricken. 

Thank you, Madam Chair, for the opportunity to make those remarks. 

Ms. NORTON. Thank you, Mr. Chairman. 

We now go to our next witnesses; and I will ask Mr. Bourne of 

FEMA and Herbert Mitchell—Marko Bourne, the Director of Policy 

and Program Analysis at FEMA, and Herbert Mitchell, who is the 

Assistant Administrator of the Office of Disaster Assistance at 

SBA, to proceed. 

TESTIMONY OF HERBERT MITCHELL, ASSISTANT ADMINISTRATOR OF THE OFFICE OF DISASTER ASSISTANCE, U.S. 

SMALL BUSINESS ADMINISTRATION; AND MARKO BOURNE, 

DIRECTOR OF POLICY AND PROGRAM ANALYSIS, FEDERAL 

EMERGENCY MANAGEMENT AGENCY 

Mr. BOURNE. Good morning, Mr. Chairman, Madam Chairwoman. I appreciate the opportunity to be here before the Subcommittee. 

I am Marko Bourne. I am the Director of Policy and Program 

Analysis at FEMA; and joining me today is James Walke, who the 

Division Director of FEMA’s public assistance program. We thank 

you all for the opportunity to appear here today. 

My written statement certainly goes into a more detailed account 

of FEMA’s disaster assistance programs, the history of some of the 

disaster assistance programs, their evolution, how they have been 

invoked over the years and what those programs do and who they 

are designed for and, more specifically, additional testimony on 

how FEMA is incorporating the needs of small business, and minority, disadvantaged businesses into its overall disaster relief acquisition strategies, how we are meeting our socioeconomic contracting goals and how we are engaging the private sector in areas 

of preparedness, prevention, protection, response, recovery and 

mitigation. 

11 

At this time, I would like to take just a moment or two to provide 

some historical context on Federal disaster assistance, which is 

well-known to this Committee. But, for the record, the Robert T. 

Stafford Disaster Relief and Emergency Assistance Act is the Federal law that is designed to bring an orderly and systemic means 

of providing Federal disaster assistance to State and local governments to help them carry out their responsibilities to aid citizens 

in times of disaster events. And the law also establishes the process of requesting and obtaining such a declaration. It defines the 

scope and assistance available under the Stafford Act and certainly 

contains the conditions for obtaining that assistance. It also allows 

for assistance authorized by this statute to individuals, families, 

State and local governments and certain nonprofit organizations. 

And, as you are well aware, the Stafford Act does not at this 

time allow FEMA to provide assistance to business or business-related needs in the form of grants. Historically, Federal assistance 

has only been eligible for individuals, households, public entities 

and nonprofits of affected jurisdictions within and in support of a 

presidentially declared disaster or emergency. 

Obviously there is other assistance that is available to individuals and businesses other than a presidentially declared disaster or 

emergency assistance under Stafford. Certainly the main program 

in any of the disaster relief acts, either for individuals and exclusively for business, is managed by my colleague from the Small 

Business Administration with the low interest loan programs. I will 

defer to him to discuss his programs in more detail. 

Other Federal agencies have distinct disaster relief authorities 

outside of Stafford and address certain other business community 

needs such as the Department of Agriculture, Department of Commerce and others. 

Following the San Fernando earthquake in California in 1971, 

Hurricane Agnes in ’72, Congress spent a quite a bit of time looking at disaster program administration and expanded the authority 

to assist certain private nonprofits, namely educational, utility, 

emergency medical and custodial facilities that support the restoration of services to the public in general; and Congress has revisited 

this matter several times over the last three decades and enacted 

disaster relief amendments to the Stafford Act in 1974, the Robert 

T. Stafford Act in 1988 and most recently the Disaster Mitigation 

Act of 2000, all of which refined even further the roles and relationships and eligibility requirements for those that are eligible for 

that assistance. 

DMA2K, as the Disaster Mitigation Act of 2000 is short-handed 

known by, amended the Stafford Act to include certain noncritical 

private nonprofit facilities to apply first to the Small Business Association for a loan for permanent repair or restoration work, rather than FEMA for a grant. Most of the grants, most the disaster 

relief act monies that are provided to individuals are in the form 

of low interest loans. They have to be denied by SBA for a loan before they are eligible for direct individual assistance, with the exception of critical immediate needs and temporary housing if their 

insurance does not cover those items. 

12 

At this time, I would like to highlight what some of FEMA’s accomplishments have been in working with the private sector, especially small businesses, and what our goals are in the future. 

As you know, the first priority of FEMA during an initial phase 

of any major disaster is and always has been to provide relief to 

the victims in the most efficient and effective way possible in order 

to save lives and property. We try to use competitive strategies in 

providing small businesses a competitive advantage, and we are 

proud to report that FEMA competed 81 percent of it’s procurement 

dollars in fiscal year 2007 and year-to-date total more than 83 percent. FEMA went from last place within the Department of Homeland Security from competing its dollars to first place in 2007. 

To enhance our efforts in attaining these small business goals, 

we recently dedicated a full-time small business specialist. His primarily responsibility is to increase contracting opportunities for 

small, minority and disadvantaged businesses, especially those in 

the areas that are most affected by disasters. This assignment will 

further help institutionalize our small and minority contracting efforts to help maintain a more level playing field. 

