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27–288PDF 2005

S. HRG. 109–453

STRENGTHENING HURRICANE RECOVERY EFFORTS

FOR SMALL BUSINESSES

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

NOVEMBER 8, 2005

Printed for the use of 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

NORMAN 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 LANDRIEU, Louisiana

MARIA CANTWELL, Washington

EVAN BAYH, Indiana

MARK 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

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

Vitter, The Honorable David, a United States Senator from Louisiana ............. 5

Kerry, The Honorable John F., a United States Senator from Massachusetts .. 7

Landrieu, The Honorable Mary, a United States Senator from Louisiana ........ 9

Thompson, The Honorable Bennie G., a United States Representative from

Mississippi ............................................................................................................ 26

WITNESS TESTIMONY

Barreto, The Honorable Hector V., Administrator, U.S. Small Business Administration .......................................................................................................... 35

Rothwell, Gregory D., Chief Procurement Officer, U.S. Department of Homeland Security ........................................................................................................ 46

Johnson, Major General Ronald L., Deputy Commander, U.S. Army Corps

of Engineers, Department of the Army .............................................................. 58

Isaacson, Walter, Vice-Chairman, Louisiana Recovery Authority ....................... 94

Cooper, David E., Director of Acquisition and Sourcing Management, U.S.

Government Accountability Office ...................................................................... 107

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Allen, The Honorable George

Prepared statement .......................................................................................... 126

Barreto, The Honorable Hector V.

Testimony .......................................................................................................... 35

Prepared statement .......................................................................................... 40

Bayh, The Honorable Evan

Prepared statement .......................................................................................... 127

Brian, Danielle

Prepared statement with attachment ............................................................. 142

Cooper, David E.

Testimony .......................................................................................................... 107

Prepared statement .......................................................................................... 109

Enzi, The Honorable Michael B.

Prepared statement with attachment ............................................................. 129

Glover, Glenda B., Ph.D.

Prepared statement .......................................................................................... 149

Isaacson, Walter

Testimony .......................................................................................................... 94

Prepared statement .......................................................................................... 98

Johnson, Major General Ronald L.

Testimony .......................................................................................................... 58

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

Kerry, The Honorable John F.

Opening statement ........................................................................................... 7

Landrieu, The Honorable Mary

Opening statement ........................................................................................... 9

Prepared statement with attachments ........................................................... 12

Testimony of Dr. and Mrs. Edward M. Lang ................................................. 17

Letter from Janice Hamilton, Evans Industries, Inc. .................................... 19

Testimony of David Guidry, Guico Machine Works, Inc. .............................. 21

Page

IV

—Continued

Letter from Taquilla Fedison Hamilton, Cosmetology Business Management Institute ............................................................................................... 23

Chart on SBA Disaster Close Out Figures, FY 2004–FY 2005 .................... 25

Rothwell, Gregory D.

Testimony .......................................................................................................... 46

Prepared statement .......................................................................................... 47

Small Environmental Business Action Coalition

Prepared statement submitted by Paul Goldsmith with attachment .......... 158

Snowe, The Honorable Olympia J.

Opening statement ........................................................................................... 1

Thompson, The Honorable Bennie G.

Opening statement ........................................................................................... 26

Prepared statement .......................................................................................... 29

Thune, The Honorable John

Prepared statement with attachments ........................................................... 130

Vitter, The Honorable David

Opening statement ........................................................................................... 5

Wilfong, Henry T., Jr.

Prepared statement .......................................................................................... 147

Wilson, Donald

Prepared statement .......................................................................................... 154

(1)

STRENGTHENING HURRICANE RECOVERY

EFFORTS FOR SMALL BUSINESSES

TUESDAY, NOVEMBER 8, 2005

U.S. SENATE, COMMITTEE ON SMALL BUSINESS AND

ENTREPRENEURSHIP, Washington, DC.

The Committee met, pursuant to notice, at 10:01 a.m., in room

SD–428A, Dirksen Senate Office Building, The Honorable Olympia

Snowe (Chair of the Committee) presiding.

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

Landrieu, and Pryor.

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, please. Thank you.

Good morning and thank you all for being here this morning.

This is a very important hearing today. It is the second hearing

that we are holding to examine the Small Business Administration’s management of disaster loans and the SBA’s overall disaster

response. Regrettably, it is clear that strong and specific measures

must be taken immediately to rectify the unacceptably slow service

the SBA has been providing to small business owners in desperate

need of assistance in a region that cannot afford to have its economic recovery held hostage to the plodding processes of paperwork.

The recent hurricanes are repeatedly and appropriately described

as disasters of ‘‘unprecedented proportions.’’ The SBA, therefore,

has the responsibility to provide a response of unprecedented proportion.

We will hear from several administration witnesses, including

Administrator Barreto, representatives of the Department of Homeland Security, the Army Corps of Engineers, the Government Accountability Office, as well as others from the Gulf region in an effort to find solutions and move forward with relief and rebuilding.

This hearing will also review contracting practices of Federal

agencies and prime contractors to ensure that the interests of small

business are met as Federal contracting dollars are spent in the

Gulf region.

I have been working with the Ranking Member, Senator Kerry,

and our colleagues on this Committee, most specifically Senator

Vitter and Senator Landrieu, obviously representing Louisiana,

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and they have been invaluable in providing guidance and recommendations on drafting legislation that is now currently pending

in the Senate as, well as providing other significant and invaluable

advice and counsel as to how we should proceed and what responses are necessary from the SBA to provide for the appropriate

response. I want to thank Senator Vitter, who is here, for being

very helpful to this Committee and for providing us with the kind

of support that we need to make sure that we have an effective and

efficient response.

We also heard from many in the region during the previous hearing: small business owners who represent Mississippi, Louisiana,

and Alabama, and their challenges in rebuilding their businesses

and their communities. I have also been consulting closely with

Senators Lott and Cochran as we work to rebuild the entire Gulf

region.

Yet, regrettably, even as the current problems in the Gulf persist, we unfortunately have the SBA that is continuing to oppose

the legislation that I have introduced along with Senator Kerry,

Senator Vitter, Senator Landrieu, Senators Cornyn and Talent (the

Small Business Hurricane Relief and Reconstruction Act of 2005)

that would give the SBA broader authority and flexibility to assist

small businesses devastated by these hurricanes. What the SBA

fails to mention or even recognize is the fact that the Agency’s own

objections have hampered our ability to rebuild the Gulf region

with some of the specific tools that are included in that legislation.

As the primary Federal agency providing loans to individuals

and businesses after a disaster, the Small Business Administration

plays a pivotal role in disaster response and recovery efforts. It is

absolutely vital that assistance is delivered quickly, effectively, and

efficiently.

While some improvements have been made, the evidence suggests that almost 2 months after our first hearing, the SBA’s response thus far has been insufficient to meet the needs of our small

businesses. I find it deeply disconcerting that we are at the point

that we are required to have a hearing to examine many of these

issues. I know that the Agency in the recent weeks has made much

improvement. We hope to hear from Administrator Barreto today

on what has changed and what will continue to change to address

this overwhelming problem.

But the fact is what has hampered our response, as well, is that

SBA employees have responded that SBA does not want to change

horses in midstream. Well, what better time for a new strategy

than when something is not working? Clearly, the SBA’s initial disaster response plan was not comprehensive and flexible. The SBA

has taken 40 days or more to change many of its burdensome rules

and policies, to expedite the disaster loan process, demonstrating

a lack of urgency in its initial response.

For example, it has just started simplifying parts of the processing system, including its credit elsewhere test that adds hours

to the process, and it has only recently initiated efforts to reach out

to the private sector for assistance. The SBA should be proactive

in responding to disasters.

The agency waited 2 months after Hurricane Katrina struck to

ask trade groups for assistance in obtaining lending officers and

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loss verifiers, a veritable eternity given the magnitude of the hurricanes and given the key role these employees have in completing

the loan requests. Applications have been languishing for 8 to 10

days before being even entered into the computer for processing.

