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106TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 106–33

DISASTER MITIGATION COORDINATION ACT OF 1999

MARCH 1, 1999.—Committed to the Committee of the Whole House on the State of

the Union and ordered to be printed

Mr. TALENT, from the Committee on Small Business,

submitted the following

R E P O R T

[To accompany H.R. 818]

[Including cost estimate of the Congressional Budget Office]

The Committee on Small Business, to whom was referred the

bill (H.R. 818) to amend the Small Business Act to authorize a pilot

program for the implementation of disaster mitigation measures by

small businesses, having considered the same, report favorably

thereon without amendment and recommend that the bill do pass.

PURPOSE

The purpose of H.R. 818 is to establish a pilot program for making loans to small businesses for the purpose of implementing techniques and technologies that will mitigate the effects of natural disasters. The Small Business Administration (SBA) currently administers a disaster loan program that lends to small businesses and

homeowners affected by natural disasters. Implementation of H.R.

818 will enable the SBA to lend to small businesses in disaster

prone areas and help them avert and lessen the costs of future disaster inflicted damages.

NEED FOR LEGISLATION

Since 1953, the Small Business Administration has administered

the disaster loan program authorized by Section 7(b) of the Small

Business Act. This program provides loans to help small businesses

and homeowners to rebuild after natural disasters. In past years

the loan program has spent billions of dollars helping small businesses recover from natural disasters. In fiscal year 1998, the SBA

lent $728 million for 30,154 disaster loans; in 1997 it lent $1.1 billion for 49,515 disaster loans. The SBA’s highest demand for disas-
2

ter loans came in 1994, when it loaned over $4.1 billion due to the

Northridge Earthquake in California.

The cost of disaster assistance has risen over the past several

years due to increases in construction and other costs. By implementing a program to help small businesses use techniques that

would lessen damage in the event of natural disasters the possibility exists to save millions of dollars in potential losses. The Federal

Emergency Management Agency (FEMA) currently manages

‘‘Project Impact’’ which works in conjunction with communities and

businesses on mitigation policies and techniques. Passage of H.R.

818 will complement and further these efforts at mitigation by offering small businesses low interest loans for disaster mitigation.

COMMITTEE ACTION

During the 105th Congress, the Committee on Small Business

passed H.R. 3412, a bill to make technical corrections to the Small

Business Investment Company Program. This bill passed the

House of Representatives on March 24, 1998. When it passed the

Senate, on September 30, 1998, it included language substantially

similar to H.R. 818. Unfortunately, H.R. 3412 was not taken up

again by the House during the 105th Congress due to time constraints.

In the 106th Congress, the Committee on Small Business held a

hearing on February 24, 1999 to discuss the fiscal year 2000 budget submission for the Small Business Administration. As part of

this hearing, Aida Alvarez, the Administrator of the Small Business Administration, testified concerning the SBA’s request for

$934 million dollars in disaster loans for anticipated damage in the

coming year. She also discussed FEMA and SBA’s current efforts

at mitigation and stated that FEMA estimates a $2 saving for

every $1 spent on mitigation. The Administrator expressed strong

support for H.R. 818.

H.R. 818 was introduced on February 24, 1999. On February 25,

1999, the Committee on Small Business met for the purpose of considering and reporting H.R. 818 and H.R. 774. H.R. 818 was introduced, considered as read, and opened for amendment. No amendments were offered. Chairman Talent then moved to pass H.R. 818

and report it to the House. At 11 a.m., by a unanimous voice vote,

a quorum being present, the Committee passed the bill, H.R. 818,

and ordered it reported.

SECTION-BY-SECTION ANALYSIS

Section 1. Short title

This act may be cited as the ‘‘Disaster Mitigation Coordination

Act of 1999’’.

Section 2. Pilot program

(a) This paragraph authorizes the Administrator to establish a

pilot program to make loans to small businesses and homeowners

for the purpose of mitigating the effects of natural disasters. These

loans will be made in support of a formal mitigation program established by the Federal Emergency Management Agency. These
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mitigation techniques will be varied and include a variety of activities including building improvements, relocation, etc.

(b) This paragraph authorizes SBA to lend up to $15,000,000

each year through 2004 in support of the disaster mitigation pilot

program. These funds will come from existing Section 7(b) disaster

loan appropriations and will be subject to appropriations available

for that program.

(c) This paragraph requires the Administrator of the SBA to report to Congress on January 31, 2003. The report will document

the number of loans made, the areas served by the pilot, and the

estimated savings to the government as a result of the program.

U.S. CONGRESS,

CONGRESSIONAL BUDGET OFFICE,

Washington, DC, February 26, 1999.

Hon. JAMES M. TALENT,

Chairman, Committee on Small Business,

House of Representatives, Washington, DC.

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 818, the Disaster Mitigation Coordination Act of 1999.

If you wish further details on this estimate, we will be pleased

to provide them. The CBO staff contact is Mark Hadley.

Sincerely,

BARRY B. ANDERSON

(For Dan L. Crippen, Director).

Enclosure.

CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

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

Summary: H.R. 818 would establish a pilot program to make direct and guaranteed loans to small businesses for preventive measures that would reduce the long-run costs of disasters. The bill

would authorize a program level of $15 million (for the total of direct and guaranteed loans) for each of the fiscal years 2000 through

2004.

Based on information from the Small Business Administration

(SBA) and the historical experience of SBA’s loan programs. CBO

estimates that the SBA would require an annual appropriation of

$3 million to cover the subsidy costs of the proposed program. Outlays would be about $2 million in 2000 and $3 million in each year

during the 2001–2004 period, assuming appropriation of the necessary amounts.

H.R. 818 would not affect direct spending or receipts; therefore,

pay-as-you-go procedures would not apply. H.R. 818 contains no

intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA) and would not affect the

budgets of state, local, or tribal governments.

