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26-763 PDF 2006

S. HRG. 109–408

THE IMPACT OF HURRICANE KATRINA

ON SMALL BUSINESSES

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS AND

ENTREPRENEURSHIP

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

SEPTEMBER 22, 2005

Printed for the Committee on Small Business and Entrepreneurship

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/senate

(II)

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

ONE HUNDRED NINTH CONGRESS

OLYMPIA J. SNOWE, Maine, Chair

CHRISTOPHER S. BOND, Missouri

CONRAD BURNS, Montana

GEORGE ALLEN, Virginia

NORM COLEMAN, Minnesota

JOHN THUNE, South Dakota

JOHNNY ISAKSON, Georgia

DAVID VITTER, Louisiana

MICHAEL B. ENZI, Wyoming

JOHN CORNYN, Texas

JOHN F. KERRY, Massachusetts

CARL LEVIN, Michigan

TOM HARKIN, Iowa

JOSEPH I. LIEBERMAN, Connecticut

MARY L. LANDRIEU, Louisiana

MARIA CANTWELL, Washington

EVAN BAYH, Indiana

MARK L. PRYOR, Arkansas

WESTON J. COULAM, Staff Director

NAOMI BAUM, Democratic Staff Director

(III)

CONTENTS

OPENING STATEMENTS

Page

Snowe, The Honorable Olympia J., Chair, Committee on Small Business

and Entrepreneurship, and a United States Senator from Maine ................... 1

Isakson, The Honorable Johnny, a United States Senator from Georgia ........... 4

Landrieu, The Honorable Mary L., a United States Senator from Louisiana .... 4

Vitter, The Honorable David, a United States Senator from Louisiana ............. 7

Enzi, The Honorable Michael B., a United States Senator from Wyoming ........ 8

Kerry, The Honorable John F., a United States Senator from Massachusetts .. 20

Thune, The Honorable John, a United States Senator from South Dakota,

prepared statement .............................................................................................. 38

WITNESS TESTIMONY

Barreto, Hector V., Adminisrtator, U.S. Small Business Administration,

Washington, DC. .................................................................................................. 10

Mitchell, Herbert L., Associate Administrator, Office of Disaster Assistance,

U.S. Small Business Administration, Washington, D.C. .................................. 17

Rowland, John, President, Southern Hospitality Systems, Inc., New Orleans,

Louisiana, on behalf of the National Federation of Independent Businesses . 45

Wilson, Woodrow J., Jr., President, Gulf South Animated Motion Technology,

Inc., New Orleans, Louisiana .............................................................................. 48

Harris, Richard, Harris Homes, Ocean Springs, Mississippi ............................... 51

Baker, Alta, Chief Executive Officer, Safe Haven Enterprises, Jennings, Louisiana, on behalf of Women Impacting Public Policy ........................................ 59

Wilkerson, Mary Lynn, State Director, Louisiana Small Business Development Center .......................................................................................................... 62

Sutton, Michele, Owner, Fairway Ventures, LLC, Hammond, Louisiana .......... 65

Swindall, Thomas S., Vice Presiden, SWR, Inc., Troy, Alabama ......................... 69

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

American Small Manufacturers Coalition

Prepared statement for the record .................................................................. 97

Baker, Alta

Testimony .......................................................................................................... 59

Prepared statement .......................................................................................... 60

Barreto, Hector V.

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 14

Responses to questions from:

Senator Levin ............................................................................................ 91

Senator Kerry ............................................................................................ 92

Contract Services Association of America (CSA), prepared statement ............... 100

Enzi, The Honorable Mike

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 9

Harris, Richard

Testimony .......................................................................................................... 51

Prepared statement .......................................................................................... 53

Landrieu, The Honorable Mary L.

Testimony .......................................................................................................... 4

Prepared statement .......................................................................................... 5

Responses by Hector Barreto to questions ..................................................... 6

Page

IV

Letter from C. Edward ‘‘TEE’’ Rowe to Weston Coulam ...................................... 80

Responses to written questions ....................................................................... 80

Lopez, John K.

Prepared statement for the record .................................................................. 99

Mitchell, Herbert L.

Testimony .......................................................................................................... 17

Information supplied ........................................................................................ 19

Rowland, John

Testimony .......................................................................................................... 45

Prepared statement .......................................................................................... 46

Strock, Carl A.

Prepared statement for the record .................................................................. 99

Sutton, Michele

Testimony .......................................................................................................... 65

Prepared statement .......................................................................................... 68

Swindall, Thomas S.

Testimony .......................................................................................................... 69

Prepared statement .......................................................................................... 70

Wilkerson, Mary Lynn

Testimony .......................................................................................................... 62

Prepared statement .......................................................................................... 63

Wilson, Woodrow J., Jr.

Testimony .......................................................................................................... 48

Prepared statement .......................................................................................... 50

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THE IMPACT OF HURRICANE KATRINA

ON SMALL BUSINESSES

THURSDAY, SEPTEMBER 22, 2005

UNITED STATES SENATE, COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP, Washington, D.C.

The Committee met, pursuant to notice, at 10:19 a.m., in Room

428–A, Russell Senate Office Building, the Honorable Olympia J.

Snowe (Chair of the Committee) presiding.

Present: Senators Snowe, Thune, Isakson, Vitter, Enzi, Kerry,

and Landrieu.

OPENING STATEMENT OF THE HONORABLE OLYMPIA J.

SNOWE, CHAIR, SENATE COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, AND A UNITED STATES SENATOR

FROM MAINE

Chair SNOWE. The hearing will come to order. I apologize for the

delay, but we had two votes this morning.

Thank you all for being here today. I have convened this hearing

today to explore the devastating impact of Hurricane Katrina on

small business and specifically on how and what time table the

Federal Government and the SBA in particular respond to provide

critical assistance.

I appreciate Administrator Barreto for being here today and for

leading the Small Business Administration in its disaster relief efforts. I understand the Administrator spent a few days in the Gulf

region and I look forward to your firsthand insights and testimony.

I also want to welcome the small business representatives from

the second panel to testify on the extraordinary and almost inconceivable challenges they face in the wake of Hurricane Katrina and

as they seek to rebuild both their lives and their livelihoods and

I thank you for taking the time to be here at this most difficult

crossroads in your own lives.

Two of our colleagues on this Committee, Senator Vitter and

Senator Landrieu, know personally the extent of the magnitude of

the devastation as a result of the hurricane in their own State of

Louisiana and the entire Gulf region, and our hearts and prayers

go out to them and their constituents. I just want them to know

that we are here for them and we will do whatever it takes to help

with this in the days and months ahead.

On Monday, I, along with the Commodore in the Coast Guard

toured the region, as well, from both the air and the ground and

saw firsthand the horrors that have been left behind. House after

house, business after business ravaged and ruined by the cruelties

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of wind and water. Without question, the damage from Hurricane

Katrina will be prevalent long after the flood waters recede and the

levies are reconstructed. Equally evident is this unshakable responsibility we have to bring the full resources of the Federal Government to bear in repairing the damage as quickly as humanly possible.

The Small Business Administration will be at the forefront of

this massive relief effort. We can and must do no less than to

strengthen its resources to help the people of the Gulf arise from

this tragedy.

Moreover, in this aftermath of the worst natural disaster ever to

visit itself on this country, and, of course, we don’t know what the

extent of damage will be from Hurricane Rita, there should be no

doubt of the enormous economic impact this catastrophe has had

and will have on our entire nation.

Indeed, the challenges facing us are impressive. Katrina’s effects

could dampen economic growth by as much as a full percentage

point. In looking to build a brighter future, we cannot ignore that

it is America’s 25 million small businesses that create three-quarters of all the new jobs in this country and grow at twice the rate

of all firms. Clearly, once again, it will be our small businesses and

entrepreneurs who will lead the way through this most difficult

time through their determination, their innovation, and unflagging

spirit.

Even they cannot do it alone. Today, it is estimated that over

800,000 firms have been effected and employment in Louisiana,

Mississippi, and Alabama may be reduced by more than one million jobs.

As chair of the Committee on Small Business and Entrepreneurship, I want to send one message loud and clear, that we are committed to moving heaven and earth to provide immediate and

meaningful support to rebuild this region and to help sustain our

economy. I want to ensure that Americans affected by this hurricane have the resources to begin rebuilding their lives, their businesses, and their dreams.

I understand FEMA has referred over 800,000 cases for loan assistance to the SBA, and the SBA is receiving up to 20,000 calls

per day. This is a tremendous workload that the SBA must shoulder. To date, the SBA has distributed approximately 850,000 applications for loans to individuals and businesses, has received over

8,400 loan applications, and approved more than $3.1 million in

loans. This is obviously just the tip of the iceberg. A great measure

of assistance is yet to be requested and provided, and therefore, it

is critical that we act now.

Last Thursday, the Senate unanimously approved a bipartisan

amendment to the Commerce, Justice, and Science appropriations

bill that I introduced with Ranking Member Kerry, working closely

across party lines with Senators Vitter, Landrieu, and Talent. We

are now collaborating once again to enact a stand-alone bill based

on this amendment and I hope that, frankly, we can even use a

separate vehicle to move unanimous consent to get this legislation

through separately in both the House and Senate so that it can be

signed by the President.

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Essentially, this amendment provides a comprehensive package for immediate emergency relief and funding of almost $595 million

to assist the victims of Hurricane Katrina in rebuilding their lives

and their businesses. Specifically, the measure would increase the

maximum size of a disaster loan from $1.5 million per loan to $10

million; provide the SBA the authority to grant victims of Hurricane Katrina up to 12 months to begin repaying their SBA loans;

lower fees for the 7(a) program to make borrowing more affordable

for small businesses outside the disaster area, many of which have

been destroyed by the disaster and are struggling to cover higher

costs in health care and energy; requires the SBA to treat special

disaster provisions as separate from the regular programs to avoid

increasing future subsidy rates and, therefore, the costs for borrowers who rely on these programs; increase the program level for

SBA disaster loans, physical and economic injury, by approximately

$600 million, requiring an appropriation of approximately $86 million.

The legislation would also allow the SBA to provide similar loans

with lower fees for small businesses located outside the disaster

zones, but nonetheless indirectly affected by the hurricane. We authorize $400 million to the State governments of Louisiana, Mississippi, Alabama, Texas, and Florida to provide emergency bridge

loans and grants to small businesses in the disaster areas so that

we can disperse immediate funds until victims can secure other

loans or financial assistance.

Given the explosive growth in cost of gas and heating oil, the legislation also includes a pilot program to give small businesses and

farms access to low-interest-rate disaster loans. The Senate has already passed this provision three times. Wwith the costs of Katrina

relief and rebuilding estimated to be more than $100 billion, we expand small business access to Federal contracts and subcontracts

that had been operating in the areas destroyed by the hurricane.

In a time of uncertainty, government projects are reliable—all

the more critical in a crisis the magnitude of this hurricane, and

can provide steady pay for small business employees. Government

procurement would open doors for many local small businesses to

participate in the long-term reconstruction work in the Gulf Coast

areas. Prior to the disaster, small construction companies in Alabama, Mississippi, and Louisiana brought home nearly $500 million annually in Federal contracts and over $3 billion annually in

the Gulf region.

To achieve this goal, the legislation designates the hurricane disaster area as a HUBZone, attracting small businesses to locate and

employ people in the disaster area with contracting and price evaluation preferences. Extending the HUBZone designation to the

Gulf Coast would bring necessary business development to the

area.

Finally, it authorizes nearly $34 million for grants to increase

business counseling in the region for SBA entrepreneurial development programs, including the Small Business Development Centers, the Women’s Business Centers, SCORE, Veterans’ Business

Centers, and the Micro Loan Technical Assistance Program.

The bottom line is in order to ensure SBA has the essential resources to provide the best assistance possible to those in need, we

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must enact this emergency package and ensure assistance is delivered to small businesses efficiently and effectively. What I want to

learn, and I know the Committee Members do, as well, is to learn

what are the immediate needs and requirements of affected small

businesses, what is the SBA doing to bring services and assistance

to the people and to the Gulf region, what is the time table for implementation, and what further assistance does the SBA require

from Congress as the SBA moves forward, because our effort must

be at once comprehensive, seamless, and tireless.

Before I turn to my colleagues, I would like to note that while

some media reports have raised some concerns about the STAR

Program that was made part of the SBA’s 7(a) loan program after

the September 11 terrorist attack, I share with the Administrator

my deep concerns about the allegations that the program’s implementation may have been seriously flawed. We have asked the

SBA’s Inspector General, and I know the Administrator has, as

well, to conduct a review of the implementation of that program,

and I just want the Members of this Committee to know that we

will be undertaking our own rigorous review and oversight concurrently with the IG review. Both of these reviews are ongoing, and

we will make certain that we will complete a resolution evaluation

in a timely fashion. Once these concurrent reviews are finished, it

is appropriate that the Committee would hold a future oversight

hearing to discuss this critical issue.

At this point, I would like to recognize my colleagues. The Senator from Georgia, do you have any comments?

OPENING STATEMENT OF THE HONORABLE JOHNNY ISAKSON,

A UNITED STATES SENATOR FROM GEORGIA

Senator ISAKSON. I will submit mine for the record, Madam

Chairman, but I appreciate you calling this hearing today.

Chair SNOWE. I thank you.

My colleague from Louisiana? As I indicated in my opening statement, we are prepared to have this Committee to bring all the resources to bear to help your region and to extend our profound regret and sympathy about what has happened, but we want to do

everything that we can to help mitigate the burden that has obviously been perpetrated on your State.

OPENING STATEMENT OF THE HONORABLE MARY L.

LANDRIEU, A UNITED STATES SENATOR FROM LOUISIANA

Senator LANDRIEU. I want to acknowledge our Chairperson here

and how, from the very first days of this catastrophe, the leadership of this Committee, along with Senator Kerry, has been focused

on exactly what the Chairman said, how this Committee could

move forward aggressively, appropriately, to help a region that has

been devastated, not just, of course, the city of New Orleans, but

the parishes surrounding the city of New Orleans, which are equally important in the stand-up of the region and the Gulf Coast generally.

I particularly want to thank this Chair and Senator Kerry and

the Members of this Committee who have stepped forward to put

an extraordinary amendment on the CJS bill and use it as an opVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 C:\SBA\26763.TXT CarolB PsN: CarolB
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portunity to get some initial $400 million of aid through the small

business organization.

We have had, and I won’t go into it today, Madam Chair, some

difficulties with FEMA. We will be working on that, a work in

progress. I believe as a Member of this Committee that the Small

Business Administration is very well poised through existing programs that we have as well as new things that our Committee

should explore that can really get the right kind of aid, credit, assistance and just pausing some of the debt that small businesses

have as we re-set up this region and use wisely the power of the

private sector and private enterprise connected with the government response.

Madam Chair, you are indeed an expert on this. You have shown

it year after year and I look forward—and I see my colleague from

Louisiana, Senator Vitter—but we look forward to working with

you very closely and, in fact, we will be offering later today a package of incentives for small businesses in addition to what has already been done that we will truly appreciate your consideration

of.

[The prepared statement of Senator Landrieu follows:]

PREPARED STATEMENT OF HON. MARY L. LANDRIEU, A U.S. SENATOR

FROM LOUISIANA

I thank the Chair for holding this hearing on the devastation that Hurricane

Katrina has brought on my home state of Louisiana, Mississippi, and Alabama, and

how the Small Business Administration can best serve the people of the region in

rebuilding our economy and our communities.

This Committee and the Senate has already started to help by adding an amendment to the Commerce-Justice-Science appropriations bill to bring some immediate

relief to small businesses in the Hurricane Zone. That amendment will provide $400

million to affected states for grants or bridge loans to small businesses that are trying to get back on their feet. This was the highest priority for businesses in my

home state of Louisiana. The amendment would allow small businesses in the disaster area to defer disaster loan repayments for a year, increases funding for SBA’s

counseling and training programs, makes the disaster area eligible as a HUBZone

to promote business growth, and sets higher small business contracting goals for

Katrina-related rebuilding projects. These measures will be a great first step.

More help is on the way. Today, I introduced a comprehensive legislative package

called the ‘‘Louisiana Katrina Reconstruction Act’’ that will help rebuild Louisiana’s

economy and our infrastructure. It contains tax incentives to spur business development and to encourage residents to come back home; $45 billion in bonding authority to rebuild our infrastructure; as well as funding to protect mortgages, rebuild

homes, and to provide for health care, education, housing, and other human needs

in this unprecedented time. We hope this will serve as a model for rebuilding the

entire Gulf region.

I welcome the small business representatives who will speaking before the Committee today, and am proud to have witnesses from Louisiana here: Mr. John Rowland, Ms. Alta Baker from Jennings, Ms. Mary Lynn Wilkerson from Monroe, Ms.

Michele Sutton from Hammond, and Mr. Woodrow J. Wilson from New Orleans.

These people and the thousands like them across Louisiana and the Gulf region will

be the key to our revitalization.

Madam Chair, in New Orleans family-owned businesses are common. Sure we

have big hotels and chain restaurants that employ a lot of people, but most of the

restaurants, clothing stores, and souvenir shops are small, family-owned businesses.

For these families their businesses were like a second home, their employees like

part of the family. More than 65 percent of the new jobs in Louisiana in the past

decade were created by small businesses and they will be the engines that drive our

revitalization. Before the storm, Louisiana had 86,000 small businesses, employing

over 850,000 people. The annual payroll was $21.9 billion.

As of today, more than 214,000 people have filed jobless claims filed as a result

of Hurricane Katrina. The Congressional Budget Office estimates that nationwide

Katrina could lead to 400,000 job losses. Congress has to act fast or else we could

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lose them forever. This concern is justified. Forty-three percent of businesses that

close for a disaster never reopen. An additional 29 percent close down permanently

within 2 years.

Any loss of these small businesses will have ripple effects beyond the Hurricane

disaster area. There were 71,000 businesses in the disaster zone in Louisiana, but

the storm’s harm has reached out to affect 110,000 small businesses throughout the

state. When a small business closes down, suppliers to that business lose a customer. For example, crawfish farmers in Lafayette—which was spared major damage by Katrina—are losing business because restaurants in New Orleans and other

areas in the disaster area are closed. This chain reaction replicates and grows with

each and every small business that does not get up and running soon.

The Small Business Administration will play a very important role in restoring

our small business economy. I have serious concerns about whether the agency will

have the resources in place to handle the huge numbers of loan applications that

will be coming. Already we are hearing from small businesses that they may have

to wait 90 days before they get a disaster loan from SBA. More than one million

people have requested loan applications so far, 577,000 of them in Louisiana alone.

The SBA to its credit is trying to staff up to handle this crush of work, but I am

concerned that these temporary workers will not have the right kind of training to

be able to process applications in a timely manner. SBA’s programs can be complicated for people who are not familiar with them. I do not want a lack of adequate

training to keep small businesses from getting the assistance they need.

Madam Chair, our small businesses do not want charity, and the assistance we

hope to provide them in our C-J-S amendment and the larger Louisiana reconstruction legislation is not charity. These efforts will recreate the opportunity that our

small businesses used to succeed and grow before Hurricane Katrina hit. In these

difficult and challenging times, small businesses just want a jump start to rebuild,

reopen, or renew. The entrepreneurial spirit that made them a success will carryover and make them successful again. When they are done, our economy in Louisiana and the Gulf will thrive once again.

I thank the Chair.

RESPONSES BY HECTOR BARRETO TO QUESTIONS FROM SENATOR MARY L. LANDRIEU

Question 1. The Senate passed an amendment to the Commerce-Justice-Science

Appropriations bill that included a number of provisions to provide relief to small

businesses in the Katrina disaster area. One of those provisions provides $400 million in funding for states to help small businesses with their immediate capital

needs through bridge loans or grants. What is the administration’s position on this

provision?

Response. Not available.

Question 2. Your testimony states that SBA is going to hire some 2,000 temporary

employees to meet staffing requirements for loan application processing. I am deeply

concerned that these temporary workers will not receive adequate training in all of

SBA’s programs in enough time to be truly helpful to small businesses in the hurricane disaster zone. • Please describe the training program for these workers. • What are the hiring requirements for these workers. • How much time will it be between the hiring of a temporary worker and that

worker’s being ready to handle their responsibilities?

• Please describe your efforts to hire displaced workers from the affected Hurricane areas to fill these temporary positions. What kind of outreach are you doing

to reach displaced residents?

Response. Not available.

Question 3. One of the witnesses stated in his testimony that FEMA, SBA, and

the SBDCs do not have a unified approach and that people seeking assistance get

lost in a maze.

• Is there any coordination planning between SBA, FEMA, other Federal agencies, and State and local governments before disaster strikes? Please describe that

planning and when that takes place.

• Does SBA need more resources to ensure that it can adequately coordinate with

other agencies?

Response. Not available.

Question 4. The Committee has heard testimony from small business owners that

it may take SBA as long as 5 months to process disaster loan applications.

• Please describe SBA’s loan processing system.

7

• Does SBA check the credit worthiness of applicants?

• How do you determine economic injury? What records do businesses need to

give you? If a business has lost its records can they still receive loans, particularly

for economic injury?

• Does SBA maintain records from past disasters of average loan size? How many

businesses received the maximum loan amount and for how many of these businesses is the maximum loan amount not enough to cover their needs? Please provide this information for the Committee.

Response. Not available.

Question 5. Herbert Mitchell did a presentation describing SBA staffing at facilities in the disaster area. There were only 140 staff at 30 sites in Louisiana. Does

SBA have plans to hire additional staff for these Louisiana locations? What will the

qualifications be for this staff? Will you use temporary staff or full-time SBA personnel to fill these positions?

Chair SNOWE. Absolutely, and I want to express to you, Senator

Landrieu and Senator Vitter, that we will do everything that we

can and we appreciate the input that you have provided in shaping

this package and beyond. I would expect this will be the beginning

of this effort by the Committee, both on the Committee and on the

floor, and what we can get through. I would appreciate your guidance and counsel as we go forward. What is going to work for the

people of your region and your State that will be most beneficial

in beginning to restore the economic lifeline in your State.

Senator Vitter.

OPENING STATEMENT OF THE HONORABLE DAVID VITTER,

A UNITED STATES SENATOR FROM LOUISIANA

Senator VITTER. Thank you, Madam Chairman. I also want to

thank you and all the Members for being so supportive and helpful,

including in this vital area. I want to thank Administrator Barreto

for being here today and for all of his work.

To echo what Mary said, we are introducing a full-fledged package today and a big part of that, one part I have been very focused

on with Mary and others, is the right package of incentives, tax incentives, depreciation relief, et cetera, to make sure businesses and

jobs come back because that has to be a key part of the effort. We

could rebuild all of the public infrastructure in sight. In fact, we

could gold plate it. Unless businesses and jobs come back, people

won’t follow and we won’t properly repopulate and get back on our

feet. That is a big, big goal.

Let me just, as an illustrative list, not an exhaustive one, mention a few things. For instance, for businesses, we are proposing a

relocation tax credit to help offset the huge cost many businesses

have incurred in relocating and then the additional costs they

would incur to come back. Also, we are proposing a $1,000 tax credit for each employee a small business puts back to work in the disaster area and we are proposing a 3-year suspension of airline ticket taxes for flights into the disaster area, something that will help

bring visitors back and a big part of our economy connected to tourism.

Also, certainly the bill we are introducing endorses this Committee’s work by incorporating the Small Business Homeowners’ and

Renters’ Disaster Relief Act, and we appreciate that work and we

fully endorse it. This plan helps small businesses, of course. It was

adopted last week as an amendment and we appreciate all your

work on that.

8

The package also would provide grants to States to help small

businesses bridge the time it takes to process SBA loans. Specifically, it would provide $150 million to Louisiana to help fund

bridge loans to businesses while the whole SBA process is gone

through. Businesses are going to need that sort of immediate help,

so anything we can do in terms of that sort of bridge loan or any

other mechanism to get those businesses the help they need, not

in 2 months, not even next month, but now is very important.

We believe we should allow borrowers to defer the repayment of

SBA disaster loans, as well. This would allow borrowers—that includes homeowners and renters and businesses—on disaster loans

to have a 12-month period to get back up and running before they

go back on that repayment schedule.

Also, I think we need to increase the maximum size of an SBA

disaster loan well above the $1.5 million now, perhaps to $10 million, because many small businesses have essentially faced complete destruction.

All of these are part of our package and things we will be working very closely with you on.

With that, I will wrap up, Madam Chairman. Thank you for all

of your very active work already and I look forward to continuing

in that vein, working very closely with you.

Chair SNOWE. I appreciate that, Senator Vitter. The help and assistance that you have given this Committee as we begin to shape

these packages and what is going to work and work well and effectively. As you are going to be in the front lines, if you learn more

or discern something that isn’t working as far as our perspective

is concerned in small business resources, we certainly want to

know that because we have got to eliminate any of the confusion,

the contradictions, and the complications in what is already a very

difficult situation. I appreciate your view and that proposal, and in

my position on the Senate Finance Committee, if I can help in that

way, as well, with some of the tax incentive measures, that, certainly, I would want to do, so thank you.

Senator Enzi.

OPENING STATEMENT OF THE HONORABLE MICHAEL B. ENZI,

A UNITED STATES SENATOR FROM WYOMING

Senator ENZI. Thank you, Madam Chairman. I, too, want to congratulate you for holding this hearing and for the work that you

have already gotten accomplished and finished. That is the kind of

response that is needed, and the kind of response that you do will

make a tremendous difference down there.

Last Friday, Senators Frist and Reid took several people down

to actually look at the disaster. I have always said that a picture

is worth a thousand words, but being on the ground is worth a

thousand pictures. Senator Kennedy is the Ranking Member on my

Committee, the HELP Committee, and he was on the trip, too. It

was very helpful on the package that we are putting together to

have that time to collaborate and actually to see if what we were

doing was going to make a difference. I think we found that there

were a few other things that we needed to do, as well.

I do have a full statement that I would like to have in the record

and I apologize that I won’t be able to be here for the entire hearVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00012 Fmt 6633 Sfmt 6601 C:\SBA\26763.TXT CarolB PsN: CarolB
9

ing. I do appreciate the testimony that was submitted in advance,

particularly from the small business men and women. That does

help us to have a little better feel for what is happening down

there. I think through your hearing and your efforts, that we will

be able to get it right, and I thank you.

Chair SNOWE. I appreciate that, Senator Enzi. Without objection,

your statement will be included in the record, and all Members of

the Committee, their full statements will be included, as well.

[The prepared statement of Senator Enzi follows:]

PREPARED STATEMENT OF HON. MIKE ENZI, A U.S. SENATOR FROM WYOMING

America is faced with responding to an event of epic proportions, a storm unlike

anything seen in 150 years. In the days that have passed since Hurricane Katrina

devastated so much of the Gulf Coast region of our country, we have all seen the

impact this terrible storm has had on countless lives in the region.

More and more of us are witnessing firsthand the extent of the damage, including

families and individuals returning to their homes and businesses. I was able to survey the damage in Louisiana, Mississippi, and Alabama last Friday as part of a bipartisan Senate delegation. Even now, scores of volunteers have congregated in the

area to feed the hungry, quench the thirst of the thirsty and repair the damage.

We continue to do our part in the Senate too. I am very pleased that Chairwoman

Snowe has called this hearing. Now is not the time to play the blame game. We

need to focus on immediate assistance and the rebuilding of the region. Instead, it

is a time for us start the process of addressing the short and long term needs of

the people who were devastated by the storm. I look forward to hearing from SBA

Administrator Barreto and Associate Administrator Mitchell about what the SBA

has accomplished in response to Katrina and what the next steps are in providing

permanent solutions to the affected people and businesses. Thank you both for participating today, I look forward to your testimony and working with you both to

speed the recovery effort.

In the Health, Education, Labor and Pensions Committee which I chair, yesterday

I introduced sweeping legislation with my Ranking Member Senator Kennedy. Our

legislation, the Community Service Disaster Assistance Act of 2005 is a block grant

program whose goal is to provide assistance to States and local communities with

the intent of reducing poverty and revitalizing low-income communities. The programs are community governed, and fund initiatives to change conditions that perpetuate poverty, like unemployment, inadequate housing and poor nutrition. As a

member of this committee, I look forward to working with my colleagues to address

the needs of small businesses.

As a former Mayor, I have seen for myself the devastation caused by severe

weather. Just last month Wright, Wyoming was hit by a tornado that did significant

damage to the town. Plans to rebuild Wright are including support and cooperation

on the local, State and Federal level—much the same as this tragedy will. In

Wright, I have seen the Federal Government do an outstanding job of working with

the state and community leaders to start the process of rebuilding. This formula can

be replicated in the Gulf Coast region. It will also call on us at the Federal level

to develop innovative and creative strategies that will cut through the red tape and

provide the assistance that is needed quickly and efficiently.

That is why I am excited to hear from the second panel of small business owners

and others that were directly impacted by Hurricane Katrina. We are looking forward to receiving their suggestions as to what we should do next as we work to

produce a plan of action that will see us through the after effects of this storm—

and provide us with a strategy we can use to respond to future such events.

Small businesses are the lifeblood of our economy. Helping small businesses open

their doors again will continue the healing process and jump start the economies

of the affected areas. The SBA will play an integral part in this process. I look forward to the testimonies and suggestions that will be given today. Thank you Madame Chair.

Chair SNOWE. Administrator Barreto, welcome, and Mr. Mitchell,

who is the Associate Administrator for Disaster Assistance. I appreciate the fact that you are here, as well, today because I think

it certainly will provide, I think, valuable input into how the disaster program works, what is the status today, and what SBA has

10

been doing in the Gulf region. I know you just returned, Administrator Barreto, as well from 3 days being down there, so I appreciate your views and being here today and being so responsive in

showing the resolve in bringing the resources of this administration

to the Gulf region and how best can we do it and go about it in

the most efficient way possible.

Administrator Barreto, why don’t you begin, and thank you for

being here today.

STATEMENT OF THE HONORABLE HECTOR V. BARRETO, ADMINISTRATOR, U.S. SMALL BUSINESS ADMINISTRATION,

WASHINGTON, D.C.

Mr. BARRETO. Thank you, Chair. Good morning, Chair Snowe

and all of the distinguished Members of this Committee. Thank you

for inviting me here today to discuss the Small Business Administration’s Office of Disaster Assistance Relief Efforts for all of the

victims of Hurricane Katrina.

As you have already mentioned, Chair, I am accompanied by

Herb Mitchell, the Associate Administrator for Disaster Assistance.

Herb is a longtime SBA employee, with over a decade of experience

in the Office of Disaster Assistance. I am happy to have Herb as

the head of our Disaster Office. He is definitely a man of experience, dedication, and skill.

Herb and I just returned last night, as a matter of fact, from

Louisiana and Texas, and we learned firsthand of the destruction

caused by this massive storm. More important, I met with citizens,

with homeowners, with small business owners who were affected.

We also met with the SBA Disaster Assistance employees on the

ground, and I can tell you, I have never been more proud of the

work they are doing for the SBA and for all of the victims.

I visited our Disaster Recovery Center and our displaced New

Orleans District Office staff in Baton Rouge, as well as our Disaster Loan Processing and Disbursement Center staff in Fort

Worth, Texas. They have done an excellent job and are carrying on

the best tradition of Federal service and I am committed to offer

them all of the support they need to carry out the SBA’s disaster

assistance mission.

Before detailing SBA’s expanded recovery efforts in regards to

Hurricane Katrina, it is important to get some background in

SBA’s disaster programs. The SBA Disaster Assistance Program is

the primary Federal disaster assistance loan program for longrange recovery for the private sector and non-agricultural disaster

victims. Disaster loans are direct loans from the SBA and eligibility

is based on a financial criteria.

Interest rates are set through statutory formulas. Currently, the

rate for loans for homeowners without credit available elsewhere is

2.68 percent, and with credit elsewhere, it would bump up to 5.3

percent. For businesses, the rates are 4 percent and 6.5 percent, respectively.

It is important to understand that SBA disaster loans are not

just for small businesses. The majority of SBA disaster assistance

is directly to homeowners to help rebuild their homes. SBA has two

kinds of business disaster loans, physical disaster loans provided to

qualified businesses of any size that have sustained uninsured

11

losses up to $1.5 million with funds to repair or replace business

property to pre-disaster conditions. Economic injury disaster loans,

or what we refer to as EIDL loans, provide up to $1.5 million in

working capital loans for small businesses that suffer economic injury as a direct result of a disaster, regardless of whether or not

the property was damaged.

The bottom line is SBA disaster loans help rebuild communities.

SBA doesn’t just help the small businesses, but their friends and

their neighbors and their customers. Our disaster loans make recovery affordable through three factors: Low interest rates; longer

terms, up to 30 years; and refinancing under certain circumstances.

SBA disaster loans are a critical source of economic stimulation in

disaster-ravaged communities and help spur employment and stabilized tax bases by protecting jobs. The SBA responded immediately to the President’s disaster declaration for Hurricane

Katrina and continues to increase assets to assure our delivery of

assistance goes smoothly.

Yesterday, I visited our processing center in Fort Worth, Texas.

We have expanded that facility by 40,000 square feet. We have

added phone and computer connections to increase our capacity to

process the applications. SBA has received a record number of referrals already, well over a million to date. We have been sending

out applications and are preparing to receive them back.

I would like to address head on the misguided media accounts of

computer problems in the Office of Disaster Assistance. Nothing

could be farther from the truth. Our prior system, the Automated

Loan Control System, was cumbersome and unreliable. It was not

a loan processing system, but it was a tracking system that interfaced with our mainframe to find loans and a separate system for

underwriting on a different platform and a document generation

system on a third platform. That is the way we used to do it. The

technologies for all of these systems were obsolete.

Last year, the ALCS in one of our offices broke down during the

Florida hurricanes and it took nearly a week to repair because no

one carried parts for a system that was that old.

Faced with the possibility of future failures, SBA built the Disaster Credit Management System, DCMS, now being used for

Katrina. The DCMS is an integrated web-enabled system that performs all of the necessary functions on one platform with the latest

technology. This system has been in use since December 2004 and

allows SBA to process loans electronically in a paperless environment through image or scanning. Processing and disbursement of

disaster loans is centralized in Fort Worth with a backup location

in Sacramento, California.

DCMS introduces virtual loan processing, making loan files

available for processing anywhere by anyone at any time regardless

of where the disaster occurs. This system will ultimately provide

multiple interaction methods between the applicant and our Office

of Disaster Assistance, like the Internet loan application under development.

The DCMS improves access to credit reports, criminal background checks, status of Federal debt, tax information, duplication

of benefits data from FEMA, flood zone, verification of real property ownership with title companies, and courthouse records, et

12

cetera. All of this is an improvement over our old system, and we

have used it successfully already for over 15,000 applications.

In response to Katrina, Office of Disaster Assistance is staffing

up by hiring temporary employees to verify losses, to provide customer service on the phone and in the field, and to process and disburse loans. ODA is hiring over 200 employees a day, and we already have over 2,000 employees on board just focused on Katrina,

and we expect to have another 2,000 to meet the ongoing needs.

By design, the Office of Disaster Assistance ramps up when a

disaster strikes, and that saves taxpayers hundreds of thousands

of dollars by keeping the staff low in times of low disaster activity.

Our SBA ODA employees are in over 30 Disaster Recovery Centers

(DRC’s) and more are opening daily. At our DRC’s customer service

representatives and loan officers provide Katrina victims with oneon-one assistance, issuing and helping them fill out applications,

answering questions. They are also accepting completed applications and making follow-up calls to victims that have not returned

their applications.

We also plan a Business Assistance Center in the New Orleans

area, Senator Landrieu, and I promise you that as soon as it is safe

for our folks to be in New Orleans and for our folks to get back

there, we will be there every day and we will be there to help

them. We are already helping a lot of them in our Baton Rouge operations, where many residents of New Orleans are currently staying, as well as in our other Disaster Centers.

Herb and his staff have done a magnificent job. ODA has ordered

equipment and is training new field verification staff for Katrina

as it would for any disaster, but obviously on a much larger scale.

When Katrina struck, ODA had 300 DCMS tablets—these are the

computers—to meet the demands of ongoing disaster activity included in the immediate response to Katrina. ODA immediately ordered more tablets—we have already received 560 of 600 that we

ordered—and we have 400 more in the pipeline.

I would also like to discuss the other steps SBA is taking outside

of our usual programs. Last weekend, I met with a number of business leaders. It is inspiring to see their willingness to help. One

business is already seeking ways to work with SBA to help us leverage our business matchmaking events to assist small businesses

in the Gulf region.

SBA has assigned four Procurement Center Representatives, or

PCRs, to Katrina-related contracting, and our Office of Government

Contracting is meeting with Small Disadvantaged Business Utilization Officers from all of the major agencies to help focus attention

on small business opportunities. SBA is also working with the General Services Administration to help update sourcing lists and to

help small businesses enter the Central Contractor Registration

Database of small businesses available for contracting in the Gulf

region.

While the administration’s priority is always to provide emergency services as quickly as possible, SBA is committed to ensuring

that small businesses get fair opportunities. Our Small Business

Development Center partners have come forward in an exemplary

fashion to assist small businesses damaged by Katrina. We are

working with them to enable them to provide services from neighVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00016 Fmt 6633 Sfmt 6601 C:\SBA\26763.TXT CarolB PsN: CarolB
13

boring States and across the country, and to that end, I have approved a waiver for SBDCs to help in the disaster areas.

I also want to discuss the proposals from the President’s speech.