The SBA should have immediately planned for a disaster assistance work force far larger than the current 3,952 workers and

should have hired new employees from the public, sought referrals

from trade groups and perhaps even requested employees from

other Federal agencies.

Looking forward, it is absolutely essential that the SBA develop

a comprehensive disaster response plan that would accommodate

different scales of disasters. In addition, the SBA should work with

State governments to determine their individual requirements on

an annual basis so that they can coordinate their disaster relief efforts.

The numbers speak for themselves. As you can see in this chart

that we have here on display, of the more than 225,000 loan applications received by the SBA, both from individuals and small businesses, only 38,000, or 17 percent, have been resolved by either

being denied, approved, or withdrawn. Thus, 187,000 applications

remain unresolved and are pending. Only 5,728 applications have

been approved.

The figures are even worse when you consider small businesses

exclusively. As of yesterday and our data that we have, only 10.1

percent of applications from small businesses have been resolved,

and only 3 percent of business applications have been approved. Of

the 28,500 small businesses that have requested loans, only 840

have been approved.

Over the last 20 days, the SBA has received about 5,400 applications per day and has resolved only 1,235 daily, which suggests

that each day, about 4,100 more applications have been received

than settled.

So consequently, in spite of the faster rate of resolving applications, and even if no more applications are submitted, it would require almost 4 months to complete all the pending applications.

Can there seriously be any question of the necessity for SBA to

move in a more effective direction? Additional personnel and alternative approaches are warranted to respond to this overwhelming

demand.

The full resources of the Federal, State, and local governments

must be brought to bear to deliver immediate relief. I repeat that

I am committed to doing whatever is necessary and essential to

providing meaningful support to the region.

Two weeks ago, I sent Committee staff to the Gulf region to examine the SBA’s disaster loan processing facilities to determine the

nature and extent of the reported delays in loan approvals. They

returned with several recommendations that I have endorsed along

with Senators Kerry, Vitter, and Landrieu.

Today, this Committee is eager to measure how they have been

implemented. Some of our short-term recommendations include:

the SBA should hire 1,000 additional employees for the Fort Worth

processing center, including business loan officers and data entry

staff to meet the current demand. The SBA should hire 450 additional loss verification officers to analyze damaged homes and busiVerDate 11-MAY-2000 14:29 Jul 18, 2006 Jkt 027288 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\27288.TXT DianeA PsN: DianeA
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nesses. The SBA should streamline credit tests for disaster loan applications to make them less burdensome. The SBA should hire at

least five additional full-time procurement center representatives

and five additional full-time commercial market representatives as

well as leverage existing personnel and expertise to help small

businesses with prime and subcontracting opportunities. The SBA

and its resource partners should increase one-on-one business

counseling and services to small businesses affected by disasters.

The SBA should enhance its disaster loan computer system, the

Disaster Credit Management System, to make it more efficient and

effective for future disasters and expedite implementation of online

loan applications.

I look forward to the administration’s response to these recommendations as we discuss many of these issues today.

Finally, we will examine the serious problems faced by small

businesses who seek to obtain Federal contracts, and here, we have

representatives from the Army Corps of Engineers, the Department

of Homeland Security to describe their reconstruction contracting

for small businesses.

The Small Business Act directs the SBA to provide small businesses a fair opportunity to bid on government projects. To meet

this standard, 23 percent of contracts must go to small firms.

Again, as indicated in this chart that I have here that we will

display, what Secretary Gutierrez said recently at a small business

conference, he said that 72 percent of Federal contract dollars for

post-Katrina recovery, not including subcontracts. Well, that claim

is astounding, and I question how the administration arrived at

such a figure.

The executive branch is responsible for informing Congress and

the public about Federal contracting through its Federal Procurement Data System. But the system does not include up-to-date

post-Katrina contracting information, and at the end of October,

FEMA has yet to finalize the terms of $1.6 billion in no-bid contracts. How can the administration assert 72 percent of its contract

dollars have gone to small businesses when this critical information is omitted?

Now, I know Administrator Barreto is going to say it is now 45

percent, but again, it is going to show 72 percent on one hand or

45 percent on the other, and we have to address this gap. And

what is the information that is available that is going to buttress

and substantiate either of the figures? Because it is something that

we have to get to the bottom of, because it is the lifeline for economic restoration in the Gulf region.

And so, in the final analysis in either case, the Administration

has either neglected small business contractors or completely excluded them. For example, none of its Katrina supplemental requests provided any funding for additional procurement center representatives and commercial market representatives in the Gulf region despite this Committee’s request to do so.

Small businesses have proven to be capable partners in Federal

contracting. With so many losses for businesses already after the

hurricanes, it is imperative that every Federal agency involved in

disaster recovery meets and even exceeds the statutory goals for

small business prime contracting.

5

Along with the House Small Business Chairman, Don Manzullo,

I have requested the Government Accountability Office to investigate whether small and minority-owned businesses have been

given a fair opportunity to compete for Federal and federally funded relief contracts and subcontracts.

The challenges confronting the victims of these hurricanes is so

great, and the hardest work is still ahead. We must assist the people of the region to return to a normal way of life and to restore

the businesses so that they can create an environment in which

they can live and prosper. I will continue to work with Administrator Barreto, the Majority Leader, Bill Frist, the Administration

and my colleagues, Senator Kerry, Senators Vitter and Landrieu so

that we can continue to leverage the authority of the SBA to provide relief to those left without the means to rebuild their lives.

I urge the SBA to focus on finding a remedy for all of these problems that prevents and delays its front line employees from working in the disaster zones from assisting victims. With that, I would

be glad to recognize Senator Vitter.

OPENING STATEMENT OF THE HONORABLE DAVID VITTER, A

UNITED STATES SENATOR FROM LOUISIANA

Senator VITTER. Thank you, Madam Chair. I want to thank you

and the Ranking Member for having this hearing today. It is very

important.

Helping small businesses recover is one of the most important

parts of Louisiana’s recovery from Hurricanes Katrina and Rita.

Never before has our Nation seen the situation that Hurricane

Katrina has caused: an entire major metropolitan area evacuated

and completely closed for weeks. And then, a few weeks later, we

were hit again with another major storm. We must get jobs back

now so that people can return. Small businesses are the life blood

of our economy, and we need to help them get back up and running

and provide opportunities for them to grow as we recover from the

storms.

Clearly, the Small Business Administration can provide help ‘‘to

get us back on track’’ with its programs to help homeowners recover with home rebuilding loans and with disaster loans for small

businesses, but to this point, and I have to be frank, and I absolutely have to agree with the Chair, the assistance has been nearly

non-existent.

I hope we can hear from Administrator Barreto today about what

we can do, what his agency needs to get these loans moving much,

much, much faster. Whether it is more staff, more funding, anything we can give you except more time, we are ready and willing

to do. It is just unacceptable for small businesses to wait 60-plus

days for emergency disaster loans for a disaster of this scale.

Every day, businesses are making decisions about whether or not

to return to the area, and in fact, they are making decisions about

whether or not they can continue. With zero cash-flow in the vast

majority of cases, these small businesses need help in the form of

grants and loans, and they need it now.

Now, apart from the timetable, the slowness of current SBA action, there is another real issue, which is that the traditional and

current menu of SBA help has real gaps in it, at least with regard

6

to this unprecedented situation of Hurricanes Katrina and Rita.

That is why I have been pushing hard to pass our Committee’s bill

for small business recovery, which would provide funding for bridge

loans, allow for larger traditional disaster loans, expand other SBA

programs, allow deferment of payments and other things to get

businesses back up and running.

I appreciate all of my colleagues’ work, including the Chair and

the Ranking Member, who have pushed this legislation. Louisiana

absolutely needs this bill, and we need it now, and we need everyone’s help: this Committee, the Senate, the Congress, and the

President, to get this done before we adjourn this year.