To date, FEMA’s achieved very good results in meeting and 

achieving most of our contracting goals. From 2006 to present, we have awarded more than $2.6 billion 

to small businesses in contracts. In fiscal year, 2006 FEMA awarded approximately $1.8 billion to small businesses. This amount represents approximately 27 percent of the total procurement dollars 

awarded. 

In 2007 FEMA, awarded $485 million to small businesses. This 

represented 33 percent of the agency’s total procurement dollars 

that fiscal year, thus exceeding our small business goal of 30 percent. 

So far in 2008, FEMA is on target; and we have awarded more than $293 million to small business, which represents now 31 percent of the total procurement dollars awarded so far this fiscal 

year. 

As the Committee considers the role of the Federal Government 

in small business disaster recovery, we would like to urge the Committee to also consider how the Federal Government is engaging 

the private sector, small or large, across the disaster relief and 

homeland security landscape. 

We have made significant progress in obtaining our thresholds 

for supporting small businesses under contract. We have also 

begun to proactively lean forward to integrate the private sector 

into emergency preparedness programs, our response, recovery and 

mitigation planning and beginning to find ways to engage them 

also in training, exercise and the real time implementation of disaster support. 

FEMA’s new structure and vision is now in place, and the agency 

is aggressively pursuing new inroads with the private sector community. We have stood up a new FEMA office in the private sector 

where small businesses and large businesses can be engaged in 

supporting and learning about preparedness efforts as well as our 

response. 

We have created small business community outreach, we have 

also leveraged the private sector in development and refinement of 

13 

the National Response Framework and the national preparedness 

system and trying to create a stronger, more vibrant public-private 

partnership through programs such as Citizen Corps, Ready Business and the Loan Executive Program, which we enacted last year 

now to help foster the open lines of communication with our Homeland Security partners and the nonprofit communities as well. And 

we are leveraging the resources and expertise of those private sector and nonprofit partners even as we move beyond the role they 

played in the past. 

Now I am happy to know it has been a two-way street. The 

Ready Business program has allowed businesses to take more 

proactive mitigation and preparedness approaches. Our Citizen 

Corps program is bringing civic and business leaders together in 

order to do all hazard emergency preparedness planning and mitigation. 

We are also actively encouraging our small businesses and individuals to actively participate in the National Flood Insurance Program, which is the primary means for providing insurance to flood 

events, as well as working with the larger insurance community on 

issues that relate to other types of disasters. 

In conclusion, as Congress considers H.R. 6641, it is important 

to note that for over 50 years the posture of the Federal Government has been to provide Federal disaster assistance grants mostly 

to individuals and to businesses low interest loans as the primary 

means of recovery. Grants have not been part of the equation for 

the private sector community. The individual grants that have been 

provided to nonprofit organizations have traditionally been targeted to those nonprofits that perform a governmental mission or 

are in support of a governmental mission. While there has been 

some expansion of that—— 

Ms. NORTON. Mr. Bourne, will you further summarize your remarks? We have let you go well beyond the time. 

Mr. BOURNE. Thank you. Sorry, Madam. 

In conclusion, while we cannot support the language as currently 

drafted, we certainly believe the issue is worthy of discussion and 

debate and look forward to working with the Committee on that 

bill in the future. 

Ms. NORTON. Thank you very much, Mr. Bourne. 

Herbert Mitchell, the Assistant Administrator of the Office of 

Disaster Assistance at SBA, we ask you to summarize your testimony in as close to 5 minutes as you can. 

Mr. MITCHELL. Good morning, Madam Chairwoman. Thank you. 

And to the Committee Members as well, thank you for inviting me 

to discuss this important topic today. Not only will I try to summarize my written testimony, I will try to summarize my oral testimony that was prepared as well with respect for the time. 

SBA’s Office of Disaster Assistance has the mission of providing 

timely, affordable and accessible financial assistance not only to 

small businesses but large businesses, private nonprofits and to 

homeowners and renters as a result of the disaster. 

Probably something that is not well-known, but about 80 percent 

of all of the disaster loans are actually made to homeowners and 

renters, which constitute about 50 percent of the dollars. The busiVerDate Aug 31 2005 14:06 Apr 30, 2009 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 P:\DOCS\44819 JASON
14 

nesses, while they are smaller in number, actually receive the majority of dollars, well over 50 percent of the dollars. 

As has already been mentioned, SBA disaster loans really take 

on two forms, one in the form of a physical loan that can be used 

to repair or replace the property that has been damaged or destroyed by the disaster, and for small businesses only a working 

capital loan identifies an economic injury disaster loan to help sustain that business to meet its operating expenses such as rent and 

payroll or invoices that become due during that disaster period 

until the business can return to normal operations. 

For the homeowner, they can receive a low interest loan up to $200,000 to repair or replace their home, $40,000 for the personal 

property. The renter as well is eligible for $40,000 for personal 

property loss. 

For business owners, SBA just recently raised the limit from 1.5 

million to 2 million for repair of the property or it can take the 

form of a working capital loan. It is up to 2 million. It is not a combination thereof, but the total of the two is limited to $2 million. 