SBA supports the President’s goal of rebuilding not just New Orleans, but the entire Gulf region and the designated Gulf Opportunity Zones, or GO Zones. SBA will have the following role: Increase the maximum size of SBA business-related disaster loans

from $1.5 million to $10 million. SBA disaster loans to a business

will cover activities that are typically capped at $1.5 million. The

proposal would increase that to $10 million for businesses in the

declared disaster area who were adversely affected by Hurricane

Katrina. Raising that cap should help business activity recover

more quickly by facilitating access to low-interest loans to cover

physical and economic injury.

We want to increase disaster mitigation loans. When providing

a loan for uninsured costs, SBA can increase the loan amount by

up to 20 percent so the borrower can invest in mitigation technology, such as storm shutters, for example. The administration

proposes raising the amount, basing the calculation on total damage.

For example, if a business had $100,000 in damage, they may

have $80,000 insured and $20,000 covered by an SBA disaster loan.

Typically, a mitigation loan in that example would be 20 percent

of $20,000. The administration proposal would raise eligibility to 20

percent of the $100,000 damage, a five-fold increase in the amount

eligible for mitigation.

Increase the maximum size of surety bonds from $2 to $5 million.

Small businesses often need bid and performance bonds for contracts. These bonds assure the contractor’s customers that the contractor has the financial capacity to perform the work. The larger

bonding limit would assist small businesses in a disaster area to

secure contracts, especially those related to reconstruction.

We want to provide 7(a) and 504 loan borrowers with the options

for deferring the principal and interest payments for a 12-month

period. In order to allow affected small businesses in the disaster

area to rebuild, the administration supports providing borrowers

with options to defer principal and interest payments on existing

7(a) and 504 loans for up to 12 months. Under certain circumstances, participating lenders and certified development companies

can make such deferrals available. Where a deferral is not available, alternative means of temporary relief may be needed, including economic injury disaster loans for working capital needs.

Through these measures, borrowers could better regain their financial footing.

SBA is also planning to defer payments on agency serviced business loans in the disaster area and is asking our lending partners

where possible to do the same on SBA loans that they service.

We want higher GO Zone specific 7(a) and 504 loan levels for

2006. The current program authorization set SBA nationwide 7(a)

loan volume at $17 billion and 504 loan volume at $7.5 billion. The

administration proposes to provide higher authorization levels for

those in the GO Zone area during 2006, ensuring that lenders will

be able to make small business loans in that area. GO Zone area

14

levels will be $10 billion for 7(a) and $5 billion for 504 in addition

to the levels that are already authorized.

Once Hurricane Katrina hit the Gulf Coast, SBA’s Office of Disaster Assistance immediately began its outreach, as we do in all

disasters. Immediately, ODA was in contact with our regional offices, with our Small Business Development Centers, and with our

local community-based organizations. Things are moving along

quickly, and I am pleased to report that we are serving those affected by this disaster well with the manpower and the technology

to continue to do so.

Again, I want to thank you, Chair Snowe. I want to thank all of

the Members of this Committee for giving me the opportunity to

speak to you today. I look forward to answering any of the questions that you might have.

[The prepared statement of Mr. Barreto follows:]

PREPARED STATEMENT OF HECTOR V. BARRETO, ADMINISTRATOR,

U.S. SMALL BUSINESS ADMINISTRATION

Good morning, Chair Snowe, Ranking Member Kerry and distinguished Members

of this Committee. Thank you for inviting me to discuss the Small Business Administration’s (SBA) Office of Disaster Assistance (ODA) efforts to provide relief to the

victims of Hurricane Katrina.

I am accompanied today by Herb Mitchell, the Associate Administrator for Disaster Assistance. Herb is long-time career employee of SBA with over a decade of

experience in our Office of Disaster Assistance. I want to tell you how happy I am

to have Herb as our head of the disaster office; he is a man of experience, dedication

and skill.

Herb and I have just returned from Louisiana and Texas. We learned firsthand

the destruction caused by this massive storm, but more important, I met with citizens—homeowners and small business owners who were affected. We also met with

our SBA disaster assistance employees on the ground and, I can tell you, I have

never been more proud of the work we do at SBA.

I visited our disaster recovery center staff and our displaced New Orleans District

Office staff in Baton Rouge, as well as our Disaster Loan Processing and Disbursement Center staff in Fort Worth. They have done an excellent job and are carrying

on in the best tradition of Federal service. In response to that, I am committed to

offer them all the support they need to carry out the SBA’s disaster assistance mission.

Before detailing SBA’s expanded recovery efforts in regards to Hurricane Katrina,

I think it is important to give some background on SBA’s disaster programs. The

SBA Disaster Assistance Program is the primary Federal disaster-assistance loan

program for long-range recovery for private-sector, non-agricultural disaster victims.

Disaster loans are direct loans from SBA and eligibility is based on financial criteria. Interest rates fluctuate according to statutory formulas. Currently, the interest rate for loans for people without credit available elsewhere is 2.687 percent and

the rate for people with credit available elsewhere is 5.375 percent for homeowners.

For businesses the rates are 4.0 percent and 6.557 percent, respectively. It is important that everyone understand that SBA disaster loans are not just for small businesses, in fact, the majority of SBA disaster assistance is directed to homeowners,

to help rebuild their homes.

SBA has two kinds of business disaster loans. Physical disaster loans provide

qualified businesses of any size that have sustained uninsured losses up to $1.5 million with funds to repair or replace business property to pre-disaster conditions.

These loans may be used to replace or repair equipment, fixtures, and inventory,

and to make leasehold improvements. Economic Injury Disaster Loans (EIDL) provide up to $1.5 million in working-capital loans for small businesses that suffer economic injury as a direct result of a disaster, regardless of whether the property was

damaged. These loans are made to help small businesses pay ordinary and necessary operating expenses that they would have been able to pay if the disaster had

not occurred.

The bottom line is that SBA’s disaster loans help rebuild communities. SBA

doesn’t just help the small businesses, but their friends, and neighbors—their customers. Disaster losses are unexpected and create financial hardships for most disVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 C:\SBA\26763.TXT CarolB PsN: CarolB
15

aster victims. Our disaster loans make recovery affordable through three factors;

low interest rates, longer terms (up to 30 years), and refinancing under certain circumstances. SBA disaster loans are a critical source of economic stimulation in disaster-ravaged communities and help spur employment and stabilize tax bases by

protecting jobs.

SBA responded immediately to the President’s disaster declaration for Hurricane

Katrina and continues to expand and increase assets to ensure that our delivery of

disaster assistance goes smoothly. Yesterday, I visited our processing center in Fort

Worth. We have expanded that facility by 40,000 square feet and added phone and

computer connections to increase our capacity to process applications. To date, SBA

has received a record number of referrals—over one million. We have been sending

out applications and are preparing to receive them back.

I would also like to address ‘‘head on’’ the misguided press accounts of computer

problems in the Office of Disaster Assistance (ODA). Nothing could be further from

the truth. Our prior system, the Automated Loan Control System (ALCS), was cumbersome, unreliable, outdated and does not comply with current IT security requirements. The ALCS was not a loan processing system but a tracking system that

interfaced with our mainframe to fund and disburse loans. A separate automated

Loan Officer Report system was used for underwriting and operated on a different

platform. Finally, we also used a legal document generation system which also operated on a different platform. The technologies for all of these systems are outdated

and inefficient. Last year in one of our offices the ALCS broke down during the Florida hurricanes; and it took nearly a week to be repaired. The delay was due to the

need for parts, parts for a system that is so old no one carried replacement parts.

Faced with the possibility of future failures, SBA many years ago moved forward

to build our new Disaster Credit Management System (DCMS) now being utilized

for Katrina. The DCMS is a totally integrated web-enabled system that performs all

of the necessary functions on one platform with the latest technology.

This system has been in use since December of 2004 and allows SBA to process

loans electronically in a paperless environment. Processing and disbursement of disaster loans is now centralized in Fort Worth, Texas, with a back up processing location in Sacramento, California. Both locations have sufficient numbers of desktop

computers to process and disburse loans. The DCMS is a ‘‘paperless,’’ electronic loan

application and loan process, which improves the processing of paper-based applications through imaging (scanning).

DCMS introduces ‘‘virtual’’ loan processing, making electronic loan files available

for processing anywhere, by anyone, and at any time, regardless of where the disaster occurs. The system will ultimately provide for multiple interaction methods between the disaster loan applicant and ODA, such as internet loan application which

is under development.

The DCMS improves SBA access to external data sources that provide credit reports, criminal background checks, status of Federal debt, tax information from the

IRS, duplication of benefits data from FEMA, flood zone mapping with FEMA,

verification of real property ownership with title companies and court house records,

etc.

All of this is an improvement over our old system and we have used it successfully

for over 15,000 applications.

ODA is staffing up to meet the demands of this disaster, as it does for all disasters, by hiring temporary employees to verify losses, provide customer service to the

victims on the phone and in the field, and process and disburse loans. ODA is currently hiring over 200 employees a day. We have over 2,000 disaster employees on

board right now and we expect to hire perhaps as many as another 2,000 to meet

the needs of those affected. By design, ODA staffs up to meet the needs of disaster

victims when disaster strikes. This staffing up is transparent to disaster victims and

saves taxpayers hundreds of thousands of dollars by keeping the staff low in times

where little disaster activity is occurring. By way of example, we had approximately

800 employees ODA wide at the time of the Hurricane.

Our SBA ODA employees are in over 30 disaster recovery centers and more are

opening daily. At each of these DRCs, there are customer service representatives

and loan officers providing Katrina victims with one-on-one assistance, issuing loan

applications, helping to fill out applications, and answering program questions. They

are also accepting completed applications, forwarding them to Fort Worth, and making follow up telephone calls to victims who have not returned their applications.

We also plan to establish a Business Assistance Center in the New Orleans area.

As soon as it is safe to for the residents of New Orleans to go home, SBA will be

there to help them.

Herb and his staff have been doing a magnificent job. ODA has ordered equipment for and is training new field verification staff for Katrina as it would for any

16

disaster but on a much larger scale. At the time Katrina struck, ODA had 300 computerized DCMS ‘‘tablets’’ on hand to meet the demands of regular and on-going disaster activity, including the immediate response to Katrina and has a contract with

a vendor to provide more as needed. ODA immediately ordered more tablets and has

received 560 of the 600 it has ordered, with 400 more tablets in the pipeline.

I would also like to discuss some of the other steps SBA is taking outside of our

normal programmatic efforts. SBA is considering a number of efforts to assist small

business outside of usual programs. Last weekend, I met with a number of business

leaders. It is inspiring to see their willingness to pitch in and help. One business

is already seeking ways to work with SBA to help us leverage our business matchmaking events to assist small business in the Gulf Region.

SBA has assigned four (4) Procurement Center Representatives (PCRs) to

Katrina-related contracting. Our Office of Government Contracting is meeting with

Small and Disadvantaged Business Utilization (SDBU) officers from all major agencies to help focus on small business opportunities. SBA is also working with the

General Services Administration (GSA) to establish up to date sourcing lists for

small businesses and helping small businesses enter the Central Contractor Registration (CCR) data base of small businesses available for contracting for reconstruction and clean up in Gulf region. While the Administration’s priority is always

working to provide needed emergency services as quickly as possible, SBA is committed to making sure that our small business customers receive fair opportunities

to help in the rescue, relief and reconstruction effort.

Our Small Business Development Center (SBDC) partners have also come forward

in an exemplary fashion to assist with counseling and business development assistance for small businesses damaged by Katrina. We are working with them to enable

them to provide services from neighboring states and across the country. To that

end, I have approved a regulatory waiver for SBDCs to help in disaster areas.

I also want to take some time to discuss the proposals outlined in the President’s

speech last Thursday. SBA supports the President’s goal of rebuilding not just New

Orleans but the entire Gulf region devastated by Katrina. In the area that the

President has designated Gulf Opportunity Zones (GOZ), SBA will have the following role:

INCREASE THE MAXIMUM SIZE OF SBA BUSINESS-RELATED DISASTER LOANS FROM $1.5M

TO $10M

SBA disaster loans to businesses for recovery activities are typically capped at

$1.5 million. The proposal would increase the limit to $10 million for businesses

that were adversely affected by Hurricane Katrina and are located in the declared

disaster area. Raising this cap on loan size should help business activity recover

more quickly by facilitating firms’ access to low-interest loans to cover physical damage and economic injury.

INCREASE DISASTER MITIGATION LOANS

When providing a disaster loan for uninsured recovery costs, SBA can increase

the loan amount by up to 20 percent so that the borrower can invest in disaster

mitigation technologies such as sea walls and storm shutters. The Administration

proposes to raise the amount that can be provided for disaster mitigation by basing

the calculation on the total damage caused by the disaster loan. (For example, a

business that receives $100,000 of damage may have $80,000 covered by insurance

and $20,000 covered by an SBA disaster loan. Typically, SBA’s mitigation loans

would be limited to 20 percent of the $20,000. The Administration’s proposal would

raise eligibility to 20 percent of the $100,000 damage—in this case increasing by

five-fold the amount of disaster loan lending eligible for mitigation.)

INCREASE THE MAXIMUM SIZE OF SURETY BONDS FROM $2M TO $5M

Small business often must secure bid and performance bonds in order to win contracts. These bonds assure the contractor’s customers—including those in the public

and private sectors—that the contractor has the financial capacity to perform the

requisite work. The larger bonding limit would assist small businesses in the disaster area secure contracts, especially those related to reconstruction.

PROVIDE 7(A) AND 504 LOAN BORROWERS WITH OPTIONS FOR DEFERRING THEIR

PRINCIPAL AND INTEREST PAYMENTS FOR A 12-MONTH PERIOD

In order to allow affected small businesses located in the disaster area to rebuild

their enterprises and cash-flow, the Administration supports providing borrowers

with options to defer principal and interest payments on existing 7(a) and 504 loans

17

for up to 12 months during fiscal year 2006. Under certain circumstances, participating lenders and Certified Development Companies can make such deferral available to the borrower. Where a deferral is not available, alternative means of providing temporary relief to the borrower may be needed, and could include the

issuance of an Economic Injury Disaster Loan for the working capital needs of the

small business. Through these measures, borrowers could better regain their financial foundations. SBA is also planning to defer payments on certain agency-serviced

business loans in the disaster area and is sending a notice to our lending partners

asking them, where possible, to do the same on SBA business loans that they service.

HIGHER GOZONE-SPECIFIC 7(A) AND 504 LOAN LEVELS IN FISCAL YEAR 2006

The current program authorizations for fiscal year 2006 limit SBA’s nationwide

7(a) loan volume to $17 billion and 504 loan volume to $7.5 billion. The Administration proposes to provide higher loan levels specifically for the GOZone area during

fiscal year 2006, thereby ensuring that lenders will be able to make small business

loans in the area. GO Zone area limits will be $10 billion for 7(a) loans and $5 billion for 504 loans in addition to the levels already authorized for the regular programs.

Once Hurricane Katrina hit the Gulf Coast, SBA’s ODA immediately began its

outreach, as we do in all disasters. Immediately, ODA was in contact with our Regional Offices, SBDCs, and local community-based organizations. Things are moving

along quickly and efficiently. And I am pleased to report that we are serving those

affected by this disaster well and have the manpower and technology to continue

to do so.

Thank you, Chair Snowe and Ranking Member Kerry, for affording me the opportunity to speak to you today about this very important topic. I look forward to answering any questions that you might have.

Chair SNOWE. Mr. Mitchell, do you have any comments?

STATEMENT OF HERBERT L. MITCHELL, ASSOCIATE ADMINISTRATOR, OFFICE OF DISASTER ASSISTANCE, U.S. SMALL

BUSINESS ADMINISTRATION, WASHINGTON, D.C.

Mr. MITCHELL. Well, certainly I can echo Hector’s comments. I

mean, one of the things that—and it is very challenging, we just

spent 3 days in Louisiana, Texas, and speaking to some of the individuals there in the business community—and one of the things

that the business community kept impressing upon us, it is not

only that the business community needs to recover, there is a

whole issue around employees and getting employees back in that

community and temporary housing, and obviously those things are

beyond the scope of SBA, but if you are going to look at long-term

community economic recovery in those areas, there is a whole host

of things we have to look at beyond just disaster loans in terms of

making that community work again.

Chair SNOWE. Thank you. I appreciate that comment, and maybe

that is something, as well, we will have to look at because, obviously, that is a larger question.

Are you going on? Do you have additional——

Mr. BARRETO. He had a chart that we would like to share, if we

can put it up there.

Chair SNOWE. Oh, absolutely. Is everybody ready to——

Mr. MITCHELL. One of the things we thought we would do, since

we also are going through a reorganization that the Administrator

approved in March and our original plan was to take 18 months

to actually restructure the Office of Disaster Assistance, but what

we have done, we have actually already started and we have actually expedited it.

18

Prior to this reorganization, we operated with four separate area

offices around the country. Basically, those offices operated independently with their own computer systems. When one office was

busy, the other one may not be.

What we have done with this reorganization is what we call a

team concept. We have centralized processing in one location. We

have a call center in Buffalo, in one location. We have two Field

Operations Centers, East and West, Sacramento and Atlanta.

Do you want to go through the slides?

The Field Operations Centers are responsible basically for exactly what it is. It is basically managing the Recovery Centers and

the field locations, making the outreach to the SBDCs and our resource partners, the lenders, working with the media, and also

with the congressional staff.

Specifically for Hurricane Katrina, the Sacramento Office is handling Louisiana and our Atlanta office is handling Alabama.

The Recovery Centers themselves, this is actually where the victims of the disaster come in. There are a number of agencies there,

including SBA, but FEMA and SBA are the primary agencies that

are located there providing the assistance to those victims that

come in with the application, answering their questions, and helping them fill out the applications.

We can just go ahead on through that one. Go to the next one.

One of the unique things in this disaster obviously is the extent

that the business community has been impacted, and in addition

to the Disaster Recovery Centers, we are planning to open, and we

already have, I think, in Alabama, open a Business Assistance Center, and Hector already mentioned that we will open one in New

Orleans. The plan is to go ahead and open that in Louisiana near

New Orleans as soon as we can get into New Orleans, to then move

that center. We are not going to delay in opening the center to wait

until we can actually get there.

We have already mentioned the outreach to the Small Business

Development Centers and also mentioned that Don Wilson, who is

here who is President of the Association of Small Business Development Centers has been working closely with us in all three

States. Their counselors are on site and providing assistance to the

business community, as well, in completing those application packages.

Go on to the next one.

This chart simply gives you the total of the activity that we have

received to date. The numbers are staggering. We are 3 weeks into

the process. We have seen—and this has been updated as of last

night to over a million referrals from FEMA. Field staff, we had

about 2,300 total in the area office, 446 of those in the field. Hector

mentioned we are hiring at the rate of about 200 a day, but in

order to do that, we are actually interviewing about 400 applicants

a day, and where possible, we are hiring folks locally in those communities to assist us in the Recovery Centers.

In fact, we were in Fort Worth yesterday in the Loan Processing

Center where evacuees are located in Dallas. We have hired some

of those individuals, as well, that are working for us in the Processing Center, as well.

19

The last page just simply gives you the congressional points of

contact for Mississippi and Alabama and Louisiana.

With that, I will close and certainly we are open to any questions

that you may have.

Chair SNOWE. Thank you.

[The information of Mr. Mitchell follows:]

U.S. SMALL BUSINESS ADMINISTRATION—DISASTER ASSISTANCE

FEDERAL DISASTER LOANS FOR HOMEOWNERS, RENTERS AND BUSINESSES

OF ALL SIZES

SBA’S ROLE IN DISASTER RECOVERY

FIELD OPERATION CENTERS (FOC) EAST AND WEST

• Inform public with up to date information on all open disaster declarations.

• Perform outreach in the disaster impacted area in Disaster Recovery Centers,

Business Assistance Centers, and SBA workshops.

• Perform Preliminary Damage Assessments in conjunction with local, State and

Federal officials.

• Contain Congressional Liaisons, Public Information Officers (PIOs), and Field

Operations.

HURRICANE KATRINA FIELD OPERATION CENTERS (FOC)

• The FOC responsible for Louisiana is located in Sacramento, CA.

• The FOC responsible for Mississippi and Alabama is located in Atlanta, GA.

DISASTER RECOVERY CENTERS (DRCS)

• These centers have representatives from FEMA, SBA and the State providing

assistance to disaster victims.

• Depending on the size of the disaster, other Federal, local and volunteer agencies may be present.

SBA CUSTOMER SERVICE REPRESENTATIVES AT EACH DRC

• Issue applications.

• Respond to applicant inquiries.

• Assist individuals in completing applications.

• Accept completed applications.

• Close disaster loans.

BUSINESS ASSISTANCE CENTERS (BACS)

• Provide SBA disaster loan information to businesses (large or small) and nonprofit organizations that were adversely impacted by the disaster.

• Issue business loan applications packages.

• Screen completed application packages.

• The BAC responsible for Alabama is located in Mobile, AL.

OUTREACH TO SBDCs

Disaster staff:

• Contacts local SBDCs in the declared disaster area.

• Provides program overview and updates on current SBA disaster activities.

OUTREACH TO COMMUNITIES

Disaster staff:

• Speaks to community-based groups, including civic clubs and organizations,

Chambers of Commerce, etc.

• Represents SBA at town meetings.

KATRINA GRAND TOTALS

• Cumulative referrals—918,822

• Applications issued—878,181

Field staff onsite—446

• Alabama 98 in 10 sites

20

• Louisiana 140 in 30 sites • Mississippi 208 in 11 sites

FOC CONGRESSIONAL POINTS OF CONTACTS

Mississippi and Alabama

• Field Operations Center—East • Michael Lampton, 404-347-3771

Louisiana

• Field Operations Center—West • Rick Jenkins, 916-735-1500

Chair SNOWE. I would like to recognize the Ranking Member,

and I just want to reiterate our commitment to work together to

make sure that we can do everything to deliver the resources that

are available to SBA to help mitigate this tremendous disaster.

Senator Kerry.

OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY,

A UNITED STATES SENATOR FROM MASSACHUSETTS

Senator KERRY. Thank you, Madam Chairman. I really appreciate the coordinated nonpartisan and bipartisan efforts that we

have been making in this Committee and I thank you for your

leadership on this and thank you for having the hearing today.

I apologize very much for being late. I expected to be on time,

but I was meeting with some of the families, military families of

kids who were in Iraq, and I must say it was very moving. One

couple, a grandfather and grandmother, had two sons who had

been over there for two deployments, a grandchild is over there,

and you listen to their sort of personal travail at this time. That

is why I am late and I apologize for it.

I just will say very quickly, obviously, this is important. Small

businesses have just been clobbered, and it is starting over for so

many people, but for a lot of them, it is also how they are going

to just be able to quickly pull themselves back together.

We are fond here of talking about small business as the engine

of our economy, which is true nationally, but even more so in this

particular region. Any recovery is going to be led by these small

businesses being able to recover as fast as they can. I think there

are some 200,000 or so in the area and some estimated 150,000

have been really negatively impacted.

The questions are enormous of how quickly they are going to be

able to get back on roads that aren’t open, get supplies that can’t

get there, workers who can’t work there. It is just a huge task and

the SBA is going to clearly have an enormous ability to be able to

make a difference here and we hope they will.

I am not going to interrupt it further than to say that this is very

important and I apologize for missing your testimony, but look forward to fleshing out some of these issues.

Chair SNOWE. Thank you very much, Senator Kerry.

Just to begin the line of questioning, I think first and foremost

is to make sure that you have the adequate resources to respond

to the magnitude and the scope of this disaster. Obviously, it is unlike any that you have had to grapple with in the past. I know you

have had to deal with other hurricanes previously. I would like to

have you compare the resources that you have today with those in

the past. I mean, just given the numbers that you mentioned, Mr.

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Mitchell, in your chart about the number of counselors and agents

on site and it is a total of 446. I am just wondering if that is going

to be sufficient to address the needs given the overwhelming nature of this devastation and the amount of need that is out there.

Also, I understand that you are recruiting, what, 2,000

workers——

Mr. BARRETO. It could potentially be at least 2,000 more, and we

will bring on as many as we need. You know, in some ways, we

are in a much better situation than we were last year when we

were trying to deal with those four hurricanes. As we got to the

end of our fiscal year, and, of course, we are nearing that in the

days before the beginning of the new fiscal year, we had some resources available to us. We had several hundred million dollars

that we could use for administrative costs, and, of course, we have

been busy using that money here at the very end. We also had

about $2.6 billion in budget authority that was left over for us.

In terms of the immediate needs, in terms of the phase we were

in, we definitely had the money that we needed. Now, obviously,

going forward, that is something that is going to have to be assessed and evaluated, and, of course, we are going to be operating

in our new budget. It is very, very likely that we are going to need

to go back and have the supplemental to be able to do the job that

is going to be before us.

I would like to have Herb comment specifically, because he obviously mentioned it, about the day-to-day operations in the Disaster

Office. He can give you some specifics of how we have been employing those resources that we have and our plan for future resource

needs.

Mr. MITCHELL. I think, clearly, the 446 employees that are in the

field today are not enough. They are enough in terms of meeting

the needs of staffing the Recovery Centers that currently exist, and

I clearly expect that the number of Recovery Centers are probably

going to go up at least four times.

We are expecting at some point to probably have 1,500 to 1,700

folks in the field, and that is a combination of not only the Recovery Centers, but the inspectors that will actually be going on site

doing the estimation of damages and coming up with those loss

amounts.

Part of the issue here is that it is the infrastructure, getting access, and I have to tell you the response period on this disaster has

lasted longer than most disasters in terms of the emergency situation and that is the delay with some of the Recovery Centers, particularly in Louisiana and some other places, in Alabama, as well,

and in Mississippi in terms of the infrastructure and getting set up

so that we transition from response to recovery.

Chair SNOWE. I think it is going to be important to move as

quickly as possible, even to put people in place in rural locations

to have more accessibility, because given the breadth of the damage, I mean, I was down in New Orleans the other day, and I know

that Senator Landrieu and Senator Vitter have been there on the

front lines and seeing the devastation. It really, in Mississippi, it

is extraordinary. I think that it is going to be best to get everything

in position so that when people are prepared to come in and submit

their applications, that there are people who are available.

22

Some of the people who will be testifying in the second panel indicated—and I just am going to give you some of the comments so

that you can respond, so that will be helpful here—that they have

no reliable information, that FEMA, SBA, insurance companies

aren’t unified so it becomes incredibly confusing, according to testimony from the second panel, because I think it would be helpful

for you to hear so that you can respond——

Mr. BARRETO. Sure.

Chair SNOWE [continuing]. That FEMA makes it impossible to

quote a price, for example, so that they can make home repairs.

The SBDC, some have been destroyed in Louisiana and New Orleans specifically, and again, so they are overwhelmed for those that

are remaining and don’t have the resources. Is it possible to have

SBDCs contracting with other professionals like CPAs and banks

or something to help expedite this process?

These are some of the comments I just want to put out to you

right now that we will hear from the second panel.

Mr. BARRETO. Absolutely. Well, I was in the Disaster Recovery

Center yesterday in Fort Worth, our Processing Center, and they

were preparing 80,000 in one day, 80,000 applications that they

were sending out. Of course, they are receiving thousands back.

There is a tremendous amount of volume that we are seeing there

and we are responding to everybody as quickly as possible.

As you know, the process—and sometimes it is difficult for folks

to distinguish the different players, who is public sector, who is private sector, what are the steps they need to take. Obviously, we are

communicating to everybody that we possibly can through every

forum that we have, whether that be through mail, whether that

be through information that we are distributing—we produced hundreds of thousands of information cards with all of the appropriate

information, through the media, through PSAs, through all of our

resource partners, getting that word out there.

Obviously, if you are having difficulty getting an answer, that is

very frustrating and you don’t really care why you are not getting

the answer, you just want the answer. For the first step for us by

the requirement is that everything has to begin with FEMA, and

then FEMA immediately refers that over to us and we respond to

it immediately.

With regards to the insurance companies, I am not clear in terms

of exactly what that glitch was that the individual is finding, but

obviously, to the extent that we can be working together with the

private sector, with our lenders, with the insurance companies to

expedite these loans, we want to do that.

With regard to SBDCs, as Herb mentioned, and I will let him

comment on this again, we have already been in very in-depth conversations with them, meeting with them. I recently spoke to their

national meeting, talking to them. We did training at that national

meeting. SBDCs are right now and will continue to play a critical

role in helping us to assist these small business owners with a

whole host of things, not just the disaster applications and some

of the immediate things that we are doing, but they are going to

have a pivotal role to play over the long term, because one of the

things that we want to make sure that we are doing at the same

23

time on parallel tracks is bringing as many tools to the table as

possible.

A lot of these folks, and we saw this after 9/11, are going to need

assistance transitioning their businesses. They may never have had

to do that before. Okay, how do they change their business? Do

they have to change their business model? Do they have to change

their business plan to be able to get some conventional financing?

Are they going to look at doing things with government that they

never did before?

For example, I got a call from a very prominent business woman

from New Orleans who said, ‘‘You know what, I have never done

government contracting before but I am going to now and so I need

your help.’’ And so we are working with her on that, as well.

Do you want to talk a little bit about some of those issues, Herb?

Mr. MITCHELL. Just a couple things specifically with the SBDCs,

and we agree with him. We have got to do more and we have got

to speed up that process. Part of the Federal response with the Recovery Centers, obviously FEMA has to lead along with the State

and the local officials in terms of where those centers are and we

follow that process so that, hopefully, there is a coordinated effort

of a number of agencies in the Recovery Centers.

In regard to the SBDCs, we have been working very closely with

them and certainly are aware of the acute need for additional

space. There have been several lenders in all three States that

have come to us to make space available and we are going to put

the SBDCs and those lenders together in terms of that space.

We are initiating conversations with the National Credit Union

Administration to make some of their facilities available.

What we are doing is we are trying every avenue possible where

we can identify space, where business owners can come into their

community to get assistance. That is what we are working on.

This issue of people not having information is critical. One of the

things we shared with the business community when we were

there is that the business community, an awful lot of times, can’t

wait for the process. They have to make individual decisions. It is

amazing, if we are able to get to them, even if we can’t make them

a loan or if SBA is not the option, the avenue they want to pursue,

is that they are able to understand what their options are.

For example, a lot of business owners may not know that even

if they have insurance and they are negotiating with their insurance, they don’t have to wait until they settle that process. They

can still apply to SBA. We can still make the loan. We can take

an assignment in the insurance policy and they can still take their

time to negotiate. It is not knowing those options.

Believe me, we are doing everything we can to try to reach out

to those communities and make staff available and town hall meetings, wherever we need to be to make sure that they understand

what is available as they go through their options. We understand

the process sometimes takes a lot longer, but they need information

in order to make decisions today.

Chair SNOWE. Senator Landrieu.

Senator LANDRIEU. Thank you. I do have just a few questions,

and I thank you all for your concern and your focus because it is

going to require, as I have said many times, an unprecedented naVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00027 Fmt 6633 Sfmt 6601 C:\SBA\26763.TXT CarolB PsN: CarolB
24

tional response, not only from the Federal Government, but from

State and local governments involved and from the business community and faith-based communities. It is an unprecedented disaster.

As Senator Kerry said, there are over 200,000 small businesses

and counting that have been directly affected, and let me say, because some of our panelists, Madam Chair, are not from the areas

of emergency, but their businesses are in dire straits because either

their main buyers, like restaurants in New Orleans are out of business so crawfish farmers in Lafayette are going broke, for instance,

and they will give some of that testimony.

As we say, talking about the seven parishes that were primarily

affected by the winds and the water, almost every parish in Louisiana and small businesses are really struggling because their customers or their suppliers were in the region, and that is true of the

Gulf Coast because we act as an economic unit.

As Waveland was hit, some people in Shreveport who have businesses and suppliers in Waveland are now suffering because their

business in Waveland, their associates are gone, so it really is a

quite difficult situation.

No. 2, I want to support what Mr. Mitchell said. Even if the

Small Business Administration could act perfectly, and no agency

can, and do everything within the context of small business, you

can’t get businesses stood up if people don’t have houses to live in,

highways to drive on, airports that planes will land in to bring

businesses and supplies, and railroads that are working.

I just ask this Committee to be broad in our view as opposed to

narrow and see how we can really reach out because it really is a

comprehensive package that has to be put together and we are a

part of that.

Just a specific question. You have 878,000 applications that have

been issued. How many have been processed to date, do you know?

Mr. MITCHELL. We have actually received about 12,000 back. I

think out of that, we probably have processed, oh, I have the

numbers——

Senator LANDRIEU. And approved, processed and approved.

Mr. MITCHELL. I don’t have that number here, but I think it is

pretty close to about 1,500 that have actually been processed. I do

have the approval number. Only 76 have been approved for about

$4 million so far.

Senator LANDRIEU. To date, we have 878,000 applications, the

numbers that you gave for having been processed, and then to

date, 78 approved. I raise that, Madam Chair, not out of any criticism but just to say how huge this is and how much faster we have

to go.

Senator Vitter and I are introducing a package today which we

hope Congress will look at very carefully on some things based on

what you have already done, which was extremely helpful. Our

businesses need immediate debt relief. They can’t pay their mortgages because they don’t have the buildings. They can’t pay their

credit card debt because they don’t have any cash flow. They can’t

pay the notes on their vehicles because they all went underwater,

or a lot of them did.

25

We have got to find a way for this Katrina and Rita, which is

going to happen in Texas, the same thing, to make national like

a 6-month break or something that they can just get their legs up

underneath them. They just can’t go borrow more money. They

can’t pay on the debt they owe now. Most small businesses operate,

as you know, on a very tight—even with successful small businesses.

My point is, without going into a long speech, which I am sure

you two have thought a lot about, is we have got to come up with

a different mechanism that is quicker, easier, simple in the sense

that everybody understands what it is, a 6-month kind of break.

Then it allows the system to set up.

The other point is, with hiring people that are coming quickly,

I think that is a good thing and I want to support not having thousands of people on in between hurricanes, but the problem is, when

you go to hire them, are we hiring qualified people that are

trained? Are we hiring people that really don’t understand what to

do so it complicates the situation because then they are giving

wrong answers to important questions? That is an issue and I

would like you all to address that.

One other thing, safety. You should ask the Mayor of New Orleans and the presidents of the parishes or the Governor whether it

is safe to come back and don’t listen to, excuse me, to CNN and

FOX News and other things. You should just ask them, because I

have been there many times. I am fine. It is safe in some places,

not only law enforcement safe, but environmentally safe, and you

can go into St. Tammany, Jefferson, and the region is used to acting that way. You don’t have to be in every neighborhood. People

are used to going—they can’t go to their neighborhood, they know.

They shop in Jefferson. Jefferson shops in Orleans. Just go wherever you can and get help quickly, and people at home know where

to go.

Those were just some of my questions. One more. I have several

complaints—I will put this in the form of a question to you, Mr.

Mitchell, or to you, Mr. Barreto—of there are large contractors

coming through FEMA not using local folks, No. 1, because we

want to use the businesses there that need the business anyway,

so we want local people, and minority- and women-owned businesses. I have heard many instances where their applications have

been passed up for out-of-town. Could you comment, Mr. Mitchell

or Mr. Barreto, on what you are doing to make sure our local people get looked at first, and particularly our minority, qualified minority contractors and women-owned contractors.

Mr. BARRETO. I will take a first stab at those four and then I will

let Herb add as he would like.

With regards to the applications, you know, we normally get 50

percent of those applications back. In other words, a lot of folks will

ask for it, and it is smart for them to do that because they are

weighing all of the different options. When you see these huge

numbers, we already know that a lot of these, we will not get back.

As I mentioned, we are calling people where we can and reminding

them, you know, to send us that application back.

As far as loans, we have to underwrite these loans, but we are

working very diligently because we know, for example, that there

26

are a lot of folks in normal loan situations who have difficulty coming up with documents and being able to provide the information

that we need to finish the underwriting process, and that has just

been exacerbated by this disaster. Wherever possible, we are not

putting in the ballpark and saying, ‘‘Okay, unless you get me this

piece of documentation, I can’t go any farther.’’

We are doing everything that we can to get that information ourselves, whether that be through the IRS, whether it is us going directly to the credit agencies, whether it is us going to other sources

of information, or maybe their accountant or somebody else that

they did business with.

I will let Herb talk a little bit more about the applications that

we are receiving, and we are processing as quickly as possible.

There is nothing that is happening right now that is preventing us

from processing applications quicker. We are just deluged right

now with a lot of informational requests. We are sending out a lot

of information, et cetera.

That is starting to level off a little bit. I mean, we got up to these

million refunds very quickly, but we are not seeing these huge

amounts of requests for applications like we were in the very beginning. That doesn’t mean that we won’t have more. I am just

saying that it sped up to where we are at right now and more are

coming, of course. If Rita hits, this is going to be exacerbated.

With regards to the qualified employees, we have what we refer

to as a cadre staff. In other words, we have folks like Herb and

other senior managers who have been with us for years. I mean,

these are the experts of the experts. They have been through a tremendous amount of disasters before. They are our top people and

we are fortunate to have them, and many of them have been with

us for years and years.

The folks that we are bringing on board oftentimes are specialists. For example, we need to bring in attorneys. We need to bring

in loan processors. We need to bring in inspectors. These are people

that have very specific areas of specialization and we are finding

them. In fact, I asked that question yesterday to our HR head for

the Disaster Office, are you getting the people that you need? What

does the quality look like, et cetera, and he said the quality has

been great, and by the way, we are trying to hire as many as we

can from the affected areas, but we are also casting a wide net. We

want the best people that we can to be able to respond to this disaster quickly.