Estimated cost to the Federal Government: For the purposes of

this estimate, CBO assumes that H.R. 818 will be enacted by the

beginning of fiscal year 2000 and that the necessary amounts will

be appropriated for each year. The estimated budgetary impact of

H.R. 818 is shown in the following table. The costs of this legisla-
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tion fall within budget function 450 (community and regional development).

By fiscal years in millions of dollars—

2000 2001 2002 2003 2004

SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level .................................................... 3 3 3 3 3

Estimated Outlays ...................................................................... 3 3 3 3 3

Basis of Estimate: Under current law, the SBA lends to homeowners and businesses that have been victims of disasters. In 1998,

SBA approved about $623 million in post-disaster loans to homeowners and businesses. H.R. 818 would authorize a new pilot program to make direct and guaranteed loans to small businesses for

preventive measures that would reduce the long-run costs of disasters. To be eligible for such a loan, a small business must be unable

to obtain a loan elsewhere for the purpose of such pre-disaster mitigation.

The Federal Credit Reform Act of 1990 requires appropriation of

the subsidy costs and administrative costs for credit programs. The

subsidy cost is the estimated long-term cost to the government of

a direct loan or loan guarantee, calculated on a net present value

basis and excluding administrative costs. Based on information

from SBA, CBO estimates that the subsidy costs of making loans

under the proposed mitigation program would be similar to the

subsidy costs of making loans under the existing disaster program,

or about 22 percent of the original value of the loan. Borrowers

under the mitigation program would not be as likely to default as

similar businesses under the disaster program because they would

not yet be victims of disasters. However, the disaster program also

lends to homeowners, which are generally less risky borrowers

than small businesses, and the mitigation loans would only serve

small businesses that are unable to obtain loans elsewhere. Finally,

loans for disaster mitigation would not increase the gross receipts

of a borrower, but would increase payments for debt.

At a 22 percent subsidy rate, the SBA would need appropriations

of about $3 million a year to make the authorized loans and loan

guarantees. CBO estimates that subsidy outlays would be $2 million in 2000 and $3 million each year during the 2001–2004 period.

SBA would also incur some new administrative costs, both for managing the program and preparing a report that would be required

by the bill. CBO estimates that such costs would be well below

$500,000 in any year.

Pay-as-you-go considerations: None.

Intergovernmental and private-sector impact: H.R. 818 contains

no intergovernmental or private sector mandates as defined in

UMRA and would not affect the budgets of state, local, or tribal

governments.

Estimate prepared by: Mark Hadley.

Estimate approved by: Robert A. Sunshine, Deputy Assistant Director for Budget Analysis.
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COMMITTEE ESTIMATE OF COSTS

Pursuant to the Congressional Act of 1974, the Committee estimates that the amendments to the Small Business Act contained

in H.R. 818 will not increase appropriations over the next five fiscal years. Furthermore, pursuant to clause 3(d)(2)(A) of rule XIII

of the Rules of the House of Representatives, the Committee estimates that implementation of H.R. 818 will not significantly increase administrative costs. This concurs with the estimate of the

Congressional Budget Office.

OVERSIGHT FINDINGS

In accordance with clause 4(c)(2) of rule X of the Rules of the

House of Representatives, the Committee states that no oversight

findings or recommendations have been made by the Committee on

Government Reform with respect to the subject matter contained

in H.R. 818.

In accordance with clause (2)(b)(1) of rule X of the Rules of the

House of Representatives, the oversight findings and recommendations of the Committee on Small Business with respect to the subject matter contained in H.R. 818 are incorporated into the descriptive portions of this report.

STATEMENT OF CONSTITUTIONAL AUTHORITY

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House

of Representatives, the Committee finds the authority for this legislation in Article I, Section 8, Clause 18, of the Constitution of the

United States.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the

House of Representatives, changes in existing law made by the bill,

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic,

existing law in which no change is proposed is shown in roman):

SMALL BUSINESS ACT

* * * * * * *

SEC. 7. (a) * * *

* * * * * * *

(b) Except as to agricultural enterprises as defined in section

18(b)(1) of this Act, the, Administration also is empowered to the

extent and in such amounts as provided in advance in appropriation Acts—

(1)(A) * * *

(B) to refinance any mortgage or other lien against a totally

destroyed or substantially damaged home or business concern:

Provided, That no loan or guarantee shall be extended unless

the Administration finds that (i) the applicant is not able to obtain credit elsewhere; (ii) such property is to be repaired, rehabilitated, or replaced; (iii) the amount refinanced shall not exceed the amount of physical loss sustained; and (iv) such
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amount shall be reduced to the extent such mortgage or lien

is satisfied by insurance or otherwise; and

(C) during fiscal years 2000 through 2004, to establish a disaster mitigation program to make such loans (either directly or

in cooperation with banks or other lending institutions through

agreements to participate on an immediate or deferred (guaranteed) basis) as the Administrator may determine to be necessary

or appropriate to enable small business concerns to implement

mitigation measures pursuant to a formal disaster mitigation

program established by the Federal Emergency Management

Agency, except that no loan or guarantee may be extended to a

small business concern under this subparagraph unless the Administration finds the concern is otherwise unable to obtain

credit for the purposes described in this subparagraph.

* * * * * * *

SEC. 20. (a)***

* * * * * * *

(f) DISASTER MITIGATION PILOT PROGRAM.—The following program levels are authorized for loans under section 7(b)(1)(C):

(1) $15,000,000 for fiscal year 2000.

(2) $15,000,000 for fiscal year 2001.

(3) $15,000,000 for fiscal year 2002.

(4) $15,000,000 for fiscal year 2003.

(5) $15,000,000 for fiscal year 2004.

* * * * * * *

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