One of the other features that happens in a disaster—obviously, 

there is the preparedness phase. There is the emergency response. 

SBA’s focus is on long-term recovery. Once people are taken care 

of, people are safe, and they now look to rebuild their property, 

that is where SBA comes into play and certainly in cooperation 

with FEMA. We are collocated in the recovery centers. We share 

information on applicants, or individuals who register assistance 

are recovered to SBA, for those that are dependent upon an SBA 

decision, even prior to getting recovery assistance or assistance 

from FEMA. 

One of the things that we would point out in terms of the SBA 

role in economic recovery and assisting small businesses, and I 

have already mentioned the fact that employees who own homes 

that are damaged in that community who are employees of those 

small businesses are eligible for home loans and personal property 

loans as well. 

For the small business owner and, just recently, SBA included 

private nonprofits that are eligible for working capital loans, it is 

a critical point to make, particularly in a lot of disasters even 

where the small business owner has not received physical damage 

or incurred physical damage, they are still eligible for working capital assistance. Oftentimes, for the small business owner their business is disrupted because the customer base has been disrupted or 

a supplier has been cut off and not been able to provide supplies 

to that business. So if the business is economically impacted in any 

way, even though there is no physical damage to their property, 

they are still eligible for a working capital loan up to $2 million to 

sustain their operation until the business returns to normal. 

SBA, also, through what I call the regular programs, our 7(a) 

guaranteed lending program, certainly are available to small businesses in those communities as well. SBA provides management 

and technical assistance through the Small Business Development 

Centers, the SCORE program, the Women’s Business Centers and 

counseling businesses that have been impacted by a disaster in 

term of helping them prepare the application. In some cases, making decisions about taking alternative directions in terms of do I 

15 

really want to build back the way I built or do I really want to stay 

in this particular line of business. So counseling can play an important role in a disaster situation in helping businesses to make that 

decision. 

I will just close by making some observations. Like a lot of Federal agencies and private sector firms post Katrina, certainly SBA 

was challenged, not unlike a lot of agencies. So we learned a lot 

and what we put in place now we are seeing the benefits of and, 

obviously, the Midwest floods and, God forbid, Hurricane Ike that 

is targeted toward Houston right now or the Texas area. 

We have basically cut our processing time. Our goal is to process 

a loan within 16 days. We are currently processing within 9 days. 

We have upgraded our computer underwriting system. From preKatrina 2000 concurrent users, we have the ability now to process 

with 12,000 concurrent users. We have a cadre or reserve force of 

about 2,000 employees that are available to us for immediate callup to be deployed within 48 hours. We have additional search 

space in place in terms of the overall infrastructure and all of the 

equipment outfitted to basically almost 200,000 square feet of storage pace. 

Probably one of the most important things we have done postKatrina, we assign a case manager to every—— 

Ms. NORTON. Mr. Mitchell, would you briefly summarize the rest 

of your remarks? 

Mr. MITCHELL. I sure will. We assign a case manager to every 

borrower that receives a loan so that they walk through the process, they understand the process from beginning to end. And I assure the Committee that SBA is better prepared than ever to respond to disaster events. 

And, with that, if there are any questions, I will be glad to answer any questions. Thank you. 

Ms. NORTON. Thank you very much. 

Now, I am going to ask one question that gets to another of my 

concerns, and then I am going to have the chutzpah to have the 

real Chair to take the Chair as I go to an urgent appointment that 

I must attend. 

When I questioned some colleagues, my concern was about—if 

you forgive the pun—the floodgates, opening the floodgates, countless small businesses critical to the economy. My own opening remarks said that is who makes the jobs in America. I don’t think 

you have to convince anybody in this Congress how important they 

are. When they go down, we know what happens to jobs in the 

community. 

I must say in listening to both of you I heard of assistance that 

I didn’t know of before. It does seem to me that the Federal Government has heard small businesses, has not begrudged small businesses; and the question before us is in a market economy experiencing great problems, small businesses will be experiencing them 

even more, even before floods or hurricanes. But in the context, 

particularly where we sit, the unprecedented notion of grants 

comes up I think precisely because these colleagues have seen 

small businesses wiped completely out and don’t see any way for 

them to quickly recover. And Mr. King even analogizes a small 

16 

business to a residence. There he and I depart. But I do think that 

his point about small businesses cannot be gainsayed. 

Now the notion of loans I have had some experience with in my 

own district where there was a hurricane here and there were 

floods. They were below-market-rate loans. We were very pleased. 

But the fact is—and I think it was Mr. King that made the point 

about 30-year loans. So if I were going to grapple with changes, I 

perhaps would not have taken the route that Mr. King took, because it is such an uphill battle to ask the Federal Government to 

give some money—let’s be clear what it is—some money to businesses. 

I probably would have—the most compelling argument I heard 

him make was about a 30-year loan. You say to a small business, 

look, here is a below-interest loan. Aren’t you happy? And SBA is 

trying to make it easier, not harder by giving the person 30 years 

to pay it off. 

It looks like it has been 30-year loans like this without change. 

Has SBA in particular given any thought to how often these belowmarket-rate loans businesses think they shouldn’t take, can’t take? 