With regards to going back into New Orleans, we agree with you.

Before this recent evacuation, our Disaster Office was planning to

go back in there. I have a great Director down there, and you may

have met him before, Eugene Cornelius. He is working very closely

with the State. He is working very closely with the Mayor. They

have a very excellent relationship. They were planning on coming

in there and setting up and starting to help people immediately.

The problem is—there are a couple of problems. One is that as

soon as they were ready to go in, they were told they couldn’t come

in, and then the second thing is this was the second evacuation.

The third thing is a lot of our people have been personally affected.

Most of our people lost their homes, as well. They are victims, as

well, and so they don’t have any place to live. We are trying to get

27

them mobile homes and trailers and places. It just shows you the

quality of our people. They are not even paying attention about

their own disaster. They are trying to get back to help the small

businesses.

Of course, as soon as the Disaster Recovery Centers are open,

our people will be there. We always are, and we will definitely be

there. I am talking about our disaster folks. We will take them

down there and we will find places for them to live. You know, we

have had a lot of challenges, yet one of the things that we saw

right at the very beginning is that, okay, our folks didn’t have a

place to stay so they were driving, oftentimes 2 hours just to get

into the affected area, and then they were having problems getting

gas.

There have been a number of different challenges that make this

unprecedented——

Senator LANDRIEU. Can I just add one thing on that——

Mr. BARRETO. Sure.

Senator LANDRIEU [continuing]. And then I am going to stop. You

have been very gracious.

Madam Chair, this whole issue of prepositioning first responders

and having, before the storm or disaster, put families of first responders in safe places has come up for law enforcement, for police,

and now for small business, in other words, anyone that has to respond. We have to have a system where their families are moved

to a safe place days before the storm so that those individuals could

come back in and work, because if they don’t work, nothing works.

I mean, if our first responders can’t work, nothing works. Even if

you have got the greatest system in the world, some of which you

have just described, a good system, maybe not the greatest but

good, it can’t work without trained people on the ground. It is a

challenge. We are not there yet.

Mr. BARRETO. The last issue that you mentioned, Senator, was

with regards to contracting, and we are very, very focused on this.

I mentioned in my testimony the PCRs that we have brought on

board to dedicate directly to Katrina. We have interfaced with the

rest of our PCRs, having them identify opportunities for folks inside the affected area. We have already met with our contracting

counterparts in all of the agencies, talking to them about identifying opportunities.

I think there is a misunderstanding that nothing has been relaxed in terms of the goals that we have for small business and especially minority small business. That is something that the President talked about in his speech.

One last thing I want to mention to you, we have been working

very closely with Michael Olivier, the Secretary of Economic Development for Louisiana. In fact, he came and visited me in my office,

brought his team on board. We talked about a number of different

issues, many of the issues that you are bringing on board.

He strongly suggested that I come and visit him, and I did that

this last week and we had a very, very productive day of meetings

with the business community, with the lending community, with

the State government, with the local government, with FEMA, with

the disaster response folks. They were very effective.

28

Now, one of the things that he has mentioned to me, he said,

‘‘Look, Hector,’’ he said, ‘‘we have got to do all these things. We

have got to get the money and we have got to help them transition,’’ he says, ‘‘But they are not going to make it unless they have

business. They need business.’’ And, he says, ‘‘You have got to help

me get them some contracts.’’

One of the things that we are talking to him about and we are

working on, as you may remember, we have had a very successful

business matchmaking program that we have conducted over the

last couple of years. We have set up 40,000 one-on-one appointments over the last couple years with the buyers of every Federal

agency and many Fortune 500 companies and he has asked us to

bring that program to him in Louisiana and we are working to do

that as soon as possible.

Normally, it takes months to be able to gear up and to do all the

logistics and bring all the buyers in. We are not going to do it in

months, we are going to do it in weeks, and the great thing about

this is that not only do we have commitments from procurement

officials at all the government agencies, but the private sector

wants to participate in this, as well. Fortune 500 companies want

to give their contracts to those small businesses.

We will get them in our system. We will make sure—already, Michael has told us, Michael Olivier, he said, ‘‘Look, I have already

got a database of small businesses here that you can use to invite

to these business matchmaking sessions immediately.’’ By the way,

we want this to be regional, so obviously we are going to go in and

do the first one in Louisiana, but we also need to do one in Mississippi and make sure that we include the Mississippi and Alabama small businesses, as well.

By the way, our vision for this is that once we do those initial

ones, we want to do this kind of business matchmaking on an ongoing basis. We have the technology to be able to do that. We call

that virtual matchmaking. We don’t have to do events and bring

people into the area to match up these procurement officials with

those small businesses. We know that they are going to need business for a long time, and so this is something that we are working

on immediately, and obviously minority business will have a major

role in getting those appointments that we set up for the small

businesses in the affected area.

Chair SNOWE. I would add a couple of points to that. I think it

is going to be critical that on subcontracting, I am concerned about

the waiver of small business in the supplemental, that overrides

small business. It is also essential that the small businesses in the

affected area participate extensively and substantially in the procurement process because the government is going to be the biggest

buyer here in many ways.

Mr. BARRETO. We agree.

Chair SNOWE. Therefore, we have got to make that as part and

condition in this whole effort, as well. That could certainly help

with the economic recovery.

I understand you have one staffer responsible for small business

subcontracting in Louisiana and none in Alabama or Mississippi.

That has got to be a priority because that could be the first step

29

in the recovery for many small businesses, which is to participate

in the procurement process.

Mr. BARRETO. Absolutely, and as I mentioned, we are already directing resources to those areas. I mentioned our Procurement Center Representatives. We have four that are already tasked exclusively with Katrina. All of the other PCRs have been tasked with

this, as well. We have four that are dedicated to it, and whatever

we have to do internally with our GCBD Department, we will do

that.

Chair SNOWE. Okay. Thank you.

Senator Isakson.

Senator ISAKSON. Thank you, Madam Chairman.

Administrator Barreto, many of your lenders are community

banks and medium-sized banks. Given the pervasive damage of the

hurricane to all small businesses, what is the state of your lenders?

Mr. BARRETO. Well, we have been meeting with them. As I mentioned to you, I met with them in Louisiana. I met with some in

Texas. A lot of these folks are, especially in the affected areas, are

also transitioning. You know, they also were victimized. They were

also affected. A lot of them, fortunately, had good contingency

plans.

One of the major banks there, and excuse me, I have forgotten

their name—I can get you the name—has told me that they are already operational and they will already be back to where they were

before. Now, they are not in the area, but they have already set

up some alternate sites for their employees and they are already

working on it.

There is no doubt about it that the lenders were affected and

they are also part of the response that we are going to need to do

to make sure that we are doing everything that we can to work

with them so that they can start doing the lending that is so necessary to bring these people back.

Senator ISAKSON. Is the capability there to close loans that are

underwritten and insured by SBA? Are those resources available?

Mr. BARRETO. Yes. We haven’t seen any—to this point, I would

say to you that some of the ramifications of this are probably going

to become evident in the weeks and months to come, but as of right

now, what they are saying to us—and again, I haven’t spoken to

every single lender, but we have met with a group of government

guaranteed lenders and their attitude towards us has been really

more of, we want to be involved. We want to do everything that we

can to respond to the folks that have been victimized.

Senator ISAKSON. Well, I have a special love for New Orleans. I

spent my honeymoon there and spent most of my money educating

one of my kids at Tulane, so I don’t want this question to sound

the least bit hard-hearted, but I do want to ask a question.

Senator LANDRIEU. Give him an application for a loan.

[Laughter.]

Senator ISAKSON. I support your recommendations both for the

increase in the physical disaster loans as well as your proposal on

disaster mitigation loans, the 20 percent of the aggregate amount

rather than just the amount funded. I do want to ask this question.

Mr. BARRETO. Sure.

30

Senator ISAKSON. The underwriting of loans causes people to

make good decisions. I was in the real estate business for 33 years,

and could not have functioned were it not for loans, many of them

government-insured, FHA, VA, things like that. Part of your responsibility is to assess the value of the security for the loan or the

enterprise or the business, and in these disaster mitigation loans

and disaster relief loans, you are going to be funding leasehold improvements and equipment which are capital purchases and then

in the disaster mitigation category, you are funding things they can

do in their business to prevent the next hurricane, i.e., Rita, from

causing a repeat of the same damage.

My question is, how much of the underwriting in the physical

disaster loans and subsequently disaster mitigation loans are going

to be tied together so that as you make these loans, you are also

causing good things to happen on the site so that the next hurricane might not do the damage that the last Hurricane Katrina did?

Mr. BARRETO. I am going to defer that question to my expert

here who deals with all of the particulars of the underwriting process as it relates to disaster loans.

Herb.

Mr. MITCHELL. The basic two criterion in disaster lending, once

we get past the eligibility questions, such as: Are they in a declared

area? and those kinds of things, all we are looking for is satisfactory credit history and repayment ability. We are primarily a cash

flow lender. We look at the pre-disaster position and financial condition of the company, and if they were operating satisfactorily, we

make the assumption that they will continue to do so and that is

the basis upon which we make the loan.

We take whatever collateral is available to secure it, but if the

collateral is not there to secure the loan, we will still make the loan

as long as the applicant has a satisfactory credit history and repayment ability.

Senator ISAKSON. If I might, I understand you are a cash flow

lender, but I also understand that a physical disaster loan is in

part a loan to rebuild leasehold improvements. You are going to

have a recommendation later from NFIB about some advanced depreciation for some of these things——

Mr. MITCHELL. Sure.

Senator ISAKSON [continuing]. But you don’t take into any consideration that you are financing something that might be damaged

again when the next storm hits?

Mr. MITCHELL. Well, part of the criteria, the condition for making the loan, is that they must obtain and maintain insurance.

Otherwise, they are not eligible for any future assistance from us,

and that is probably going to be one of the issues in some of those

areas. When we made loans in a lot of those areas the condition

is if we have made them a loan in the past, they must have purchased insurance and maintained that. We are then only going to

cover the uninsured portion of that.

Senator ISAKSON. My only point is this. You make loans to cover

that amount above what is insured. Your example in your speech,

Mr. Administrator, says if a company had $100,000 in damage but

only $80,000 insurance, you will make a loan of 20 percent of

31

$20,000. You want to make it 20 percent of $100,000 in your recommendation.

If you are making that loan to someone, your underwriting, I

think, should encourage them when they spend that money to rebuild in a more responsible way so that the next storm that hits

doesn’t maybe wipe everything out again. All I am trying to say is

we have got a chance to cause people to do things better——

Mr. MITCHELL. We agree with you 100 percent and understand.

We have to get a proposal from them as to exactly what they plan

to do in the way of mitigation and it needs to make sense. We will

evaluate that and fund it accordingly. You are exactly right. I

mean, that is the whole idea.

Senator ISAKSON. Well, that is going to save them and SBA and

their lender a lot of money in the future.

Mr. MITCHELL. That is exactly right.

Senator ISAKSON. Thank you, Madam Chairman.

Chair SNOWE. Thank you.

Senator Kerry.

Senator KERRY. Thank you, Madam Chairman.

Just following up on a couple of things, on the 2,000 people that

you are employing and some 2,000 employees you plan to hire,

where are they going?

Mr. BARRETO. Well, they are going in a number of different

places. A lot of these are in our center where we are processing all

of the loans, and one of the things that I mentioned in my opening

statement was that we have already gotten some additional space

and we have options even for more space because we think that we

are going to need it. We are going to have a lot of people——

Senator KERRY. Is that in that Fort Worth center?

Mr. BARRETO. Yes, sir, Fort Worth. Of course, we will also have

people in the affected areas. You know, one of——

Senator KERRY. How many people are going to be in the vicinity,

in the region, visible and moving around?

Mr. BARRETO. We can give you the absolute numbers that we

have right now, and some of this is a product of how many centers

are opening up. You know, we talked about we have 30 centers already. Herb mentioned earlier that usually by this time in, if you

could ever consider something a normal disaster, the centers would

have already been open, we’d already have people in there, already

interfacing with the folks that need the help. This is so different

because there are a lot of places that we can’t have a center in just

yet.

Herb, why don’t you mention how many folks we have on the

ground and what is anticipated, because not only have we brought

on 2,000, but we also mentioned that we are making plans for

maybe hiring an additional 2,000, as well.

Mr. MITCHELL. Just to use some comparison, with the four hurricanes last year, we had pretty close to 1,700 folks actually in the

declared areas, and that is a combination of customer service representatives, loan officers, and inspectors, and we clearly expect to

have that again. I clearly think at some point we will have a presence of about 2,000 people, with about half of those actually being

inspectors that will actually be going on site once we get the loan

32

application in to verify the damage and come up with the estimates.

Senator KERRY. What is the background of these folks? Do they

have prior disaster experience?

Mr. MITCHELL. What we have is actually, and more so with the

construction estimators, we have what we call a reserve force that

we basically train and we call them back repeatedly when it is

needed. A lot of these folks have worked for us before. We have a

database of about 6,000 folks that have worked for us——

Senator KERRY. So you are drawing on a pool of people that are

experienced——

Mr. MITCHELL. Right, and even before the disaster is declared,

we are calling, we are clearing people, re-instating credit cards, we

are doing all of that even before the disaster is declared.

Senator KERRY. As the Director said a few answers ago, some of

the ramifications of this are not going to become evident for several

months.

Mr. BARRETO. Sure.

Senator KERRY. Given that reality, Senator Landrieu and I wrote

to you on September 1 and again on September 13 asking you to

extend the application deadline on the physical disaster loans from

October 28, because a lot of people aren’t even going to be able to

get back in to assess damage by then.

Mr. BARRETO. Right.

Senator KERRY. Can you give us an answer today as to whether

you will agree to do that?

Mr. BARRETO. You know, we have the ability to be able to extend,

and we have done that many times before. As you know, we had

to do that a couple of times after 9/11. We have done it for other

disasters. As I mentioned, if there is a need and we find that there

are a lot of folks that just are not able to get us their applications

during the prescribed time, we will definitely look at that and extend it accordingly.

You know, that is kind of where we are at right now. We talked

about the fact that we have sent out a lot of applications and we

are waiting for a lot of those applications to come back to us.

Normally——

Senator KERRY. Where do you send them?

Mr. BARRETO. Well, they are sending them—we send them to a

lot of different places. A lot of these folks have already given us an

alternate address, a relative. A lot of them give us an address of

where they are staying at. You know——

Senator KERRY. Those are the people who have contacted you?

Mr. BARRETO. So far, yes.

Senator KERRY. What about the people who don’t know about it?

Mr. BARRETO. Well, we put out a lot of information. I think a lot

of folks know that—because one of the things that happens is people know that the first place that you have got to go is FEMA, 1–

800–621–FEMA. They are calling FEMA and FEMA is immediately

getting those people and bringing them to us. Most people, I think,

know that if you need some type of assistance, if you need a place

to live, if you are looking for a grant, if you are looking for some

information on something that you need, that is the first place that

33

everybody is being directed to and those referrals that have come

to us have come to us from FEMA.

Senator KERRY. Have you had any evidence that you are not able

to keep up with the demand at this point?

Mr. BARRETO. At this point, we haven’t seen anything that has

told us that. You know, always, you are concerned about how

quickly you are going to be able to respond, and especially something of this proportion.

I have got to tell you, we have got people right now working 7

days a week on this disaster response, around the clock, and I was

worried about them and I went up to talk to them yesterday, but

these folks, they are very, very committed. They are very energized, if you will, and they are challenging themselves in ways that

they have never done before. You know, they have a goal every day

of how many folks they are going to be able to talk to and how

many folks they are going to be able to get applications from and

they push themselves to meet that.

I will let Herb comment on what he has seen so far, but we

haven’t seen anything that has told us that we are not able to keep

up with what we have seen so far.

Mr. MITCHELL. Obviously, part of the challenge here is the number of applications coming in and the number of calls. We are gearing up to try to be able to process, and we clearly expect at some

point to have 3,000 to 5,000 applications a day and that is what

we are staffing to.

Senator KERRY. One of the issues that concerns me, and I think

others, is the question of coordination with other agencies. When

we had the red tide attack this summer up in New England—

Maine, New Hampshire, Massachusetts were very hard hit. We

had some 1,700 shellfish operators losing about $3 million a day.

When they went to SBA to get a loan, they were told, well, you are

not small businesses. You can’t get loans—you are farmers. We

don’t give farm loans. When they went to the Farm Service Agency

folks, they were told, you are not farmers and we don’t give loans

to non-farmers. They were caught in between and aid didn’t come.

What is happening now? You have got a huge shellfish industry

down in Louisiana, which as Senator Landrieu says has been really

hard hit. Who are they going to get assistance from? Is it going to

be clear to them from the outset that they get small business disaster assistance?

Mr. BARRETO. I believe it should be. I mentioned that one of the

persons that we are working very closely with is the Secretary of

Economic Development for the State of Louisiana and he has

brought this to our attention. We are working very closely with him

to make sure that we get the information out to those folks and to

help them every way that we possibly can. You know, some of those

folks——

Senator KERRY. Does that include, in fact, lending to them?

Mr. BARRETO. I am sorry?

Senator KERRY. Does that include lending to them?

Mr. BARRETO. Absolutely.

Senator KERRY. Okay. So they will qualify?

Mr. BARRETO. Obviously, we have to look at every case that

comes to us. I mean, there are a variety of reasons why people may

34

not qualify that may have nothing to do with the industry that

they are in——

Senator KERRY. I understand that. I do understand there are

some other requirements they have to meet. I think one of those

problems was the definition of aquaculture, if I recall, is that correct?

Mr. MITCHELL. That is correct.

Senator KERRY. Is that resolved?

Mr. MITCHELL. We are going to have to get with Agriculture

again and go through that. I mean, we are in contact with them

and we need to make sure that we are clear exactly as to the definition and where those folks should go. We should not bounce them

back between each agency once we make that determination.

Senator KERRY. Well, do we need to put that into a bill? We are

working on a bill now that we are going to put through. Do we

need to put that clarification in and make it absolutely clear so

there is no interagency struggle here?

Mr. MITCHELL. Well, I am not sure that it is an interagency

struggle. The issue, once—Agriculture has a definition for aquaculture. The issue becomes what that business is actually doing

and where they are deriving their revenue from, and once that assessment is made, then they should go to the appropriate agency,

once we make that assessment of that business activity.

Senator KERRY. What does that mean? I am not sure I understand. If you are in the crawfish business or the shrimp business——

Mr. MITCHELL. Well, the question of aquaculture is whether or

not you are actually raising fish as opposed to catching. If you are

catching and you are a commercial activity and processing, then it

is SBA. If you are raising fish, then it is Agriculture. A lot of times,

businesses are involved in a combination of both.

Senator KERRY. That is why I am asking you. We need to get assistance to them. Somebody who needs assistance doesn’t want to

get caught in this bureaucratic snafu. They need money and they

need a loan. What we have got to do is make sure that this is as

clear as a bell so that they don’t get, the run-around or fall through

the cracks. They are going to go crazy.

Mr. MITCHELL. Right. I think part of the solution is wherever

they come into, once we make that determination, that the agencies abide by that determination that is made.

Senator KERRY. We have actually passed a bill in the Senate.

Senator Snowe and I have addressed this issue. It is in the House

now and it has gotten held up, frankly, because you folks haven’t

signed off on it. If you could sign off on it, we could get this out

of here and get it done.

Mr. BARRETO. Senator, we will be happy to work with you on

that. If the industry in the affected areas—if we have a lot of cases

where this is going to be a problem, then obviously it is incumbent

upon us to be working very closely with the Department of Agriculture.

The worst possible thing, and I think Herb alluded to this, we

don’t want folks to be getting the runaround. We don’t want to add

to the confusion of it. We will work together with you on that and

we will also assess what the needs are of the folks in the fishing

35

industry. A lot of those folks, as you know, have lost their boats.

They have lost their customers. They are going to need a lot of different kinds of help and we have got to be there for them.

Senator KERRY. That is why the coordination, I think, is going

to be so critical——

Mr. BARRETO. Yes, I agree.

Senator KERRY [continuing]. I just urge you to take a look at

that.

Do I have another moment, Madam Chairman?

Chair SNOWE. You may.

Senator KERRY. The Committee was contacted by the National

Association of Realtors because in Louisiana, Mississippi, and Alabama, realtors are not currently eligible to participate in the economic injury disaster loan program. They are disqualified because

apparently they have to be independently owned and operated and

SBA interprets that to mean that they have to be, ‘‘free from significant control by other entities, which includes a broker.’’

Now, the problem, or catch, is that the association with a broker

is required by State law, even though they are out there on their

own. For realtors, their business has evaporated, they need an

emergency loan, but they are disqualified, again, by definitions.

What can we do about it?

Mr. BARRETO. Again, I am happy to look at that. This is the first

that I am hearing about this. I don’t know if you have any input

on this.

Mr. MITCHELL. I have that issue on my desk right now. I have

asked staff to work with counsel, to come back, to take a look at

whether or not we need to take another look at that. It is policy,

so we have some flexibility there. I mean, all we are trying to do

is to make sure if somebody, a business owner, that they are independently operating, that they have—they are invested in the business and they take the risks of profits or loss. We are looking at

that to see what flexibility that we can apply to help that particular industry.

Senator KERRY. Fine. As I close, I just urge you, Mr. Administrator—I regret that you are not formally at the cabinet table, but

I think you have got to guarantee that Katrina rebuilding contracts

are going to go to small business. So far, we are reading about big

companies and I think it is really important to start sending the

message out there about contracting with small businesses. I hope

you will weigh in as heavily as possible to get those contracts out

to small businesses, particularly the local and regional ones who

are capable of delivering, as fast as possible.

Mr. BARRETO. It is a priority, Senator, and I will make sure that

that happens.

Senator KERRY. Thank you, Madam Chairman.

Chair SNOWE. Thank you, Senator Kerry.

Senator Thune.

Senator THUNE. Thank you, Madam Chair and Senator Kerry,

for holding this hearing, and I thank the panel, Administrator

Barreto and Mr. Mitchell, for being here, and I especially want to

extend a welcome and thank you to the small business owners who

are here from Louisiana, Mississippi, and Alabama. Clearly, there

are things right now that you could be doing back in your home

36

area, providing you can get into your home area, to address all the

incredible challenges that are raised by this hurricane, but we are

glad to have you testifying in front of this Committee and making

that sacrifice so that you can inform the Senate about your businesses, how they are being impacted and what things we might be

able to do to assist you. I appreciate your being here.

Administrator Barreto, I just wanted to—as was noted earlier

today by Senator Kerry and others, the amendment to the Commerce, Justice, Science Appropriations bill that was passed through

the Senate does give SBA expanded tools to help families and businesses that have been harmed by the hurricane, and some of those

provisions align with the President’s proposals that were unveiled

last week during a speech in New Orleans, including increasing the

maximum size of SBA disaster loans and deferring repayment of

those loans for up to 12 months.

From your perspective, does that legislation give you the capabilities you need to meet the rebuilding needs of the Gulf Coast,

or is there anything that we are missing or are there other things

that we ought to be doing, as well?

Mr. BARRETO. I think some of the provisions that you have mentioned will be very, very important. I mean, increasing the loans

to $10 million, I think, is going to be important. The changes that

we make to disaster mitigation loans and the increase that we can

do there, I think that is going to be very, very important.

We are interested, and I mentioned this in my testimony, to increase the surety bond level. You know, there is going to be a tremendous amount of construction down in that area. A lot of small

businesses have already come to us and said, we want to be part

of that, but we are going to need some additional bonding, so we

want to increase that to $5 million. Obviously, we want to authorize the deferment, the 12-month deferment on interest and principal for existing 7(a) and 504 loans. That will provide some of the

relief that Senator Landrieu was talking about.

We think it is very, very important to increase the budget authority that we have to make 7(a) loans and 504 loans, and to

make sure that the amounts that we do get inside of the Gulf Area

are separate from our normal budget authority. You know, we want

to take it from $17 million and $7.5 million—I am sorry, $17 billion

for the 7(a) and $7.5 billion and increase that another appropriate

amount, $10 billion on the 7(a) and an additional $5 billion for 504.

We think those things will help give us some additional tools that

we don’t have right now that will enable us to help a lot more

small businesses.

I will tell you that we are getting—it is great and it is very, very

good. We are getting a lot of ideas coming in from the Governors,

from the Senators, from Mayors, from our lenders, and we are

going through as much of that as quickly as we possibly can. There

are some very, very good ideas there. There are other things that

we really need to evaluate and see where we can do the most good

for the most folks.

Again, we have kind of been through this before. We saw after

9/11 and some of the other disasters where we had to change

things a little bit to do the most good for the most small businesses

for that particular disaster, and every disaster is different, and, of

37

course, we are dealing with something now on a scale that we have

never seen before, but at the same time, with distinctions from

other disasters that we have had.

Those five things that I just mentioned, I think would be very

important. I know that is all part of the legislation, and we want

to and will continue working very closely with this body and with

the Chair and the Ranking Member on any additional proposals

that they might have.

Senator THUNE. After 9/11, there was a GAO report issued in

2003 that indicated some of the metrics that the SBA used for determining disaster loan performance were not fully reflecting the

program’s actual performance, and I am assuming, of course, that

you want to have good information in front of you when you make

these decisions about the effectiveness and performance of the programs, and obviously, as the Committee with jurisdiction over the

SBA, we want that information, as well.

Have you made any changes since that report to help ensure that

the data we are getting is accurate and that we are measuring the

right data?

Mr. BARRETO. Absolutely. It is critically important, and again, I

think that sometimes there is a misunderstanding in that the GAO

report wasn’t saying that the SBA wasn’t doing the right kinds of

disaster loans or that we weren’t helping people that were affected.

What they were saying is that the way that we are measuring the

metrics wasn’t fully capturing some of the goals that we had, but

it wasn’t really talking about the specific benefits that we were

able to provide.

We have made some changes. We have an effective loan monitoring system now that we didn’t used to have. I mean, when we

first started, we didn’t have an effective way to monitor our loans.

We have got some very experienced people now that have been

doing this for a while. We have automated a lot of our process. We

have a lot better information. We have a lot of very good access to

our lenders and we are working with them and talking with them

every single day on other loans that we make.

I believe that we have made some definite enhancements and

will continue to do that and I would be glad to provide you with

a list of some of those specific items.

Senator THUNE. Do you think that the interagency communication, sometimes I think there is a frustration not only here with us,

but also as the public observes some of this, that agencies of government, that one hand doesn’t know what the other hand is doing,

that there is just an awful lot of confusion out there. How would

you characterize the interagency communication between, for example, SBA and FEMA?

Mr. BARRETO. Well, I think it has been good. First of all, FEMA

and SBA are kind of joined at the hip any time that there is a disaster just by the very nature of disaster response. We have to work

very, very closely with them. We are true partners in every sense

of the word.

First of all, we are co-locating in all of their facilities, and we

have to. I mean, there is no way we can do our job if we are not

able to be in all the facilities because that is where the victims are

going to be.

38

Also, we work very closely on communication efforts. In fact, I

was just in Baton Rouge—let me see what day of the week it is—

on Monday and we did a joint press conference with FEMA to

make sure that we are communicating to all the press and to the

local community where FEMA starts and where it stops and then

where SBA begins and so forth.

We have had a very effective relationship, and I will also tell you

that there are existing relationships that go back years and years.

I mentioned that Herb has been with us for over 10 years. He has

developed some pretty good relationships with FEMA folks that

have also been there for 10 years. These are the experts. These are

the professionals. These are the people that do this every single

day.

I will tell you that wherever I went last week, whether it was

in Baton Rouge visiting a Disaster Recovery Center, whether it was

visiting the FEMA headquarters in the area, whether it was visiting the Houston Disaster Recovery Center, everywhere I went,

when I talked to the leader of FEMA in that facility, they said—

because I would ask them, I said, ‘‘Is there anything that we are

not doing? Is there anything that you need? Is there anything that

we could do better?’’ Every time, and please don’t overhear me, we

are not complacent by any stretch of the imagination, but every

time they said, ‘‘We have no issues with SBA. Everything is

smooth. I know your people. I don’t worry about SBA.’’

I think in terms of the relationship that we have had with FEMA

ourselves, that it has been very good, very positive, and if there are

any challenges going forward, I think we have the relationships

and the experience to be able to mitigate that immediately so there

is not anything that is going to affect any of the folks that are requesting disaster assistance.

Senator THUNE. I appreciate your answers and we welcome your

ongoing input about things that we could, can be doing, tools that

can be provided to the small businesses in that region that will

help them get back on their feet. I think it is going to be critical

in terms of this recovery and in getting the economy going again

and jobs created, that we need to be very aggressive in attacking

this challenge.

Again, Madam Chair, I appreciate you holding this hearing. I

have got a statement I would like to have included in the record.

Chair SNOWE. Thank you. Without objection, it is so ordered.

Thank you, Senator Thune.

[The prepared statement of Senator Thune follows:]

PREPARED STATEMENT OF HON. JOHN THUNE, A U.S. SENATOR FROM SOUTH DAKOTA

Chairwoman Snowe, Ranking Member Kerry, other Members of the Committee,

and last but not least, our witnesses—thank you for putting this hearing together

and for participating on such short notice. I would like to extend a special welcome

and thank you to the small business owners here from Louisiana, Mississippi and

Alabama. I am sure you have important things you could be doing right now to get

your businesses back online after Hurricane Katrina. Instead you are testifying before our Committee. You have made a sacrifice to come here and inform the Senate

about how your businesses are being impacted by the Hurricane. Thank you for

making that sacrifice.

I am also looking forward to hearing from Administrator Barreto about what all

the SBA is doing to help with the recovery effort. As some of you may know, the

SBA does something of a transformation during times of disaster. The SBA transforms into the primary Federal source of government loans for homeowners, renters,

39

and business owners that have been impacted by the disaster. Unfortunately, SBA

has had a lot of recent experience with disaster assistance loans.

After 9/11, SBA helped small businesses in New York and around the country

that were hurt by the economic downturn associated with the terrorist attacks. By

the end of fiscal year 2002, SBA approved more than 9,700 loans for a total of $966

million to assist in the recovery efforts of September 11 victims nationwide.

Following the unprecedented four hurricanes that struck the Florida coast during

the summer of 2004 and resulted in disaster declarations in approximately a quarter of the United States, the SBA approved more than $2.1 billion in disaster loans

to about 64,500 residents and business owners in the affected areas. SBA has

stepped up to the task during these times of need. By providing loans in an accessible and efficient manner, the SBA has helped bridge the gap between disaster and

reconstruction.

That being said, there are still inefficiencies that can be improved. Initial news

reports on the SBA response to Katrina have been mixed. I am looking forward to

hearing about the experiences of the small business owners on the ground. I am interested to hear how quickly SBA and the rest of the Federal Government is responding to their needs and helping them help themselves.

The Federal Government can and should play an important role in the clean up

and redevelopment of the Gulf Coast. The best laid government program will never

match the worth of a private church or civic organization helping those in need or

an entrepreneur opening up a new small business that creates new jobs. The best

thing we can do as the Federal Government is to try and facilitate these other parts

of society and be conscientious of not getting in their way.

With that I would like to say that I am looking forward to the testimony and

hearing from the small business owners who are going to be the real catalysts in

redevelopment as they prepare to flip over the ‘‘open for business’’ sign and get the

Gulf Coast economy moving again.

Chair SNOWE. To follow up on that, on being efficient and removing the conflicts between and among agencies, one of the approaches the Coast Guard takes, as chair of the Coast Guard Subcommittee and with whom I visited New Orleans and Gulfport,

Mississippi, on Monday, is that their can-do attitude is this, they

will ask questions later. If they confront a problem, they address

it and they don’t ask if it is some other Federal agency. They don’t

ask if it is a State responsibility, a local responsibility. They just

go about and they do it.

I think that in this instance, given the dimensions and the scope

of this disaster and this rebuilding effort that is going to be the

largest and perhaps costliest, and we don’t even know what is

going to be compounded with Hurricane Rita. All the more reason

to break down these bureaucratic barriers.

So I urge you from that standpoint, let us not get in the way,

whose jurisdictional lines, you know, a certain responsibility belongs to. I think we have just got to eradicate them for all practical

purposes and we can solve the rest later.

A few points that I want to make. The deadline which Senator

referred to on October 28th, in our legislation, and I am hoping—

again, as our goal is to assemble a package that we can move

under unanimous consent—get it passed by both the House and

Senate, signed by the President, including which in our amendment was extending that deadline for a year. We think that is very

important.

Secondly, recruiting people from across the country, if that is

possible. I know that is what the Coast Guard did. When they

prepositioned actually their aircraft and their ships, they also

prepositioned people. They assembled teams from every Coast

Guard station in the country to come in, and so were able to move

40

in immediately after the hurricane, if not during, to begin responding to the crisis at hand. I would also urge you that in some ways.

I know housing is an issue I have seen firsthand, again, and people are there in the makeshift operations down there, and I know

it has been especially difficult. You may think about putting people—again, what Senator Landrieu was referring to, about perhaps

setting up shop in some of the parishes that are operational, again,

consulting with local officials about what is doable, and right now,

obviously the circumstances have changed down there because of

the hurricane that is about to descend again in the Gulf. In any

event, but that is another dimension. If there are operational

needs, maybe it is better to have some centers set up there, as well.

On the procurement, please, I think that is going to be absolutely

vital for small businesses to have access to the procurement opportunities that will be provided with the role the government is going

to play in this rebuilding effort. I would urge you—and I am very

concerned about these waivers in the supplemental. We couldn’t

hold up the supplemental for what it represented, obviously, for assistance, but I was very disappointed to find that waiver slipped in

there on subcontracting plans for small businesses that could cost

up to $80 million in subcontracting and perhaps, I don’t know, was

it $3 billion or so a year for small business prime contracts. This

is significant. This is not the time—it never is, but certainly this

is not the time to shut out small businesses——

Mr. BARRETO. I agree.

Chair SNOWE [continuing]. The procurement opportunities and to

be overrun by all the large businesses because they need the job.

This is going to be—you know, the vitality of the economy is represented by the small businesses that can survive this. I would

urge you in that standpoint.

Finally, looking at the numbers in the applications filed, I see

that the referrals are a million, but the applications approved is 76.

Obviously, it is going to take some time. There is a huge gap between the referrals, and also, you have got 12,000 received. Approved have been 76, not your fault. Obviously, it is going through

the process. At some point, all of the sudden, you are going to be

overwhelmed by the numbers——

Mr. BARRETO. Right.

Chair SNOWE [continuing]. Between what was submitted for applications and the processing. I would hope that you are really prepared with the resources, both personnel and otherwise, to be responding to all of that.

Mr. BARRETO. We absolutely agree and we are using this time

very wisely by training all the folks that need to be trained, by getting the additional space, and by the way, we have options for even

additional space. We are really very fortunate. I visited the operation. It is already set up. In other words, we have gone into space

now that already has the cubicles, already has the phone systems,

already has computers. We can be operational in the additional

space as quickly as we need to be.

We hear you loud and clear, and believe me, Herb and I meet

on this every day. I mean, he is meeting on this every hour to

make sure that we are ready for what is coming.

41

Chair SNOWE. I appreciate that, and please keep us informed of

everything and anything that needs to be before us and that really

does require our attention, because we want to eliminate as many

problems as possible in this process and make it as easy as possible

under these arduous circumstances of people who have been directly affected.

I appreciate your leadership, Administrator Barreto, Mr. Mitchell, thank you, and for your resolve and your commitment to bring

the resources to people who desperately need it. Thank you.

Mr. BARRETO. Thank you, Senator Snowe and Senator Kerry.

Thank you very much.

Chair SNOWE. No, thank you. Thank you.

Senator KERRY. Could I just ask a couple of other questions.

Chair SNOWE. Oh, yes. I am sorry. Administrator Barreto, I am

very sorry.

Senator KERRY. I just have a couple——

Chair SNOWE. Okay. I didn’t——

Senator KERRY. That is okay. No, no, no, go do what you have

to do. I will just be 2 minutes.

As we both know, there has been the recent controversy over the

7(a) STAR loans.

Mr. BARRETO. Yes.

Senator KERRY. Obviously, we don’t want that to undermine

what happens with respect to Katrina response.

Mr. BARRETO. Yes, sir.

Senator KERRY. In an effort to try to make sure it doesn’t, we put

a provision in the amendment that authorizes the SBA to make the

supplemental loans for Katrina victims that included oversight protections. Do you support, No. 1, that amendment that allows the

7(a) supplemental loans, and No. 2, the $75 million?

Mr. BARRETO. Thank you for the question, Senator. First of all,

let me say that we have spent a tremendous amount of time lately,

and we will spend as much as we need to, to make sure that people

understand the difference between our disaster loans and what

these STAR loans were intended to provide. It has been very unfortunate. There has just been a lot of inaccurate reporting, a lot of

misrepresentations, and to be perfectly frank with you, this has affected a lot of our lenders and a lot of the small businesses that

we are trying to help.

We have gotten a lot of calls from our lenders saying, what is

going on? We were trying to help small businesses and now we are

being accused of doing something that we shouldn’t have done. We

followed what the regulation was. We followed what the intent

was. We helped those small businesses. Those small businesses

that are calling their lenders now saying, ‘‘Hey, I have got customers calling me saying that they are not going to do business

with me anymore because they think that I have done something

wrong. They think that I have taken money that I shouldn’t have

taken.’’