Also, I would hope we can look at still other alternatives for the

future of SBA disaster loans and its program to build on the GO

Loan pilot that is getting underway. Perhaps instead of the SBA

being the direct lender for disaster loans, we could convert at least

a portion of the disaster lending into a guarantee program, much

like the regular SBA loan program. That way, the local financial

institutions, who know their customers and could more quickly provide for enormous needs, especially after the storms of the magnitudes we have seen in Louisiana, would have a significant role.

Along with the SBA, the other agencies with us today are absolutely critical to our long-term recovery. The U.S. Army Corps of

Engineers will be repairing our levees, and again, every day, businesses are making decisions about coming back or not, with this

weighing very heavily in their minds. Not only must we quickly repair our hurricane protection systems to Category 3 standards, not

just pre-Katrina levels, because many of these levees had settled

to many feet below their design grade, but we must also set in motion specific, concrete, streamlined plans to get us to higher, Category 5 protection, and to get us there quickly in a reasonable

timeframe.

I know we cannot have this level of protection overnight, but we

need to take immediate steps that start this process. We need to

have a streamlined process, and we need to communicate that to

everyone, whether they are in Louisiana or evacuees in Houston or

elsewhere who are waiting to hear this sign from the Federal Government.

Also, we have DHS’s chief procurement officer here. We all know

that we will be spending large sums of Federal money to help in

this recovery, and that funding should be providing a double hit:

reconstruction and local jobs. But so far, the amount of local jobs

provided through these contracts is unacceptably low in comparison

to out of State contracts. We need to strengthen small business and

local contracting goals both for the Government direct contracts

and for the subcontractors to the prime contracts, perhaps with incentives to reach or penalties for not reaching these goals.

I understand the need for fast response. Maybe some of the big

companies were the only ones who could do it in the absolutely immediate aftermath of the hurricanes. But we are well past that

stage now. So there has to be something in between no-bid

megacontracts instantly offered and then a recompete of those initial contracts that is expected to take well over a month. Again,

time is critical. Not only do we need much recovery work done, but

7

we also need it done by local folks so that the economy can get up

and running.

I look forward to hearing how our witnesses are working to speed

things up, cut red tape, expedite our recovery from the largest natural disaster in our Nation’s history. And again, I want to thank

Senator Snowe for having this hearing, and I look forward to continuing to work with the Committee and these and other Federal

agencies and most importantly small business owners in Louisiana

to rebuild our State and our economy.

Thank you, Madam Chair.

Chair SNOWE. Thank you, Senator Vitter, and thank you for your

invaluable advice that you have given this Committee.

Senator Kerry.

OPENING STATEMENT OF THE HONORABLE JOHN F. KERRY, A

UNITED STATES SENATOR FROM MASSACHUSETTS

Senator KERRY. Madam Chairwoman, thank you very much for

having this hearing today. Congressman, thank you for bearing

with these opening statements, but this is an important hearing,

and you know, I almost do not know where to begin.

I know there is sort of a perception that the Administration

comes up to these hearings, and Senators sort of vent, and then,

everybody goes back to business as usual. Well, I am kind of tired

of it. And somehow, we have got to find a way to get this process

to mean something more, because real people’s lives and real people’s businesses and the economy of our country is at stake. This

is not a game.

I almost, you know, hesitate to ask questions of the Administrator, because frankly, we have not been given the straight answers over the course of time. On September 21st, weeks after the

end of August when the hurricane hit, we had a hearing, and we

nicely and appropriately and responsibly asked questions about

what the response would be. And I remember specifically asking

how long it took to get disaster loans processed, and we were told

by the Administrator that it takes 21 days. And we were confident,

the Administrator said, of our ability to be able to deliver.

It has not happened. It has not happened for all of the obvious

reasons that every single of one of us sat here and said. There are

problems, and there are going to be problems. And it is really only

a symptom of a larger problem. You know, the challenges faced by

small businesses that are trying to participate in Hurricane

Katrina contracts are problems that we see throughout the procurement system. There is a lack of transparency, a lack of accountability by agencies, and very little leadership by the Administration to try to correct the problems.

Mr. Administrator, you have presided over a reduction in the

budget of the SBA, and you have presided over a reduction in the

capacity of the SBA to deliver in America. You may shake your

head and say no, but the budget has gone from $1.1 billion in 2001

to $593 million, and on May 20 of this year, the SBA Inspector

General stated that approximately 87 percent of the contracts reported to the SBA as potential bundlings are not reviewed, not reviewed, 87 percent.

8

This is the accountability for the American people. The Committee has repeatedly pressed the SBA to increase the number of

procurement center representatives. There are currently 58 individuals with PCR duties and fewer than 35 full-time PCRs to monitor

over $300 billion worth of Federal contracts. Currently, only 4

PCRs are assigned to small businesses in the Gulf region to ensure

that they get their share of the $40 billion of emergency recovery

funds. There is one PCR assigned to Louisiana, two assigned to

Mississippi, and one assigned to Alabama. That is a disaster in the

making, not unlike the hurricane itself.

Madam Chair, we all understand that the hurricane posed certain problems, but I do not know how many people saw Brian Williams’ report the other night talking about what it was like to be

down there in the Superdome while people were dying and wondering where America’s great military prowess and helicopters

were and just a drop of MREs, just a drop of water would have

made a difference. It never happened.

And now, it sort of continues. You know, the most recent report

available, dated November 7, out of more than 28,000 applications

received from small businesses, only 840 have been approved, notwithstanding all of the talk about how urgent it is to get people

back quickly, how important it is to get people on their feet right

away, how desperate businesses are for an immediate infusion of

cash in order to be able to work.

Only about 2,500 small business applications have even been

processed, and this is after more than 2 months and increasing

staff from 800 to almost 4,000 employees, having been told, of

course, that we would be able to do it without that. Let me quote

the Administrator. Mr. Barreto testified on September 21, quote: ‘‘I

would like to address head-on the misguided accounts of computer

problems in the Office of Disaster Assistance. Nothing could be further from the truth.’’ Mr. Barreto said. ‘‘This system has been in

use since December of 2004. All of this is an improvement over our

old system, and we have used it successfully already for over

15,000 applications.’’

Well, talk to the small businesspeople and see if they see any indications that the SBA was ready to fully scrap the old system and

rely on the new system, and we still do not see indications that

there is in place the management to oversee the various components of the disaster loan program in an efficient way.

We sent staff down there to the region, bipartisan, including Mr.

Nigel Stephens of my staff, to see how this was working. Sitting

in Fort Worth were stacks of applications just waiting to be entered

into the data system, applications that took a whole week before

arriving in Fort Worth and then sat awaiting data entry for 10 to

14 days. In Louisiana, no one knew who the contracting specialists

were or even how to contact them.

In follow-up meetings, SBA pointed fingers at the IRS and FEMA

and indicated a serious disconnect between headquarters in DC

and the offices in Louisiana and Fort Worth, out of touch with the

gaps at the local level. In fact, SBA’s Washington staff made recommendations that the Fort Worth staff said they did not need.

Contracting opportunities for small businesses are equally as

challenging. We have all heard the preliminary reports that apVerDate 11-MAY-2000 14:29 Jul 18, 2006 Jkt 027288 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 C:\DOCS\27288.TXT DianeA PsN: DianeA
9

proximately 90 percent of contracts as of October 3 were awarded

to companies outside of the affected area. Today, we still hear from

the Army Corps of Engineers and the Department of Homeland Security, the two agencies responsible for the majority of the contracts, that this is the situation. We will hear from them in awhile.

So I do not know. I am pretty sure of what I am going to hear

today. I am not sure of what is going to happen tomorrow. I am

confident of the protestations to the contrary that will be put forward today. I am not confident of the changes that will be put in

effect and the response that Americans deserve.

So Madam Chair, I am glad we are here today. It is important

to have these oversight hearings, but it is much more important

not to have them at all because things are working well. It is much

more important to have real leadership that puts in place the processes and puts the oversight in place. And I just think this is a

tragedy for the SBA, and more importantly, it is a continuing tragedy for far too many people whose lives depend on the response of

Government.