Is there any way that some of the concerns raised by our colleagues 

could be addressed by more lenient loan terms so that a small business didn’t see a loan, even one offered by the SBA, as just another 

burden on him rather than relief for him? 

I guess that would be to Mr. Mitchell. 

Mr. MITCHELL. Well, there is always a question; and there, 

again, I make the distinction between emergency response and 

long-term recovery. I then point out that SBA loans are only designed to cover uninsured loss; and while obviously there are situations where small business owners do have insurance, there clearly 

are situations where small business owners don’t have insurance. 

And I would suggest that even those who have insurance may be 

underinsured, so SBA does play a role. 

We think the 30-year term, the low interest rate of 4 percent 

gives us the flexibility to work with the borrower. What we try to 

do is we don’t set an initial term like in the private sector that is 

geared toward the useful life of the property. For example, generally working capital loans are limited to 3 to 5 years. We determine first what can you afford to pay on a monthly basis and then 

we back into the term of 30 years to—— 

Ms. NORTON. So this is negotiable? The terms are negotiable up 

to 30-year loans? 

Mr. MITCHELL. We can make them up to 30 years. And we set 

the target payment based on one-third of the cash flow of the business as an affordable amount that they can pay and then we back 

into the term. So a different borrower with the same amount of 

loan amount may get a different term based on what they can afford to pay, based on their monthly cash flow. 

Ms. NORTON. Are there—if—I think it was Representative King 

talked about burdening—I can’t imagine how big a loan this would 

be—but burdening one’s children. Are there any prepayment penalties of any kind if one wanted to pay off the loan quickly once 

one’s business jumped back? 

Mr. MITCHELL. There are no prepayment penalties involved. A 

lot of loans obviously do pay off. In some cases, businesses may ulVerDate Aug 31 2005 14:06 Apr 30, 2009 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 P:\DOCS\44819 JASON
17 

timately settle with their insurance companies and the insurance 

companies pay off. Obviously, there are situations where people 

run into financial difficulties; and we have some tools available to 

work with people in terms of adjusting payments, extending the 

term of the loan, deferring payments as they work through those 

financial difficulties. 

Ms. NORTON. It is very important to hear that. Obviously, the 30- 

year loan is not meant to be a burden. It is meant to be just the 

opposite. I am only asking about the terms to make sure that we 

don’t have some rigid notion and that the terms can be tailored to 

the business, just as a bank would tailor often the terms within 

certain parameters to the particular needs of the client. 

Mr. MITCHELL. Absolutely. 

Ms. NORTON. Mr. Chairman, could I ask you to be the Chairman 

once again? 

Mr. OBERSTAR. [Presiding.] I want to thank you very much for 

being here, both SBA and FEMA. 

I just note for the record that, time and again, we refer to the 

underlying FEMA authority as the Stafford Act. It probably should 

be called the Tom Ridge Disaster Assistance Act. Because in 1987 

he came to me as the Chair of the Investigations and Oversight 

Subcommittee in the aftermath of the Reagan administration budget submission to Congress proposing to zero out the funding for the 

then Civil Preparedness Agency. 

It wasn’t called FEMA at the time, and proposed only in the 

most extreme conditions 25 percent Federal funds, zero Federal assistance for most disasters. And the Pennsylvania delegation was 

understandably in an uproar because they had just been hit with 

a big disaster. Bill Clinger of Pennsylvania, sitting right here, my 

clefthand partner in a wide range of hearings that we held, was offended. And we then called the emergency preparedness authorities 

from all over the country into this Committee room and had 3 days 

of hearings and literally rewrote the civil defense program and restored the authority much as it is today. Somehow, along the way, 

it got off track. It was named for a very nice fellow, first a House 

Member and then a Senator, Stafford, Bob Stafford. But it really 

should have been named for Tom Ridge because he led the way. 

Now I want to come back to the core issue here, and that is, in 

your testimony, Mr. Bourne, the administration supports current 

Stafford Act authorities. It does not support authority for grants to 

businesses. But in the same breath, you do not offer a rationale. 

Why? 

Mr. BOURNE. Mr. Chairman, we are not certainly unsympathetic 

to the plight of businesses, especially small businesses that are affected by disaster. But the rationale at this point is that the posture that the agency has taken over the years for many years has 

been that—and the Federal Government has—is that Federal support is supplemental and that insurance is a primary means for recovery, whether it be a home or a business that has a fire or 

whether it is a flood in a major disaster and that the assistance 

provided by the Federal Government, as codified in Stafford those 

many years ago and prior incarnations, is supplemental in nature 

to support those unintended or those uninsured, uncovered needs 

and that primarily the focus of that support has been for governVerDate Aug 31 2005 14:06 Apr 30, 2009 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 P:\DOCS\44819 JASON
18 

mental entities or for individual homeowners. Part of the challenge 

with having grants to small businesses under the current conditions falls along the lines of not really having yet a good understanding of what the implications of that would be to either the 

Stafford Act programs, public assistance program or the individual 

assistance program. What that would do to the coverage—not just 

the availability but whether businesses would then maintain insurance, you are asking at that point the Federal Government to actually invest in a business with no guarantees that that business 

may survive even after the grant is provided to them. Certainly one 

of the concerns is with regards to the fact that the vast majority 

of the assistance provided is low-interest loans and that the assistance that is provided under the individual assistance to homeowners is minor dollars for repair. Mostly it is for temporary housing and other needs that are not covered by their insurance policies. Now, one of the things that I—— 

Mr. OBERSTAR. Let me just stop you there for a moment. 