This has been very, very unfortunate. We are trying to correct

the record every place that we could. I know how important those

STAR loans were to you after 9/11 to be able to stimulate the economy and to get money into small businesses that were suffering

through no fault of their own. There are many, many businesses,

42

as you know, outside of the declared disaster area in New York and

outside the Pentagon that were suffering. They were screaming for

help, the many industries. You mentioned some industries today.

We were getting calls from the tourism industry. We were getting

calls from the aviation industry. We were getting calls from businesses in airports. It was tremendous.

Obviously, we need to do everything that we can to help small

businesses. Our primary focus right now is to help those hundreds

of thousands of businesses inside the declared disaster area. I am

happy to continue working with you on this issue.

One of the things that I also have to do is reassure our lending

community that if we are able to do these loans, that it is going

to be different this time, that they are not going to be accused and

attacked——

Senator KERRY. Obviously, we want people to know it is different; and our goal is to make sure Katrina folks—well, we specifically put in the amendment, Senator Snowe and myself, a bipartisan effort with Senators Vitter and Landrieu, et cetera, that the

supplemental loans for Katrina can go to people indirectly impacted. We are saying, and we clarify guidelines so that we define

what constitutes ‘‘adversely impacted.’’ I think we have done our

job.

What I want to know is, given that clarification, are you supportive of giving loans to those folks and of the $75 million?

Mr. BARRETO. As I said, as we are dealing with the fallout right

now, and it is a daily thing that we are being attacked, the last

thing I would want to do is create more victims, you know, create

small businesses, again, through no fault of their own, that are

going to be attacked for getting a regular——

Senator KERRY. Are you saying to me you are not supportive of

that——

Mr. BARRETO. I am not saying that I am not supporting it. I

would be happy to work with you on that. First, we need to assess

how——

Senator KERRY. Let us do that right here, right now.

Mr. BARRETO. Well, I am happy to. I am happy to work with you

right now, but as I said, coming off the heels of where we are already suffering on the STAR loans, I want to make sure that if we

are able to do it, that we do it right and that everybody is clear

as to what the responsibilities are of all of the partners in this.

Senator KERRY. I am trying to figure out where we are.

Mr. BARRETO. Again, I am happy to continue to work with you

on this issue, but——

Senator KERRY. In other words, you are not necessarily——

Mr. BARRETO. I am not ready to make a commitment today to do

a Star loans II unless we really are able to understand exactly who

is going to get those loans, because again, we have spent a lot of

time reassuring our lenders. I have been talking to them. Everywhere I go, the lenders come up to me and say, ‘‘Hey what is the

deal with this STAR loan program?’’

Senator KERRY. I understand. But, Senator Landrieu has clearly

pointed out how outside of the immediate, ‘‘disaster area’’, you have

major suppliers and others who are obviously hurt——

43

Mr. BARRETO. Many of those will be able to qualify for our regular disaster loans or economic injury disaster loans, which have

much better terms, obviously, lower interest rates, longer terms,

more liberal and flexible underwriting. We know that there are

hundreds of thousands of small businesses that are going to need

our help and that could potentially qualify for a disaster loan. We

want to make sure that they get those direct disaster loans with

the favorable rates, and then obviously we are going to continue to

assess what the ramifications are.

You know, I remember after 9/11 it took us some time before we

were able to really understand what the impact is, and especially

with a potential second hurricane hitting and we are not even out

of the hurricane season. This is something that I think could continue to be an issue for us to deal with for some time.

Senator KERRY. Well, I am not trying to—I don’t want to litigate

the case here now, obviously. I am not trying to. I just want to

make sure we don’t throw the baby out with the bath water.

Mr. BARRETO. Sure.

Senator KERRY. There is a clearly distinguishable, it seems to

me, impact area and effect that we ought to be able to arrive at

an agreement on, and I would hope that we do. I mean, helping

areas outside of New York that were harmed by the ripple effect

of 9/11, that was the original effort in the STAR program. As a result, businesses in Seattle or the Virgin Islands winded up being

the recipients of those loans if they were harmed. So——

Mr. BARRETO. As you know, Senator, these were regular 7(a)

loans, working capital loans, regular ones that we make to small

businesses. These were small businesses that were applying for

these loans because they were affected after 9/11, and we worked

very closely with our lenders to understand that. There was a tremendous amount of effort by all of us to make sure that we not

only educated the lenders, but we were able to get that help where

the help was needed.

If the intention was to stimulate the economy and to save thousands of businesses and tens of thousands of jobs, I think we were

very effective in being able to do that. If we are able to do this

going forward, I just want to make sure that folks are clear, because I am really concerned that the kind of misrepresentation and

misinformation on these STAR loans——

Senator KERRY. We want to help you to clarify it.

Mr. BARRETO [continuing]. Is going to occur again, and the last

thing I need—I said in an editorial that I wrote, this is the second

injury. These small businesses through no fault of their own got a

regular 7(a) loan. In fact, one small business said, ‘‘Look, I didn’t

get such a great deal here. The interest rate was high. I want to

rework that loan to get a lower interest rate right now.’’

A lot of these small businesses, again, did nothing wrong and

they are being accused of taking disaster money, which is not true.

These were not disaster loans. These were our regular 7(a) loans.

Senator KERRY. Therefore——

Chair SNOWE. Can we——

Senator KERRY [continuing]. We shouldn’t have any problem at

all in being able to do this under this other mechanism.

44

Mr. BARRETO. I would like to work with you to know that and

make sure that we do everything that we can——

Senator KERRY. My final question is——

Chair SNOWE. Okay, because there is a second panel here.

Senator KERRY. Mr. Harris, on the second panel, has been told

that it may take as long as 100 days to get a disaster loan. Now,

given the numbers of people that we are hiring, and I think this

is a refrain that we have heard from a number of different business

folks, how can we dispel that notion and make sure that is not the

case?

Mr. BARRETO. I will let Herb speak to that, but our goal is to

process these loans in days—not months, days—and we are going

to be monitoring the metrics on this very, very closely. I don’t know

where he got that information. It certainly wasn’t from—it certainly shouldn’t have been from anybody from the SBA because

that is not normal operating procedure.

Herb.

Senator KERRY. Thank you.

Chair SNOWE. You weren’t here earlier, Senator Kerry, but with

respect to the overall STAR loan program, the Inspector General,

we have requested an inquiry on those applications, and then the

staff jointly will be conducting a review, and then we will have a

hearing to follow up——

Senator KERRY. That is great. My interest is not to go backwards

into that right now. My interest is to make sure that it doesn’t

stand as an impediment to our ability to be able to do it now, because I think we ought to, just as I thought we ought to do after

9/11. That is the key here, and I would like you not to feel burdened by it in a way that says, ‘‘Gee, we don’t want to do it here.’’

It ought to be more than feasible to get a set of definitions and an

understanding of the scope of the issue so that we help people.

Mr. BARRETO. I agree.

Senator KERRY. Thank you.

Chair SNOWE. Thank you.

Mr. BARRETO. Thank you very much.

Chair SNOWE. Now you can go.

[Laughter.]

Chair SNOWE. Thank you.

The second panel this afternoon represents the small business

community and the issues that they are now confronting.

I would like to introduce Mr. John Rowland, a member of the National Federation of Independent Businesses and the owner of

Southern Hospitality Systems located in Louisiana. He founded his

business in 1984 and it has grown to 11 full-time employees as well

as 200 part-time employees.

May we have order? [Pause.]

Also testifying is Ms. Alta Baker, who is the founder, President,

and CEO of Safe Haven Enterprises located in Jennings, Louisiana.

Ms. Baker is a member of the Women’s Business Enterprise National Council’s Board of Directors and former Chair of its National

Women’s Enterprise Leadership Forum.

Next on the panel is Ms. Mary Lynn Wilkerson, State Director

of the Louisiana Small Business Development Center. Mary Lynn

has been State Director for 15 years, where she has counseled more

45

than 2,500 clients and delivered hundreds of training programs for

small businesses and aspiring entrepreneurs.

Mr. Woodrow Wilson, President and CEO of Gulf South Animated Motion Technology, located in New Orleans. Mr. Wilson’s

business employs two full-time employees, suffered severe flood

damage causing him to temporarily relocate to Baton Rouge.

Testifying next is Ms. Michele Sutton, a small business owner

from Hammond, Louisiana. Ms. Sutton and her husband, Wayne,

are the sole owners of Fairway Ventures, Rent USA, and Rent and

Roll, with several stores located in the Mississippi Gulf Coast.

Next on our panel is Mr. Richard Harris, owner of Harris Homes,

located in Ocean Springs, Mississippi. Mr. Harris was in the process of creating a housing development when Katrina hit the Gulf

Coast. The new homes, which were in various stages of completion,

all survived but were damaged.

Finally, we have Mr. Timothy Swindall, Vice President of SWR,

Incorporated, located in Troy, Alabama. SWR is a HUBZone certified small business that operates a logistics support contracted to

the Federal Government.

Thank you all for being here. I thank you for your presence. I

know especially under these difficult circumstances that you could

take the time and the effort to be up here, and we also thank you

for your patience. I am sorry that the morning went on so long.

Mr. Rowland, let us begin with you. Thank you. You can summarize your testimony. Your full written statement will be inserted in

the record. Thank you for being here today.

STATEMENT OF JOHN ROWLAND, PRESIDENT, SOUTHERN

HOSPITALITY SYSTEMS, INC., NEW ORLEANS, LOUISIANA, ON

BEHALF OF THE NATIONAL FEDERATION OF INDEPENDENT

BUSINESS

Mr. ROWLAND. Good afternoon. I am John Rowland, President of

Southern Hospitality Catering in New Orleans, Louisiana. Thank

you, Chairman Snowe and Ranking Member Kerry, for giving me

the opportunity to testify on behalf of the National Federation of

Independent Businesses regarding the impact of Hurricane Katrina

on small businesses.

For the past 21 years, Southern Hospitality has been a full-service, on-site catering business, proudly doing business in New Orleans. We fed jambolaya, crawfish estoufee, and bread pudding to literally millions of people all over the country, including the White

House. We have employed hundreds of people over the past 21

years, many of whom have gone on to open their own restaurants,

put themselves through school, or open their own businesses.

I started Southern Hospitality directly out of college with no experience, a few hundred dollars, and a gas card. Since 1984, I have

enjoyed much success and take pride in the business that I have

grown. It is amazing, the destruction that one hurricane has

caused. My kitchen and facility are devastated. My entire inventory

is gone, and I have reports that my mobile kitchen, delivery trucks,

and two cargo vans have been severely vandalized.

I will do whatever I have to do to rebuild my business and put

my 11 full-time and 200 on-call contract employees back to work.

I will have to rebuild from scratch, as they say in the kitchen. GetVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00049 Fmt 6633 Sfmt 6601 C:\SBA\26763.TXT CarolB PsN: CarolB
46

ting back to operating conditions will be the first challenge. Getting

customers back will be another totally separate challenge that I believe will take time, persistence, and, of course, money.

Small businesses like mine are ill-equipped to absorb this extraordinary, unprecedented event, yet small businesses account for

a huge percentage of the region’s economic engine.

I understand Congress is exploring low-interest loans for small

businesses affected by Katrina and I am grateful for that. I urge,

however, that Congress also consider offering small business grants

to qualifying businesses, as well. This is because many small businesses, particularly seasonal ones like mine, will not have significant revenue for a long time. The last thing we can afford to do

at this time is to incur more debt.

Tax incentives, too, are also important to small businesses. Section 179 of the Internal Revenue Code may be a great first step in

regaining valuable equipment loss due to the hurricane. Under current law, Section 179 allows small businesses to expense, that is

to fully deduct from taxable income, a limited amount of the cost

of new business equipment in a year. In order to assist small business owners as they make the investments necessary to rebuild

their businesses, I suggest increasing expensing limits as high as

possible so that small business owners can take advantage of this

immediately.

The second incentive I would suggest would be to revise the tax

treatment of construction for repair and replacement purposes. Allowing small businesses that were affected by the hurricane to immediately depreciate 50 percent for equipment, building and structure, that would be useful for rebuilding businesses quickly. I sincerely hope that you will try to address immediate concerns in this

area.

Senators I want to put people back to work. I am in this horrible

position through no fault of my own. By increasing the annual allowance and by offering small business grants, I can invest in the

assets I need to get back into business. When we speak of rebuilding New Orleans, I suggest that the bricks and mortar may prove

to be the easy part. It will be rebuilding an economy with businesses of all sizes that will be our biggest challenge in the long

term. Small business owners like me are eager to return to New

Orleans and to contribute to the economy and culture that make

our city great. With help from Congress, we will rebuild not only

our buildings, but our economy, as well.

I thank the Committee for holding this hearing. I urge your

steadfast support as the impacts of the devastation will long outlast the news cameras and the front-page stories. Long after the

rest of the country has heard enough about Katrina, the Gulf Coast

will still be hard at work trying to rebuild and to hold on.

Thank you for the opportunity to testify on this important issue,

and I will be happy to take any questions you may have.

Chair SNOWE. Thank you, Mr. Rowland.

[The prepared statement of Mr. Rowland follows:]

PREPARED STATEMENT OF JOHN ROWLAND, PRESIDENT, SOUTHERN HOSPITALITY

CATERING, NEW ORLEANS, LOUISIANA

Good Morning. I am John Rowland, president of Southern Hospitality Catering

of New Orleans, Louisiana. Thank you, Chairwoman Snowe and Ranking Member

47

Kerry, for giving me the opportunity to testify on behalf of the National Federation

of Independent Business regarding the impact of hurricane Katrina on small businesses. For the past 21 years, Southern Hospitality has been a full-service onsite catering

business proudly doing business in New Orleans. We have fed jambalaya, crawfish

etoufee and bread pudding to literally millions of people all over the country, including at the White House. We have employed hundreds of people over the past 21

years, many of whom have gone on to open their own restaurants, put themselves

through school, or open their own businesses.

I started Southern Hospitality directly out of college with no experience, a few

hundred dollars, and a gas card. Since 1984, I have enjoyed much success and take

pride in the business I have grown. It is amazing the destruction that one hurricane

has caused. My kitchen and facility are devastated. My entire inventory is gone. I

have reports that my mobile kitchen, delivery truck and two cargo vans have been

severely vandalized.

I will do whatever I have to do to rebuild my business and put my 11 full-time

and 200 on-call contract employees back to work. I will have to rebuild ‘‘from

scratch,’’ as they say in the kitchwn. Getting back to operating conditions will be

the first challenge. Getting customers back will be another, separate, challenge that

I believe will take time, persistence and money.

Small businesses like mine are ill-equipped to absorb this extraordinary, unprecedented, event. Yet small businesses account for a huge percentage of the region’s

economic engine.

I understand Congress is exploring low interest loans for small businesses affected

by Katrina, and I am grateful for that. I urge, however, that Congress also consider

offering small business grants to qualifying businesses as well. This is because

many small businesses—particularly seasonal ones like mine—will not have significant revenue for a long time. The last thing we can afford to do is incur more debt.

Tax incentives are also important to small business. Section 179 of the internal

revenue code may be a great first step in regaining valuable equipment lost due to

the hurricane. Under current law, Section 179 allows small businesses to expense

(that is, to fully deduct from taxable income) a limited amount of the cost of new

business equipment in a year. In order to assist small-business owners as they

make the investments necessary to rebuild their businesses, I suggest increasing expensing limits as high as possible so that small-business owners can take advantage

of this immediately. The second incentive I would suggest would be to revise the

tax treatment of construction for repair and replacement purposes. Allowing small

businesses that were affected by the hurricane to immediately depreciate 50 percent

for equipment, building and structure would be useful for rebuilding businesses

quickly. I sincerely hope that you will try to address immediate concerns in this

area.

Senators, I want to put people back to work. I am in this horrible position through

no fault of my own. By increasing the annual allowance and by offering small business grants, I can invest in the assets I need to get back into business. When we

speak of ‘‘rebuilding New Orleans,’’ I suggest that the bricks and mortar may prove

to be the easy part. It will be rebuilding an economy, with businesses of all sizes

that will be our biggest challenge in the long term. Small-business owners like me

are eager to return to New Orleans and to contribute to the economy and culture

that make our city great. With help from Congress, we will rebuild not only our

buildings, but our economy as well.

I thank the Committee for holding this hearing. I urge your steadfast support, as

the impacts of this devastation will long outlast the news cameras or front-page stories. Long after the rest of the country has heard enough about Katrina, the Gulf

Coast will still be hard at work, trying to rebuild and hold on.

Thank you for the opportunity to testify on this important issue. I’ll be happy to

take any questions that you may have.

Chair SNOWE. I know Mr. Wilson, you have to leave at 12:30, is

that correct? Would you like to——

Mr. WILSON. Not exactly 12:30, but pretty close.

Chair SNOWE. Well, why don’t we begin just in case, and then

Mr. Harris, and then if we want to ask you any questions or anything. Why don’t you proceed, Mr. Wilson.

Senator KERRY. Madam Chairwoman, if I could just say

quickly——

Chair SNOWE. Yes, go right ahead.

48

Senator KERRY. Because we are running late, I am also now way

backed up and I can’t be here for all of your testimonies and I

apologize for that. I just want to say, Mr. Rowland, that is very important testimony. I know many of you are going to have similar

kinds of stories and I appreciate that. I will review the record. This

is the most important part of this hearing, as far as I am concerned, so I apologize for not being able to listen to each of you.

We will do everything in our power to help you, and I think your

last comment is very important. Long after the sort of shift has

taken place, you all are going to be struggling. We understand that

and we are here to help you, so thank you.

Mr. ROWLAND. Thank you.

Chair SNOWE. Thank you, Senator Kerry.

Mr. Wilson, you may proceed, and then we will go to Mr. Harris.

STATEMENT OF WOODROW J. WILSON, JR., PRESIDENT,

GULF SOUTH ANIMATED MOTION TECHNOLOGY, INC., NEW

ORLEANS, LOUISIANA

Mr. WILSON. Thank you very much for having me.

Chair SNOWE. Thank you for being here.

Mr. WILSON. I am very happy to be able to be here to put a real

face on what happened to small businesses in New Orleans.

I am not going to take up a lot of time on exactly what happened.

We all have seen the devastating pictures and we are totally ruined and devastated and now overwhelmed and are here asking for

some help, immediate help, relief. I don’t have a long prepared

speech. I want to say what we need to help us get started immediately back in New Orleans is immediate cash in the form of loans

and/or grants.

The whole Gulf Coast and the area has been devastated. Everybody is overwhelmed. We need, as I have heard you say this morning, immediate cash help. We are out of cash. How can we hire

these people back? How can we clean our facilities and get going?

We need the cash and the type of SBA loans I have heard today

with bank guarantees. Banks don’t readily loan directly to small

businesses. It just doesn’t happen on the ground floor where we

are. You have to really be creditworthy enough to where you don’t

need the loan where the banks will loan you money.

The SBA directive is going to be imperative. It is going to be imperative that we get the deferments that I have heard here today

in the amendments in the legislation. It is going to be imperative

that we have an opportunity to get a bridge loan from either a

bank or from the SBA so we can have cash tomorrow.

I have been to my business. I have a brown water mark of 6 feet

or above over everything that I own, all my worldly business possessions. I am here today with the attitude and the spirit to start

again, and I live and work on ground floor, if you will. We need

immediate help in those areas. I have heard you say, and I hope

that legislation is passed. It is what we need.

Three major things that I want to discuss personally. You see

today a small businessman, of course, and you also see a small minority-owned business that is on the ground floor in a predominately minority city that actually hires people on the ground floor.

49

We need to be put back together much faster than the process may

take. The process needs to be expedited.

Please help us now. Let us go back, clean up, and get those

things going where we actually hire many in the city and urban

people who don’t have a lot of specialized skills, but they can work

and want to work in my warehouse, in our office, doing the delivery, doing those kinds of basic functions.

Very important after that is the contracting opportunities I have

heard here. It is most imperative that the minority-owned businesses get in on the action on the ground floor, especially in the

area that is heavily minority populated. In New Orleans, we have

a large population of Vietnamese, Latinos, and African Americans,

that make up that gumbo, if you will. That means everybody has

to participate. We are not going away. We are going to be there to

rebuild.

Please help us now. Again, I keep saying that. The contracting

opportunities are in Louisiana. There have been some very large

contracts already awarded, as I understand it, to very large companies. Those subcontracting opportunities must be allowed to small

and minority companies and we must be at the table, as I am here

today, when those decisions are made. I heard earlier, Senator, Mr.

Oliver of our Economic Department. We need to be at that table,

and I would like to be there.

Of those contracting opportunities, there are many businesses

that can be primes. We want the subcontracting opportunities of

course, but we also can be primes in a lot of areas.

One of the last things that I will wrap up on besides the contracting opportunity is the economic injury loans. What gets us

back to square one, of course, is the disaster loan that we have applied for. I am one of those 12,000 applications that are in the SBA

process. I have not gotten approval about it, which I hope I will,

and we need to speed up that process.

The economic injury that we sustained that has happened to us

has, of course, wiped out all of our assets. As small businesses, you

don’t have a lot to begin with. You are already marginally profitable, if at all. We have been struggling for 31⁄2 years personally to

develop a technology and a patent in New Orleans that is going to

allow us to not only do prototypes there, but actually manufacture

in Louisiana something that is always heard of offshore somewhere. We have manufactured many parts in Hong Kong, but we

want to manufacture in Louisiana. We do have the profit margins

to make that effective, but we are going to need some long-term

economic help in the form of loans and lines of credit.

The economic recovery is very key to us, too, because what we

have got to get back is enough money to start from square one,

start all over, as my colleague says, from square one. You are going

to give me back my inventory and those kinds of things, my machines, and I am going to be back at square one. I need the ability

and incentive to go beyond that to continue to hire more, to upgrade my equipment, and to be able to manufacture in New Orleans.

Very quickly, that has been the five points that small businesses

need immediately. So please help us. Thanks for being here——

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Chair SNOWE. Yes. I may want to ask you a couple of follow-ups

before you leave.

Mr. WILSON. Yes.

[The prepared statement of Mr. Wilson follows:]

PREPARED STATEMENT OF WOODROW J. WILSON, JR., PRINCIPAL OWNER AND

MANAGER, GULF SOUTH ANIMATED MOTION TECHNOLOGIES, INC. (GSA)

INTRODUCTION

My name is Woodrow J. Wilson, Jr., principal owner and manager of Gulf South

Animated Motion Technologies, Inc., (GSA), at 4700 Howard Avenue, New Orleans,

LA. GSA is a small 41⁄2-year old minority-owned business primarily involved with

the development and sales of patented fiber-optic technology in flexible material (i.e.

Caps, jackets, banners, etc.), and light emitting diode (LED’s) in safety and other

highly visible products that are programmable and self-illuminating, especially at

night or during inclement weather situations.

Over the years our company has begun to diversify into other safety products industrial supplies and products, medical and pharmaceutical supplies, janitorial and

cleaning products and most recently spill clean-up products, protective clothing and

surface disinfectants that are non-toxic, EPA approved and kills bacteria (e-coli)

fungi and viruses. We are a stocking facility with offices that have hired from three

to six people, either full time or part time over the years, since 2001. Today a water

line marks the nearly 6 feet of water that covered and destroyed nearly all of our

worldly possessions and our active business. I am sure nothing is salvageable and

we will have to start all over, but start all over we will! We want to recover, rebuild

and restart our business ASAP!!!

1. What We Need to Re-Cover, Rebuild and Re-Start our Businesses—as Soon as

Possible (ASAP). Immediate Financial Help (Access to Capital). SBA Bank Guarantees that have banks use looser rules and credit criteria to make loans to small businesses. All, all of our assets like A/R and inventory have been destroyed, even any

equity that we may have had. Quote: (Mr. Peter Gwaltney, CEO of the Louisiana

Banking Association that said 9/15/2005 T-P) ‘‘Bankers will ask regulators for more

leeway in making loans to customers as they return home. Banks will make loans

they ordinarily wouldn’t make. Under the circumstances banks need to make loans

to get this economy moving’’

2. SBA Direct Loans, low interest loans and/or lines of credit as an alternative

to inventory repair and replace infrastructure, office supplies, fixtures, computers

and rehire employees. And pay rents and operating expenses until things get going

again.

3. Loan Repayment Deferredments. Loan repayments deferments of up to 1 to 2

years to give us some breathing room and cash-flow to maintain. This recovery will

be along term process that needs nurturing and patience.

4. An expedited process that will give us the help we need now in cash not in

words.

5. Special Attention to Minority-Owned Small Businesses. Especially in New Orleans area and region. Our businesses for the most part are at ground zero and the

heart and soul of places like New Orleans and other urban areas. Without, the jobs

that we create from within . . . recovery will not be so tangible, take a lot longer

to occur and leave the inner city people still in a trap and dependent.

For the majority, minority-owned businesses, access to capital is usually nonexistent, except. family and friends and is provided by capital markets only after

you’ve proved on paper that you don’t need the money to survive anymore. You are

too small for venture capitalist, too risky for the banks and generally not considered

when main stream economics are discussed. But where would we be without the restaurants, taxi drivers, shoe shops, truckers, carpenters and electricians and other

self-employed craftsman in our communities.

6. Contracting Opportunities. For New Orleans and Louisiana-based businesses to

actually get the contracts to do the work of re-covery. All Local business should get

‘‘first’’ crack at these jobs and bided or no-bided contracts. Of course the money will

circulate throughout the local and state economics . . . many more times and finally

stay where it creates the most economic impact . . . the whole point of this recovery

effort.

7. Economic Injury Loans/or Grants. In addition to the damage replacement

money that will only bring everyone back to square one, all of us were actively contributing to the economy and would have continued if not for Katrina. So, please

consider placing into legislation language that gives us a little something extra to

51

sustain ourselves and incentives to go forward. Something in south Louisiana we

call ‘‘Lagniappe’’ something that can help us cash-flow hiring again and market ourselves for a quicker recovery.

8. The Last Thing I Would Like to Mention and Commend the President on. His

Gulf Opportunity Zone to spur economic growth (GO-ZONE). It said in effect:

• Businesses in GO would be eligible for benefits through 2007—not just a onetime shot.

• GO will provide tax relief and loans for businesses and entrepreneurs to invest

in the region and create jobs especially to include minority-owned enterprises (that

speaks to a probable exclusion in the past).

• It is the small business and entrepreneurs that will create jobs and opportunity

and help break the cycle of poverty.

• The U.S. Congress has an important oversight function to perform to make sure

that we get the resources and not just the rhetoric to rebuild and . . . Rebuild

quickly.

Thank you very much for having me testify here today!! And may God bless us

all.

Chair SNOWE. Mr. Harris.

STATEMENT OF RICHARD HARRIS, HARRIS HOMES,

OCEAN SPRINGS, MISSISSIPPI

Mr. HARRIS. Yes. I would like to thank you all for the opportunity to speak here, and in timeframe, I will be short. My statement is here.

As a contractor on the ground level, I have been in the contracting business for almost 20 years. I have an education in industrial technology and also taught school for close to 20 years. I left

education to become self-employed and I spent many years building

a large company which I now own, Harris Homes, LLC.

The company was doing very well pre-Katrina. I had purchased

property. I had developed a subdivision, which I had done in the

past, and things were doing—and I was doing the best I have ever

done in my business.

It is kind of ironic after Katrina that as a contractor, I am expected to get rich and help everybody and et cetera, and it is far

from the contrary. I am talking with my attorneys, my bankers, my

CPA. You know, I was doing so well that that was my problem. I

have so much money out and so much vested that it probably will

bankrupt me and I won’t be able to help no one in South Mississippi or anywhere else.

Let me give you a rundown on that. Currently, my book of business was close to $4 million. I had 25 active projects in progress.

Basically, I built and delivered entry-level homes from $145,000 to

$200,000. I delivered a home, almost a home a week, on average.

Now, keep in mind that my business is made up of small businesses. I am a general contractor. I have approximately 50 employees that are subcontractors, and those subcontractors have anywhere from 1 to maybe 20 employees. As a subcontractor, I am responsible for carrying a house or the project from the time it is actually started or under contract until it is finished. I am financing

the materials, the property. I am financing the wages of all the

subcontractors who I employ. If their businesses fall apart, of

course, my business will not survive.

Hence, my biggest problem is I have lost all my employees and

my subcontractors. At best, before the storm, I was working 50 to

100 people a day. Currently, I have about 12 people cleaning up

the mess and assessing my damage. I lost these people for many

52

reasons. They were relocated. They lost everything they owned, as

I did myself. I lost my personal house, my personal belongings, my

personal vehicles. Everything I owned was taken by the tidal

surge.

Luckily, my subdivision was not. It was high enough and dry

enough that did not happen, but due to the money I have out, I

do not need to borrow money. I have credit. I have the ability to

borrow $1.5 million tomorrow. I do not have the working capital or

assets to make up what my insurance is not going to pay. I do not

have the employees to continue the business rate I was at, so

therefore I cannot service the money that I have out.

With that being said, I will probably not be able to do future

business unless I would receive a grant. That would be about the

only way. Some businesses are structured better than others.

Now, I did not lose my inventory. It is still three. I still have my

12 pre-sold contracts, but I do not have employees or the means in

a timely manner to repair that or put it forward simply because

materials are going up, labor costs are going up, my employees are

being lost to strong-arming effects as far as Operation Blue Roof,

FEMA. They are hiring my workers. They hire locally to help recover from Hurricane Katrina may not be the best idea because

those are my employees they are taking, and that is additionally

causing a strain on my business.

I have other issues, but bluntly, my current operating environment is very weak, because if another hurricane hits, I probably

will not even be able to get materials to continue helping and rebuilding.

To go further than that, the insurance companies are in place.

They are going around. Just as the SBA is taking applications,

they are doing estimates. The adjustors are telling the people to get

your local contractor to provide an estimate. You know, I can’t even

provide for myself or my family at the moment, much less put my

subdivision back on track with no workers, no materials, or an inflating price of what is going to be—who knows what a sheet of plywood will be next week, especially after a new hurricane hits

Texas.

I don’t think I can even deliver a reasonable house, and keep in

mind, my houses were under contract. I may have 12 contract purchasers that may sue me because the media basically has said,

your house is worth 20 or 30 percent more. They want their

houses. All my customers want their houses because they think

they are worth 30 or 40 percent more, yet they want me to deliver

that house at the old contracted rate, which there is no way I can

do.

I cannot write estimates. The adjustors are in town, and I know

this is way off from the SBA, but the adjustors in town are telling,

not all of them, but some of the insurance companies are telling

them to go to a local building contractor and actually get an estimate. Even if I could manage to keep my company afloat, how can

I spend all day writing estimates and assessing damage that may

or may not be somebody else’s job and for jobs I may not even get?

It is a very bleak situation on my end, and I am not sure of the

answers, but financially, I don’t think borrowing more money on

my aspect would save me or any small business that worked for

53

me, and many of my small businesses were destroyed, so I think—

my cabinet shop, my electricians, my plumbers, my framers, the

majority of them did go underwater, also, so there will be no quick

recovery, regardless of what anybody thinks, of the devastated

area. From a ground level, it will be slow and painful and it may

even be much longer than people expect. My bank has already

given me a 60-day extension on my notes and interest, but I can

tell you now, that will be nowhere near sufficient.

Any questions?

[The prepared statement of Mr. Harris follows:]

PREPARED STATEMENT OF RICHARD HARRIS SUBMITTED BY WITNESS

Mr. Harris lives in Biloxi, Mississippi and owned and worked at his firm, Harris

Homes, located in Ocean Springs, Mississippi, which is located on the Mississippi

Gulf Coast between Biloxi, MS and Pascagoula, MS.

In 1990, Mr. Harris opened his own business, Harris Homes, and has been selfemployed since that time. In 2000, Harris Homes purchased 20 acres of land in

Ocean Springs, and developed a subdivision consisting of 49 lots (Dove Plains). Prior

to August 29, 2005, 21 homes have been built, sold, and occupied. On August 29,

2005, the status of lots and construction was 25 active construction projects:

• 12 pre-sold contracts in various stages of construction (4 approximately 70 percent complete, 3 about 40 percent complete and 5 not started);

• 5 pending home construction contracts;

• 5 speculative homes in various stages of construction;

• 3 commercial developments to be kept as rental properties;

• 15 lots available for future home construction.

On August 29, 2005, Harris Auto Sales (used automobiles) was prepared to open

for business. The sales lot was completed, dealer’s license was obtained, and 5 used

cars had been purchased and were on hand.

Mr. Harris also had a 1200 square foot strip mall under construction, as well as

a ‘‘four-plex’’ apartment building.

After Hurricane Katrina, Mr. Harris was left with his personal home and possessions destroyed. Estimated uninsured loss of about $100,000. The Dove Plain houses

under construction suffered wind and rain damage, which Mr. Harris has estimated

to range from $2,000 to $4,000 per unit. Estimated total uninsured loss is $135,000.

Mr. Harris’ used car dealership had all 5 inventory units lost to storm surge, all

which were not insured. Estimated total loss including lot repairs is $28,000.

Mr. Harris has been following protocol. He registered with FEMA on or about

September 8, and to date has not received the promised application or assistance.

He has contacted the Mississippi Small Business Development Center on September

12 and met with an SBDC officer on September 19. He has also prepared and submitted all insurance claims, both personal and business.

Mr. Harris resumed construction in Dove Plains subdivision on September 5, and

is ready to resume construction on the ‘‘four-plex’’ and the strip mall. At full operations Harris Homes normally employs subcontractors with a total of 50 employees

daily. Presently he only has 15 workers daily.

Mr. Harris is concerned because he feels that there is little or no reliable information available to businesses or individuals. FEMA, the SBA, and insurance companies are simply overwhelmed. They are not unified and thus are making the process

incredibly confusing. There are a number of circumstances and requirements set by

FEMA that have made it impossible for Mr. Harris to quote a price for a new home

or repairs to an existing home.

Mr. Harris believes that this process can become much more effective if:

• an effective communication vehicle to let individuals and small business owners

know that they should plan for at least 90 to 120 days before any financial assistance will be in hand, and to communicate where to go for counseling and assistance.

• Provide the resources to staff assistance centers with trained/qualified staff.

• Effective ‘‘bridge’’ assistance (interest free loans and/or grants) to allow for time

to assess the situation, and make plans for moving forward.

Chair SNOWE. Wow, Mr. Harris. We are just terribly sorry. I

mean, having been down there on Monday and saw first hand—I

was in Gulfport, so if it is any measure of what happened in your

54

area, it is pretty devastating, and, of course, in New Orleans, as

well.

Mr. HARRIS. Well, I have a customer base. I mean, if I could add,

it has been stated that three out of four houses are damaged in

South Mississippi. As a general contractor, it is sad that I may not

be there or able to help anyone rebuild their property.

Chair SNOWE. Yes.

Mr. HARRIS. I have been very careful in assessing my own damages, and unless I receive a grant, it will be likely my company will

be——

Chair SNOWE. First and foremost of what you are saying is that

having a grant, because obviously loans are of no use——

Mr. HARRIS. We can talk about loans all day long, but for some

businesses, loans will not be enough.

Chair SNOWE. Right. Okay. That is first and foremost for you. I

read your comments, and that is what—some of that, I was repeating to Administrator Barreto about the process. Ultimately for you,

it is the bridge assistance that you need.

Mr. HARRIS. The bridge assistance, if it can be converted into a

grant, it might be fine. I need my employees back, and a lot of

those did go to work for local and government agencies because

they were being paid more money. If I have to raise what I am paying them, I am going to need additional working capital above and

beyond what I am——

Chair SNOWE. Yes.

Mr. HARRIS [continuing]. I am already, because of my builder’s

risk policies, everything I had was insured, but it was underinsured or either deductible and my deductible put me, because I

have so much money out and because I had so many projects going,

my deductible is a loan well over six figures. My profit margins are

not enough per unit to keep up with the amount of losses I had

from the hurricane, much less the economic strain I will see over

the next few weeks.

Chair SNOWE. Right.

Mr. HARRIS. My interest payments monthly are staggering.

Chair SNOWE. You know, I appreciate that and we will look at

this and these dimensions that you have raised and looking at that

possibility as far as trying to provide some grants in this process,

because otherwise, it is going to make it very difficult. You don’t

want to add debt upon debt at this point, given your circumstance.

Mr. HARRIS. Not a good choice on my behalf at the moment.

Chair SNOWE. The relocation and the other issues, getting back

employees or getting workers, which is the other question, I know

Senator Vitter was referring to a bill that he and Senator Landrieu

were introducing with respect to that question about having tax

credits for, you know, either relocating or attracting workers, because that is a huge challenge right now.

Mr. HARRIS. I have a specific question for that. Is an employee

considered a full-time payroll employee? In my case, I 1099 all my

employees, hundreds of them. They are subcontractors. Would I receive that tax credit? I mean, I had a constant workforce daily of

50 to 100 people.

Chair SNOWE. That is another issue that we can look at, obviously. You are saying, no, Ms. Wilkerson, is that right?

55

Ms. WILKERSON. It is unlikely——

Chair SNOWE. Unlikely.

Ms. WILKERSON [continuing]. Because they are not his employees. They are contract labor.

Mr. HARRIS. They are subcontract labor——

Chair SNOWE. Subcontracted——

Mr. HARRIS [continuing]. But, they make up my entire company.

Chair SNOWE. Yes.