Thank you.

Chair SNOWE. Thank you, Senator Kerry.

Senator Landrieu, and I want to express my appreciation to you,

as well, for your tireless commitment to bring relief to your State

and guiding us on the Committee and how best to do it.

Senator KERRY. Before Senator Landrieu speaks, I will just mention one thing you were not aware of: You and I have worked diligently with this Committee to get an emergency hurricane response. It passed the U.S. Senate 96 to 0. It has been sitting in

limbo between the House and Senate, and just last Friday, it was

cut out of the Commerce, Justice, and Science appropriations conference by the Republicans.

It has an emergency response, emergency lending. It has what

we need, and it was cut by the Republicans. I just want to make

that absolutely clear. I raised this issue with Senator Frist on the

floor last week, and we get this talk about how we are going to look

around. It is all politics. Politics as usual in Washington, D.C. is

screwing a lot of Americans, and they deserve better.

Chair SNOWE. Senator Landrieu.

OPENING STATEMENT OF THE HONORABLE MARY LANDRIEU,

A UNITED STATES SENATOR FROM LOUISIANA

Senator LANDRIEU. Thank you, Madam Chair. I will try to be as

brief as I can. There are so many things I want to say, but I will

try to be brief, because I am looking forward to the panels, and

Congressman, thank you for being here and being so patient. I

know you have a difficult schedule, but this is a very important

matter.

I would like to go on the record following up on something that

Senator Kerry said to begin with, to commend the leadership of

this Committee. Madam Chair, you could not have acted more

quickly. We called a hearing on this Committee I believe within 2

weeks of the storm; got the SBA executives here to talk about what

they needed, what they could use, how we could expedite matters

and produced in record time a bill that has passed the Senate with

over 20 significant items that could expand current authorizations

10

that could give immediate help to the thousands of small businesses that are desperate, desperate along the Gulf Coast.

They want to get back into business. They want to help rebuild

their region and their homes and their communities. They want to

be part of the rebuilding effort. They are willing to take risks, as

all business men and women do. But they are getting very little

real support from the Federal Government; a lot of talk, a lot of

promises, not a lot of support. This bill (the Snowe-Kerry-VitterLandrieu, et al.) is waiting to be passed. We cannot wait much

longer.

When the President came to Jackson Square, he said it is entrepreneurship that creates jobs and opportunities. It is entrepreneurship that helps break the cycle of poverty, and we will take the side

of entrepreneurs as they lead the economic revival of the Gulf

Coast region. This is a tough statement, but I am not sure this Administration is on anybody’s side in the Gulf of Mexico today, and

I think that the statistics that will come out at this hearing will

prove this point.

Our businesses, thousands of them, were wiped out by a wall of

water. The SBA assistance is being doled out in a trickle. Small

businesses in the Gulf are not getting their fair share of Government contracts to rebuild the region that they love, that they have

lived in for decades and that they want—and they are proud to be

able to rebuild.

I am going to show some statistics very quickly and to talk, because the general points have been made, but I want for the record,

because these businesspeople cannot all be here today, but for the

record, Dr. Edwin Lang, a podiatrist, had eight employees before

the storm. He had 5 feet of water. His building was completely devastated. They applied to the SBA. The SBA has told them it would

take 2 to 3 months for a loan officer to even look at the application.

Dr. Lang has been contacted by hospitals in other States, and the

latest is in Great Britain, who wants to recruit his whole business

to come to Great Britain, and I hate to tell you, Madam Chair, this

business might make the decision to go. The chances of Louisiana

getting this podiatrist back—I just want to show you a picture of

the operating room. Now, he has been in business successfully for

many years. Please show the files, too, that were underwater.

Let me go real quickly to Evans Industries. Janice Hamilton is

the owner and CEO. This company did all the right things after

Katrina. They made temporary repairs, acquired generators to test

their equipment, got their employees FEMA trailers, which is a

hard thing to do, so they could move in on company property, company property.

Rita hit. They got wiped out again. This is her quote: ‘‘It is simply taking the SBA too long to process our loan applications. If

something is not done, there are a lot of companies that are not

going to survive, including ours.’’

Let me give you the final from David Guidry. I think he testified

before Senator Vitter’s excellent field hearing in Louisiana. He

says, ‘‘I cannot tell you how many struggling businesses are counting on the cavalry to arrive. Instead, the running joke is that SBA

disaster funds loans are like UFOs. Everyone knows they are out

there, there have been some sightings, but I do not know if anyone

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has actually seen one.’’ This man says that he has counted on the

SBA to help build his business where it is. He likes the SBA. He

has worked with the SBA, and now, in his hour of desperate need,

Madam Chair, he cannot find them.

I will end with this: we have cut back the SBA. The streamlined

programs we have put in place are not working. We have computers making decisions about whether to lend people money or

not. We need human beings with heart. We need human beings

with compassion. And we need a lot of human beings with intelligence to help us get our entrepreneurs set back up.

If we cannot do this and also invest in the levee system that our

delegation has been talking about, I frankly do not see how we are

going to rebuild the Gulf. Finally, we are going to show statistics

today that show that none of the States are being treated very

well, not Mississippi, not Louisiana, or Alabama, but the ratio of

help to Louisiana is even less when our need is so much greater.

And I am going to submit this, Madam Chair, to the record. But

you can see that for all the storms in the past, the rate of application approval has been up to 45 percent. Hurricane Ivan, I think,

was 35 percent. We are still down 14 percent, 23 percent for

Katrina.

So something, Madam Chair, is not working. Either the systems

that we put in place are not working and really shortchanging us,

or there is just a lack of political will, or I am not sure. But we

need to get to the bottom of it. We need to pass your bill and then

move on to other things that might be helpful.

Thank you.

[The prepared statement and attachments of Senator Landrieu

follow:]

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Chair SNOWE. I thank you, Senator Landrieu.

Senator Pryor.

Senator PRYOR. I do not have anything, Madam Chair.

Chair SNOWE. Thank you.

Chair SNOWE. Our first witness is Congressman Bennie Thompson from Mississippi’s Second District. As Ranking Member of the

House Committee on Homeland Security, which holds jurisdiction

over FEMA, and an elected official from a hurricane-torn district

in Mississippi. Representative Thompson is uniquely positioned to

discuss many of the issues that we will be addressing here today,

and I know he has been a leader in the House on Federal Government disaster response, relief, and preparedness as a result of

these three hurricanes.

So thank you, Congressman Thompson. If you want to summarize your statement, we will include the entire statement in the

record. Welcome.

STATEMENT OF THE HONORABLE BENNIE G. THOMPSON, A

UNITED STATES REPRESENTATIVE FROM MISSISSIPPI

Representative THOMPSON. Thank you very much, Chairwoman

Snowe, Ranking Member Kerry, other Members of the Committee.

I appreciate the opportunity to come and give you a little personal

opinion, like most of you have, about the response.

I come here today wearing two hats. First, I represent the Second District of Mississippi, which was affected by Hurricane

Katrina. While we were spared the brunt of Katrina’s force, the

wind and rain which accompanied the hurricane caused major

interruptions of services. The second is I am the Ranking Democrat

on Homeland Security with some of the jurisdictional responsibilities for disaster preparedness and terrorism response.

Basically, I agree with everything that has been said by each

Member who has talked so far. Absolutely, FEMA’s response was

totally inadequate. I was very disappointed by what I saw, like

many other people. But what we need to do now is move forward

to try to correct it.

What Congress did initially was to respond by appropriating $62

billion in disaster response, humanitarian relief and recovery assistance to the victims of the tragedy. Unfortunately, as we looked

at how these funds have been spent, clearly, there has been accusations of mismanagement, waste, fraud, and abuse. I have also

watched how the Department has followed, if at all, the Stafford

Act, which provides a preference to locally owned businesses in contracting following a natural disaster. The Act recognizes that contracts awarded to small, disadvantaged, and local businesses stimulate the local economy. The Act assures that the businesses affected by disaster are given the first chance to rebuild their towns

and cities and their owners’ lives.