Mr. BOURNE. Yes, sir. 

Mr. OBERSTAR. I understand your concern about the magnitude 

of effect. But we do know that as FEMA has a list of all businesses 

in itself; SBA has a listing of all businesses, you have an experienced track record. You know what the universe of businesses has 

been in receiving loan assistance. And I understand your concern 

that if an entity can anticipate getting a grant, that it might not— 

that it might forgo insurance. But in the farm program, a farmer 

cannot expect to and does not receive assistance in a crop failure 

if he has not signed up for crop insurance. So supposing we condition any kind of grant assistance upon a minimum—whatever the 

level might be—a minimum level of flood and storm damage insurance. You sign up for that. You pay your premiums, and then 

whatever amount over that coverage is not protected, then a grant 

could be available up to the $28,000 cap that is proposed in the legislation of Mr. Braley and Mr. King, would be limited and condition 

that upon the State cost share as proposed in their legislation. 

Mr. BOURNE. That is certainly worthy of consideration and it actually in many ways ties to what is already required under the 

public assistance and individual assistance programs for the obtaining and maintaining of flood insurance for a flood event should 

they receive Stafford Act assistance, whether it be a governmental 

entity or whether it be an individual who has been flooded. There 

are requirements that if you do receive assistance under those programs, then you are required to obtain and maintain flood insurance. 

So certainly anything that could increase the obtaining and 

maintenance of such insurance would go a long way towards reducing overall the impact on the Federal Government’s contribution to 

it and continue to promote the culture of preparedness that puts 

insurance as the primary means of restoration. 

Mr. OBERSTAR. That is a very encouraging gesture, and I welcome your offer to consider it and will welcome your thoughts back 

to the Committee by, say, mid next week because we only have a 

couple of weeks left in the session. And if we are going to act on 

something, we need this—we need some substantive input from the 

administration. How many businesses in Iowa in the current flood 

19 

received—what is the total number of businesses that received 

FEMA assistance? 

Mr. BOURNE. Actually, that assistance would have been through 

SBA programs. I can see if I have got those figures with me. I may 

not have them handy. But if I don’t, I will get them to you. 

Mr. OBERSTAR. Mr. Mitchell, do you have the number? 

Mr. MITCHELL. I don’t have the number as of this morning, but 

I think, as of last night, 523 businesses had received loans for a 

little over $220 million. But we will get you the exact number. 

Mr. OBERSTAR. In Iowa, 523. 

And how many, Mr. Bourne and Mr. Mitchell, what was the total 

number of homeowners that received assistance? 

Mr. MITCHELL. Well, the total loans in Iowa is about 3,300. So 

the difference would be about 2,700, 2,700 homeowners. 

Mr. OBERSTAR. 2,700 homeowners and 530 some, maximum of 

530. 

Mr. MITCHELL. Right. 

Mr. OBERSTAR. So we are not talking about a vast number. Now 

you multiply that over the country, however, with 50 disasters listed in your testimony here, and that is just so far this year, through 

9 months or 8.5 months of this year—or no, this is fiscal year. So 

from fiscal year last year. So it is almost a calendar—almost 12 

months. There are a lot of disasters we are dealing with. 

Mr. Mitchell. 

Mr. MITCHELL. Just to comment on the numbers. Those are the 

approvals. But it does not represent all of the businesses and 

homeowners that may have been impacted. Obviously, everybody 

who is impacted doesn’t apply for an SBA loan. Some have insurance, or some just decide not to seek debt but just to put it in perspective. 

Mr. OBERSTAR. Certainly, and then we have the problem in the 

Gulf in the aftermath of Katrina where insurance companies were 

making a distinction between storm damage and surge, a rather 

fine line distinction without a difference. The surge that came from 

Lake Borgne across the Mississippi River Gulf Outlet. And because 

the MRGO, as it is known, had been dredged and built some years 

ago and allowed salt water to move up that channel and kill off the 

grasses and reeds and other plant material that served as the 

shock troops, the buffer against storm surge; never in the history 

of St. Bernard parish had it been overtopped, but it was in Katrina. 

And the insurance companies came in to the homeowners and 

said, sorry, you are not covered because this is storm surge. This 

wasn’t hurricane wind damage and rain damage and flood damage. 

There was a storm surge. Well, you mean, it just happened all by 

itself? That the storm, that Katrina didn’t have anything to do with 

the storm surge? Those are the kinds of things that drive people 

nuts. 

Now I spent a good deal of time down there in St. Bernard parish. My wife is from New Orleans, has a great many friends there 

and family. And so we just went there. And you know what happened? Not only were the houses overtopped, they were lifted off 

their base with their concrete pad and floated in some cases three 

blocks away. One stopped only when it crashed into another house 

that didn’t move. And after 6 months of no action by the Corps of 

20 

Engineers, by FEMA, by private insurance companies, the homeowner whose house was stationary sued the other homeowner for 

collision damage. I asked him why. He said, what else are we supposed to do down here? No one is helping us. So, you know, there 

are these anomalies that happen. And what we have to do is try 

to be as equitable as possible. 