Mr. HARRIS. The reason for that is because, basically, I mass

produce houses. I am on a production schedule. I don’t build them

individually.

Chair SNOWE. Well, you know, we have to look at some of these

issues because this is obviously an extraordinarily exceptional situation in the history of this country with respect to the worst natural disaster to hit the United States. We can look at some of those

questions. What I have heard from you today is obviously extremely compelling. I have seen it, and I can only imagine. We will

try to do everything that we can to help in your specific situation

that obviously others find themselves in, as well. We will look at

some of these exigencies and extenuating circumstances, as you are

saying, about subcontracting and so on and the grant question.

Mr. HARRIS. Thank you.

Chair SNOWE. Thank you, Mr. Harris, and thank you for being

here under these very difficult circumstances and taking the time

to be up here with all the losses that you have experienced.

Mr. HARRIS. I do appreciate it. Thank you.

Chair SNOWE. We appreciate it. I would hope that you would

also—we will be in touch and we will try to find a way to be in

touch with you from the Committee on some of these questions and

some issues, because we certainly want to do everything we can.

One of the issues my staff raised, we have extended the payments, one of the questions. We are trying to move a bill through

very quickly on some of the issues that we have identified we can

agree on and we can get it through the Senate without debate and

move on to the House, get it done, and send it to the President.

One of the issues in there is to defer, have a moratorium on any

payments that are made. Would that help you in this situation?

Mr. HARRIS. As far as risk payments, like to an SBA loan or——

Chair SNOWE. Yes, on a loan or a grant.

Mr. HARRIS. I do have an SBA credit line and I use it extensively, but it makes up only about one-third of the working capital

I go through on a monthly basis or a yearly basis.

Chair SNOWE. Right.

Mr. HARRIS. Unlike a lot of businesses, I have some small net

worth, but just the storm itself and then the deductibles would

take up any working capital I could extend myself to keep my business afloat. I would be happy to look at the scope and see if it is

my projects.

Again, I finance them from inception all the way to completion,

and that includes the real property, the actual construction of the

house, all of the materials, the labor, everything. My end customer

is the person who purchases the house, but my real working force

and my collateral is my subcontractors and the ability to get the

job done, and those are made up of 45 to 50 other small businesses.

56

I mean, if they are not in place themselves, regardless of any

amount of money, if I cannot get my framers and my cabinet shop

and my plumber and the electricians back online to service me,

then my company may not do well anyway. I am not sure money

or any type of loan is my answer, other than simply trying to wait

it out and do the best I can in a timely manner.

Chair SNOWE. We will stay in touch with you as far as the assistance package is concerned because part of it will include some

grants in there. We do so far $40 million. This is the beginning of

this major effort, so we want to stay in touch with you to see if this

would be something that would work for you as we are going

through this process and hopefully get this bill done very quickly.

Mr. HARRIS. The largest issue I have to date is simply being able

to service the money I have out, since I can’t move forward at the

pace I was used to working at——

Chair SNOWE. Right, it is deferring that, and also, I think that

is another issue, working with lenders. That is something else that

we have to look at, hopefully, working with the lenders to defer the

requirements for repaying and deferring them for an extended period of time, as well, and that is something else we can also look

into, how we can best go about that part of it.

I appreciate it, and we will be in touch. I want to make sure we

have a way of getting in touch with you, because some of these

things may be of help to you directly, okay. Thank you.

Mr. Wilson—you can leave, Mr. Harris. Go right ahead. Thank

you. Thank you for your patience. I am sorry we had to delay for

the two votes.

Mr. Wilson, can I just add one thing, you mentioned earlier, contracting opportunities. I couldn’t agree with you more.

Mr. WILSON. Yes.

Chair SNOWE. I mean, that is something, because the Federal

Government is obviously going to play a critical and pivotal and

very large role in the rebuilding process, you know, obviously, hundreds of billions of dollars in the final analysis, and we have got

to make sure that small businesses that are on the ground floor—

and I am really concerned when I am seeing sheets of paper between the difference between small business. You were referring to

the large contracts that have already been issued to the large, this

is multi-pages for the large contractors, one page for the small

ones.

Mr. WILSON. Right.

Chair SNOWE. I know.

Mr. WILSON. Even the SBA’s definition of small business can be

pretty large, too.

Chair SNOWE. It can be pretty large, too, exactly.

Mr. WILSON. The really small businesses usually get left out.

Chair SNOWE. You are right on. I mean, I agree with you entirely

and we are going to work on this issue because this could be the

foot in the door, at least opening the door for economic opportunities on the ground floor, and that is with the Federal Government

that is going to be playing, obviously, that essential role in the rebuilding. I agree with you on that.

The bridge loans and the grants and that is going to be also a

critical component of this process.

57

Mr. WILSON. That would help us get going. The subcontracting

part, that is also major, because a lot of times after these things

pass—we have got Rita coming up, we have got a lot of things, we

may have other disasters and we are off the front page. Who is to

watch to make sure those contracts do, in fact, trickle down, if you

will, to small businesses on the ground floor, small businesses?

Please don’t forget and——

Chair SNOWE. No, absolutely. In fact, that is why it is so, I think,

important to have a Small Business Administration presence right

in New Orleans, because that might also help to ensure that small

business is playing a role where these decisions are being made, for

example.

Is that possible from your perspective? Could Small Business be

located physically now in some part of New Orleans?

Mr. WILSON. Well, yes. I heard them earlier saying that they

were, in fact, beginning to move. I am not aware of the second evaluation. It is possible. A lot of downtown is dry and it is pretty safe.

I live there, also. A lot of the bacteria levels, as Senator Landrieu

said about the E. coli, are not as high as has been reported. Our

own DEQ has levels that are higher than normal, but are well

within limits that we can function in. I have met with Mr.

Cornelius, who the Administrator mentioned earlier, and also with

Mary Lynn, who is with the SBDCs, who will assist me quite a bit

or a lot, and I am sure she will have some things to say. It is possible. I am moving back right away to start to clean up.

Chair SNOWE. Okay, great. Thank you. I will let you go, because

I know you have a time schedule, but thank you very much.

Mr. WILSON. Thank you very much for having me.

Chair SNOWE. No, thank you. We will follow up on all of these

issues, and we hear you about what is essential, what is absolutely

paramount, and on a very fast track. Making sure that it works—

and I hope you won’t hesitate in any way, because you have enough

burdens, but if there is something that you see or hear, through

Senator Landrieu, Senator Vitter, myself and the Committee, we

will have contacts here. If things aren’t working, we want to hear

about it and to work it out. You don’t need those types of problems

with bureaucracies and obstacles. I thank you.

Mr. WILSON. Thank you.

Chair SNOWE. We are here to help you. Thank you.

Okay. Ms. Alta Baker, thank you. You may proceed.

STATEMENT OF ALTA BAKER, CHIEF EXECUTIVE OFFICER,

SAFE HAVEN ENTERPRISES, JENNINGS, LOUISIANA, ON

BEHALF OF WOMEN IMPACTING PUBLIC POLICY

Ms. BAKER. Good afternoon, Chair Snowe and Members of the

Committee. I am Alta Baker, owner and CEO of Safe Haven Enterprises, located in Jennings, Louisiana.

Safe Haven Enterprises manufacturers modular steel buildings

for physical protection—forced entry, ballistic resistant FEBR units

with and without blast protection that can be used for office buildings, complex facilities, mobile command and communication centers, clinics, and a safe place for employees to deploy in the threat

of terrorist attacks or even inclement weather. Safe Haven supports private industry and is the fabricator of Department of State

58

certified windows and doors. In addition, we are general contractors capable of project management and debris cleanup in the wake

of Hurricane Katrina. Safe Haven is a woman-owned, HUBZone

company.

I am appearing today on behalf of Women Impacting Public Policy, WIPP, a national bipartisan public policy organization advocating on behalf of women in business, representing over 500,000

members. I am also a member of the Women’s Business Enterprise

National Council, WBENC, and Women Presidents’ Organization,

WPO.

I am going to start by telling you what it is like to operate a

small business in Louisiana today. Jennings is located approximately 21⁄2 hours from New Orleans, so we did not suffer physical

damage from the hurricane, but the effect on our company has

been substantial. As you know, public communications systems

have been strained to the maximum. We have been without reliable phone and data service since Hurricane Katrina hit the Gulf

Coast, and as I walked in to testify, I received a phone call from

my CEO in Jennings. We are now in the process of forced evacuation in advance of Hurricane Rita.

As you might guess, we have been inundated by folks who need

homes to rebuild their lives. We have had as many as 24 guests

staying in our home who have been temporarily displaced by the

hurricane. Our daughter, our grandson—our daughter lost her

business in New Orleans, and our grandson, whose school will not

reopen this year.

Many evacuees remain in Southwest Louisiana. They need jobs.

We are making it our business to provide jobs for them. Safe

Haven has taken a leap of faith. We have decided to hire additional

welders and carpenters who need work. To date, we have added

seven. I was told this morning we are now up to 10. We pray that

the orders will come to support these new employees. Our company

will hire the people who have lost everything in the recent devastation of our State and are ready and willing to work.

In preparing for this hearing, I asked the Executive Director of

WBENC, Gulf Coast, to give me a sense of the impact of Katrina

on women-owned businesses that are located in the greater New

Orleans area, and it has been devastating. According to the Center

for Women’s Business Research, over 47,000 women-owned businesses were operating in New Orleans prior to Katrina. They provided 100,000 jobs and generated $11 billion in sales. In the three

most heavily damaged States, Louisiana, Mississippi, and Alabama, about 371,000 women-owned businesses employed nearly

700,000 people and produced $80 billion in sales. As we all know,

many of these businesses suffered severe damage or went out of

business completely.

Within several days of the hurricane, WIPP members who could

provide or volunteer services answered a call to action. We have

shared that database with SBA and Federal agencies. One of

WIPP’s coalition partners, the National Association of Women

Business Owners, NAWBO, is leading a coalition effort of women

business organizations that link business revenues and opportunities for women entrepreneurs affected by Hurricane Katrina. This

website is www.womenbizrelief.com.

59

Safe Haven Enterprises is a small business located in a small

town, but our largest Federal customer is the Department of State.

Our buildings are deployed in embassies. We have Safe Haven

buildings in places such as Israel and Lebanon. Another customer

is the United States Army Corps of Engineers. In fact, one of our

units is the Hurricane Command Center located on a Mississippi

levee in New Orleans. It is intact and functioning. We have a good

grasp of government needs for secure structures and understand

the requirements of the Federal, State, and local contracting process.

First of all, we want to thank the leadership of this Committee

and other Senators who sponsored the small business amendment

to the Commerce, Justice, and Science Appropriations Act. We

thank you for working in a bipartisan fashion to ensure that small

businesses do not get left behind and that women-owned businesses have a voice in Congress.

Key to the recovery of our region is the provision that establishes

a 30-percent prime contracting goal and a 40-percent subcontracting goal for small businesses in the Katrina-related reconstruction contracts. Not only is it important for those small businesses in the Gulf region, it is also important for the small business community nationwide.

Our members believe that the existing 23-percent goal should

only be a starting point. The goal contained in this amendment

more adequately reflects the contracting numbers that our members believe should be reflected in Federal procurement policy.

With regard to Katrina recovery and reconstruction, small businesses are willing and able to assist.

While we completely understand the necessity of making adjustments to procurement procedures during a crisis such as Katrina,

we also believe that the changes must take into consideration the

effects on small business. The Emergency Supplemental Appropriations Act to Meet Immediate Needs Arising From the Consequences

of Hurricane Katrina, 2005, contained a provision that is very troubling to WIPP. The new law raised the micropurchase threshold

from $2,500 to $250,000. WIPP believes this not only invites waste,

fraud, and abuse in Federal contracts, but also undermines the

ability of small business to help in the recovery effort. The small

business reserve sets aside Federal contracts are less than

$100,000. Since the threshold has been raised to $250,000 which

can be bought with a credit card, we believe that the small business reserve is rendered useless. We applaud this Committee’s

pledge to modify this contracting change so that small businesses

will be treated fairly with regard to procurement.

In closing, I want to thank the Committee for giving me the opportunity to share my experience and to address some policies that

I believe will make a difference in the reconstruction of the Gulf

Coast. I am now happy to answer any questions.

Chair SNOWE. Thank you very much. We appreciate that.

[The prepared statement of Ms. Baker follows:]

PREPARED STATEMENT OF ALTA BAKER, ON BEHALF OF WOMEN IMPACTING

PUBLIC POLICY

Good morning, Chair Snowe and Members of the Committee. I am Alta Baker,

owner and CEO of Safe Haven Enterprises located in Jennings, Louisiana. Safe

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Haven Enterprises manufacturers modular steel buildings for physical protection—

forced entry, ballistic-resistant—(FEBR) units with, or without, blast protection that

can be used for office buildings, complex facilities, mobile command and communication centers, clinics and a safe place for employees to deploy in the threat of terrorist attacks. Safe Haven supports private industry and is a fabricator of Department of State-certified windows and doors. In addition, we are general contractors

capable of project management and debris clean up in the wake of Hurricane

Katrina. Safe Haven is a woman-owned, HubZone company.

I am appearing today on behalf of Women Impacting Public Policy (WIPP), a national, bipartisan public policy organization, advocating on behalf of women in business, representing over 500,000 members. I am also a member of the Women’s Business Enterprise National Council (WBENC) and Women Presidents’ Organization

(WPO).

I am going to start by telling you what it is like to operate a small business in

Louisiana today. Jennings is located approximately 21⁄2 hours from New Orleans, so

we did not suffer physical damage from the hurricane—but the effect on our company has been substantial. As you all know, public communications systems have

been strained to the maximum. We have been without reliable phone and data service since Hurricane Katrina hit the Gulf Coast.

As you might guess, we have been inundated by folks who need work to rebuild

their lives. We have had as many as 24 guests staying in our home who have been

temporarily displaced by the hurricane. Many evacuees remain in southwest Louisiana. They need jobs. We are making it our business to provide jobs for them. Safe

Haven has taken a leap of faith: we have decided to hire additional welders and

carpenters who need work. To date, we have added seven—and we pray that the

orders will come to support these new employees. Our company will hire the people

who have lost everything in the recent devastation of our State, and are ready and

willing to work.

In preparation for this hearing, I asked the Executive Director of WBENC, Gulf

Coast, to give me a sense of the impact of Katrina on women-owned businesses that

are located in the Greater New Orleans Area—and it has been devastating. According to the Center for Women’s Business Research, over 47,000 women-owned businesses were operating in New Orleans prior to Katrina. They provided 100,000 jobs

and generated $11 billion in sales. In the three most heavily damaged states, Louisiana, Mississippi and Alabama, about 371,000 women-owned businesses employed

nearly 700,000 people and produced $80 billion in sales. As we all know, many of

these businesses suffered severe damage or went out of business completely.

Within several days of the hurricane, WIPP members who could provide or volunteer services answered a call to action. We have shared that data base with the SBA

and Federal agencies. One of WIPP’s coalition partners, the National Association of

Women Business Owners (NAWBO), is leading a coalition effort of women business

organizations that links business resources and opportunities for women entrepreneurs affected by Hurricane Katrina. The website is: www.womenbizrelief.com.

Safe Haven Enterprises is a small business located in a small town, but our largest Federal customer is the Department of State. Our buildings are deployed in embassies the world over. We have Safe Haven buildings in places such as Israel and

Lebanon. Another customer is the United States Army Corps of Engineers. In fact,

one of our units is a command center located on a levee in New Orleans; it is intact

and functioning. We have a good grasp of the governmental needs for secure structures and understand the requirements of the Federal, State and local contracting

process.

First of all, we want to thank the leadership of this Committee and other Senators who sponsored the small business amendment to the Commerce, Justice and

Science Appropriations Act. We thank you for working in a bipartisan fashion to ensure that small businesses do not get left behind and that women-owned businesses

have a voice in Congress.

Key to the recovery of our region is the provision that establishes a 30 percent

prime contracting goal and a 40 percent subcontracting goal for small businesses in

the Katrina-related reconstruction contracts. Not only is it important for those small

businesses in the Gulf Region, it is also important for the small business community

nationwide.

Our members believe that the existing 23 percent goal should only be a starting

point. The goal contained in this amendment more adequately reflects the contracting numbers that our members believe should be reflected in Federal procurement policy. With regard to Katrina recovery and reconstruction, small businesses

are willing and able to assist.

While we completely understand the necessity of making adjustments to procurement procedures during a crisis such as Katrina, we also believe that the changes

61

must take into consideration the effect on small businesses. The ‘‘Emergency Supplemental Appropriations Act to Meet Immediate Needs Arising from the Consequences of Hurricane Katrina, 2005’’ contained a provision that is very troubling

to WIPP. The new law raised the limit of micropurchase threshold from $2,500 to

$250,000. WIPP believes that this not only invites waste, fraud and abuse in Federal contracts, but also undermines the ability of small businesses to help in the

recovery effort The small business reserve sets aside Federal contracts that are less

than $100,000. Since the threshold has been raised to $250,000, which can be

bought with a credit card, we believe that the small business reserve is rendered

useless. We applaud this Committee’s pledge to modify this contracting change so

that small businesses will be treated fairly with regard to procurement.

In closing, I want to thank the Committee for giving me the opportunity to share

my experience and address some policies that I believe will make a difference in the

reconstruction of the Gulf Coast. I am happy to answer any questions.

Chair SNOWE. Ms. Wilkerson.

STATEMENT OF MARY LYNN WILKERSON, STATE DIRECTOR,

LOUISIANA SMALL BUSINESS DEVELOPMENT CENTER

Ms. WILKERSON. Thank you so much, Chair Snowe, for allowing

me to be here. You have my testimony, so I am going to take this

opportunity to deviate a little bit and talk about a few things that

I think are important.

I have been on the ground since day six helping businesses. I relocated myself to Baton Rouge and started working immediately in

Secretary Olivier’s office, and I, too, have been working 14 hours

a day, 7 days a week, talking to people about their business needs.

I appreciate the bipartisan support that you all are giving this

issue because I think sometimes people don’t understand the scope.

What we are dealing with is one-third of our economy, maybe

more, and in that, one out of every five people live in poverty. Almost 30 percent of the children live in poverty. That is a huge

number. She has given you numbers about things, and still, even

though the numbers are big, women and minorities represent together less than 6 percent of the total sales in the State and about

8.5 percent of total payroll. There is huge opportunity to increase

that.

When you talk about government procurement, and if we get

them these government contracts, we must also be able to fund

those government contracts. These businesses have probably already been impacted negatively by the storm, so we have got to ensure that they get the funding that will enable them to complete

a government contract. I just want to remind you of that.

Also, in New Orleans, 85 percent of the businesses have 19 and

fewer employees. We are talking about a lot of really small businesses. The thing that scares me at some point is the statistic that

comes from the Home and Safety Group that says 43 percent of the

businesses that are severely impacted never reopen their doors and

another 29 percent fail within 24 months. I mean, that is like half

of the businesses. Louisiana cannot afford to lose 30,000 businesses. I mean, we just can’t. I can’t imagine what that will look

like if that happens.

I really want to highlight this need for the bridge financing that

you all have talked about. Several of the people that I have talked

about, one is an accounts receivable issue. We have got a business

in Jefferson Parish, which is around New Orleans, that employs 60

people. It is an industrial products and services business. They

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service a lot of municipalities and they have over 1,000 private

businesses. When I spoke to them, they were very concerned about

their business because of their accounts receivable. In 90 to 120

days, those accounts receivable now are virtually worthless. What

happens in 90 to 120 days? Who is going to fund that? Even if he

can get government contracts, his credit-worthiness then is much

less than it was.

We also have a contractor with 12 feet of water in their building.

All of their equipment is underwater. They are going to need more

than $1.5 million. They need that $10 million. Also, FEMA has

hired their two foremen at $500 a day to put tarps on buildings.

They are not coming back to work for this company.

Then on Sunday, a young woman called me to try to find her assistance. Her home has been destroyed. Her mother’s home has

been destroyed. She is a nurse, has been working 12 hours a day,

but she also owns a limousine business. She hasn’t gotten a paycheck. Her husband hasn’t gotten a paycheck. She can’t afford her

insurance premiums. She can’t afford the payments on the limousine services. She can’t make payroll, and without an immediate

bridge loan, she and her husband will lose both of their businesses.

I just hope that this legislation comes in time to save them. If

the government doesn’t provide the financial assistance we need,

we are going to be in serious financial trouble.

As far as the SBDC part is concerned, we have been getting over

250 calls a day since September 6. We have offered five training

programs to more than 200 businesses. We have been working with

businesses. Mr. Wilson, we finished his application. Of those applications SBA received, we have probably helped clients send a significant portion.

I have 30 to 40 employees, and the Administrator talked about

working with SBDCs often as did the disaster people, and that is

true. I have met with them. I have talked to them. I have called

to them. Never once did he talk about additional resources to the

SBDCs. We are already in Bogalusa, Slidell, Hammond, and St.

Charles Parish doing training and business assistance.

I appreciate your letter to the Administrator, yours and Senator

Vitter’s, about the portability grant. To date, we have heard nothing. It has been 25 days since Katrina and we have heard nothing

about the portability grant. I just could tell you that we need that

money because the demand for services is now, and I hope that if

they pass this bill, that we, in fact, will as SBDCs get money, because not only are we going to have to try to help people get

through this, but in the next 5 years, we are going to have to help

create new entrepreneurs and get them in business. Thank you.

Chair SNOWE. Thank you, Ms. Wilkerson.

[The prepared statement of Ms. Wilkerson follows:]

PREPARED STATEMENT OF MARY LYNN WILKERSON, STATE DIRECTOR,

LOUISIANA SMALL BUSINESS DEVELOPMENT CENTERS

Chair Snowe, Ranking Member Kerry, Members of the Senate Committee on

Small Business and Entrepreneurship, I am Mary Lynn Wilkerson State Director

for the Louisiana Small Business Development Centers, an SBA partnership program with the State of Louisiana and 12 participating universities. Our program is

administered by the University of Louisiana Monroe.

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You indicated that you want to hear how small businesses have been impacted

by Katrina. I hope that I will be able to provide you with some sense of the complete

devastation of the small business community in the greater New Orleans area.

New Orleans and the surrounding parishes represent one-third of Louisiana’s

economy. Almost one million people were evacuated for Katrina and 3 weeks later,

they have not been allowed to return to their homes and their businesses. Where

are all of these people located now? Most of them are are still in the State of Louisiana. They are in small rural churches, closed school buildings, shelters, closed but

hastily reopened dorms, and in the homes of friends and families.

Can you imagine your state without one-third of its economy; without one-third

of its small business community? Can you imagine not knowing when the largest

city will begin to recover? Can you imagine if the largest city in your state was virtually destroyed? What if your state was almost the poorest state in the nation?

Louisiana’s poverty rate is 19.2 percent—the second highest in the nation.

Let’s say you could open your business. Where will your customers come from?

How long will it take for hundreds of thousands of homes to be repaired and become

habitable again? How long will it take for thousands of businesses to be cleaned,

repaired, and reopened? What will the population density need to be to support

businesses? Who will provide the funds you need to continue your business? How

long will it take to get the funds? How will you survive until the business sector

begins to recover? All of these questions simply cannot be answered yet.

Perhaps never in the United States, has a major metropolitan area been so devastated. We must have the help of the Federal Government. We must have help

from President Bush and bi-partisan Congressional support to recover.

Most of the businesses I have personally spoken with are having a very difficult

time—they have lost or have significant damage to their home, they have significant

physical damage to their business and the economic injury is incalculable at this

time. They have no current income or a greatly reduced income. Many small business owners need someone to talk to about their business and they need someone

to help them forecast what their economic injury will be and how long it will be

before they begin to recover. They need technical assistance that can be provided

by the SBDC’s.

There are a few facts you should keep in mind as I tell you a few of the stories

I have heard in the past 2 weeks. In the 11 critical parishes most severely impacted

by Katrina, there are 70,525 businesses with less than 500 employees and there are

140 businesses with more than 500 employees. Businesses with 19 and fewer employees make up 85 percent of the total businesses in the greater New Orleans

MSA.

Minorities make up 36 percent of Louisiana’s population. They own 14 percent of

the firms in Louisiana, but minority businesses represent only 1.8 percent of total

sales and 2.7 percent of total payroll. Women-owned businesses own 23.9 percent

of firms, but represent only 4 percent of total sales and 5.6 percent of total payroll.

These businesses already have a difficult time with access to capital and their survival rate will be greatly impacted by their inability to obtain sufficient capital during this very difficult time.

In an article written by Scott Daugherty, ‘‘Helping Small Businesses After Hurricane Floyd’’, quotes from the Institute of Home Business and Safety provide some

alarming statistics for small business survival after a disaster—‘‘of all businesses

that close down after a disaster, more than 43 percent never reopen, and an additional 29 percent close down permanently within 2 years.’’ In Louisiana, we cannot

afford to lose 20,000 to 30,000 businesses.

Finally I am getting to the stories.

A family-owned and operated business that employees 60+ people has been in

business for several decades and is based in New Orleans. They are in the industrial and institutional maintenance products business and they provide products and

services to many of the governmental agencies in the region. The company has a

private client list of more than 1,000 businesses. When I spoke with one of the owners on Friday about the future of his business, he told me that he is extremely worried. According to him, ‘‘more than 90 percent of the businesses in Jefferson Parish

are closed’’. He believes that he is one business that might have the opportunity to

survive and to grow because of the clean-up situation. However, his family business

faces a real threat—most of his business is done through accounts and his receivables are now virtually worthless. When the accounts become 90 to 120 days, he

believes that his business will be in serious jeopardy. It will be. He asked me who

would fund his business. I did not have an answer for him, but I promised I would

look and I promised that I would ask when I came to Washington, D.C. Questions

about financing accounts receivable with no value has been a common concern with

businesses.

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One couple owns a medium-sized firm that had as much as 12 feet of water in

their business. Much of their heavy equipment has been destroyed or will have to

be completely reworked before they can begin using it in their construction business.

Their offices have been severely damaged. FEMA has hired the firm’s two foremen.

FEMA is paying them $500 per day to cover buildings with tarps. The foremen are

not coming back to work for the company. The workers are primarily from New Orleans East and they want to come back to work, but there is no place for them to

stay. The owners will need far more than $1.5 million to get their business back

to where it was before Katrina.

On Sunday a young woman called me to try to find some assistance. Her home

had been destroyed, her mother’s home had been destroyed, her husbands business

has been severely impacted, and her limousine business is gone. She is also a nurse

and has been working extremely long hours and was shifted to another hospital.

The hospital records have been mixed up and her paycheck had not been processed

yet. She was in tears and you could tell she was at the end of her rope. She had

a limousine service and her vehicles were 4 months from being completely paid off.

She cannot pay this month’s insurance premium and she cannot make her payroll.

Without an immediate bridge loan on both businesses this family will lose both businesses. She indicated that she had signed up with FEMA but had not received the

SBA Disaster application. They cannot wait several months for the SBA Disaster

loan to be processed and closed. I advised her that the SBDC would help her and

her husband fill out the applications and then we would help her with the financial

projections they will need for economic injury. I advised her that her husband may

be eligible for disaster self-employment benefits. She was very grateful that I was

able to provide her with the first real information she had been able to get. I just

hope that help is not too late for her—and for the other small businesses in Louisiana.

If the Federal Government does not provide the financial assistance needed, if it

does not ensure that Louisiana businesses receive contracts to rebuild our communities and ensure the funding our businesses need to survive and rebuild, then it

is the same thing as leaving all of those people on the roofs of their houses.

In Louisiana, the SBDC’s are the only source for in-depth business assistance.

The Louisiana SBDC has 13 Service Centers throughout the State of Louisiana—

5 were impacted by Katrina and 3 of those 5 remain closed, and will be for some

extended period of time.

Our main telephone number has received over 250 calls per day since September

6. In the past week, the SBDC’s in Louisiana have offered 5 training programs for

business recovery to more than 200 attendees. One press release resulted in 200

telephone calls and 50 e-mails in 1 day at Southeastern Louisiana University SBDC

in Hammond. The LSU SBDC has provided one-on-one counseling to 27 individual

clients, 52 requests for disaster assistance, and 39 e-mail inquiries in 1 week—all

with no promotion. The LSU SBDC receives approximately $120,000 in State and

Federal funding for their SBDC and the SLU SBDC receives just under $100,000

in State and Federal funding. We receive $1.2 million for the entire state program.

The SBDC service centers in Louisiana and Mississippi cannot handle the demand

that is coming and we have no resources to increase the number of counselors in

our centers. There are many CPA’s, bankers, and other professionals that have been

negatively impacted and with additional resources, we could contract with these individuals to provide services to Louisiana businesses.

The Association of Small Business Development Centers arranged for more than

150 SBDC counselors to be trained and the ASBDC has coordinated SBDC volunteer counselors from other states coming to the affected areas. However, Louisiana

does not have the funds necessary to pay travel, per diem and lodging for many of

these volunteer counselors.

Madame Chair, I sincerely appreciate the letter you and Senator Vitter wrote to

Administrator Barreto asking that the Small Business Administration waive the

$100,000 maximum so that the SBDC’s will have the ability to apply for the necessary amounts of the SBA’s Portability Funding program. It is now 25 very critical

days since Hurricane Katrina and the SBDC’s in Louisiana, Mississippi and Alabama still have no idea when the money can be applied for or when it will be available. Last year when Florida suffered 4 hurricanes they asked for additional resources from the SBA and they received $4,500. We need increased resources now.

The demand for services is now.

We need for the amount of the SBA Disaster loans to be increased from $1.5 million to $10 million. We need the loan payments deferred for at least 1 year. We need

to increase the term from 3 years to 10 for applicants with credit elsewhere. We

desperately need bridge loan money and grants. Small Businesses need to be able

to refinance existing debt. We need for the October 28 deadline for physical injury

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applications to be extended. We need more money appropriated for the SBDC program and more specifically for Alabama, Mississippi and Louisiana SBDC’s.

Madame Chair, Ranking Member Kerry, I am extremely grateful for the Snowe,

Kerry, Landrieu, Vitter, Talent amendment that provides for much of the funding

for businesses that is so desperately needed on the Gulf Coast and for $21 million

in additional funding for the national SBDC program. I would like to express my

gratitude to each of the Senators on this committee for their vote. I can only hope

that the house also will pass the amendment as it is offered.

I know that you are all aware that the impact of Katrina is not limited to the

Gulf Coast, but will be far reaching and will very likely impact businesses in your

states. You have all had your businesses impacted by higher gasoline prices because

of the damage to the oil producing drilling rigs and the plants in Louisiana that

produce gasoline. A manufacturer in Missouri may have a primary supplier in St.

Bernard Parish that may not be open for the next 8 to 12 months. That manufacturing business will suffer economic injury.

We must be aware that our banks could be facing difficult times as well. Many

millions of dollars in direct disaster loans will be made at very low interest. Banks

cannot compete with these rates and we must find a way to address the impact on

banks. There needs to be some additional incentives for banks to make loans to

small businesses.

Thank you again for allowing me to appear before the committee today. It has

been an honor and a privilege. At this time, I will be glad to respond to any questions that you, Madame Chair, or other Members of the Committee may have.

Chair SNOWE. Ms. Sutton.

STATEMENT OF MICHELE SUTTON, OWNER, FAIRWAY

VENTURES, LLC, HAMMOND, LOUISIANA

Ms. SUTTON. Good morning. My name is Michele Sutton. My husband and I own three furniture stores and one tire store on the

Mississippi Gulf Coast, two in Gulfport, one in D’Iberville, and one

in Pascagoula, respectively. Our home office is in Hammond, Louisiana. We have owned and operated furniture stores for the last

21 years. After a brief 6-month retirement, we opened our company

on the Gulf Coast in order for our sons to return home for gainful

employment.

We had annual revenues of $3 million, a payroll of $958,000, and

a modest profit margin after tax of 3 to 5 percent. We had 1,500

customers. Prior to Katrina, we had 32 employees. As of today, we

have 14 left. In addition, prior to Katrina, we had signed and paid

franchise fees to open an additional 10 stores in New Orleans, Jefferson Parish, and Baton Rouge, and on the Mississippi Gulf Coast.

This would have meant an additional 100 newly created jobs over

the next 3 years.

However, Katrina put a halt to our growth strategy. We are now

in a survival mode. The morning after the storm, my husband and

youngest son went to Mississippi to assess our situation and what

they found was heartbreaking. Two of our stores were completely

gone, 50 percent of our company, poof, overnight. Delivery trucks,

inventory, retail locations, all gone. However, our other two locations sustained only minor damage—water, roof, glass.

Hooray! From one perspective, we are saying our glass is halffull. We could regroup, rally the troops, and salvage our family’s

livelihood. However, we had some small problems: No electricity,

water, telecommunications, or gasoline, and most of all, our most

valuable asset, our employees. Not to be deterred, while I am home

praying for the return of utilities, my husband and son searched

for our employees. They literally went shelter by shelter for our

valued employees.

66

We have had people with us since we started, for 21 years. These

people are a part of our family. We were able to find 20 of them,

each with their own horrific story of Katrina’s fury. Ten only had

the clothes on their backs left. We immediately held a company

meeting. We brought them in hot meals, paychecks, and gasoline.

How do you motivate people to work when they have lost their

homes and they are being moved from shelter to shelter, and in

some cases living with relatives hours away? We decided we would

do it with hope for a future. We promised them we would come

back and we would be even stronger with their help.

We started devising recovery strategies. The first step in the

daunting task was finding our customers and assessing the status

of our products in their homes. We knew we had $1 million of cost

of goods out in the field, which equates to $3 million of accounts

receivable that we needed to recover. Our customers are blue-collar

workers, casino employees, service industry people, and those on

fixed incomes. What we found was that 50 percent of our customers’ homes were gone. Neighborhoods were completely decimated. Thirty percent still had homes standing, but the people had

evacuated. Twenty percent were home and they were okay. In addition, 35 percent of our customer base were casino employees who

now are unemployed.

Basically, we were able to surmise that 90 percent of our customer base is presently unable to continue to make payments on

their accounts for the following four reasons. No. 1, they no longer

live in the area. No. 2, they no longer had the product. No. 3, they

no longer have jobs. And No. 4, our physical absence in the marketplace implied, game over, store is gone, you don’t have to pay.

We now believe we are like the little engine who said, ‘‘I think

I can. I think I can.’’ We, too, think we can hang on long enough

to rebuild and recoup some of our accounts receivable, but in every

direction we are turning, reality is dealing us another blow.

We no longer have delivery trucks. We had to immediately dip into our cash reserves and spend $70,000 to replace two delivery

trucks.

We need two new locations to replace the ones we lost, but the

availability of retail space that is equipped, ready to go, is lacking.

Availability of goods, trying to get our products in, and then only

50 percent of our vendors that we have had a 20-year relationship

would work with us because they were concerned about our viability.

The insurance claims process is moving at a snail’s pace. It was

3 weeks before we saw the first adjustor, and now the adjustors are

fighting with each other to determine what came first, wind or

water, and personally, I don’t care. I just want them to settle our

claims. We paid them. We paid our premiums. We have no store,

and we just want to get back to the business of being in business.

I suppose this would be a good time to tell you, we are responsible.

We bought—I used to laugh at my husband—we bought every type

of insurance known to man to protect our company, but yet we

can’t get one adjustor to make a final decision and we don’t know

when, if ever, we are going to start to see an insurance check.

Two weeks ago, we filled out an online application with FEMA.

As of today, we haven’t heard anything, and I can tell you, on that

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application, once you fill it out and said you had insurance, the application stopped. They didn’t refer us to SBA to look for a loan.

Fortunately, I heard about that attending a local Rotary Club

meeting. That is where I heard about the SBA loan and that our

local SBDC would help us. What we are being told is the application alone is arduous, it takes about 2 weeks to complete, and then

about 3 to 6 months before we are going to hear if we qualify and

if we are going to see monies.

Chair SNOWE. Who told you that?

Ms. SUTTON. The local SBDC in our community told us that that

is what they were told——

Chair SNOWE. Three to six months?

Ms. SUTTON. Yes, and that is what they were told by the Small

Business Administration. Finally——

Chair SNOWE. Is that true? Excuse me. Ms. Wilkerson, is that

true? I know it isn’t yours, but I just want to clarify that.

Ms. WILKERSON. Yes. We were told that by the SBA, that before

a person got a check, it could be months, and, you know, I mean,

they get part of an application in, but then you have got to have

the records. Some of the mortgages are not available. They are underwater. I mean, we have lost the whole infrastructure, and by

the time you get all the pieces together——

Chair SNOWE. We are going to follow up on that. That was one

of the questions that I was going to ask Administrator Barreto, and

I will get to that with him, but that is—so you are confirming what

Ms. Sutton is saying, then, from your knowledge?

Ms. WILKERSON. We, in fact, have been told, off the record, that

that would be true.

Chair SNOWE. Okay. We are going to straighten that one out.

Ms. WILKERSON. I will say this, that this next group that came

in from Sacramento said that would not necessarily be the case, so

that we are cautiously optimistic. They said the average turnaround would be somewhere around—they had been 42 days. They

were working to close that gap. I will be cautiously optimistic.

Chair SNOWE. Well, I appreciate that. Thank you for your

straightforward answer on that one and we will have to take care

of that matter. Thank you.

Ms. Sutton, continue.

Ms. SUTTON. While we are still trying to bridge the gap between

insurance and then an SBA loan, we still have payroll, cost of

goods, business loans, and accounts payable with which to contend.