Contracts awarded, according to the Stafford Act, help to recharge the engine of local economic development, not only by providing jobs to residents, but also by creating a multiplier effect

through spurring business to business transactions. Unfortunately,

the preference afforded under the Stafford Act has been disregarded by most of the agencies charged with that responsibility.

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Indeed, in certain instances, it appears that the agency has purposely gone out of its way to avoid the small business requirement.

In my written testimony, I provide several examples of how hurricane contracting has run amok at the Department and related

agencies.

It is clear to me that the Federal Government, especially FEMA

and the SBA, must make a major shift in both policy and implementation if the lives of the people of the Gulf Coast are to be effectively rebuilt and restored. It seems that I read almost daily an

award of sole source, no-bid, multi-million dollar contracts to large

corporations, and we know that the work required under these contracts will only be possible through subcontracting.

And one of the problems with the subcontracting for the Committee, as you know, is many of the people who undertake the subcontracts often take them at a below market rate, which ultimately

puts them in worse shape than they were in before. And for me,

being from Mississippi, I know sharecropping when I see it, and

that is absolutely what some of the subcontracting amounts to

under the hurricane response.

We know about the 23 percent Federal procurement requirements that have not been met. Let us look at FEMA as one of those

areas. As far as my information can gather, they have given 1,600

contracts worth over $4 billion. Less than 3 percent of those contract dollars have gone to small, disadvantaged, women, or minority-owned businesses. Well, as we look at the announcement FEMA

is talking about now for 15 contracts worth $1.5 billion, that

sounds good, but as we look at FEMA’s proposal, they will be in

$100 million increments. Unfortunately, very few small businesses

can work with $100 million increments.

The contracts are for a very limited class of work: maintaining

and dismantling trailers. I have spoken a great deal about the

problems. In the interests of time, let me talk about some suggestions Congress can do to help. First, we should require FEMA to

immediately set forth and implement a detailed strategy to award

contracts for small and disadvantaged businesses.

Second, we should require that the SBA take stringent steps to

ensure that businesses that gain contracts under a small business

designation are authentically small businesses. We must end the

system of self-certification that allows large foreign corporations to

pose as small businesses.

Third, we should require the Department of Homeland Security

to establish a permanent data base of small disadvantaged businesses that can be used as prime contractors.

My reason for going toward this rather than the loan program

is that my experience is when we work local businesses, that is

part of the recovery effort. Congress mandated that we do that. The

loan programs are absolutely important, but we are spending billions of dollars in the recovery effort. If we could hire companies

from those areas, Madam Chair, I am convinced that the area

would come back faster.

Many of the problems that have been identified, we could work

with them. The loan program is a disaster. The testimony that you

shared, I agree with. For the first month in my State, we had no

real SBA programs functioning. They were just attending the meetVerDate 11-MAY-2000 14:29 Jul 18, 2006 Jkt 027288 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\DOCS\27288.TXT DianeA PsN: DianeA
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ings and say, ‘‘Well, you can apply, but we do not have any directions from Washington.’’ That is not how you address a disaster.

And unfortunately, the staffing is so small until this date, my office, all the counties I represent in the Second District of Mississippi have been declared disaster counties. There has been little

outreach toward my office or other Members of Congress as to what

SBA or any of the other roles are doing. To give you a good example, the only two outreach meetings identified in many of the reports by the Federal agencies were meetings that I set up, and

surely, a Member of Congress’ meetings should not be claimed as

the work product for the agency. The agency should be doing outreach also.

So let me indicate that the work you do in this oversight hearing

is significant. All of us are very frustrated. We hear every day from

people who are just trying to get on with their lives. They need a

little help from the Government, and in many cases, they are not

getting it. I will stop there, Madam Chairman, and submit the rest

for the record.

[The prepared statement of Representative Thompson follows:]

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Chair SNOWE. Thank you, and it will be included in the record.

Thank you very much, Congressman Thompson. I thank you for

your insight, your recommendations. I agree with the proposals

that you have suggested in strengthening our ability to conduct

oversight of the contracting process and making sure that small

business has access to Federal contracts that heretofore that they

are being denied indisputably. And it is one of the issues that we

have to get to the bottom of. I hope to be able to work with you

in the future on some of these issues.

We have asked the Government Accountability Office, GAO, to

review many of the issues concerning compliance with Federal contracting. Obviously, it is subpar, substandard, far below where we

need to be if we are going to ensure that economic restoration takes

place in the Gulf region.

So I certainly appreciate your insights, and I also concur with

you about the fact that oversight is not an academic exercise. It is

part of our responsibilities, and we have to make sure it is done

for the people who depend on it. So I thank you for being here and

for your testimony today.

Senator Kerry.

Senator KERRY. Thank you very much, Congressman. I appreciate your testimony. Thanks also for working with us on thinking

about some of those responses early on.

Representative THOMPSON. Thank you.

Chair SNOWE. Thank you.

Chair SNOWE. All right; the second panel will include Administrator Barreto. We appreciate your being here today, Administrator. Obviously, there are a number of questions that need to be

answered. We have some serious issues and we hope that in the

final analysis we can rectify many of these problems to have an action plan from the Small Business Administration, so that once and

for all, we can put the rebuilding of the region on course with the

appropriate role that SBA should be playing. And obviously, all of

us here today have raised some serious and significant questions,

and hopefully, we can address them, and we hope we can get answers.

We are also going to include the other two witnesses as well:

Major General Ronald Johnson, current Deputy Commander of the

U.S. Corps of Engineers. Major Johnson [sic] is responsible for the

oversight and management of the Army Corps’ contracting functions, and Gregory Rothwell, who is the chief procurement officer

for the Department of Homeland Security. He examines the serious

problems facing small businesses who seek to obtain Federal contracts during this disaster reconstruction effort.

So we will begin with you, Administrator Barreto. You can summarize your statement. We will include your entire statement in

the record. Please begin.

STATEMENT OF THE HONORABLE HECTOR V. BARRETO,

ADMINISTRATOR, U.S. SMALL BUSINESS ADMINISTRATION

Mr. Barreto. Good morning, Chair Snowe, Ranking Member

Kerry, distinguished Members of this Committee. Thank you for inviting me to discuss the Small Business Administration’s Office of

Disaster Assistance’s continuing efforts to provide relief to the vicVerDate 11-MAY-2000 14:29 Jul 18, 2006 Jkt 027288 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 C:\DOCS\27288.TXT DianeA PsN: DianeA
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tims of Hurricanes Katrina and Rita. We are making progress, and

today, I want to announce our new program to encourage commercial banks to make loans to small business in the recovery.

I also want to mention that we are also very focused on contracting. I heard the Congressman’s concerns loud and clear, and

I hope to clarify some of the things that we are doing and some

of the opportunities that we are going to be pursuing for contracting for small businesses in the Gulf area. Today, I am also accompanied by Herb Mitchell, the Associate Administrator for Disaster Assistance, and also by Mike Sorrento, who is the chief of the

Office of DCMS operations, the technology system that we keep referring to.

It is clear to all of us today that Hurricanes Katrina and Rita

unleashed an unprecedented tragedy on the Gulf Coast, demanding

an unprecedented response from the Federal Government, including the SBA. The numbers are staggering. In just 70 days, the SBA

has received 220,000 disaster loan applications. In just 10 weeks,

that is already 5.5 times the total number we received the year following Hurricane Andrew. To put this in perspective, after the 4

hurricanes last year, SBA received 202,102 applications, one-half of

what we expect now and less than what we have received in the

first 70 days.

The disaster affected over 90,000 square miles and 5 States. We

have already mailed out nearly 2 million applications to residents

and business owners on the Gulf Coast. SBA expects that we may

yet receive another 160,000 applications, requiring us to process 10

times the number we received following Hurricane Andrew. The

largest disaster SBA has ever dealt with was the Northridge earthquake, and that disaster had 250,000 applications.