Now I would like you to take those 50 storms and develop a list 

of the total number of businesses that were affected and multiply 

that by the 28,000 cap and a 25 percent State cost share and come 

back to us with what the potential exposure to the Federal Government would be in terms of the grants—as a result of a grant program proposed by the Iowa delegation legislation. 

Now, Mr. Mitchell, from your standpoint, you are able to offer 

businesses 4 percent loans—not you. I mean SBA. I don’t mean to 

personalize this. But SBA is able to offer 4 percent loans. Those are 

pretty good interest-bearing loans. And compared to the market 

rate, what would those loans be if they had to go out in the open 

market to borrow money? 

Mr. MITCHELL. Probably somewhere around 5 percent now. Generally, small businesses are going to qualify for prime plus two, two 

and a half. And obviously depending on the type of business and 

the credit risk, I mean, the spread could be as high as 5 to 6 percent. So within a range of about 7.5 to 11, percent. Depending on 

that business situation, that is what the market would probably—— 

Mr. OBERSTAR. And then the next question is, can they get the 

loan? When the bank looks at the disaster and the effects, there 

are probably a great many that—— 

Mr. MITCHELL. Obviously, it is going to vary for every business 

situation, whether or not they have the cash flow, the assets and 

the collateral to go to the marketplace. The challenge with a disaster, it is unplanned debt. And in a lot of cases, it is just debt on 

top of debt where it doesn’t add value to the business. But it just— 

you know, we make it affordable, but it is still debt at the end of 

the day. 

Mr. OBERSTAR. And that is what Mr. King and Mr. Braley are 

saying, that businesses in their State go to the lending institutions, 

and then they look at it and say, well, we are just piling debt upon 

debt. We are digging ourselves in deeper. And the grant funds 

would make a difference. 

Now in restoring a community, restoring a region, the cornerstone is business. The private sector creates the jobs. And minimal, 

as both Members state up front, this isn’t going to provide a total 

rescue for them. But it is a gesture. It is a big helping hand. It will 

help them move up out of their current problems. 

I will withhold at the moment and ask Mr. Braley for any questions or comments that he might have. 

Mr. BRALEY. Well, thank you, Mr. Chairman. 

And I want to start by saying to both of our witnesses that on, 

behalf of the people of First District of Iowa, I want to tell you how 

much I appreciate the initial response from both of your agencies. 

I spent time with Administrator Paulison and Acting Administrator 

Carranza in my district, and the compassion they showed to the 

21 

people I represent and the field program on the ground from both 

of your agencies was extremely impressive. 

But I want you to look to the photograph that I placed on the 

easel because New Hartford, Iowa, is the home of someone you may 

have heard of before, one of my constituents, Senator Chuck Grassley, who is the Ranking Member of the Senate Finance Committee, 

who is working very hard on tax relief for small business owners 

and individual homeowners who have been impacted by disasters. 

Now we know that there are two sides of this finance puzzle. One 

is the revenues, and one is the appropriations. Now what I want 

to talk to you about is how we can get to the point that Mr. King 

and I are interested in. Neither one of us wants to do anything to 

create disincentives for businesses to buy their own insurance. 

That should be the primary source of relief. But we know that 

there are already in place tax incentives for people whose lives 

have been devastated, whether they are business owners or homeowners, that a lot of people in Iowa, quite frankly, aren’t spending 

a lot of time thinking about. Because of their immediate needs, 

they are not thinking about those tax appointments next spring. 

But isn’t it true, Mr. Bourne, that if we wanted to, in addition 

to putting in place as a condition of eligibility for the type of grants 

Mr. King and I are talking about, in addition to putting an insurance requirement in there, we could also say, if you take this incentive, there may be some tax credits that ordinarily would be available to you that you will not qualify for because we are going to 

assume with the benefit of these grant dollars that are coming to 

you, you are going to be in a better position than someone who is 

adding additional debt through a low-interest SBA loan. 

Mr. BOURNE. Well it would be a little unwise for me to talk about 

tax policy. That is not normally FEMA’s bailiwick. Certainly the 

concept of tax relief or some type of tax relief has been considered 

by States at times in their own recovery from disasters. And I 

know it has been placed before the Congress in various forms over 

the years. I think that is a consideration worthy of discussion. I am 

not sure exactly what the administration’s policy is on that. But I 

think it is certainly worthy of looking at because one of the things 

that we have recognized in FEMA over the years is that communities survive when their businesses stay and survive; that communities that lose their largest employers or many of their smaller 

employers have a tendency to fail as communities ultimately. And 

that is a challenge. So certainly the incentives that can be provided 

to, one, keep businesses in business, provide them opportunities to 

get their people back to work very quickly by engaging them in 

their own recovery, and then certainly providing an avenue for 

them to continue to serve that community, is always preferred. And 

I think that is something that we could take a look at. 