Our bankers are telling us they are hesitant to lend us even more

money when they don’t know for sure whether or not our business

is going to be viable. I am looking at which came first, the chicken

or the egg. Is it business capital or is it a successful business?

I do not believe in bringing someone else my monkey unless I

offer you solutions. Some suggestions would be immediate or expedited SBA loans and grants; the coordination between FEMA, SBA,

and the insurance companies; training grants for new employees to

replace those that aren’t coming back; and then short-term loans

guaranteed by the insurance money we have, but we just can’t get

our hands on.

Basically, every week that is passing, we are losing $56,000 in

revenue and an opportunity to do more new business. As if that

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wasn’t enough, what is adding insult to injury is the fact that an

outsider can come in with the ready resources to take advantage

of our misfortune because of where we did business. While we wait

and watch, our years of sacrifice, hard work, and dreams are disappearing before our eyes.

I thank you and appreciate the opportunity to share with you our

story.

Chair SNOWE. They are excellent suggestions. The training

grants for new employees to replace those that aren’t coming back

and also short-term loans guaranteed by insurance proceeds—Mr.

Mitchell said earlier that they can do that. We will just make sure

that they do. It all does depend on timeliness, too, here, I mean,

on top of everything else. Thank you. I will get to the other issues

in a moment.

[The prepared statement of Ms. Sutton follows:]

PREPARED STATEMENT OF MICHELE SUTTON, OWNER, FAIRWAY, LLC,

HAMMOND, LOUISIANA

Good morning. My name is Michele Sutton. My husband and I own three furniture stores and one tire store on the Mississippi Gulf Coast: two in Gulfport, one

in D’Iberville, and one in Pascagoula respectively. Our home office is in Hammond,

Louisiana. We have owned and operated furniture stores for the last 21 years. After

a brief 6–month retirement, we reopened our company on the Gulf Coast in order

for our sons to return home for gainful employment. We had annual revenues of $3

million, payroll of $958,000 and a modest profit margin after taxes of 3–5 percent.

We had 1,500 customers. Prior to Katrina, we employed 32 people; as of today, we

have 14 left. In addition, prior to Katrina, we had signed and paid franchise fees

to open an additional 10 stores in New Orleans, Jefferson, Baton Rouge and the

Gulf Coast of Mississippi. That means an additional 100 employees would be hired

in the next 3 years.

Katrina has put a halt to our growth strategy. We are now in the survival mode.

The morning after the storm, my husband and youngest son went to Mississippi to

assess our situation. What they found was heartbreaking—two of our locations were

completely gone. Fifty percent of our company was gone overnight—delivery trucks,

inventory and retail locations. Our other two locations sustained only minor damage

. . . water, glass/window, and roof—hooray! Our glass was half-full. We could regroup, rally the troops and salvage our family’s livelihood. We had one small problem—no electricity, water, telecommunications or gasoline and, most of all, no employees. Not to be deterred, while I was praying for the return of utilities, my husband and sons searched—shelter by shelter—for our valued employees. We’ve had

people with us since our inception 21 years ago. They are a part of our family. We

found 20 of them—each with their own horrific story of Katrina’s fury. Ten had only

the clothes on their backs left. We immediately held a company-wide meeting. We

brought them hot meals, paychecks and gasoline. So, how do you motivate people

to work when they have lost their homes and are being moved from shelter to shelter or, are living with relatives hours away? With hope for a future, we promised

them that we would come back if we had their help.

Recovery strategies were devised. The first step was the daunting task of finding

our customers and accessing the status of our products in their homes. We knew

we had $1 million in cost of goods sold in the field and an open accounts receivable

of $3 million that needed to be recovered. Our customers are blue-collar workers,

casino employees, service industry people and those on fixed incomes. What we

found was that 50 percent of our customers’ homes were gone—complete neighborhoods were decimated; 30 percent had homes, but the people had evacuated; and,

20 percent were home and OK. In addition, 35 percent of our customers were casino

employees who were now unemployed.

Basically, we were able to surmise that 90 percent of our customer base is presently unable to continue to make payments on their accounts. The primary reasons

are:

1. They no longer live in the area.

2. They no longer have the product.

3. They assumed because we no longer had a physical location, they didn’t have

to pay.

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4. For customers who actually have the money to pay their bill, the lack of gasoline, mail service, or the inability to drive from one city to another to bring a payment makes it almost impossible.

We now believe we are like the little engine who said, ‘‘I think I can, I think I

can.’’ We too, think we can hang on long enough to rebuild and recoup some of our

accounts receivable. But, in every direction we turn, reality deals us a blow.

1. We no longer have delivery trucks. We have to use part of our cash reserves

to spend $7,000 for two cubes.

2. We need two new locations that are fully operational ASAP! But, there is a lack

of available retail space.

3. Availability of goods—only 50 percent of our vendors would work with us on

payment terms. Bye-bye cash reserves again.

4. The insurance claims process is moving at a snail’s pace. It was 3 weeks before

we saw the first adjuster. A lot of good he’s been. He’s arguing with another adjuster in what came first—WIND OR WATER—WHO CARES? We have NO

STORE! Just settle it, so we can get back to the business of being in business! I

suppose this would be a good time to share—we have every type of insurance available: Disaster, Business Interruption and vehicle.

5. Two weeks ago we filled out an on-line application with FEMA and, as of today,

we have had no response.

6. We’re working our way through a very cumbersome SBA loan application.

We’re being told the application takes 2 weeks to complete and 3 months to process—I hope we can hang on until we get help.

7. Finally, we still have payroll, costs of goods, business loans and accounts payable with which to contend.

In addition, with the slow (or no) insurance funds available, banks are hesitant

to loan money to a company that cannot clearly determine if they will make it or

not. It’s the chicken or the egg; which came first—Business Capital or Successful

Business?

I do not believe in bringing someone else my monkey. So, I respectfully offer you

these suggestions for solutions:

1. Immediate or expedited SBA loans or grants.

2. Coordination between FEMA, SBA and insurance companies.

3. Training grants for new employees to replace those who are not coming back.

4. Short-term loans guaranteed by insurance proceeds.

Basically, every week that passes while we are waiting, we do not collect $56,000

in revenue, and our opportunity to secure new business is lost.

Thank you, and I appreciate the time and opportunity you have given me today

to share our story.

Chair SNOWE. Mr. Swindall, thank you for your patience.

STATEMENT OF TIMOTHY S. SWINDALL, VICE PRESIDENT,

SWR, INC., TROY, ALABAMA

Mr. SWINDALL. Yes, ma’am. My name is Tim Swindall and I am

Vice President of SWR. My company is a HUBZone certified business based in Alabama. You have my written statement, and having sat through the hearing and listened to a lot of these stories,

I am going to deviate largely from that and be quite brief.

Being a HUBZone business, we bring a different perspective to

the small business issues, but you mentioned, Chair Snowe, a lot

this morning about the importance of contracting opportunities.

Obviously, that is important. It is the engine that drives the small

business program.

As a HUBZone business, we are faced not only with competing

against large companies, but competing within the small business

program, as well. Amendment 1717, I believe, expressed or acknowledged the importance of the HUBZone program as a useful

tool in rebuilding the Gulf Coast area.

As a HUBZone business, one of the big challenges that we face,

even outside of a disaster situation like this, but on a normal basis,

is the lack of enforcement of the program. Agency contracting offiVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00073 Fmt 6633 Sfmt 6601 C:\SBA\26763.TXT CarolB PsN: CarolB
70

cers largely ignore the acquisition requirements that are already in

place and have been that apply to HUBZone companies. It is my

hope that the potential focus that the SBA’s efforts in this disaster

relief effort could not only help in revitalizing the area, but also

give the HUBZone program the support and focus that it needs to

really bring its potential to fruition.

You know, the HUBZone program is designed to bring assistance

to economically distressed areas, and that is a fact whether we are

looking at a disaster situation or not. It is kind of a two-fold consequence that this effort could largely address and help out tremendously in.

What I would like to see is the small business goals for prime

and subcontracting opportunities through the amendment to recognize the HUBZone program, as well, and specifically identify percentage goals for HUBZone companies whether it be through setasides or subcontracting opportunities, as well. I believe that would

be tremendously advantageous to the program rather than trying

to roll that up into the small business program generically.

Thank you for the opportunity to be here today.

[The prepared statement of Mr. Swindall follows:]

PREPARED STATEMENT OF TIMOTHY S. SWINDALL, VICE PRESIDENT, SWR, INC.,

MEMBER HUBZONE CONTRACTOR’S NATIONAL COUNCIL

My name is Tim Swindall, I am Vice President of SWR, Inc. SWR is a HUBZone

certified small business concern based in Alabama. SWR works as a Logistics Support Contractor to the Federal Government and currently performs contracts in such

fields as Warehousing, Transportation, Communications, Electronics Repair, Aircraft Corrosion Control, Aircraft Transient Alert Services, Courier Services, Furnishings Management Operations, Appliance Maintenance, installation of Engineered Structures used for temporary and emergency applications, and Military

Uniform Alteration and Repair. Current clients include Department of the Army,

Department of the Air Force, Department of the Navy, Department of Veterans Affairs, and The Library of Congress. We currently employ approximately 125 people

of which 85 percent reside in designated HUBZone areas.

The direct impact of Hurricane Katrina on my business was the complete termination of three contracts performed for the Department of Veteran’s Affairs in Biloxi

and Gulfport Mississippi, and the reduction of services performed under a contract

with Keesler AFB, Mississippi. This, in turn, affected six to eight employees. Three

of these employees have returned to work in the area on a part time basis, and two

are in the process of being relocated and assigned to other projects until such time

as their previous positions are reinstated. The contracts with the VA may never be

reinstated as at this point it appears to be unlikely that the Gulfport campus will

be rebuilt. Services provided at Keesler AFB were inclusive of operating the Base

Furnishings Management Office. Once the base was opened for mission critical personnel we began cleanup of warehousing areas that were subject to our contract.

Fortunately this damage was minor and the structural integrity of the warehouse

was not greatly compromised. All salvageable furnishings in inventory have been

grouped and are in the process of being distributed throughout areas of base housing that are presently inhabitable. The long term status of this contract is uncertain. Prior to Katrina, Keesler was evaluating the implementation of a Base Operations contract that would group a multitude of smaller contracts into one large contract. This contract currently being performed by my company was the resulting

award of a HUBZone set aside procurement; however, if a decision to incorporate

the Base Ops mode of operation is made it would effectually preclude small and

small HUBZone businesses such as ours from competing as a prime contractor.

The SBA’s HUBZone Empowerment Contracting program is logically designed to

create jobs and encourage economic development in distressed or underutilized

areas by increasing access to Federal contracting opportunities and offsetting some

business costs. I have witnessed, firsthand, the results that this program is capable

of rendering. When a HUBZone contract is awarded results within the work area

are immediate in creating jobs, increasing cash-flow that circulates within the community, and strengthening area infrastructure. This impact is felt within each speVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00074 Fmt 6633 Sfmt 6621 C:\SBA\26763.TXT CarolB PsN: CarolB
71

cific area as its employment rate increases and commerce begins to grow. For these

reasons the HUBZone program could potentially be a highly effective development

tool in restoring the Gulf Coast area.

Amendment #1717 in its Small Business Contracting Provisions allows for the

designation of Hurricane Katrina disaster areas as HUBZone at the discretion of the

SBA Administrator. At face value this appears to be a positive move that would

reap benefits to those devastated areas; however, there are several critical points

that I believe have been overlooked or not realized that could encourage substantial

benefits. In order to render the HUBZone program, not only within the Gulf Coast

but as a whole, successful in reaching its full potential economic impact on the distressed areas of our country these points must first be addressed.

1. Federal Acquisition Regulations pertaining to the HUBZone program states at

FAR 19.1305 that agency contracting officers shall set aside acquisitions exceeding

the simplified acquisition threshold for competition restricted to HUBZone small

business concerns when they have a reasonable expectation that offers will be received from two or more HUBZone small business concerns; and award will be made

at a fair market price. This is probably the strongest language used in describing

the requirements of any small business program. The HUBZone program was

deemed important enough by its designers that its use is required without exception

when the procurement parameters are met rather than leaving it as an option for

use at the contracting officer’s discretion, as many small business programs are.

Still, as strong and plain spoken as this language is most agencies continue to ignore it, and in my experience, refuse to follow its required use even when pointed

out. On almost a daily basis I find procurements posted on FedBizOps that fit the

requirements to be set aside for HUBZone competition. It is mystifying to hear the

comments from many contracting officers when approached about the possible use

of the program. Some are simply ignorant of or not familiar with the requirements

and when brought to understand comply; yet others are belligerently biased against

its use. Presently there is a procurement for warehousing and transportation services being solicited as a small business set aside by the Army Corps of Engineers

in Mobile Alabama. This is a prime example of contracting opportunities that could

easily be set aside for HUBZone competition but are passed on by the contracting

officer. Bottom line is that no matter how much potential is in the program it will

never reach fruition until agencies are better educated and made aware of the program and its benefits. The SBA’s HUBZone program under the Administration of

Kevin McHale and with the diligent support of the HUBZone Contractor’s National

Council lead by Ron Newlin and Cordell Smith has made great efforts toward affecting that result; however, until more authority is dedicated toward enforcing existing

regulations any efforts toward expanding the program will be fruitless.

2. By designating Hurricane Katrina disaster areas as HUBZone, target areas

could potentially encompass large areas previously outside of the HUBZone program. This, without doubt, would undermine the intent of the program. By broadening the scope of the program beyond those most needy areas, businesses largely

unaffected by this disaster and otherwise unqualified for meeting HUBZone program certification could then become certified and compete for Federal contracting

dollars that would end up outside of truly distressed areas. Careful, deliberate evaluation should be exercised by the SBA Administrator within his discretion toward

the expansion of current HUBZone area parameters.

3. Amendment #1717 also carries a provision establishing contracting goals of 30

percent prime contracting and 40 percent subcontracting for small businesses. With

the estimated rebuilding cost at $100 billion I believe this goal is both progressively

stimulating to small businesses in the affected area while at the same time establishing reasonable parameters for contracting officers to take quick decisive actions

where necessary without abusing small business programs. I also believe an additional provision that would increase the reciprocal benefits of these provisional goals

would be to establish a specific goal toward HUBZone small businesses based on a

percentage of the small business prime contracting goal of 30 percent. As I expressed earlier the primary obstacle standing between the HUBZone program and

achievement of its full potential is merely enforcing its proper use.

4. Establishing a specific goal of perhaps 7 percent to 10 percent of the 30 percent

prime contracting goal established for small business would bring its requirements

undeniably to the conscience of agency contracting officers and give the program the

authoritative power that is needed to finally generate some much needed momentum in the program creating the beneficial results that we know to be possible.

While 7 percent to 10 percent is an increase above the program goals of 3 percent

currently established on a national level, considering that much of the affected areas

subject to these provisions can be established as HUBZone and therefore available

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to an increasing number of small businesses to compete for as they enter into the

HUBZone program I believe this to be a fair measure.

I am most confident that the HUBZone Empowerment Contracting program can,

when properly acknowledged and utilized, not only have an astounding effect on the

rebuilding and revitalization of the Gulf Coast from the devastation reeked by Hurricane Katrina but also play a vital leading role in recuperating our Nations economically distressed areas and creating jobs where they are most greatly needed.

Chair SNOWE. Mr. Swindall, I gather you are suggesting having

a separate designated HUBZone, having a separate designation.

Mr. SWINDALL. Yes, ma’am. I believe, because as I stated, my experience is—well, the fact of the matter is that contracting officers

are already ignoring the program. It is a challenge that we are

faced with daily. As a matter of fact——

Chair SNOWE. You are just saying, even though you are a

HUBZone and you are supposed to be eligible for these

contracts——

Mr. SWINDALL. Exactly.

Chair SNOWE [continuing]. They are still ignoring——

Mr. SWINDALL. Yes, ma’am. Specifically, the Corps of Engineers

right now in Mobile is soliciting a procurement for warehousing

and transportation. It is a combined contractual effort to provide

both of those services, both of which my company have experience

and excellent ratings performing. It is a small business set-aside

procurement, which in and of itself is not bad, but it easily meets

the FAR requirements to be set aside for HUBZone.

The amendment also potentially will increase HUBZone areas at

the SBA Administrator’s discretion, so basically, largely, the disaster areas could end up becoming entire HUBZones, which would

make these opportunities available to any small business that entered the program.

I believe by specifically addressing HUBZones in those contracting bills with a percentage, I think it really would put some

teeth into the program to bring these contracting officers and make

them comply with the regulations that are already there.

Chair SNOWE. Right, which you are saying they are not, the bottom line.

Mr. SWINDALL. Yes, ma’am.

Chair SNOWE. Well, that is something we have got to address. It

is an incredible bias, frankly, that exists in the agencies.

Mr. SWINDALL. It is a problem that we face whether we are in

a disaster situation or not.

Chair SNOWE. Exactly. Yes.

Mr. SWINDALL. It is something that we have battled on a daily

basis. I believe to shine some silver lining to the dark cloud, I believe that some focus on that program through these disaster relief

efforts could potentially get the ball rolling and not only help the

disaster areas, but other economically distressed areas, as well.

Chair SNOWE. Right. It is an excellent suggestion and we will

work on that and we will focus on that, absolutely, because it really

does otherwise minimize the effectiveness of this approach——

Mr. SWINDALL. Yes, ma’am.

Chair SNOWE [continuing]. Ms. Wilkerson, when you were saying

just about New Orleans, and 85 percent of the businesses in New

Orleans have 19 or fewer employees. That is significant, and we

are looking at this HUBZone designation for disaster areas and

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that is in our legislation, as well, but it is going to render parts

of that useless if they are overlooking the value of small business,

and looking at the comparative charts here between the small business contracts that already have been compared to the large contractors, already, you can see the dimensions of the problem.

In other words, I mean, if they could do the subcontracting, but

we have got waivers in the supplemental that are creating problems that you have all identified, as well, and it has raised serious

concerns to me. We didn’t want to hold up the supplemental for the

assistance. It was a Hobson’s choice for us. We could not do that.

We are going to try to rectify it. They have committed to working

with us on that, hopefully. Nevertheless, we are going to do that,

because small business really is a lifeline here.

Mr. SWINDALL. Subcontracting opportunities are great, but it is

my experience—my company deals largely in Federal contracting,

providing services for the Federal Government. It is a trend within

DOD now to base operation contracts and other similarly-related

contracts that roll several or a multitude of contracts that had previously been performed by small businesses into one large contract

that really only large companies realistically can compete for. Although subcontracting quotas and goals are in place, they are rarely realized in a realistic manner anyway. It totally changes the picture. I believe all efforts toward prime contracting opportunities for

small business would really go a long way.

Chair SNOWE. Prime, yes. Right. Absolutely. Then you don’t have

those problems.

Mr. SWINDALL. Yes, ma’am.

Chair SNOWE. You have the one, and I agree with that and we

really need to work on that.

Ms. Wilkerson.

Ms. WILKERSON. One thing, since the cat is out of the bag, so to

speak, about the timing, I would like to go ahead and say. I

understand——

Chair SNOWE. I am glad it is, because—I am sorry it is. I mean,

I am glad it is, but I am sorry it is a problem.

Ms. WILKERSON. I think it is important, and we felt it was important to manage people’s expectations of when they really are going

to get money, and when you talk to the people in Florida and you

talk to the people in North Carolina and the people that have been

through these disasters, the fact is, that is what they are telling

us, too. I mean, they are telling stories that occasionally, there are

still some loans that have not been funded and we are talking

about a year. Those are isolated incidents, but it does happen and

people should not expect it to happen in 21 days. It probably won’t.

Chair SNOWE. I guess the fact is we are trying to get the loans

to rebuild the city. It is inconceivable in the 21st century that is

what we are grappling with, is a losing a city, but that is where

we are. The machinery of government has to keep pace to make it

happen, and there is no reason why this should take that long in

getting money to people so we can start this process. It doesn’t take

that much to write a check.

I am just glad they came out today, because that is one of the

issues we will rectify here because it is going to hold up everything.

I mean, that tells me that it is probably replicated in all the other

74

agencies and FEMA and so on and we can go on endlessly thinking

about the possibilities here about how that will materially affect

the ability to have a viable rebuilding effort in a timely fashion. I

mean, it is not going to be easy under any circumstance, but certainly if the government is not providing the wherewithal to do it

in a timely fashion.

What is it here that you have heard today that you think works

or doesn’t work? Is there anything that we have discussed in the

earlier panel with the Administrator or anything? What I am hearing from you is bridge loans, grants, time, obviously now. A lot of

the suggestions you have raised—I am going to comb through your

testimonies, Mr. Rowland, as well. I mean, we will read your testimonies for all the suggestions, so we will do that. Is there anything

that really is so important that you want to make sure that draws

the attention of this Committee with respect to how we are working these programs or what works?

Mr. Rowland.

Mr. ROWLAND. A lot of people have lost all their records——

Chair SNOWE. Yes.

Mr. ROWLAND [continuing]. Which doesn’t give them the ability

to back a lot of, obviously, money that they are going to go after.

Certainly, no one expected this to happen, so that is definitely

something that is going to have to be addressed and a big concern.

If somebody wants to get a bunch of loans and they don’t have anything to back it, what is going to happen, because they are completely wiped out, all their databases and everything else. That is

definitely a big concern, I would think.

Chair SNOWE. All right. We are going to follow up on that particular issue and have a plan to handle that and so on. We will look

at that, definitely, absolutely.

Mr. ROWLAND. Thanks.

Chair SNOWE. Ms. Wilkerson, do you have any suggestions on

that and what generally has worked in the past or hasn’t worked?

No?

Ms. WILKERSON. With respect to——

Chair SNOWE. The loss of documents, not having any

documentation——

Ms. WILKERSON. Clearly, we need the IRS to have a rapid turnaround with those transcripts. We are making those requests, but

it would be also helpful if we could have the IRS, local, housed with

us, and they do talk about that in the Business Recovery Center

where it is just going to be business. They did talk about having

the Commissioner of Insurance and the IRS and those people, but

we clearly need the IRS firmly on board, firmly committed to a 72-

hour turnaround.

Chair SNOWE. Okay.

Ms. WILKERSON. If I had to make a comment, the portability

grants——

Chair SNOWE. Yes.

Ms. WILKERSON [continuing]. I mean, I think it is critical.

Chair SNOWE. Absolutely. We correct that, too——

Ms. WILKERSON. We can help people on the ground, because the

difference is we are going to walk them through the process and

talk about whether the other funding programs, and the young

75

woman who did not know her self-employed husband could be unemployment insurance. If we had not told her that, she wouldn’t

know it. We will walk them through all the processes. We definitely need to be able to get that.

We need those tax credits. We need that loan deferral. We also

need the ability to roll the existing debt, and they do say in some

cases, but we need a broader roll existing debt into the disaster

loan, because if you pile debt on top of debt with a 3 percent profit

margin, you have just doomed them to fail. If you can roll that in,

then that gives them that long-term strain to look at getting that

paid for. I think that would be very helpful to a lot of really small

businesses.

Chair SNOWE. Do you have the resources to do your job?

Ms. WILKERSON. Well, I have about 30 people—the answer is, no,

we are flooded. I mean, when we have got——

Chair SNOWE. Right. So you relocated.

Ms. WILKERSON. I personally moved myself to Baton Rouge so

that I could work with Louisiana Economic Development and the

SBA.

Chair SNOWE. I see.

Ms. WILKERSON. I am by myself down there, except I do have a

couple of centers, and I am moving the UNO SBDC into the LSU

SBDC to help people.

Chair SNOWE. Has SBA offered any additional assistance or personnel for you?

Ms. WILKERSON. No, ma’am.

Chair SNOWE. No? How do they expect all this to be done?

Ms. WILKERSON. I don’t know. That is my point. When he kept

talking about a partnership with our program, that is great, but we

serve 14,000 people a year with $2.2 million now.

Chair SNOWE. Okay. That is another issue we will have to address.

Ms. WILKERSON. Yes.

Chair SNOWE. Did you have something to add?

Mr. WILSON. Yes, Madam Chair, Don Wilson with the ASBDC.

We are bringing in—we trained 250 people in Baltimore 2 weeks

ago and they are all——

Chair SNOWE. How many?

Mr. WILSON. Two-hundred-and-fifty. They are all experienced

loan packagers and processors. They are procurement specialists.

They are what needs to be in Louisiana and Mississippi. Those

States where those 250 people are from are saying, ‘‘We will pay

their salaries and we will pay their benefits, but we don’t have the

money to pay the money to send them down there, to pay their

housing and pay their food.’’

Mary Lynn wants to bring in those folks. She doesn’t have the

dollars to do it. ASBDC has given both Mary Lynn and Mississippi

a $75,000 bridge loan so they can begin to bring them in. Mr.

Gurley in Mississippi already has 11 people on the ground from

Ohio, from Tennessee, from Florida, from North Carolina, and we

will be sending in 10 to 15 every week to help them.

You see, when SBA asks for supplementals, they always ask for

the additional dollars for loans and for their home people. They

never ask for any additional dollars for their partnership people,

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but yet we are the ones that end up—they are handed off to us because we are the people who help reconstruct their financial backgrounds.

Chair SNOWE. Okay.

Mr. WILSON. If IRS could also put actually an IRS person in an

SBDC——

Chair SNOWE. Good point, good point. That is a very good point.

Mr. WILSON [continuing]. If it is 72 hours, I will be very surprised. If the counselor is right there with an IRS——

Chair SNOWE. Right, one-stop shopping.

Mr. WILSON [continuing]. The counselor can work with the client

to begin to process those loans right there.

Chair SNOWE. Absolutely.

Mr. WILSON. You saw how many—and Herb, let me say, Herb

has been super and the Administrator has been super in working

with the Association, but you saw how many loans are out there

and how many have been returned. That is because so many people

find the application daunting. They need an SBDC person or a

Women’s Business Center person or a SCORE person to help them

fill those out. SCORE and SBDC, under your amendment, thank

God, there is additional resources there——

Chair SNOWE. Right.

Mr. WILSON [continuing]. $21 million for us and $4.5 million for

the women. That has got to get through so that these bodies can

get on the ground——

Chair SNOWE. I see.

Mr. WILSON [continuing]. In Mississippi and Louisiana to help

these people fill out——

Chair SNOWE. That is our goal.

Mr. WILSON. They have only got 76. We are talking about a 21-

day turnaround on the loans or whatever it will be. Well, they processed 76 in 3 weeks out of 12,000 in. That is not a criticism. Loan

processing is not instantaneous. Our background historically has

been——

Chair SNOWE. They have a million applications.

Mr. WILSON [continuing]. When an average client fills out an

SBA disaster loan, about 40 percent of them get approved or filled

out—I mean, that are filled out. With 9/11 in New York and with

Hurricane Floyd in North Carolina and with the hurricanes last

year in Florida, with the assistance of trained counselors, those

rates went up between 70 and 80 percent approved. That is the

reason we have got to get additional SBDC-trained people who

have been through the hurricane experience and 9/11 in Mississippi and Louisiana to——

Chair SNOWE. It is recruiting them from around the country,

where they are already trained, helping to recruit from around the

country to bring them in.

Mr. WILSON. We have got the counselors already signed up. We

are ready to come.

Chair SNOWE. You are ready to come. You need the expenses.

Mr. WILSON. We need the dollars to bring them there, the airfare, the food, and the housing.

Chair SNOWE. Well, okay. That is something we can——

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Ms. WILKERSON. Plus FEMA has all the hotels and the RV park

spaces in our State.

Chair SNOWE. That is another additional issue, the housing question.

Ms. WILKERSON. Right, right.

Chair SNOWE. Well, no, you have identified some significant

issues here that need to be quickly addressed, and first and foremost is to get a bill through and all of these questions and get it

through immediately so you have got the resources at your doorstep to begin this process. The idea of having an IRS person there

along with SCORE and the Women’s Business Center and everybody to help is a great idea to expedite this process.

Yes, I am concerned. We have a million applications and only 76

approved out of all of that so far. Now, there are a number of

issues, but at some point, it is going to create a serious backlog

here, if it hasn’t existed already, given the gap and the time-consuming nature of the process, which we have got to also improve

upon.

I thank you. I am sorry you are all here under these circumstances. I know the Committee, and I speak for all of us, truly

appreciates the fact that you were able to be here under these circumstances and the personal and professional hardships that you

are enduring as a result of the hurricane. I truly appreciate it.

I want you to know that we are going to do everything we can

to help in every way we can and as soon as we can to at least assist you in this one dimension with the difficulties that you are experiencing. I truly regret that. The fact that you have taken time

to come up here to Washington is really magnificent on your part,

to share your stories and your personal stories.

We pledge to you we are going to do everything that we can to

help in every way possible, so thank you and God bless you. Thank

you.

This hearing is adjourned. Thank you.

[Whereupon, at 1:28 p.m., the Committee was adjourned.]

(79)

APPENDIX MATERIAL SUBMITTED

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U.S. SMALL BUSINESS ADMINISTRATION,

Washington, DC, Nov. 10, 2005.

Mr. WESTON COULAM, Staff Director,

Committee on Small Business and Entrepreneurship,

U.S. Senate,

Washington, D.C.

DEAR MR. COULAM: Thank you for your letters of October 17, 2005 and October

18, 2005, requesting further information from the September 22, 2005 hearing on

the Impact of Hurricane Katrina on Small Businesses. Attached please find a complete set of answers to your questions. Please accept our apologies for the delay in

returning these to you.

Should you have any further questions please contact our Office of Congressional

and Legislative Affairs at (202) 205-6700.

Sincerely,

C. EDWARD ‘‘TEE’’ ROWE,

Associate Administrator for

Congressional and Legislative Affairs.

RESPONSES BY C. EDWARD ‘‘TEE’’ ROWE TO QUESTIONS FROM COMMITTEE ON

SMALL BUSINESS AND ENTREPRENEURSHIP

Question 1. How is the SBA making sure that its assistance is provided to the

areas in the Gulf Coast that have suffered the most damage from Hurricanes

Katrina and Rita?

Answer. The SBA is committed to assisting the victims of the Gulf Coast hurricanes. The region is suffering from the triple misfortune caused by Hurricanes

Katrina, Rita and now Wilma.

The SBA now has nearly 3,800 employees in the Office of Disaster Assistance

working exclusively on helping the Gulf Coast and Florida recover. This is four

times the number of employees that were in this office before the Hurricanes struck.

As of November 8, SBA has approved over $400 million ($426,731,600) in disaster

loans to more than 6,293 individuals and businesses in the Gulf region.

Of those, $365,070,000 in disaster loans has been approved to 5,368 homeowners

and renters in the region.

Some 543 Business Physical Disaster loans have been approved for $39,387,300

and 382 Economic Injury Disaster Loans have also been approved for $22,274,300.

The SBA has assigned Field Staff to each of the 130 Disaster Assistance Centers

in the region. As you know, these centers are situated in accordance with the levels

of hurricane damage present in a given locality.

The SBA is working hard to help the region recover and offer aid to citizens that

need relief. SBA assistance is available on an equitable basis regardless of an applicant’s place of residence. The procedures for each type of assistance are the same

for all citizens when applying for hurricane relief.

Question 2. Where is the SBA focusing its attention, ut terms of the services it

is providing and the counties and parishes it is serving?

Answer. Victims and evacuees of Hurricanes Katrina and Rita are able to get SBA

assistance at 130 Disaster Recovery Centers and 9 Business Recovery Centers

throughout the hurricane affected areas. Of those, 103 Disaster Recovery Centers

are in the affected Gulf States. A toll-free SBA Customer Service line (1–800–659–

2955) is open 24-hours a day, 7-days a week. Victims may also receive assistance

through a dedicated electronic mailbox, as well as the SBA website, where business

applicants may download an application.

Question 3. What is the SBA’s general prognosis for the pace of the recovery of

small businesses in the affected region?

Answer. It is difficult for the SBA to give a definitive answer concerning the pace

of economic recovery in the Gulf region. In human terms, the tragedy has been immense and widespread. The social and economic dislocation suffered by the citizens

of the Gulf Coast has affected the entire Nation.

The Federal Reserve Bank of Atlanta has experience analyzing the economic damage from hurricanes and the amount of time needed to recover. Jack Guynn, the

Bank’s President and CEO, agreed this week with analysts that the devastation

caused by Hurricanes Katrina and Rita will subtract about 1⁄2 of a percentage point

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1Mr. Guynn’s October 20, 2005, discussion of the economic impact of Hurricanes and monetary policy is attached.

from the GDP growth the U.S. would have seen in the third and fourth quarters

of 2005.1

However, Federal Government and insurance payments will provide the region

with an economic rebound. Post-hurricane reconstruction spending will boost national economic output by 1⁄2 a percent in early next year, he says.

The shock to aggregate demand is likely to be temporary and growth should pick

up again in the region as investment flows in to rebuild homes and infrastructure.

This economic upswing will help businesses large and small to recover from their

losses.

Question 4. In general, how long does the SBA estimate it will take to return the

small business economy in the Gulf Coast region to the level it enjoyed prior to the

hurricanes?

Answer. It is too early to tell, with specificity, how soon the small business economy will recover to the levels enjoyed prior to the hurricanes. The SBA is working

hard to help the region return to its pre-hurricane levels as quickly as it can. Small

businesses will benefit from the economic upswing fed by the investments made in

rebuilding the region.

Question 5. In addition to providing small business owners with advice on rebuilding and restarting their businesses, what is the SBA doing to help small businesses

be better prepared for future catastrophes?

Answer. The SBA helps by enabling borrowers to mitigate the impact of future

disasters on their businesses. When providing a disaster loan for uninsured recovery

costs, SBA has the authority to increase the loan amount by up to 20 percent so

that the borrower can invest in disaster mitigation technologies such as sea walls

and storm shutters.

The Administration has proposed to raise the amount that can be provided for disaster mitigation by basing the calculation on the total damage caused by the disaster. (For example, a business that receives $100,000 of damage may have $80,000

covered by insurance and $20,000 covered by an SBA disaster loan. Typically, SBA’s

mitigation loans would be limited to 20 percent of the $20,000. The Administration’s

proposal would raise eligibility to 20 percent of the $100,000 damage—in this case

increasing by fivefold the amount of disaster loan lending eligible for mitigation.)

The SBA also provides materials on its Web site to help small businesses prepare

for potential disasters. They include issues for small business owners to consider

and prepare for before disaster strikes, such as keeping a backup copy of critical

business records at a secure offsite location at least 50 miles away from the business

location.

Small businesses have access to the SBA’s ‘‘Be Aware and Prepare’’ page with

links to information on business disaster prevention, disaster recovery, and business

continuity issues. The information can be found at http://www.sba.gov/disaster

recov/prepared/getready.html.

SBA DISASTER PROGRAM

Question 1. What is the average length of time that a disaster loan application

being filed for Hurricane Katrina or Hurricane Rita will take to be completed by

the applicant?

Answer. Generally, the home application takes 2 hours to complete, and the business application takes a total of 3 hours to complete.

Question 2. For victims of Hurricane Katrina and Hurricane Rita, (a) what has

been the average time between an applicant’s submission of an application for an

SBA disaster loan, and the point at which the applicant is told his or her application

is approved or denied, and (b) what has been the average duration between the notice of a loan’s approval and the disbursement of that loan’s funds?

Answer. Based on the loans processed so far, the average time between an applicant’s submission of an application for an SBA disaster loan and the point at which

the applicant is advised of approval or denial is generally within 30 days. (b) Based

on the loans approved so far, the average duration between the notice of a loan approval and the initial disbursement of the loan funds is generally less than 20 days.

Disbursement time is dependent upon the borrower, who controls when the closing

documents are returned. Loan documents are prepared within 24–48 hours of approval and disbursements are made within 5 days of return of signed loan closing

documents.

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Question 3. What allowances is the SBA making to compensate for the difficulty

that storm victims have in obtaining documentation to support their applications?

Answer. Recognizing that many applicants may have difficulty providing financial

documentation, SBA has eased its filing requirement for 3 years’ Federal income tax

returns to 1 year, and will accept the application without that return if it is not

available. In the absence of any other information, SBA will base its repayment decision solely on the information provided by the Internal Revenue Service (IRS). Our

Customer Service Representatives are also helping applicants to estimate simple

balance sheets and income statements if necessary. Additionally, SBDCs located

throughout the disaster area are assisting applicants to recreate lost financial information and complete the SBA disaster loan application.

We have also increased the loan amount that can be disbursed without a title

search from $25,000 to $50,000. This allows us to disburse more quickly without

compromising loan integrity.

Question 4. Based on the number of referrals made by FEMA thus far, and the

SBA’s experience of making loans after other disasters, what is the SBA’s estimate

of the number and dollar amount of disaster loans the SBA will make in response

to Katrina and Rita?

Answer. Projected Approvals:

# Loans Avg. Loan

Amt.

Total Approved Amt.

($000s)

Home (82 percent) ............................................................................................. 68,305 $26,213 $1,790,479.0

Business (10 percent) ....................................................................................... 8,330 $19,752 $164,534.2

EIDL (8 percent) ................................................................................................. 6,664 $30,913 $206,004.2

Total Projected Approvals ......................................................................... $83,299 $2,161,017.4

Question 5. How quickly after the hurricanes were SBA offices assisting victims

of the hurricanes?