That is a huge number, but we have already surpassed that in

the first 70 days following Katrina and will dwarf that response in

the days to come. At no point thusfar has anyone in the press or

elsewhere put the magnitude of this disaster into scale, acknowledged the overwhelming task my employees face, or even laid out

the simple facts about SBA’s Disaster Loan Program.

The SBA Disaster Loan Program is designed to facilitate longterm recovery. It was not designed or intended as a source of immediate cash, and it is not a grant program. If SBA has done anything, it has become a victim of its own success. In smaller disasters, Hurricanes Opal and George, we responded with a speed that

cannot be duplicated in an event the size of Hurricane Katrina.

Despite this massive disaster and the velocity of the volume that

has reached us, SBA has responded. A month ago, the Office of

Disaster Assistance had doubled its staff. Now, it has doubled its

staff again and continues to grow. SBA now has over 3,900 employees in disaster assistance. They are working nonstop, 7 days a

week, 18 hours a day to handle the volume. We have over 225,000

square feet of operations at our Fort Worth loan processing center.

We have literally exhausted the market for business loan officers,

and we are temporarily transferring experienced SBA lending staff

to our processing centers.

We also initiated a program called Lend a Lending Hand that

asked our lenders nationwide to lend us, the SBA, their loan officers. Additionally, SBA has been working with our lending partVerDate 11-MAY-2000 14:29 Jul 18, 2006 Jkt 027288 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 C:\DOCS\27288.TXT DianeA PsN: DianeA
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ners to expedite the 7(a) and 504 lending. SBA has guaranteed

loans of over $100 million in the affected areas. Last week, SBA

lending exceeded over $10 million.

But we do not think that is enough, and I am announcing a new

pilot program to strengthen and expand the role of local commercial banks in accelerating the recovery and rebuilding the small

businesses. This new program is called GO Loans, and it employs

streamlined, expedited processing driven by banks under the direction of SBA. GO Loans will allow banks that are PLP and express

lenders to use simplified loan procedures, their own forms and underwriting, to get working capital into the hands of small businesses in the Gulf region. These loans will be available to up to

$150,000 and have an 85 percent guarantee, and applicants will

have a decision in 24 hours or less.

GO Loans respond to the eagerness of the private sector, the

banking community, to play an important role in the rebuilding of

small businesses. It will unleash the liquidity and expertise of commercial banks, and the program will be open for business this

week.

Chair Snowe, I would like to thank you and your staff for working with us so that we may implement this pilot as soon as possible. In recent weeks, I have heard a great deal about how our

processing system is faulty. There could be nothing further from

the truth. The system was designed to handle 5,000 applications a

day on a sustained basis and to be scaled up if necessary. As designed, the system is accepting over 5,000 applications a day. There

are 180,000 applications in the system. 35,000 are fully processed.

If the system had been this functional during Hurricane Andrew,

we could have entered the entire year’s worth of applications in 1

week. In the last 7 days, we entered 39,000 applications alone. You

cannot do that on a bad system.

We have 2,900 users on the DCMS system, expanded from the

original 1,500 user capacity. We will add 100 more users, which

will double the original capacity, and we are presently expanding

the system to handle an additional 5,000 users beyond that. You

cannot double the capacity on a broken system. Your staff saw our

scanning operation in the processing center, and we appreciate

their willingness to see the situation for themselves before rendering judgment.

At that time, we could scan hundreds of pages in an hour. Now,

we are scanning 70,000 pages a day, one page a second in an 18

hour day. By the time I finish my remarks to you today, ODA will

scan in roughly 40 applications. SBA has established a pilot program with the IRS to replace the laborious process of faxing forms

back and forth. Under the old system, we could input 1,500 tax

transcripts a day. Now, SBA has access to 5,000 transcripts a day,

and we have the ability to exceed that.

SBA has also modified processes to improve the efficiency with

our loan verification system. ODA teams have completed over

50,000 verifications, despite the fact that our loss verification

teams had absolutely no access in many places until after Hurricane Rita. Those lost weeks are time we cannot get back, and unfortunately, our teams are still hampered. I was in Plaquemines

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Parish 2 weeks ago, and there were still ships still blocking the

roads almost 2 months after the hurricanes.

I have heard concerns about the number of declines. SBA’s underwriting standards have not changed. We do not change our

standards from year to year, from disaster to disaster. What has

changed, however, is SBA’s ability to give a more accurate account.

Under the old system, employees screened out obvious declines and

referred the applicants to FEMA. Those declines were not entered

into the system. Under DCMS, all applications are counted.

I must also reiterate many applicants come to the SBA specifically for a decline in order for people to avail themselves of the

FEMA grants and other assistance programs. We process these declines quickly, as we have always done, to help those people obtain

assistance.

SBA has approved over $400 million in loans to over 6,000 homeowners and businesses, more loans than we approved in Hurricanes Opal and George or Isabel. We are currently approving nearly $20 million a day, and that number is increasing with each passing hour. Even though the SBA’s Disaster Loan Program is a long

term recovery program, we are working to speed processing, thinking outside the box, to look for any way to shorten processing while

still maintaining our fiduciary responsibility.

We expedited our business loan processing by reducing the information needed. We implemented a new system to speed

preapproval of business borrowers. However, we cannot shoehorn

short-term needs into a long-term recovery program, nor can the

SBA simply approve loans and worry about the underwriting later.

For the short-term needs of small business, we have worked with

the States to assist them in their bridge loan programs and coordinate the purposes of the programs and establish a co-payer relationship to refinance through the Disaster Loan Program.

I also want to talk about Government contracting. A month ago,

SBA assigned four procurement center representatives, the PCRs,

to Hurricane Katrina-related contracting, and I detailed Judith

Rusell, an experienced career employee from New Orleans, to coordinate our contracting outreach efforts. There are now five PCRs

dedicated to this effort. I have assigned several career senior executives with procurement experience to work on initiatives to bring

more small businesses into the vendor pool.

At every level of SBA, we are engaged. SBA is committed to

making sure that small businesses receive opportunities in the reconstruction effort. Working with the Department of Homeland Security and the Federal Emergency Management Agency and the

Army Corps of Engineers, we will expand the number of small

businesses, including local 8(a) and Hub Zone firms participating

in these contracts. SBA is also actively collaborating in the area

with the President’s Urban Entrepreneur Partnership, which is

helping local minority firms prepare for and prepare on Government and private sector contracts, particularly through the Ewing

Marian Kauffman Foundation’s Intrusive Coaching Program.

Finally, the SBA has worked with the Department of Commerce

and other agencies to establish the Hurricane Contracting Information Center. SBA has been helping to make this portal a single location for small businesses to access assistance and contract inforVerDate 11-MAY-2000 14:29 Jul 18, 2006 Jkt 027288 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 C:\DOCS\27288.TXT DianeA PsN: DianeA
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mation from the various contracting agencies. During the center’s

first 3 weeks, contracting specialists have taken 3,476 phone calls,

and HCIC’s Website has had 56,712 visits to date. During the week

of October 30th, HCIC fielded over 1,081 calls, and the Web site

received 15,683 visits.

To date, small business has been awarded over 45 percent of the

contracting dollars put out for Hurricanes Katrina and Rita cleanup and recovery. Last Friday, and the Congressman mentioned

this, SBA and FEMA announced $1.5 billion in 8(a) and small business setaside contracts. That is only one large example.

The General Services Administration has reported over $260 million in small business contracting; the Department of Homeland

Security, over $257 million; EPA, over $34 million. SBA initiated

business matchmaking events in the Gulf region to assist small

businesses whose customer base has been affected by Hurricane

Katrina. SBA started this initiative on November 1, 2005, with an

8-day, six-city mobile registration tour of the affected areas which

will register affected small businesses.

Along with SBA, small business development centers, and score

counselors and a specially equipped RV donated by Microsoft, we

are providing instant electronic registration. The initiative’s dedicated procurement experts will work to align the information with

procuring agencies. As a last note, SBA is also working to assist

our partners at the Small Business Development Centers in the region. We have encouraged them to apply for additional funding

through the portability grants that you established, Chair Snowe.