Mr. BRALEY. Well, in fact, you mentioned earlier in your testimony that one of the distinctions on why grants are available to 

municipalities and not-for-profits is because one of the primary concerns is restoration of services. And we are talking about basic 

human needs here. And in fact, if you look at that photograph, beyond those flooded vehicles, you will see a reddish building back in 

the background which is a hardware store in New Hartford which 

is going out of business. And if you go down the street to the left, 

22 

you will come to a Quick Star convenient store, which is the only 

place in New Hartford for people to get gas or groceries. And it is 

going out of business because of decisions that were made by those 

business owners that, even with the availability of low-interest 

loans, they could not afford to maintain their businesses. And one 

of the things we have to do is start thinking about these policies 

in terms of fundamental human needs that will not be met in the 

New Hartfords all over the State of Iowa if we don’t provide some 

incentives that really make a difference. And one thing I would ask 

you, Mr. Mitchell, is during the surveys you do after a disaster 

with small business owners who have benefited from the essential 

services your agency provides, do you ask them survey questions 

about their unmet needs? And is the demand for grant money identified as one of the top priorities that is not currently being met 

by the Federal Government? 

Mr. MITCHELL. We conduct surveys. We don’t ask a specific questions about grants. We do ask whether or not they have been able 

to recover as a result of receiving the loan. 

Mr. BRALEY. One of the points you made—and Mr. King and I 

were talking about this—is that this 30-year low-interest loan is 

also—part of the eligibility determination is based upon the capital 

position of those small businesses in terms of whether they are eligible for that 4 percent loan or might have a higher interest rate, 

correct? 

Mr. MITCHELL. Correct. 

Mr. BRALEY. So if you don’t have the great capital position and 

you are a 50-year-old small business owner who doesn’t qualify for 

anything other than a 30-year loan, you would agree that that 

would be a pretty daunting future if you were facing that choice? 

Mr. MITCHELL. Well, yes. But it is no different from a 60-yearold homeowner who gets a 30-year loan. Obviously, the debt will 

attach to the property or to, you know, the new owner. Generally, 

we don’t—I mean, obviously people at certain ages are reluctant to 

take on debt, so they make business decisions in that regard. But 

the debt would attach to the business or to the new owners. 

Mr. BRALEY. But the big distinction there is that most people are 

not rebuilding their homes for the purpose of generating revenues 

to feed their families. 

Mr. MITCHELL. Understood. 

Mr. BRALEY. One of the other points I wanted to ask you about 

is the issue between an emergency response and long-term recovery. You said that SBA’s focus is on long-term recovery. It is obvious from a lot of the small business owners that I am talking to 

in the First District of Iowa that they can’t even focus on long-term 

recovery until their short-term needs are met. And one of the shortterm decisions they have to make is whether they are even going 

to stay in business and whether the opportunities to inject immediate cash into their business without adding to their debt load is 

going to make that decision one way or the other for them. 

So I guess the question I have for you is, isn’t it true that the 

legislation Mr. King and I are proposing would certainly make a 

much greater impact on the short-term decision of business survival than adding additional debt over a long period of time to a 

small business owner? 

23 

Mr. MITCHELL. Well, clearly, any source of funds that address 

business needs would be helpful to that business. I mean, obviously, I can’t address in terms of what form that assistance should 

take, but certainly businesses obviously have immediate emergency 

needs just as individuals do as well. 

Mr. BRALEY. Under the SBA disaster loan program where we 

have talked about this range of interest rates 4 to 8 percent, who 

actually sets the floor of that interest rate? 

Mr. MITCHELL. There is a formula in statute that guides us in 

determining the interest rate itself, whether it is, you know, the 

low rate is 4 percent and the high rate is 8. What we do is we 

apply a test to every applicant. We take a look at their net assets, 

their credit history, and their cash flow to determine whether or 

not it is reasonable to assume that this borrower with this set of 

financial conditions could get a loan in the marketplace at a reasonable rate. And those that we determine they can get that high— 

the rate will get the higher rate. And those that can’t will get the 

4 percent rate. 

Mr. BRALEY. But in terms of this existing 4 percent floor of the 

interest rate level, when is that adjusted? Who makes that determination? And how frequently is that adjusted? 

Mr. MITCHELL. It is adjusted on a quarterly basis. And SBA itself 

makes that determination. 

Mr. BRALEY. The administrator or someone within the agency? 

Mr. MITCHELL. Someone within the agency. It is generally done 

within my office. 

Mr. BRALEY. Within your office? 

Mr. MITCHELL. Yes. 

Mr. BRALEY. Thank you, Mr. Chairman. 

Mr. OBERSTAR. I thank the gentleman. 

I thank you for your responses. 

I want to compliment SBA and FEMA; SBA for their long-standing program of assistance to businesses in disasters, which I have 

personally observed for over 40-some years, my service in Congress, 

on the staff as staff director of this Committee, and House Member 

and Chair. SBA has also done a great service to businesses by simplifying the forms. I remember when the forms were this thick. By 

the time a business got through with its application and got their 

funds awarded, they say, I will never do business with them again. 

Now you have made it—it has happened over several successive administrations. That problem has been cleaned up. 