Answer. SBA already had Disaster Recovery Centers (DRCs) in Alabama and the

Florida panhandle for Hurricane Dennis. Evacuees from Hurricane Katrina came

into these centers to talk to FEMA and SBA as soon as they arrived in the locale.

In Mississippi, Louisiana, and elsewhere in Alabama, SBA was onsite within 2

days of the disaster. SBA located personnel at every DRC opened by FEMA and the

state. The decision of opening dates for DRCs is made by FEMA in concert with the

State, and depends on conditions (accessibility, security, utilities) in the disaster locale.

When Rita came ashore, SBA was already located in several DRCs for Katrina

in Louisiana and Mississippi, and was able to provide services to evacuees from

other areas. New DRCs in Texas, as well as DRCs that were forced to evacuate for

the new storm, opened as soon as conditions allowed.

Question 6. What did the SBA do to prepare for the hurricanes?

Answer. SBA plans continuously for disaster response. Prior to hurricane season,

SBA anticipates requirements for supplies, equipment and staff needs.

As Katrina approached, SBA began to contact potential re-hires and disaster reserve personnel, and implement plans for recruiting new hires. We assessed expected needs for computers, supplies, and equipment. We designated field management personnel and began searching for lodging in the disaster areas.

We are constrained by regulations which prohibit us from committing funds, hiring, securing space or lodging, or traveling to the disaster area before a disaster declaration is actually made. However, because we had nearby centers in operation for

earlier disasters (prior to Katrina, operations existed for Hurricane Dennis in Alabama and the Florida panhandle; prior to Rita, operations were in place for Katrina

in Alabama, Mississippi, and Louisiana), we were able to use those centers to facilitate moving personnel and supplies into the new disaster area.

Once the disasters were declared, we began hiring customer service representatives, loss verifiers, loan processors, and others, both nationally and in the local disaster areas. Supplies and equipment were deployed, and we located personnel in

each DRC as it was opened by FEMA and the State. We expanded our toll-free customer services lines to accommodate the large volume of calls, and established a

dedicated electronic mailbox for disaster inquires. We also opened Business Assistance Centers in several locations, and partnered with SBDCs, who are providing asVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00086 Fmt 6601 Sfmt 6621 C:\SBA\26763.TXT CarolB PsN: CarolB
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sistance in reconstructing financial records and completing applications in the disaster locales.

Question 7. Did the SBA participate in or assist Florida’s small business emergency bridge loan program that followed the hurricanes in that State in recent

years?

Answer. SBA has a successful history of working with the private lending community and, as recently as the 2004 Hurricanes, with the State of Florida and its

Bridge Loan Program, benefiting several thousand disaster victims over the years.

We look forward to the opportunity ofworking with any disaster-affected State on

such an endeavor.

There are some important considerations to keep in mind. (1) While many bridge

loans can and will be repaid by our program, SBA cannot guarantee that bridge

loans will be repaid with approved disaster loan funds. The use of disaster loan proceeds is governed by statute. The majority of bridge loans are granted in the early

stages of recovery from a disaster and there is no way to know if the borrower will

also be approved by SBA and/or if the funds will be used for eligible disaster related

purposes; (2) More specifically, SBA loan proceeds can only be authorized and disbursed to repair or replace disaster-related losses. Accordingly, individuals and/or

business owners will be required to document that the funds of their interim loan

were spent for SBA-eligible disaster-related purposes; (3) SBA cannot pay off interim loans for individuals or business owners whose disaster loan applications were

declined by or have not yet been processed by SBA.

Nevertheless, SBA can help those disaster victims who have an approved SBA

loan or have secured an interim bridge loan, and can document that the proceeds

of that loan were used for eligible disaster related purposes.

Question 8. What concerns, if any, does the SBA have about the combination of

State and Federal programs to assist hurricane victims?

Answer. The SBA stands ready to work with State and local officials to combine

program assistance when appropriate. Concerns may arise when programmatic

standards, definitions and regulations vary across differing levels of jurisdiction.

However, the SBA looks forward to working with the Committee along with State

and local officials to improve the coordination and effectiveness of government’s response to large-scale disasters.

The Office of Disaster Assistance (ODA) is always concerned about duplication of

benefits from other programs and constantly monitors new programs at the Federal

and State levels to be sure we are aware of them.

In addition, ODA is concerned that it is only a source of long-term recovery loans

for businesses and homeowners, and that the victims need to be mindful of other

sources of short-term assistance (grants or loans) that might be available for shortterm needs.

Question 9. Mr. Barreto testified that in order to meet the demand of this disaster

the SBA is currently hiring over 200 employees per day. Understanding the vital

need to bolster the staff and resources, does the SBA have sufficient administrative

funds to sustain these disaster employees over an extended period of time?

Answer. SBA’s current estimates show that the Disaster program currently has

adequate administrative resources through the end of January 2006. This estimate

assumes that there are no further disasters of significant magnitude declared before

then.

Question 10. How is the SBA ensuring that employees are properly trained to use

the new Disaster Credit Management System?

Answer. Field Inspection Team: Prior to the transition to DCMS, the Field Inspection Team identified a core group of 43 employees and brought them into the SBA

Field Operations Center in Atlanta for 5 days of training with the DCMS. Training

for this core group consisted of a comprehensive instruction on the application within DCMS related to verification actions from the assignment of files to the review

and completion of the product. Training included extensive hands-on training with

the DCMS tablets used for field verifications.

Loan Processing: Employees receive class room training followed by on-the-job

training. Employees are assigned to processing teams of 8–10 with one supervisor

providing daily guidance.

Customer Service: New hires in the Call Center receive one full week of classroom/

mentoring training. Subject matter experts on the staff conduct the training. Team

leaders continually monitor the employees for quality and quantity of work performed. Training/performance issues are discussed and recorded every month with

each employee.

84

Question 11. Given the reports that the real estate records of many local governments in the Gulf area have been flooded, and that the records of some banks may

also have been destroyed, how is the SBA responding to loan applicants who are

unable to provide necessary documents to support their applications?

Answer. SBA is using whatever vehicle is available to prove eligibility and/or ownership. Online property searches, tax appraisal records, title companies, direct

phone verification with third parties, FEMA records, insurance companies and

banks arc examples of alternative resources.

Question 12. How many ‘‘temporary’’ disaster employees does the SBA typically

have in reserves? How many of disaster employees were in reserve prior to Hurricane Katrina?

Answer. Prior to Katrina we had approximately 617 regular temporary ODA employees onboard nationwide; however, the formal Disaster Reserve (DR) had not yet

been established. To date, we have the following:

• DR Customer Service Representative: 371 qualified; 335 selected for tentative

reserve appointments (20 declinations and 11 with suitability issues).

• DR Construction Analyst Loss Verifier: 125 qualified; 117 selected for tentative

reserve appointments (7 declinations and 16 with suitability issues).

Currently ODA has approximately 300 DR applications on file which have not

been rated. On 10/25/05, ODA closed the DR announcement and expects to reopen

it once The present disaster activity subsides.

Question 13. How long is the training for disaster field employees? Disaster Area

Office employees? Please describe the training for these employees.

Answer. SBA typically maintains a core of cadre employees, and hires temporary

employees for the duration of a disaster. A variety of training methods are used for

new and returning employees.

• Former employees that return to work with SBA may live in locations all over

the country. Normally they have already been trained and only need to be updated

on new procedures and policies currently in use. SBA provides that type of update

training via telephone, fax and email. After they travel to the disaster location, they

work with Team Leaders that were already employed and receive ‘‘on the job’’ update training.

• New Customer Service Representatives (CSRs), Loss Verifiers (LVs) and other

employees are hired nationwide, and in the disaster locale. The new employees are

trained in the office for four (4) days and sent to the field to begin the ‘‘on the job’’

portion of their framing under the direction of their assigned Team Leader.

• We also hire new employees that are located in the disaster area. Often these

new employees are also disaster victims. Since they are located in the disaster area

and there is usually no facility available to train employees in the disaster area,

we provide a more direct ‘‘on the job’’ training. These new employees are typically

assigned to a more experienced employee to work closely to learn the program and

procedures. Since they live in the disaster area they don’t need the administrative

and travel policies and procedures training at that time.

• In addition, we hire new employees from around the country that respond to

job announcements. These employees are typically hired and sent directly to the disaster area and trained ‘‘on the job’’ under the same procedure as locally hired employees.

• The training for CSRs is briefly described as follows:

• SBA disaster loan program knowledge, policy and field procedures.

• Administrative and travel policies and procedures.

• SBA Field Operations applications and forms completion.

• Importance of customer service and how to work with stressed disaster

victims.

• SBA’s role in relation to FEMA and the State.

• The referral process if an applicant is declined by SBA in the field due

to repayment ability and referred to the FEMA/State Grant program.

• How to review the completed application with the disaster victim on site.

• Various other miscellaneous training points.

• Initial training for the field inspectors is a comprehensive 3 day training course.

In addition to administrative, travel, and organizational topics, the course includes

an overview of the DCMS and hands-on training in all aspects of the computer tablets used to complete the original on-site inspections. When dispatched to the field

the field inspector is assigned to a team leader who will provide additional training

and technical support as required. This may include teaming the new field inspectors with an experienced field inspector for one-on-one training during actual on-site

inspections.

85

• Training for Processing & Distribution Center (Formerly Area Office) employees

consists of 3 days of formal classroom training. In addition to administrative and

organizational issues, the course includes hands-on training in using the DCMS as

well as the technical aspects of the specific job, such as understanding the disaster

program, how to read credit reports, tax returns, income calculation, and how to calculate eligibility. The employee is then assigned to a team leader who will review

the new employee’s work and provide technical assistance and additional training.

Question 14. Does the SBA plan to make any analysis of whether the current Disaster Loan program is meeting all of the pertinent needs of hurricane victims? If

so, when might this be completed?

Answer. ODA is constantly reviewing and analyzing its program, policies and procedures to determine if the program overall is meeting the pertinent needs of disaster victims. The program is intended to provide long-term recovery financing, and

is not a short-term emergency needs lender. We are continually looking at ways,

therefore, to speed up the delivery of the program without compromising integrity.

Question 15. Does the SBA have a policy of not disbursing any disaster loan funds

in New Orleans, and other Gulf Coast areas protected by levees, until the levees

have been built to a standard sufficient to successfully resist a ‘‘Category 5’’ hurricane? If so, what is the source of this requirement?

Answer. SBA has no such policy. We do require the appropriate building permits,

construction contracts, and other documentation required by Federal law or local

building authorities.

Question 16. Please provide an up-to-date chart showing the number of loan applications the SBA has received from hurricane victims, and the number that have

been approved, disbursed, or withdrawn.

Answer. See Appendix A.

Question 17. In reviewing loan applications, has the SBA prioritized the processing of applications from businesses that wished to participate in bidding for contracts to rebuild the Gulf Coast region?

Answer. ODA has no way of determining which loan applicants are seeking to bid

on Federal contracts to rebuild the Gulf.

Question 18. In reviewing loan applications, has the SBA prioritized the processing of applications from businesses and homeowners who wished to receive the

disbursement of funds for their loans immediately, rather than those businesses and

homeowners who planned to delay the disbursement until a later time?

Answer. To the extent possible, SBA processes loans in the order they arc received. Because of the many decision factors involved, SBA cannot know in advance

whether the loan will be approved and when an applicant wishes to take disbursement of all or part of their loan. It is common for SBA to disburse personal property

funds for necessities soon after closing, while real estate funds may not be disbursed

until the borrower is ready to begin construction, and has the necessary state and

local permits to do so.

Question 19. Does the SBA prioritize, for processing, evaluation, or disbursement

purposes, certain types of disaster loan applications?

Answer. To the extent possible, SBA processes applications in the order of receipt.

SBA has designed processes that expedite applications through the evaluation process as appropriate. For example, an initial repayment analysis is performed before

an application is issued to expedite an IHP grant referral for those homeowners and

renters who clearly cannot repay a loan. Also, a credit check is performed as soon

as an application is entered to speed IHP grant referral of homeowners and renters

with adverse credit history. Verification of damage occurs for those applicants for

whom there is a reasonable chance that a loan will be approved.

We have also implemented initiatives to expedite the processing of business loans.

If an applicant is declined for loan assistance, they may ask for reconsideration

twice within a specified period of time, so that additional information may be considered which may result in an approval.

Question 20. Please provide the approval rates (percentage of applications received that were approved) for at least 5 previous disasters, including Hurricane Andrew in Florida, Hurricane Charley in Florida, and the Northridge Earthquake in

California, and provide the approval rate for Hurricane Katrina and Hurricane Rita

applicants as well.

Answer. See Appendix B.

Question 21. For the five disasters referred to in the previous question, and for

Hurricanes Katrina and Rita, please provide:

86

a. the average response time to the disasters.

b. the average approval time.

c. flow many applications were submitted?

d. How many applications were approved?

e. How many applicants were received and of those how many were approved, declined or pending 60 days, 90 days and 120 days after the disasters?

Answer. For items a, b, c, and d, see Appendix B. SBA is unable to provide historical information in response to item e.

SBA’S FINANCING PROGRAMS

Question 1. The hurricanes will almost certainly create an increased level of loan

defaults for borrowers in the Gulf Coast region that already have loans in the SBA’s

7(a) and 504 Loan programs. (a) How much of an increase over normal loan defaults

does the SBA expect as a result of the hurricanes? (b) How much does the SBA expect the program’s fees might have to change to compensate for these defaults and

still maintain a zero subsidy?

Answer. (a) At this point it is difficult to predict what the ultimate effect will be.

The 7(a) and 504 portfolio of loans in existence prior to the hurricanes is a small

part of the overall portfolio in both programs. While the experience with the New

Orleans portfolio is likely to be unique, the precedents for the other devastated

areas would indicate that some portion of those existing borrowers will see a significant increase in business volume as they supply the goods and services demanded

by recovery. The New Orleans situation will be significantly affected by the speed

(and ultimate success) with which rebuilding efforts actually occur. In the worst

case scenario, where many residents and businesses do not choose to return in the

immediate future, it is likely that the Agency’s delinquency and loss experience may

exceed that of previous disasters already included in our baseline.

(b) Because of the size of the hurricane affected portfolio relative to the portfolio

as a whole, and because the existing portfolio is spread out over many cohort years,

it is unlikely to have a significant effect. While the principal and interest

deferments will result in less revenue during the deferment period, the fact is that

in the case of those loans that resume payment in the subsequent year, the cash

collected from the on-going fee will be higher than predicted in the model because

the loan balance on which the fee is based will be higher than assumed in the original model.

Question 2. Will the SBA have a policy of not approving loans under the 7(a), 504,

or Microloan programs in the Gulf Coast region if the borrowers are in an area protected by levees, but the levees are not sufficient to withstand a Category 5 hurricane?

Answer. SBA’s standard loan authorization requirement is that any business in

a flood plain must purchase flood insurance. The Agency has no intention of altering

that policy.

Question 3. Has the SBA decided to defer the payments owed by borrowers to it

under the 504 loan program for 1 year if the borrowers are adversely impacted by

the hurricanes? If so, how many borrowers will be eligible for this deferment?

Answer. SBA has deferred payments on SBA-serviced 504 loans in the disaster

areas. In addition, all borrowers in the affected areas have the option of requesting

a deferment as appropriate for their business’s circumstances. Because of the unique

nature of the 504 loan repayment structure, a deferment requires that a 5-year

‘‘catch up plan’’ be designed.

ENTREPRENEURIAL DEVELOPMENT

Question 1. Given the overwhelming and daunting task facing many small business owners in the affected area, how is the SBA interacting and coordinating with

resource partners and others to provide economic, financial, and business management guidance?

Answer. The Small Business Development Center (SBDC) Program has a long history of providing assistance to business disaster victims to help them plan their

business resumption, prepare disaster loan applications, etc. SBA is working closely

with the SBDC national network and its trade association to be sure that adevinte

staff and resources are available to the SBDCs in the affected areas. This has included taking steps such as approving plans for staff from nearby SBDCs to work

on a temporary basis in the affected areas and inviting the SBDCs in the affected

areas to apply for grants under the portability program enacted last year and intended to assist communities that are economically challenged as a result of a busiVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00090 Fmt 6601 Sfmt 6621 C:\SBA\26763.TXT CarolB PsN: CarolB
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ness or government facility down sizing or closing which has resulted in the loss

of jobs or small business instability.

During its more than 40 years of counseling and training small businesses,

SCORE also has been an active provider of disaster recovery assistance. Of particular value in a disaster situation is SCORE’s online counseling data base of more

than 50 counselors with disaster recovery expertise—www.score.org. Available 24/7,

and not limited by geographic boundaries, this service can help small business owners wherever they may have temporarily or permanently relocated, even when a

‘‘brick and mortar’’ location is not available. SCORE has mobilized specialized business counseling/coaching in addition to the 24/7 online counseling assistance. Developing recovery plans, inventory assessments, business interruption recovery plans,

property and loss assessments, backup computer systems, and providing assistance

with disaster loan applications are all part of the services provided by SCORE faceto-face counselors at sites in the region and where evacuees have relocated. The Atlanta SCORE chapter is helping Gulf Coast entrepreneurs by providing 7-day-aweek business counseling at three major evacuee centers outside Atlanta. Many

other chapters, including those in Mobile and Baton Rouge, have also increased

their services. Additionally, SCORE has added links on its homepage

(www.score.org) to Federal recovery programs, including SBA and FEMA. SBA has

worked closely with the National SCORE Association and, on a local basis with the

local SCORE chapters to encourage and facilitate the provision of disaster recovery

services to affected small businesses.

Flooding from Hurricane Katrina forced both the SBA’s Louisiana District Office

and the Women’s Business Center in New Orleans (Urban League of Greater New

Orleans Business Resource Center) out of their offices. Both entities temporarily relocated to Baton Rouge where they shared space, and where each provided limited

assistance to local business disaster victims, as well as those that were also displaced from New Orleans and other hard-hit areas. SBA’s Louisiana DO recently

returned to New Orleans, and made space available to the WBC so that it can again

offer limited services to support the long-term recovery of the New Orleans business

community. The operations of the WBCs in Mississippi and Alabama were not severely impacted by the hurricanes, and continue to provide services in their areas.

In addition, a number of women’s business centers across the country are reporting

that they are reaching out to hurricane victims that have permanently or temporarily relocated to their areas. Many WBCs and other contributors have joined with

the Association of Women’s Business Centers to raise funds to help the WBC in New

Orleans to rebuild its own operations.

Question 2. Since many people may not know where to get help, what is the SBA

doing to provide more outreach and market its services and the services of SBDCs

programs to small business owners in the affected area?

Answer. SBA has embarked on a media campaign, including issuing numerous

press releases and both audio and video public service announcements, to make

small businesses in the affected areas aware of the recovery services available from

the Agency and its resource partners. In addition, SBA personnel in the affected districts are working closely with local media, lenders, chambers of commerce, business

organizations, and other entities to make sure that the message gets out about the

assistance available from SBA and its partners, including the SBDCs. In addition

to SBA’s outreach and marketing efforts, many of SBA’s partners, such as the

SBDCs, also publicize the availability of their assistance through their own websites

and other media.

Question 3. Currently the SBA has $1 million available in ‘‘Portability Funds’’ to

be used by Mississippi and Louisiana in Federal FY ’06. These funds are for nonmatching grants for special projects however each grant is capped at $100,000.

a. Have any SBDC’s requested these portability funds beyond the maximum level?

b. Which SBDC’s?

c. What are the requirements to apply for these funds?

During the first week of October, SBA used the Grants.gov site to invite applicants to apply for the approximately $1 million in Portable Assistance Grant funds.

To date, only the Mississippi SBDC has requested Portability funds, and its application is within the statutory maximum.

Under the legislation, SBA is authorized to provide grants not to exceed $100,000

per grant to SBDCs in communities that are affected by business or government

downsizing or closing resulting in loss of jobs or small business instability. To be

eligible, an applicant must be a Lead SBDC that can demonstrate its ability to provide a quality portable assistance project for the specific purpose of providing programs and services to small businesses in communities suffering from economic

hardship attributable to the downsizing or closing of businesses or government faVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00091 Fmt 6601 Sfmt 6621 C:\SBA\26763.TXT CarolB PsN: CarolB
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cilities. The requirements for application are more fully set out in the grants.gov

posting.

Question 4. How much additional funding will the Mississippi, Louisiana and Alabama SBDCs need in order to provide assistance to small business for the short

term and long term?

Answer. State SBDC Directors in both Mississippi and Louisiana have requested

staffing support from SBDCs across the country experienced in providing disasterrelated technical assistance. SBA has supported this effort by allowing staffs from

neighboring SBDCs to temporarily supplement the staff of the SBDC in Mississippi.

Similar activity is expected in Louisiana. In addition, to help provide additional staff

support for the Gulf state SBDCs, two large corporations have donated a total of

$200,000 to be used by the SBDCs in Louisiana and Mississippi ($75,000 each), and

Alabama ($50,000).

SBA has no plans to request additional SBDC program funding for the disaster

recovery effort. However, the Agency is working closely with the local SBDCs, and

is exploring ways to direct existing program resources in the form of unexpended

regular program funds to the disaster areas. In addition, SBA has issued a program

announcement for the new portability program grant funds, and the Mississippi

SBDC has already applied under this announcement. SBA is expecting to also receive applications from other Gulf state SBDCs. [It must be noted, however, that

all applications received under the announcement will be evaluated in accordance

with the criteria contained in the Program Announcement.]

Question 5. How many SBDC employees are currently working in Louisiana and

Mississippi? How many additional employees were hired to respond to the hurricanes? How many employees from other states volunteer to assist? Which states?

Answer. According to the most recent information we have, the Mississippi SBDC

has 22 counselors and trainers on staff, including six formerly part-time employees

who were converted to full time status, and two new hires. The Louisiana SBDC

has 24 counselors and trainers on staff, and another four contractors hired on 90-

day contracts. In addition, numerous staff persons from SBDCs in other parts of the

country have volunteered to go to the duster areas to assist the local SBDCs. In

total, 44 counselors and trainers from other states have volunteered to go on 2-week

rotational assignments in the affected Gulf States. These counselors have come from

the following states: FL, GA, AZ, SD, MD, MI, OH, NC, NE, NM, PA, and TN. Some

of the members of this volunteer cadre have already completed assignments in Mississippi.

Question 6. What additional services has SCORE and the Women’s Business Centers provided in response to the Hurricanes?

Answer. Flooding from Hurricane Katrina forced both the SBA’s Louisiana District Office and the Women’s Business Center in New Orleans (Urban League of

Greater New Orleans Business Resource Center) out of their offices. Both entities

temporarily relocated to Baton Rouge where they shared space, and where each provided limited assistance to local business disaster victims, as well as those that were

also displaced from New Orleans and other hard-hit areas. SBA’s Louisiana DO recently returned to New Orleans, and made available space to the WBC so that it

can again offer limited services to support the long-term recovery of the New Orleans business community. The operations of the WBCs in Mississippi and Alabama

were not severely impacted by the hurricanes, and continue to provide services in

their areas. In addition, a number of women’s business centers across the country

are reporting that they are reaching out to hurricane victims that have permanently

or temporarily relocated to their areas. Many WBCs and other contributors have

joined with the Association of Women’s Business Centers to raise funds to help the

WBC in New Orleans to rebuild its operations.

SCORE also has been an active provider of disaster recovery assistance. Of particular value in a disaster situation is SCORE’s online counseling data base of more

than 50 counselors with disaster recovery expertise—www.score.org. Available 24/7,

and not limited by geographic boundaries, this service has been helping small business owners when a ‘‘brick and mortar’’ location is not available. SCORE has mobilized specialized business counseling/coaching in addition to the 24/7 online counseling assistance. Developing a recovery plan, inventory, business interruption,

property and loss assessment, developing backup computer system, assistant in disaster loan applications are all part of the services provided by SCORE face-to-face

counselors at sites in the region and where evacuees have relocated. Atlanta SCORE

is helping Gulf Coast entrepreneurs by providing 7-day-a-week business counseling

at three major evacuee centers outside Atlanta. Many other chapters, including Mobile SCORE and Baton Rouge SCORE, have increased their services. Additionally,

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SCORE has added links from its website (www.score.org) to various recovery assistance sites including SBA and FEMA.

GOVERNMENT CONTRACTING

Question 1. With regard to the SBA’s disaster loan processing, please provide to

the Committee the following information:

(A) The name and contact information for the vendor or vendors, including subcontractors, that have been involved in creation and operation of the SBA Disaster

Credit Management System (DCMS), as well as in the conversion of the Automated

Loan Control System and the Loan Officer Report System to DCMS;

(B) Any contract or contracts, together with any related contractual amendments,

related to the DCMS;

(C) Any contract award evaluation documents related to the DCMS, such as those

that would be available for production to the Government Accountability Office in

proceedings under the Competition in Contracting Act; and

(D) The names, titles, and contact information for SBA officials responsible for

award and administration of any DCMS-related contracts.

Answer: See Appendix C. SBA Official Contacts: Herbert L. Mitchell, Associate

Administrator for Disaster Assistance, (202) 205-6734; Michael Sorrento, Director,

DCMS Operations Center, (703) 487-3642; and Janet Strong, Deputy Director of

Contracts, (202) 205-7307.

Question 2a. In your testimony, you indicated that the SBA has assigned 4 Procurement Center Representatives (PCRs) to assist small firms with Katrina-related

contracting. However, according to the SBA’s own information, it already had 3

PCRs in the region prior to the disaster. Of these PCRs, the SBA assigned no PCBs

in Mississippi, only one in Louisiana, and only two in Alabama. In addition, the

SBA had 1 PCR assigned to cover the Homeland Security Department in Washington, DC, along with the Department of Agriculture and the Defense Contracting

Command.

Have you, or have you not, assigned any additional PCRs to the Hurricane

Katrina contracting beyond the above-mentioned PCRs?

Answer. The four PCRs in the region and the PCR at the Department of Homeland Security are dedicated to Katrina-related contracting.

Question 2b. If you have assigned additional PCR’s, please state how many additional PCRs have been assigned, and whether these additional assignments created

any temporary or permanent PCR vacancies?

Answer. The four PCR’s in the region and the PCR at the Department of Homeland Security are dedicated to Katrina-related contracting.

Question 2c. In light of the significant contracting activities following the disaster,

please advise whether you intend to seek funding for additional PCRs to ensure that

each affected State and the Department of Homeland Security headquarters in

Washington have at least one dedicated PCR?

Answer. At this time SBA does not see a need to seek funding for additional

PCRs.

Question 2d. Please provide to the Committee your best available data concerning

the number of small businesses assisted by the PCRs with regards to Katrina contracts, the number of appeals filed by the PCRs and the SBA with regard to consolidated contracts related to the Hurricane Katrina, as well as the number and dollar

volume of contracts set aside for, or awarded to, small business concerns as a result

of this assistance.

Answer. Contracting information is being tracked by individual agencies through

the Federal Procurement Data Center-Next Generation (FPDS-NG), the central repository of statistical information on Federal contracting. As of October 17, 2005,

according to the data obtained from the FPDS-NG, the small business dollars obligated for Hurricane Katrina are well over the governmentwide 23 percent goal.

However, we believe this only represents a portion of the work that has been awarded to date. As you know, many contracting offices supporting Katrina, particularly

those relocated to the disaster recovery area, do not have access to their normal contract writing systems and thus, have not been able to populate FPDS-NG contemporaneously with the contract awards they have made. Still, others have not had

time to enter data due to the tempo of operations. As the operations tempo improves, we expect that the data will be entered and thus the accuracy in terms of

total contracts awarded, and dollars obligated, will increase.

Question 3a. Federal disaster-relief agencies have been claiming that small businesses will receive fair opportunities to subcontract on Katrina-related projects.

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However, it appears that the demand for subcontracts exceeds the current capacity

to manage the requests from small businesses. One prime contractor was reported

by The Washington Post to field over 6,300 calls from interested firms. Yet, according to the SBA’s own information, the SBA employs just one Commercial Market

Representative (CMR) in the State of Louisiana (who also doubles as a PCR), and

none in the States of Alabama or Mississippi.

Please describe to the Committee in detail how you intend to cope with the substantial demand for subcontracts given the limited SBA personnel resources dedicated to subcontracting currently in the region?

Answer. The role of the CMR is to identify subcontracting opportunities. The biggest challenge is matching the opportunities with the businesses that are able and

willing to perform.

Question 3b. Please inform the Committee whether you will seek additional funding to provide for at least 1 CMR in each affected State?

Answer. At this time SBA does not see a need to seek funding for additional

CMRs.

Question 4. You stated at the hearing that the statutory Small Business Act goals

apply to Katrina-related contracts. However, according to data compiled by the

Committee, small businesses have been awarded only 15 percent of the total

Katrina-related spending. Further, press reports indicate that small disadvantaged

businesses received only 1.5 percent of Hurricane Katrina contracts awarded by the

Federal Emergency Management Agency. Please describe in detail the SBA’s efforts

to ensure that Federal contracting actions related to the Hurricane Katrina contracts meet the statutory small business prime contracting and subcontracting

goals?

Answer. Contracting information is being tracked by individual agencies through

the FPDS-NG, the central repository of statistical information on Federal contracting. As of October 17, 2005, according to the data obtained from the Federal

Procurement Data Center-Next Generation, the small business dollars obligated for

Hurricane Katrina are well over the governmentwide 23 percent goal. However, we

believe this only represents a portion of the work that has been awarded to date.

As you know, many contracting offices supporting Katrina, particularly those relocated to the disaster recovery area, do not have access to their normal contract writing systems and thus, have not been able to populate FPDS-NG contemporaneously

with the contract awards they have made. Still others have not had time to enter

data due to the tempo of operations. As the operations tempo improves, we expect

that the data will be entered and thus the accuracy in terms of total contracts

awarded, and dollars obligated, will increase.

In the meantime, SBA continues to use a variety of resources to match small businesses with Hurricane Katrina contracting opportunities. Since February 2005, the

SBA has increased by nearly 30 percent the number of PCRs stationed at acquisition activities throughout the country to advocate on behalf of all small businesses.

While all SBA PCRs are providing assistance to small businesses interested in participating in the rebuilding efforts, the SBA has specifically dedicated five PCRs to

work with Federal agencies, including the Department of Homeland Security and

the Federal Emergency Management Agency, to identify relief and reconstruction

contract and subcontracting opportunities for small businesses. These PCRs, as well

as others, are also working closely with small business vendors to assist them in

locating procurement actions that they may be capable of performing. Special emphasis is being made to specifically identify Gulf Coast small business concerns for

all Hurricane-related contracting opportunities.

Additionally, SBA District Office and PCR staff is providing ‘‘hands-on’’ assistance

to small businesses that are unfamiliar with the Federal Government procurement

process, to obtain necessary registrations and certifications to be able to compete for

prime and subcontract actions,

The SBA is working with the Army Corps of Engineers to ensure that opportunities exist for small businesses to participate on contracts for the Gulf Coast recovery

and reconstruction. Our efforts to date include exploring procurement strategies

that we believe will expand the number of small businesses, including local 8(a) and

HUBZone firms, participating in these contracts. To optimize the participation of

local small businesses, we are also using our field staff and resources partners to

verify the operational capacity of local small businesses, and then provide listings

of theses firms to the Army Corps of Engineers. In addition, we will expedite the

processing of Mentor-Prote ́ge ́ agreements and provide priority processing of 8(a) and

SDB certification applications from firms in the affected area.

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Question 5a. The Department of Commerce and the Department of Homeland Security both announced specialized websites for Katrina-related contracts. These

websites and the registration services they provide appear to be tailored to small

businesses. In contrast, the SBA has no such website, and it does not maintain a

registry of firms interested in providing disaster-related services.

Why has the SBA failed to lead in this crucial area and ceded ground to other

agencies?

Answer. The SBA has taken a proactive role in this area. In fact, the SBA is

working with Department of Commerce and other Federal agencies to provide a central point of reference for businesses, especially minority-owned businesses and

women-owned businesses, to register for and become aware of Federal contracting

opportunities in the Gulf Coast. The National Hurricane Contracting Information

Center ensures that businesses understand the process and are aware when opportunities become available. The SBA has assigned an employee onsite at the NHCIC

to provide information to small businesses specifically seeking Hurricane Katrina

prime and subcontracting opportunities. The SBA is tracking the number of inquiries nationwide.

Question 5b. Would the SBA take the initiative to create framework contracts (including Blanket Purchase Agreements or Government-Wide Acquisition Contracts)

and to negotiate set-asides with Federal agencies for small businesses interested in

providing disaster-related work now and in the future?

Answer. SBA is committed to ensuring that small businesses receive their fair

share of Federal contracting opportunities.

Question 6a. As you know, I introduced legislation providing for certain measures

to improve access of small firms to Federal disaster-relief contracts. Please advise

whether the SBA supports:

A statutory prime contracting goal of 30 percent and subcontracting goal of 40

percent for Katrina-related contracts, given the fact that the Department of Homeland Security and the Army Corps of Engineers historically exceeded these targets?

Answer. SBA would not object to such a provision.

Question 6b. Designation of areas affected by the Hurricane Katrina as

HUBZones, subject to the discretion of the SBA Administrator?

Answer. SBA believes that HUBZone designation would clearly assist in fast

tracking contract opportunities, jobs and capital investment to areas affected by

Katrina.

Question 6c. Increase of the surety bond guarantee amount to $10 million? Answer. SBA supports the President’s proposal to increase the amount to $5 million.

Question 6d. Repeal of Section 101 of the Second Hurricane Katrina Supplemental

Appropriations bill, which sought to waive statutory small business prime contracting and subcontracting provisions on Katrina-related contracts?

Answer. The Office of Procurement Policy has issued guidelines for implementation, but a repeal would not be objectionable.

Question 6e. Requirements for small business subcontracting plans, to be concluded within a reasonable period after award, for contracts awarded subject to the

emergency procurement authorities?

Answer. SBA in consultation with the Office of Federal Procurement Policy believes that this provision has some drawbacks regarding the withholding of payment, but does not generally object.

Question 6f. Reinstatement of the statutory and regulatory parity between the

small business reservation and the simplified acquisition threshold?

Answer. SBA, after consultation with the Office of Federal Procurement Policy believes this provision is not objectionable.

RESPONSES FROM HON. HECTOR V. BARRETO TO QUESTIONS

FROM SENATOR CARL LEVIN

I want to ask about a concern brought to our attention by the Michigan Small

Business Technology Development Center (SBTDC) which administers SBA loans.

It relates to the ability of evacuees who now reside in Michigan (or elsewhere) and

who intend to re-start their life by moving or opening a business in the new state,

whether temporary or permanent These individialls want to file for SBA disaster

assistance loans in order to finance the relocation of their business. However, it is

not clear they would be eligible for such loans and I think that needs to be clarified.

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.The problem is SBA’s eligibility criteria requirements which say that in order to

be approved for a SBA disaster assistance loan the relocation has to be mandated

or involuntary and that the relocation cannot be voluntary. What exactly does mandated or involuntary mean? SBA field officers believe these requirements are far too

ambiguous and in the case of the Katrina disaster will need clarification to avoid

confusion, disappointment and frustration.

What if a business in a Gulf state has suffered severe water damage and molding

and the business owner decides to relocate to another state rather than try to rebuild the damaged business? This small business has clearly suffered a disaster and

should be eligible for a federally guaranteed low-interest-rate disaster assistance

loan. However, the business may not be eligible because we don’t know exactly what

criteria SBA will be using to judge whether the relocation is ‘‘mandatory.’’ or involuntary.

Question 1. How does SBA intend to apply the requirements and how can it clarify this so that the disaster assistance loans can go to those that need them?

Answer. SBA considers each relocation request based on the individual factors involved. 13 CFR § 123.201 sets forth the regulations which establish our policy on

determining whether a relocation is voluntary, involuntary, or mandatory. 13 CFR

§ 123.201 (c) states: (c) If your business is going to relocate voluntarily outside the

business area in which the disaster occurred, you are not eligible for a physical disaster business loan. If, however, the relocation is due to uncontrollable or compelling

circumstances, SBA will consider the relocation to be involuntary and eligible for a

loan. Such circumstances may include, but are not limited to:

(1) The elimination or substantial decrease in the market for your products or

services, as a consequence of the disaster;

(2) A change in the demographics of your business area within 18 months prior

to the disaster, or as a result of the disaster, which makes it uneconomical to continue operations in your business area;

(3) A substantial change in your cost of doing business, as a result of the disaster,

which makes the continuation of your business in the business area not economically feasible;

(4) Location of your business in a hazardous area such as a special flood hazard

area or an earthquake-prone area;

(5) A change in the public infrastructure in your business area which occurred

within 18 months or as a result of the disaster that would result in substantially

increased expenses for your business in the business area;

(6) Your implementation of decisions adopted and at least partially implemented

within 18 months prior to the disaster to move your business out of the business

area; and

(7) Other factors which undermine the economic viability of your business area.

RESPONSES FROM HON. HECTOR V. BARRETO TO QUESTIONS

FROM SENATOR JOHN KERRY

LOAN APPLICATION DEADLINE

Question 1. Mr. Barreto, during the hearing, I asked you if you would extend the

application deadline beyond October 28th for physical disaster loans, referencing letters Senator Landrieu and I sent to you on September 1st and September 13th. You

did not answer the question and we still have not received a reply. Mr. Barreto, will

you agree to extend this deadline?