This will help them pay for the additional counseling and outreach

costs.

Chair Snowe, I appreciate the opportunity to testify before you

today, and I look forward to answering any questions that you

might have.

[The prepared statement of Mr. Barreto follows:]

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Chair SNOWE. Thank you, Administrator Barreto.

Mr. Rothwell.

STATEMENT OF GREGORY D. ROTHWELL, CHIEF PROCUREMENT OFFICER, U.S. DEPARTMENT OF HOMELAND

SECURITY

Mr. ROTHWELL. Madam Chair, Ranking Member Kerry, and the

rest of the Members of the Committee, thank you for the opportunity to come here today to discuss the Department of Homeland

Security’s support of the small businesses and the small business

program. I am Greg Rothwell. I am the Chief Procurement Officer

for the Department of Homeland Security. I am a career executive

with 33 years of Federal service. As the chief procurement officer,

I give procurement oversight to the eight procurement shops within

the Department of Homeland Security, including FEMA.

I guess my statement will be very short. Very, very simply, we

support small businesses because small businesses support homeland security. From the very beginning, we have had a very significant success in terms of our dealings with small businesses. In fiscal year 1903, we gave 40 percent of our prime contract dollars to

small businesses. In fiscal year 2004, we gave 38.5 percent to small

businesses. We have been recognized by many, many groups for our

small business program, which I believe is a wonderful thing.

Very recently, I think about a month ago, Congresswoman

Vasquez of the House Committee on Small Business basically gave

us the highest grade that she gave throughout the Federal Government for our small business program, and that was a B as in

Bravo. We received the highest honor that SBA gives during fiscal

year 1904 called the Gold Star Award, and there are several

awards. I do not really want to go into that too much other than

to simply say, we understand that this is an important program.

Recently, the FEMA organization has awarded about $3 billion

in contracts in support of the Hurricane Katrina relief effort. Over

50 percent of those contracts or $1.6 billion, has gone to small businesses. We are working daily, you know, every day to make sure

that we give awards to local businesses, to small businesses, and

to all of the small and disadvantaged businesses in the area.

There is much that has to be done yet, and we are committed to

supporting small businesses and local businesses. I thank the Committee for your aid in this effort, and I look forward to working

with you, and this concludes my statement. Thank you.

[The prepared statement of Mr. Rothwell follows:]

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Chair SNOWE. Thank you, Mr. Rothwell.

General Johnson.

STATEMENT OF MAJOR GENERAL RONALD L. JOHNSON, DEPUTY COMMANDER, U.S. ARMY CORPS OF ENGINEERS, DEPARTMENT OF THE ARMY

General JOHNSON. Madam Chair and Members of the Committee,

thank you for the opportunity to be here today. I am Major General

Ron Johnson. I am the Deputy Commanding General of the U.S.

Army Corps of Engineers, and I am honored to be here to share

with you pertinent information about our contracting activities in

response to Hurricane Katrina and our efforts to involve small and

disadvantaged businesses in the work we are doing in the region.

I will summarize my statement here and ask that my complete testimony be entered into the record.

Chair SNOWE. Without objection, so ordered.

General Johnson. As the Corps continues to work in response to

the recent hurricanes, we are absolutely committed to carrying out

our missions while keeping in mind the importance of utilizing

small and local businesses wherever possible. Under the leadership

of our Chief of Engineers, Lieutenant General Carl Strock, we practice a concept of openness, and we strive to maintain transparency

in our contracting activities, and we welcome your oversight and

anyone’s oversight of our activities.

Lieutenant General Strock and I are personally committed to

using small businesses in performing our work in the normal

course of business and even more importantly in times of national

disaster. We always strive to use small, small disadvantaged,

women-owned, Hub Zone, and service disabled veteran-owned firms

to the maximum extent possible. The Corps of Engineers typically

awards more than 40 percent of its prime contract dollars to small

firms.

As part of the National Response Plan, the Corps of Engineers

is in support of FEMA in the aftermath of hurricanes and any

emergency disaster. We utilize several prepositioned contracts for

ice, water, and some of the initial debris removal services which

were competitively awarded in 2003. Many of these awards were

to small firms.

After Katrina, the needs for service were greater than our ability

to respond with preplaced contracts, and we began awarding additional contracts using emergency procedures. We maximized competition and the use of small businesses as much as possible without delaying urgently needed supplies or services. At the same

time, we began developing plans to 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.

We use normal contracting procedures whenever possible, adjusting as necessary to assure that critical life, safety, or health needs

are met. Such changes might involve things like limiting competition or shortening normal advertising or proposal times to avoid

any delay in award. For work associated with major disasters or

emergency assistance activities, another special consideration is

added to our normal contracting procedures. There is an additional

preference for local firms that, quote:

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Preference shall be given to the extent feasible and practicable to those organizations, firms, or individuals residing or doing business primarily in the area

affected by such a major disaster or emergency.

So in accordance with the Stafford Act, we require our prime contractors to give preference to firms 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 these operations. Based on very preliminary data, large

firms are reporting that they are awarding more than 50 percent

of subcontractor dollars to local firms.

We are continuing to award new contracts as additional needs

are identified, as well as overseeing the ongoing work. Meanwhile,

we are concurrently reviewing the activities of our staff, reviewing

our contracts, assessing performance, and capturing lessons

learned that can improve our response and our contracts in the future.

From the earliest days of the event, the Corps moved quickly to

assure we provided information to the public. We immediately

began posting information to our home page and provided points of

contact for our prime contractors so that local and small firms

could apply to do work for those large contractors. We established

a registration site where firms who wished to help could provide

information on their capabilities. We have provided a listing of our

contract awards, as well as making updates when appropriate.

Now, we are supporting the Hurricane Contracting Information

Center as they provide a one-stop communications portal for the

public.

We are indeed enhancing opportunities for small and local firms

by requiring large businesses awarded one of the contracts to implement aggressive subcontracting strategies and report their level

of success in awarding subcontracts to small firms. The initial

value for debris removal after Hurricane Katrina was estimated at

nearly $2 billion, far beyond the value of our prepositioned emergency 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 contracting plan with aggressive goals for each small

business category. I have asked my team to divide work whenever

practical so that we can target work for appropriate small business

and other programs. For upcoming levee repair work, we hope and

are encouraged to contract some of the work to minority, servicedisabled, veteran-owned or Hub Zone small business prime contractors. Other small firms may win additional contracts under the

Small Business Competitiveness Demonstration Program.

In summary, the U.S. Army Corps of Engineers is committed to

assuring that small firms play a vital role in the award of contracts, that we are alert to areas that we can improve in the future

and that we are responsive to FEMA as it orchestrates disaster response effort.

Madam Chair, this concludes my statement.

[The prepared statement of General Johnson follows:]

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Chair SNOWE. Thank you, and I thank you all for your testimony,

and Administrator Barreto, I would like to begin with you. We will

probably have several rounds here with the witnesses.

You indicate that the Small Business Administration has been

making substantial improvement, particularly in this last week,

but I think the case remains as to how efficiently the SBA is going

to address the pending 220,000 applications, and that there are anticipated to be another 160,000 applications. Our current projections are that it is going to require at least 4 months, and that is

in addition to what else comes in. That is just what has come over

the transom at this point, as illustrated by these charts here today.

So that is the issue. It is the issue of how we are going to get

this done, and does SBA have a plan for accomplishing this? It does

not matter what you are doing. The question is what is the end result? We need the end result. We need to know what it is, because

it has been more than 70 days since the first hurricane, and here

we are finding that applications are languishing. Irrespective of

what is happening, what the problems have been, we have been obviously, hoping that SBA—we have been working with your office

every day, because we have wanted to know what can we do to provide the resources?

Frankly, the bridge loans should have been done from day one.