And FEMA, after the problems of the mid-80s that I already described, has improved substantially and especially after the disaster of Katrina. There is a program that I want to probe a little 

bit. And that is the mitigation assistance in which FEMA has, I 

think, you know, performed very well. Its mitigation assistance to 

businesses, that goes in two categories. The pre-disaster mitigation 

program started during the year of James Lee Witt and the HMGP, 

the Post Disaster Grant Program. In the case of those two programs, the funding goes to the State and then from the State to 

local governments. Local governments then can help homeowners 

raise their homes to avoid future effects from storm or storm surge 

and also to relocate out of the flood plain. And they can also provide funding to businesses to relocate out of the flood plain. 

24 

Now, what is the difference between PDM and HMGP post-disaster mitigation—mitigation assistance and the proposition that 

the Iowa delegation is offering? 

Mr. BOURNE. Well, in general, pre-disaster mitigation really 

looks at money provided in advance of a disaster to a State through 

a competitive grant process that allows State and local governments to prioritize their risk areas. It may be—parts of their communities that have flooded out before or are at risk to tornadoes 

or other disasters and they wish to take steps in advance in order 

to mitigate those. 

Those mitigation activities can support the protection of public 

and private property, such as, you know, elevations, other flood 

protection methods that may not be directly with the property that 

is owned by a business but certainly can protect the business itself 

as well as the homes in that area. HMGP is really very similar 

only that it is money provided after a disaster based on a formula 

that is provided to the State and the local governments to again 

address mitigation measures that they have prioritized to support 

their community. Many of those mitigation measures are in the 

form of buy-outs of affected properties or elevations of those properties or elevating certain components of a building in order to protect them from future disaster. And the State and local governments look at their risk, prioritize their risk and apply the mitigation money, whether it be for PDM or HMGP, to address those 

risks. Those risks certainly are not just confined to private homeowners, but it is also for flood protection measures for communities 

as well. 

Mr. OBERSTAR. Yes, they have described it well, and I appreciate 

that. As you respond to the earlier questions and provide the information I requested, consider that as well. And for Mr. Mitchell, for 

SBA, SBA also has mitigation loan authority for homeowners. But 

does it provide such assistance to businesses as well? 

Mr. MITCHELL. Yes. Mitigation covers both homeowners and 

businesses. We have the authority to increase the loan by 20 percent—— 

Mr. OBERSTAR. By 20 percent? 

Mr. MITCHELL. Of the loss. 

Mr. OBERSTAR. 20 percent of loss. 

Mr. MITCHELL. Right. So, in the case where someone may have 

insurance that covers say the property and we can make a smaller 

amount of loan for the uninsured amount, we can cover 20 percent 

of the loss of the property for mitigation. 

Mr. OBERSTAR. Have you made such decisions in the case of 

Iowa? 

Mr. MITCHELL. I would have to check. I am not sure. But they 

are eligible. 

Mr. OBERSTAR. Would you do that, provide that information for 

the Committee so we can then—— 

Mr. MITCHELL. Yes. Yes, sir. 

Mr. OBERSTAR. Okay. I think we have really covered the essence 

of the subject matter at hand and the legislation pending. And we 

will await responses and the information provided and then we will 

have further—engage further in discussions. Mr. Bourne, will you 

be heading off to the Gulf to welcome Ike? 

25 

Mr. BOURNE. I will initially be heading back to FEMA headquarters for a series of meetings this afternoon in preparation. And 

based on the current storm track and the potential for damage, I 

am sure that many of us will be engaged in the Gulf for quite some 

time. Ike is proving to be a massive storm that is pushing far more 

water than its current wind speeds might indicate. And I think we 

are going to see a significant event in that region. And we are prepared. We have got a lot of folks in place. The State is well positioned. The other Federal agencies are supporting us completely. 

But it is going to be a very significant flooding event and wind 

event for Texas and perhaps even the western parishes of Louisiana. 

Mr. OBERSTAR. It appears on the Weather Channel report this 

morning that I was following, the diameter may be as much as 400 

miles. 

Mr. BOURNE. It is an odd storm in many respects. The Weather 

Service has told us that it is not one that is common. It has a wind 

field of hurricane winds that extend more than 140 miles, when 

normally that radius is less than 30 or 40 in most hurricanes. 

Tropical storm winds almost 300 miles. It has a barometric pressure that would allow it to support a smaller circumference storm 

but one at category three or four level, but it is really only at a 

category two. But because the wind field is so large, it is pushing 

a tremendous amount of water in the Gulf of Mexico into Texas 

and into the northern landscape there. Storm surges may be in excess of 20-plus feet in some areas, including the Houston ship channel, if it follows the course it is on right now. 

Mr. OBERSTAR. I know FEMA will lend its best efforts. SBA will 

be there as well in the aftermath to help. I just wish we had a 

FEMA for Haiti. I lived 3.5 years in Haiti; have many, many 

friends still there. Many Haitians who moved to this country, they 

have suffered extraordinarily, and with the deforestation of the 

land, the mountain rush of water that is sweeping the hillsides 

down into the valley and into Gonaives, at one time was a lovely 

community, is now just cake and mud. It is an unspeakable tragedy. 

I thank you very much for your participation. 

Mr. BOURNE. Thank you, Mr. Chairman. 

Mr. OBERSTAR. I await your comments. The hearing stands adjourned. 

[Whereupon, at 11:45 a.m., the Subcommittee was adjourned.] 

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