Answer. SBA works closely with the Federal Emergency Management Agency

(FEMA) to provide disaster assistance to victims of Presidential disasters, and SBA

physical deadlines conform to those established by FEMA. FEMA has advised that

the deadline for applying for damages from Hurricane Katrina in Louisiana, Mississippi, and Alabama, and for Hurricane Rita in Louisiana and Texas, has been extended until January 11, 2006. SBA’s deadlines have been extended as well.

ODA has no authority to extend FEMA’s deadlines on its own.

DISASTER LOANS

Question 1. SBA’s disaster loans, for homeowners and businesses, arc indispensable to economic recovery after Hurricane Katrina. A press release from SBA,

dated September 8, 2005, said that ‘‘SBA is looking to hire at least 300 damage inspectors and 400 loan officers and customer service representatives immediately.’’

In your testimony, the numbers grew, noting 2,000 disaster employees on board and

the possibility of hiring another 2,000. As of October 5th, a document from the SBA

showed 2,934 disaster loan employees, with 450 loans made for homeowners, and

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20 made to small businesses. After you left the hearing, at least three witnesses

said they had been told they would probably wait several months to get loans, not

the SBA’s promised 21 days.

Mr. Barreto, you spent considerable time in your testimony countering circulating

concerns that the new disaster loan system was not able to handle a large-scale disaster, arguing it was fully tested and able to handle the disaster. However, how do

you explain the low loan approvals and the lag times in approved loans?

Answer. Approval rates vary as a result of a number of factors, including economic conditions in the disaster area. In areas of distressed economic conditions,

many disaster victims may lack repayment ability and/or have adverse credit history, which results in a lower approval rate.

SBA has accelerated decline processes designed to expedite the referral of obvious

declines to the IHP grant programs, so that available Federal assistance may be received as soon as possible. For these loans, the property loss is not verified and the

loan is not fully processed to a decision. This accelerated process typically distorts

the approval rate early in the disaster. At the beginning of the disaster, our approval rate was 2 percent or less. As of the end of October, the approval rate is approximately 15 percent, and can be expected to increase as more loans are fully

processed.

The size of this disaster required that SBA hire and train new Customer Service

Representatives, Loss Verifiers, Loan Officers, and other personnel to meet the

needs of the high number of disaster victims. As new employees have come into production, we have been able to more efficiently address the needs of the disaster victims.

Question 2. Based on disaster loans for Hurricane Katrina, what is the average

time from when a small business submits an application for a disaster loan until

they have the money in their bank account? Distinguish physical disaster loans

from economic injury disaster loans. How can we streamline the process?

Answer. Based on the loans processed so far, the average time between an applicant’s submission of an application for an SBA disaster loan and the point at which

the applicant is advised of approval or denial is generally within 30 days. (b) Based

on the loans approved so far, the average duration between the notice of a loan approval and the initial disbursement of the loan funds is generally less than 20 days.

Disbursement time is dependent upon the borrower, who controls when the closing

documents are returned. Loan documents are prepared within 24–48 hours of approval and disbursements are made within 5 days of return of signed loan closing

documents.

Question 3. How many of the witnesses who testified have applied for disaster

loans, when did they apply, and have their loans been approved?

Answer. Approved: Wes Wyman-$733,000. Eight of the witnesses did not apply for

disaster loan assistance. One has been declined. We are unable to disclose further

information under the Privacy Act (5 U. S. C. 552a).

CONTRACTING

Question 1. We have reports from Mississippi that FEMA is passing the responsibility down to MEMA, the Mississippi Emergency Management Agency, where small

businesses are being told to go online or to call a 1–800 number to find out about

contracting opportunities. Considering that the many small businesses in those

areas don’t have access to the internet or telephone service, that system seems unreasonable. SBA should be the watchdog for small businesses in this process.

In your testimony you talk about some of the things the SBA is doing on contracting, but this is one example where coordination is not working and SBA needs

to do more. How are you ensuring that small businesses in the Gulf region are

aware of contracting and subcontracting opportunities related to the rebuilding effort?

Answer. SBA is committed to ensuring that small businesses receive fair opportunities to help in the rebuilding efforts.

Specifically, the SBA is working with the Department of Commerce and other

Federal agencies to provide a central point of reference for businesses, especially minority-owned businesses and women-owned businesses, to register for and become

aware of Federal contracting opportunities in the Gulf Coast. The National Hurricane Contracting Information Center ensures that businesses understand the process and are aware when opportunities become available. The SBA has assigned an

employee onsite at the NHCIC to provide information to small businesses specifically seeking Hurricane Katrina prime and subcontracting opportunities. The SBA

is tracking the number of inquiries nationwide.

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Contracting information is being tracked by individual agencies through the

FPDS-NG. As of October 17, 2005, according to the data obtained from the FPDSNG, the small business dollars obligated for Hurricane Katrina are well over the

governmentwide 23 percent goal. However, we believe this only represents a portion

of the work that has been awarded to date. As you know, many contracting offices

supporting Katrina, particularly those relocated to the disaster recovery area, do not

have access to their normal contract writing systems and thus, have not been able

to populate FPDS-NG contemporaneously with the contract awards they have made.

Still others have not had time to enter data due to the tempo of operations. As the

operations tempo improves, we expect that the data will be entered and thus the

accuracy in terms of total contracts awarded, and dollars obligated, will increase.

In the meantime, SBA continues to use a variety of resources to match small businesses with Hurricane Katrina contracting opportunities. Since February 2005, the

SBA has increased the number of Procurement Center Representatives (PCRs) stationed at acquisition activities throughout the country to advocate on behalf of all

small businesses by nearly 30 percent. While all SBA PCRs are providing assistance

to small businesses interested in participating in the rebuilding efforts, the SBA has

specifically dedicated five PCRs to work with Federal agencies, including the Department of Homeland Security and the Federal Emergency Management Agency,

to identify relief and reconstruction contracting and subcontracting opportunities for

small businesses. These PCRs, as well as others, are also working closely with small

business vendors to assist them in locating procurement actions that they may be

capable of performing. Special emphasis is being made to specifically identify Gulf

Coast small business concerns for all Hurricanes-related contracting opportunities.

Additionally, SBA District Office and PCR staff are providing ‘‘hands-on’’ assistance to small businesses that are unfamiliar with the Federal Government’s procurement arena, to obtain necessary registrations and certifications to be able to

compete for prime and subcontract actions.

The SBA is working with the Army Corps of Engineers to ensure that opportunities exist for small businesses to participate on contracts for the Gulf Coast recovery

and reconstruction. Our efforts to date include exploring procurement strategies

that we believe will expand the number of small businesses, including local 8(a) and

HUBZone firms, participating in these contracts. To optimize the participation of

local small businesses, we are also using our field staff and resources partners to

verify the operational capacity of local small businesses, and then provide listings

of theses firms to the Army Corps of Engineers. In addition, we will expedite the

processing of Mentor-Prote ́ge ́ agreements and provide priority processing of 8(a) and

SDB certification applications from firms in the affected area.

Question 2. What are you doing to ensure that small businesses, and in particular,

local small businesses, get their fair share of Federal contracts?

Answer. See above answer.

Question 3. Do you support the 30 percent goal for prime small business contracting and the 40 percent goal for small business subcontracting that was included

in the bipartisan amendment we passed on the CJS bill last week?

Answer. SBA is committed to ensuring that small businesses receive fair opportunities o help in the rebuilding efforts.

Question 4. In addition to making sure that small businesses are aware of opportunities, what are you doing to ensure that contracting officers at the Department

of Homeland Security and FEMA. are doing their best to find qualified small businesses to do the work?

Answer. See answer to the first question above.

Question 5. Please list the company name, date of award, dollar amount of award,

contract description, type of competition, type of contract (i.e. fixed price vs,. cost

plus) and the small business participation or subcontracting goals of the 10 largest

contracts awarded by FEMA and the Army Corps of Engineers as of October 7,

2005.

Answer. The Committee will need to submit this request to the respective Agencies.

Question 6. One of the first actions of the SBA to assist small businesses in the

affected region was to transfer four Procurement Center Representatives to the area

to assist in the awarding of recovery contracts. Given the depleted number of PCRs

that have been responsible for Federal contracting oversight, four officers represents

a significant amount of the PCR workforce. How does the SBA plan to reorganize

the PCR activities that were previously performed by those four individuals?

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Answer. The PCR’s have always provided back up to each other and technology

has made it possible to easily shift work loads as most work is done electronically.

Question 7. On May 20, 2005, the Small Business Administration (SBA) Inspector

General (IG) released an Audit Report which determined that approximately 87 percent of the reported potential bundlings, with a value of at least $384 million, identified during the survey were not reviewed by SBA. One of the major shortfalls discussed in the report is the lack of resources, particularly the number of Procurement

Center Representatives (PCRs) available to monitor the over 2,000 procurement locations for the Federal Government. Given the significant shortfalls in oversight

that were occurring prior to the Katrina disaster, and given the significant amount

of contract dollars that are being allocated to the rebuilding effort, it is my opinion

and the stated opinion of the committee that there is a need for more PCRs. Do you

believe that the SBA should hire more PCRs to monitor the $300 billion in Federal

contracts awarded each year as well as the over $100 billion expected in the recovery effort?

Answer. SBA does not believe it needs more PCRs. Contracting and technology

have changed over the years. A large part of contracting is done through Federal

schedules and other vehicles other than individual contracts. Also all contracting is

done electronically.

Question 8. Of the 10 Hurricane Katrina consolidated 8(a) contracts that were

awarded by the Army Corps of Engineers as of October 3, 2005, approximately 99.4

percent of the contracts dollars ($48,931,515 of the $49,232,371) went to two Alaska

Native Corporations (ANCs) through sole-source contracts What dollar amount and

percent of the total awards that have been allocated to 8(a) companies have been

awarded to ANCs as sole-source contracts? How many dollars (and percent) of total

awards have been allocated to ANCs? Please provide a detailed breakdown of any

subcontracting plan that has been reported to the SBA as a part of the two ANC

contracts awarded by the Army Corps of Engineers as sole-source 8(a) contracts.

Answer. The Committee will need to request this information from the Army

Corps.

Question 9. The SBA, once again, has failed to meet its governmentwide goal of

5 percent utilization of women-owned businesses but continues to delay the implementation of the women’s contracting program. With hundreds of billions of dollars

being awarded by the Federal Government for disaster relief and rebuilding the affected areas, do you believe that the women’s contracting program could give procurement officers a tool which they could use to help meet their statutory 5 percent

goal?

Answer. SBA is committed to ensuring that all small businesses including womenowned small business receive their fair opportunities.

SBA’S EFFORTS AND RESOURCES TO RESPOND

Question 10. As you have acknowledged before this Committee during your tenure

as the Administrator of the SBA, capital is not always the answer to a small

business’s needs and that counseling is an important resource for helping our small

businesses succeed. In a disaster, it is certainly true that businesses need capital

and counseling. In that spirit, the Senate passed legislation that provides $33.75

million additional funding for SBA’s counseling partners.

Given that SBA’s entrepreneurial development programs have been flat-funded

and underfunded since 2001, are the SBDCs, the Women’s Business Centers, the

Veteran’s Business Outreach Center’s, temporary SBA disaster loan centers, etc.,

adequately funded to handle the estimated 500,000 small businesses affected in the

Gulf region? Please explain how you reach those conclusions by providing the funding status of each center in the region, estimated future and past counseling capacity, and what additional resources the SBA has dedicated to assisting its entrepreneurial development partners.

Answer. The Louisiana SBDC was funded at $1.3m for fiscal year 2005. This is

the same level of funding provided to the SBDC since fiscal year 2002. The Mississippi SBDC has been approximately level funded at slightly more than $847,000

since fiscal year 2000. The Alabama SBDC has also been approximately level funded

since fiscal year 2000 at just over $1.25 million. [As you are aware, the annual funding providing to the SBDCs is based on a statutorily mandated population-based formula.]

State SBDC Directors in both Mississippi and Louisiana have requested staffing

support from SBDCs across the country experienced in providing disaster-related

technical assistance. SBA has supported this effort by allowing staffs from neighVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00099 Fmt 6601 Sfmt 6621 C:\SBA\26763.TXT CarolB PsN: CarolB
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boring SBDCs to temporarily supplement the staff of the SBDC in Mississippi. Similar activity is expected in. Louisiana when the State has addressed its more pressing personal recovery efforts and is ready to receive such assistance. In addition,

to help provide additional staff support for the Gulf state SBDCs, two large corporations have donated a total of $200,000 to be used by the SBDCs in Louisiana and

Mississippi ($75,000 each), and Alabama ($50,000).

SBA has no plans to request additional SBDC program funding for the disaster

recovery effort. However, the Agency is working closely with the local SBDCs, and

is exploring ways to direct existing program resources in the form of unexpended

regular program funds to the disaster areas, In addition, SBA has issued a program

announcement for the new portability program grant funds, and the Mississippi

SBDC has already applied under this announcement, and SBA is expecting to also

receive applications from other Gulf state SBDCs. [It must be noted, however, that

all applications received under the announcement will be evaluated in accordance

with the criteria contained in the Program Announcement.]

Small Business Development CentersFY 2004

Award Amt.

FY 2004 Clients Trained

& Counseled

FY 2005 Award

Amt.

FY 2005 Clients Trained

& Counseled

Estimated FY 2006

Award Amt.

Estimated

2006 Clients

Trained &

Counseled

from Submitted Proposals

Louisiana SBDC .......... $1,308,515 15,224 $1,308,515 10,539* $1,303,515 13,252

Mississippi SBDC ....... $799,236** 7,412 $847,168 6,997* $847,168 9,120

Alabama SBDC ........... $1,259,646 20,682 $1,235,718** 19,301* $1,259,646 18,411

* Decrease due to implementation of uniform client definitions across all Entrepreneurial Development programs, including changes that allow only one SBA partner to count clients attending events presented jointly by two or more partners.

** Reductions in funding were due to the SBDC not using it’s full allotment of funds available.

Flooding from Hurricane Katrina forced both the SBA’s Louisiana District Office

and the Women’s Business Center in New Orleans (Urban League of Greater New

Orleans Business Resource Center) out of their offices. Both entities temporarily relocated to Baton Rouge where they shared space, and where each provided limited

assistance to local business disaster victims, as well as those that were also displaced from New Orleans and other hard-hit areas. SBA’s Louisiana DO recently

returned to New Orleans, and made available space to the WBC so that it can again

offer limited services to support the long-term recovery of the New Orleans business

community. The operations of the WBCs in Mississippi and Alabama were not as

severely impacted by the hurricanes, and both continue to provide services in their

areas, In addition, a number of women’s business centers across the country are reporting that they are reaching out to hurricane victims that have permanently or

temporarily relocated to their areas, Many WBCs and other contributors have joined

with the Association of Women’s Business Centers to raise funds to help the WBC

in New Orleans to rebuild its operations. The SBA does not have any additional existing resources available for the WBCs in the Gulf region, and has no plans to request additional funding for the program.

The table below shows actual and anticipated funding for the Gulf region WBCs,

as well as their recent actual and estimated performance data.

Women’s Business Center

FY 2004

Award Amt.

(from FY ’03

Approps.)

FY 2004

Clients

Trained &

Counseled

FY 2005

Award Amt.

(from FY ’04

Approps.) performancebased awards

FY 2005

(Qtrs. 1–

3) Clients

Trained &

Counseled

FY 2005

Est. Total

Trained &

Counseled*

FY 2006

Award Amt.

(from FY ’05

Approps.)

Women’s Business Assistance Center,

Inc., Mobile ........................................... $111,000 603 $70,150 736 1,071 $127,719

Urban League of Greater New Orleans

WBC ....................................................... $150,000 1,072 $150,000 390** 476** *150,000

MS Action for Community Education Inc.

(MACE), Greenville ................................ $111,000 289 $70,150 107 188 $122,748

* Final fiscal year 2005 data will be provided to SBA within 15 days.

** Decrease due to implementation of uniform client definitions across all Entrepreneurial Development programs, including changes that allow only one SBA partner to count clients attending events presented jointly by two or more partners.

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Question 11. Does the Administration support those provisions passed as part of

the CJS FY 2006 appropriations bill that would increase funding and waive matching requirements for SBA’s entrepreneurial development programs? Please explain.

Answer. SBA has no plans to request additional funding for the SBDCs and

WBCs in the Gulf region. However, the Agency intends to make the unexpended

regular SBDC program funds available to the SBDCs in the affected states, and it

expects to receive applications from these states for the funds available through the

Portable Grant program enacted last year.

When considering the funds available for the SBDCs and WBCs to provide services both in the Gulf region, and to individuals who have temporarily or permanently relocated outside that region, it is important to remember that SBA’s financial support to the SBDCs and WBCs represents only a portion of their overall financing. In the case of the SBDCs, SBA’s grants must be matched dollar-for-dollar

by cash and in-kind contributions. In the case of the WBCs, cash and in-kind contributions must equal one dollar for every two Federal dollars during the first 2

years of WBC’s participation in the program, and must be matched dollar-for-dollar

during the WBCs’ remaining 3 years in the program. Typically many of the centers

in both programs actually overmatch these minimum requirements so that the total

amount of funding may be far greater than double the SBA contribution.

PREPARED STATEMENT OF THE AMERICAN SMALL MANUFACTURERS COALITION

Mr. Chairman, Members of the Committee, thank you for the opportunity to submit testimony on behalf of the American Small Manufacturers Coalition (ASMC).

The American Small Manufacturers Coalition—a trade association of Manufacturing

Extension Partnership (MEP) Centers located nationwide—strives to advance the

competitiveness of America’s 344,000 small manufacturers. Three of these Centers

are located in the region recently devastated by Hurricane Katrina, including the

MEP of Louisiana (MEPoL), Mississippi Technology Alliance, and the Alabama

Technology Network. Since these Centers were unable to submit testimony as they

remain focused on assessing damage and assisting their small manufacturing clients, the ASMC is submitting comments on their behalf and on behalf of their clients.

The more than 11,100 small manufacturers that operate within the three-state region of Alabama, Louisiana, and Mississippi employ more than 600,000 employees

and provide an annual payroll exceeding $21 billion. Of those 11,100 manufacturers,

more than 3,400 have been served over the past 5 years by the Alabama Technology

Network, Mississippi Technology Alliance, and MEP of Louisiana. As a part of the

Manufacturing Extension Partnership network, these three Centers have offices

throughout the three-state region.

MEPoL estimates that nearly 3,000 manufacturers within the Parishes were directly impacted by Katrina. These manufacturers had focused on an array of industries, including machinery, food processing, metal fabrication, chemicals, shipbuilding, lumber mills, and printing. Only recently have manufacturers within the

community begun venturing back to their plants in order to assess the physical

damage of the hurricane’s deadly force.

The most basic challenge manufacturers face is limited communication. Many

manufacturers, for instance, had no means of accounting for their employees, and

some remain to this day effortlessly looking for displaced workers. For those that

were able to locate their employees, like Acme Machine in Covington, Louisiana,

business remains interrupted as workers are unable to report to work due to their

own personal home loss.

Crabs, LLC of Lockport, Louisiana, is also experiencing a decline in employment

due to displaced workers. When its doors reopened, less than 50 percent of its employees reported to work, which contributed to a significant decrease in productivity

and may threaten the firm’s long-term financial viability. Currently, Crabs, LLC is

recruiting workers from Alabama in order to supplement its lost labor force.

Communication barriers also have inhibited manufacturers from maintaining contact with their suppliers and clients. Nearly 10 days after Katrina hit, communications remained limited and firms such as V-labs were still unable to contact many

of their clients and suppliers. Located in Covington, the carbohydrates and

polysaccharides manufacturer is able to receive calls and faxes, but outgoing communications is non-existent. Thankfully, resources such as MEPoL came to the aid

of V-labs and put the manufacturer in contact with the local university, which allowed the firm to use its lab and fax machine in order to make outgoing calls.

Bodin Foods in New Iberia, Louisiana, also lost nearly 50 percent of its business

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nicate. The Bodin Foods plant remains operational, but its supply chain was destroyed as most of the components used to make specialty food products were generated in the New Orleans area. Bodin is now seeking suppliers elsewhere and in

some cases has had to go so far as California to find them.

Supply chain disruptions to our nation’s defense also will be realized as a result

of Katrina. Many shipyards, such as Avondale and Ingalls, which are suppliers to

Northrop Grumman, a prime Department of Defense suppler, were also damaged.

The dislocation of employees and damage will cause production delays, as well as

inhibit these firms’ ability to meet the demands of the national defense program.

Large original equipment manufacturers have lost some of their key suppliers and,

conversely, some manufacturing firms have lost their supply chain clients. It will

be critical in the coming months to establish mechanisms to support and rebuild

these supply chains.

Transportation costs also are inhibiting the ability of businesses to rebuild. Crabs,

LLC, as previously mentioned, is a business that routinely ships its product by air.

Due to the closure of the New Orleans airport, it has been forced to find a new distribution channel. The high cost of gas prohibits the firm from shipping by truck,

and new airline routes have resulted in a 40-percent product loss. The railways also

are repairing damage and are not yet an option for timely distribution, According

to the Louisiana Railway Association, many railways are conducting repairs and

service to the New Orleans area remains limited.

The manufacturing effects of Katrina extend beyond destruction of industrial

buildings. For example, as praline manufacturer Nanny’s Candy, located in

Carencro, lost 60 percent of its business due to destruction of hotels and the resulting dramatic decrease in tourism. The unexpected profit loss has caused a cash-flow

crisis for the firm, which has had to lay off workers.

Other firms, however, suffered catastrophic losses. Torino Belts, a manufacturer

of high-end leather accessories located in New Orleans, experienced total destruction. Currently, the firm is working with the MEP of Louisiana to find relocation

opportunities within the Baton Rouge area in order to retain business within the

state. Timing for this move is critical however, and if a facility is not located soon,

Torino Belts will be forced to relocate in another state.

It is clear from these stories and others that the manufacturers of the Gulf Coast

region are in great need of assistance. This storm’s devastation and destruction will

have lasting effects on the region’s economy and the viability of its industry, and

those impacts will translate across the country and beyond. The financial support

of Congress for the region’s most primary needs have been greatly appreciated, but

the assistance and support cannot stop there. Attention must be given to economic

recovery assistance, and manufacturing extension centers can be of great assistance.

ASMC, through the NIST MEP program, proposes to send 300 manufacturing specialists to the effected areas in order to assess the damage to manufacturers and

assist in their redevelopment. The team would evaluate site viability, assess the

need for relocation, identify new suppliers, and evaluate damaged equipment and

identify alternatives. The field engineers within the national MEP network also

would help manufacturers identify new clients in order to supplement those lost.

That team of 300 field engineers would include roughly 100–150 displaced manufacturing employees from the region, hired on a temporary basis, in order to help stimulate the local economy, decrease the state’s unemployment benefits, and leverage

the extensive manufacturing knowledge of those employees to assist effected firms.

In order to provide these services at no charge to the effected manufacturers, ASMC

will be requesting $70 million in supplemental funding to cover the annual loaded

salary of the 300 manufacturing specialists, provide necessary housing and expenses

to locate the specialists within the most highly effected areas, and assist effected

manufacturing supply chains. This technical assistance will allow the region to rebuild its industrial economy one manufacturer at a time. The current needs of this

area greatly exceed the capacity of the three local MEP Centers, and, as it was after

9/11, it is critical that the Nation come together to support this community recover

and rebuild, to regain the economic strength it once had.

Again, I thank Mr. Chairman and Members of the Committee for allowing me to

submit testimony on behalf of ASMC members and the manufacturers effected by

Hurricane Katrina.

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PREPARED STATEMENT OF JOHN K. LOPEZ, CHAIRMAN, ASSOCIATION FOR SERVICE

DISABLED VETERANS AND CO-CHAIRMAN, TASK FORCE FOR VETERANS ENTREPRENEURSHIP

In addition to the human and economic devastation of the recent Katrina and Rita

Hurricanes, there appears to be a coming destruction of the order and logic of the

Federal procurement system.

Service Disabled Veteran Enterprises (SDVE) in the Hurricane Impact Area (HIA)

are reporting that attempts to participate in the reconstruction effort are being ignored and rejected by the major contractors and government connected individuals

that are recipients of the billions of dollars in awards that are being distributed by

government agencies.

Resident SDVE that have been disadvantaged as a result of their sacrifice for our

nation, are now being further burdened in their attempts to rehabilitate themselves

by the invocation of ‘‘MAJOR CORPORATIONS ONLY’’ reconstruction procurement

policies, that exclude SDVE.

The U.S. Congress has encouraged and supported the development of SDVE entrepreneurship by enacting P.L. 106–50 and Section 3 of P.L. 108–183 and the

President of the United States (POTUS) has issued Executive Order 13360 to emphasize total governmental support for the SDVE initiatives.

However, under the guise of ‘‘Emergency Authority’’ the reconstruction effort in

HIA is being carefully programmed to be a permanent monopoly for agency insiders.

This is an insult to the role and intent of the U.S. Congress and a subversion of

the POTUS initiatives.

The HIA reconstruction effort is a repeat of the IRAQ reconstruction deception of

smaller businesses.

The IRAQ reconstruction effort was characterized by the same method of deception.

After receiving billion dollars, all encompassing, procurement awards major corporations then herd smaller businesses into ‘‘HOLDING PEN’’ data bases, where

they are neutralized by being reported as ‘‘BEING AVAILABLE’’ to the future requirements of the awardees.

The available records show that agencies have not met their legislatively prescribed SDVE participation goals and there is no indication that major corporation

awardees have attempted to meet their goals, since reporting requirements have not

been made available to stakeholder scrutiny.

It is crucial in emergency situations to retain perspective and not invoke ‘‘KNEE

(Media) JERK’’ reactions that becomes a double felony when reviewed in a future

setting.

It is vital that the U.S. Congress exercise restraint and practice due deliberation

when faced with issues as serious as HIA Reconstruction.

A carefully tailored, temporary modification of existing law and regulation is indicated, but those modifications should be temporary and subject to constant and continuous scrutiny.

PREPARED STATEMENT OF LIEUTENANT GENERAL CARL A. STROCK, CHIEF OF

ENGINEERS, U.S. ARMY CORPS OF ENGINEERS, DEPARTMENT OF THE ARMY

Madam Chair, thank you for the opportunity to provide testimony on the Corps

of Engineers response to Hurricane Katrina. I am Lieutenant General Carl Strock,

Chief of Engineers and I would like to share with you information about our activities to involve small and disadvantaged businesses in the work we are doing in the

region.

The U.S. Army Corps of Engineers is continuing to work primarily in support of

the Federal Emergency Management Agency, carrying out a wide variety of missions in response to Hurricane Katrina. Our initial efforts focused on closing levee

breaches, getting the flood water out of New Orleans and providing ice, water, temporary power, debris removal services, and temporary roofing in portions of Louisiana, Mississippi, and Alabama as requested by FEMA or local governments.

I fully recognize the value that small businesses play in our national economy,

and I am personally committed to using small businesses in performing our work,

both in the normal course of business, and in times of national disaster such as

these. Typically, the Corps of Engineers awards 40 percent of its prime contract dollars to small firms. For work associated with Hurricane Katrina and other disasters,

we strive to use Small, Small-Disadvantaged, Women-Owned, HUBZone and Service-Disabled Veteran Owned firms to the maximum extent possible, consistent with

the urgent need to preserve life and property.

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As a part of the National Response Plan, the Corps of Engineers supports FEMA

when natural disasters such as hurricanes occur. In addition to the nearly 2600 civilian and military employees who have responded, we use pre-positioned contracts

for urgently needed supplies and services. The pre-positioned contracts used to support Hurricane Katrina for ice, water and some of the initial debris removal services

were awarded competitively in 2003. Many of these awards were to small firms. Unfortunately, the magnitude of this devastating event requires extensive and immediate response beyond the capability of our pre-placed contracts. When, as in this

case, the needs are greater than our ability to respond with preplaced contracts, we

begin by awarding additional contracts using emergency procedures. We must respond quickly and effectively. We maximize competition and the use of small businesses as much as possible without delaying urgently needed supplies or services.

Very quickly, we begin to develop plans for how we will satisfy the ongoing needs

by using a broader range of procurement tools, and more normal procurement methods as soon as time permits us to do so.

I moved quickly to assure we could provide information to the public, and established a resource page for our private sector partners. We immediately began posting to our USACE home page links (www.usace.army.mil) and provided points of

contact for our prime contractors so that small firms could apply to do work for

them. We established a registration site, where firms who wished to help could provide information on their capabilities; this site can be reviewed by government contracting officers seeking vendors, and by companies seeking subcontractors. We also

developed a site where vendors could provide equipment availability information for

items such as storm water pumps, generators, and transformers. The data base is

searchable and can be used by government agencies or contractors who need those

products. We are publishing a listing of our contract awards as well.

We are enhancing opportunities for small and local firms by requiring any large

business that is awarded one of the contracts to implement aggressive subcontracting strategies and report their level of success in awarding subcontracts to

small firms. An example of our efforts is related to our need to remove the enormous

amounts of debris left by Hurricane Katrina. The initial value was estimated at

nearly $2 billion, far beyond the value of our pre-positioned emergency response debris contracts. The urgency of the situation required immediate award, and we advertised the procurement for a reduced time period, receiving 22 proposals. On September 15, 2005, we awarded four debris removal contracts. Each contract also requires large business prime contractors to submit a subcontracting plan with aggressive goals for each small business category.

In addition to our aggressive subcontracting goals, we are encouraging use of local

businesses as prime and subcontractors. In accordance with the Robert T. Stafford

Disaster Relief and Emergency Assistance Act, we require our prime contractors to

give preference, to the maximum extent feasible and practicable, to organizations,

firms, or individuals residing or doing business primarily in the area affected by the

disaster. Our large firms have been recruiting in shelters and have been actively

working to locate small firms to assist in operations. Based on very preliminary

data, large firms are reporting that they are awarding 22 percent of subcontracted

dollars to local firms.

I have asked my team to divide work wherever practical so that we can target

work for appropriate small business and other programs. Other small firms may win

additional contracts under the Small Business Competitiveness Demonstration Program. Each day, my staff provides me with status updates on Corps of Engineers

contract awards including socioeconomic data.

I am committed to assuring that small firms play a vital role in our contracts.

Madam Chair, this concludes my statement.

PREPARED STATEMENT OF CONTRACT SERVICES ASSOCIATION OF AMERICA (CSA)

Madam Chairman, and Members of the Committee, the Contract Services Association (CSA) requests that this statement be included in the official record for your

September 22 hearing on ‘‘Katrina and Small Business.’’

By way of introduction, CSA is the nation’s oldest and largest association of service contractors representing over 200 companies that provide a wide array of services to Federal, State, and local governments. CSA members perform over $40 billion in Government contracts annually and employ nearly 500,000 workers, with

two-thirds of those employees being members of private sector employee unions.

CSA members represent the diversity of the Government services industry and include small businesses, 8(a)-certified companies, small disadvantaged businesses,

women-owned, HubZone, Native American-owned firms and global multi-billion dolVerDate 11-MAY-2000 11:11 Jun 09, 2006 Jkt 026763 PO 00000 Frm 00104 Fmt 6601 Sfmt 6621 C:\SBA\26763.TXT CarolB PsN: CarolB
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1 Cathy Garman is the senior vice president of the Contract Services Association.

lar corporations. CSA promotes Excellence in Contracting by offering significant professional development opportunities for Government contractors and Government

employees, including the only program manager certification program for service

contractors.

Small businesses—and competition—are key embodiments of the American spirit

and our free enterprise system. This was highlighted as far back as 50 years ago

with the passage of the 1953 Small Business Act (P.L. 163–83). The preamble

states:

The essence of the American economic system of private enterprise is free competition. Only through full and free competition can free markets, free entry into

business, and opportunities for the expression and growth of personal initiative

and individual judgment be assured. The preservation and expansion of such

competition is basic not only to the economic well being but to the security of

this Nation. Such security and well being cannot be realized unless the actual

and potential capacity of small business is encouraged and developed. It is the

declared policy of the Congress that the Government should aid, counsel, assist

and protect, insofar as is possible, the interests of small-business concerns in

order to preserve free competitive enterprise, to insure that a fair proportion of

the total purchases and contracts for property and services for the Government

be placed with small business enterprises, and to maintain and strengthen the

overall economy of the Nation.

Now more than ever, those sentiments ring true. Following the devastation of

Hurricane Katrina, and with Hurricane Rita bearing down on the South just a few

short weeks later, we all need to step back and see what part we can play to help

the devastated areas. Today’s hearing focuses on a critical element of the rebuilding—the role of small businesses, not only those located in the local community but

in the surrounding region as well. But as the committee reviews this issue, CSA

would challenge you to consider the tools already available to ensure fair access, and

adequate competition, for all businesses that may be able to play a part in the rebuilding efforts. And also determine what flexibility is required to get the assistance

needed to the areas, while maintaining the integrity of the acquisition system.

One suggestion for flexibility that CSA would offer is a wavier—for the immediate

affected area—of the Service Contract Act (SCA). Under the SCA, only the Secretary

of the Department of Labor has the authority to waive the SCA threshold of

$2500—a threshold that is far too low, considering the extent and the expense of

the relief efforts. Furthermore, SCA covers all service contracts no matter the size

of the company, so even the smallest small business is covered if it receives a contract for more than $2500. Obtaining a wage determination can be a lengthy process—and in the relief and recovery efforts, time is of the essence. Finally, waiving

SCA would allow the Government to contract with commercial companies that

would not normally do business with the Federal Government—and may not do so

again—but in this instance have certain valuable skills that the Government should

be able to tap.

CSA also would like to submit as part of its record statement, a commentary that

was published in the Federal Times on September 19, and authored by CSA’s Senior

Vice President for Public Policy. Thank you for the opportunity to share this information with the Committee.

[Reprinted with permission from the Federal Times, Sept. 19, 2005]

COMMENTARY—THE PROCUREMENT EXECUTIVE’S VIEWPOINT

RELIEF AT THE READY—STORM RECOVERY EFFORT NEEDS CONTRACTORS’ EFFICIENCY

(By Cathy Garman1)

Service contractors answered the government’s call after 9/11 and continue to play

a critical role in the war on terrorism. Now in the latest national crisis—a natural

disaster of devastating proportions with far-reaching, long-term impact—service contractors are stepping in again to work with government agencies to help those in

need put lives back together and rebuild the areas struck by Hurricane Katrina.

While there is much confusion about post-Katrina emergency contracting authorities and elevated procurement thresholds, government agencies and private organizations are publicizing data on what is needed and on the special authorities available to support contingency operations. Indeed, most of what is being accomplished

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to provide relief and start rebuilding is being done by the business community,

which today performs many of the critical day-to-day support missions at times such

as this. Businesses bring corporate best practices to bear, such as supply-chain management and logistics. This is an excellent example of partnership between government and the private sector.

The American worker always has had a can-do attitude, doing whatever needs to

be done—and, frankly, not waiting for the government to act. The business community is now displaying that can-do spirit in many ways. Government contractors

with employees in the devastated areas have organized their own relief efforts to

help those employees. And they are organizing efforts to help the broader community in areas where they have facilities.

Despite the early action of the service contracting community, plenty of work remains. Certainly, Federal Emergency Management Agency and Army Corps of Engineers contractors will garner a large share of the government’s relief work. But untold opportunities for small- and medium-sized businesses will be available, predominantly at the subcontracting level. Feeding and housing relief workers, and

helping with demolition and cleanup, are areas where small and medium companies

can step in right away and play a vital role. Significant long-term work remains as

well—a chance to rebuild a city from the ground up—and service contractors will

be there on the forefront.

Unfortunately, the positive impact of the work being performed by service companies is often ignored by Congress and the media in the continued hoopla over alleged contracting abuses and the general role of the private sector. This blame game

has already begun in Washington. But people displaced from their homes, waiting

for electricity to come on and the water to be drinkable, can’t wait for the normal

procurement process to be followed. Providing these services 6 months from now

isn’t good enough. Clearly the government can’t do it alone; it needs the special capabilities honed by the competitive forces of the private sector to provide these services now. Good, sound business judgment should carry the day, with flexible contracting authorities that still will ensure that critical needs are met quickly—without squandering taxpayer dollars.

The Contract Services Association has developed a Web site of contracting information at www.csa-dc.org/news/katrina.asp. The site is updated constantly and includes information issued by and concerning various agencies, including:

• The Office of Management and Budget has issued guidance to Federal agencies’

chief acquisition officers and chief financial officers regarding new streamlined hurricane procurement policies enacted in recent hurricane relief supplemental appropriations.

• A General Services Administration memorandum for civilian agencies outlines

the emergency authorities, pursuant to the 2003 Services Acquisition Reform Act,

for increasing the micropurchase threshold to $15,000 and the simplified acquisition

threshold to $250,000.

• The Homeland Security Department directs companies with resources to donate

or sell to the response agencies—disaster recovery services, for example—to register

at the National Emergency Resources Registry at www.SWERN.gov. Also, FEMA,

part of the Homeland Security Department, procures goods and services through the

GSA’s Federal supply schedule.

• The Interior Department has significant responsibilities in the hard-hit areas.

On Sept. 1, approval was signed for other than full and open competition required

under the Federal Acquisition Regulation, and for a waiver to FAR publication requirements. This provides coverage to Interior contracting activities that need appropriate accelerated procedures.

• The Small Business Administration, www.sba.gov, is developing a communitybased network to spread information on disaster assistance to small businesses, and

procurement guidelines for small businesses.

At a time of national need, America’s service contractors stand ready to help their

fellow citizens rebuild and restart their lives.

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