Bridge loans, that is something that, you know, in fact, it passed,

and regrettably now has been removed from the appropriations

conference on Commerce, Justice, State, that would have included

the bridge loans as part of this overall package. We happen to

think that whole package are the tools that SBA requires.

So we do not want to be sitting here next month, the month after

as to what the additional problems are. You need more people. I

mean, I think that is the bottom line. You mention new procurement representatives, but there are not any new ones. They are

what they are. You might have assigned one to DC to split their

time, but you have two in Alabama, one in Louisiana, zero in Mississippi, and one in DC. So there are not any additional ones. We

have recommended five additional ones to help in the contracting

process.

But let us start with the numbers, because that is essential here.

You have approximately 180,000 or 190,000 pending. It is going to

require 4 months. So what do you have in place today that is going

to suggest that you are going to get this done in an expeditious

fashion? Do you have anything in place?

Mr. BARRETO. I think starting with the numbers is a great place

to start, Senator Snowe. In fact, I have a chart that I am going to

ask them to put up there in terms of our processing time.

Let me start with this number: 55 percent of the applications

have been received in the last 3 weeks; let me say that again, 55

percent of the applications have been received in the last 3 weeks.

So these are not applications that have been sitting around on a

desk someplace.

Also, what you see here——

Chair SNOWE. Well, you know, can I just say, the staff was down

there, and many of the applications were pending for 8 to 10 days;

they had not been entered because there were no data entry people.

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Mr. BARRETO. I have already established the fact that we are

dealing with a volume that is 10 times bigger than anything we

have ever dealt with before.

Chair SNOWE. We have to move the process along.

Mr. BARRETO. And one of the things that we have also established is that we have doubled the size of the agency twice already.

We are continually hiring more and more people. In fact, I mentioned in my statement that I believe that we have probably exhausted most of the folks that have loan experience.

One of the things, if you are going to underwrite a business loan,

you are going to need somebody that knows how to do that. And

one of the things we are doing is we are bringing people on and

training them. Again, we have close to 4,000 people on board. We

are hiring more people every single day. I am transferring some of

our own people that we have in our regular loan operations to work

on this, and we are also working with the lending community to

get some folks from there.

But one of the things that you will see here, and maybe I could

have that chart turned a little bit more so that the Senators could

see it, is that these are the average processing times for disasters

that the SBA has ever dealt with. The average time to get a decision from application receipt to decision is the lowest of any disaster that we have responded to. The second line——

Chair SNOWE. What is the time? Excuse me, what is the time,

then?

Mr. BARRETO. Well, if you will notice, the total time is a little

over 20 days. That is the total of all of the applications that were

received for 2005 hurricanes. That is the first block that you see

there. That second block is what it is taking to process home loans;

the next block is what it is taking to do business loans; the next

block is economic injury.

The green line is what we were processing last year. Last year,

it was taking us almost 30 days, so 50 percent longer to process

the loans last year. The top line is the biggest disaster that SBA

has ever dealt with before. That was the Northridge earthquake,

and we dealt with that disaster over a year, not 70 days, over a

year. And we have already received more applications than we received for them. But you will notice there it was averaging about

45 days to get to a decision on the Northridge earthquake.

So in terms of responding, we are responding. We are responding

at an unprecedented level, and what you will also notice, because

we provided some charts, is that the level of velocity of approval

has increased for every week for, like, the last 7, 8 weeks, and that

is, you know, documented with real numbers and some additional

information that we are providing you.

We are processing business loans faster now and getting to decisions. We are processing economic injury loans faster now. And

that is going to continue occurring as we get more and more people

trained and focused in on these loans.

Chair SNOWE. But the point is you are referring to the 38,000 applications that have been resolved; is that correct?

Mr. BARRETO. That is right; of the applications resolved.

Chair SNOWE. Right, but there are currently 187,000——

Mr. BARRETO. Fifty-five percent was received in the last 3 weeks.

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Chair SNOWE. Yes, but 187,000 remain unresolved; is that correct? And 159,000 of them are 30 days overdue. I am just telling

you what we are being told.

Mr. BARRETO. I understand, and I am trying to document to you

what the reality is. And the other thing that I want you to be very

clear——

Chair SNOWE. So I think the bottom line is what do you need?

I think that is more than anything else what we are here today to

say is what do you need to get this done in a timely fashion, because we have asked——

Mr. BARRETO. I need more experienced loan processors who have

experience processing business loans. That is what I need.

Chair SNOWE. And one of the things we recommended to you several months ago was to work with the private sector. We understand that you need loan officers and verifiers and so on, but the

fact is we are here. That is what we have been offering, asking.

What do you need to get this done? We do not want to wait 2 or

3 more months to find out what you need. That is what we were

saying. That is what we have recommended. And you could have

done it on a timely basis.

Mr. BARRETO. We are asking, and we have been asking from the

very first days of the hurricane: we have had meetings with our

trade association. I had a meeting with the trade association a couple of weeks after the hurricane. We are in regular contact with all

of our lenders. We have got everybody in capital access working on

this. I cannot make the lenders, you know, give us loan processors.

I hope that a lot of them will.

And we are also doing a wide, wide outreach through Monster.com and through other placement agencies to identify people.

By the way, this could be somebody who is already retired from

Government. This could be somebody that is already retired from

the banking industry. This could be somebody that is out there

that has some level of expertise. So, I mean, will, if anybody has

any loan processors they want to send understand, we are happy

to talk to them and bring them on board immediately.

Chair SNOWE. Well, I would hope that you would be seeking

them aggressively——

Mr. BARRETO. We are.

Chair SNOWE [Continuing]. From the private sector.

Mr. BARRETO. We are.

Chair SNOWE. I mean, the point is do you have enough people

currently overall?

Mr. BARRETO. We have double what we had a month ago, and

we are hiring at a clip of 200 a day, so it is going to take a——

Chair SNOWE. The point is how many do you need, because we

have recommended more than 1,000.

Mr. BARRETO. Right, and we agree, we are going to go after those

1,000. We think we need at least another 1,000. We are prepared

to hire another 1,000.

Chair SNOWE. But you understand, recognizing that this was unprecedented from the outset, this should have been happening long

before now. That is the point of all this.

Mr. BARRETO. Well, it has been happening.

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Chair SNOWE. It has not been happening, and that has been the

problem. I understand; we are trying to look forward here. The

question is we do not want to come back here in 2 months to find

out that the agency is languishing in this ability——

Mr. BARRETO. It will not languish.

Chairman SNOWE [CONTINUING]. TO RESPOND IN A TIMELY FASH- ION. WE KNOW THIS IS UNPRECEDENTED. Mr. BARRETO. That is right.

Chair SNOWE. So it requires an unprecedented response.

Mr. BARRETO. That is right, and that is what we have given it.

Chair SNOWE. It is as simple as that. You have to move with the

times.

Mr. BARRETO. Absolutely.

Chair SNOWE. The demand, so that we can do it, but we have

been asking, and the problem is here and just looking at that some

of the increases in staff is just not reflective and the daily increases

for disaster employees. When you look at the different offices,

whether it is in Buffalo for the calls, Atlanta, Fort Worth, Sacramento; I mean, that is the problem. I mean and we cannot shortchange this effort.

Mr. BARRETO. I agree.

Chair SNOWE. Because the problem is going to compound itself

with the additional applications that are flowing in.

Mr. BARRETO. We agree.

Chair SNOWE. So, where are we?

Mr. BARRETO. We are hiring people as fast as we possibly can.

Chair SNOWE. How many people? Give us a number today what

you need.

Mr. BARRETO. Well, I agree with you. I think we are looking at

bringing at least another 1,000 people on board. I want to bring

them on yesterday. If somebody can identify them and send them

to us, we will hire them. You know, we are doing everything that

we can.

I mentioned to you that we have doubled the size of the disaster

office twice already. This is an unprecedented increase. And by the

way, when you hire somebody, especially somebody who has not

worked for SBA before, you have got to train them; you know, you

have got to train them, and you have got to monitor them and

make sure that the will of the product that they are putting out

is a good quality. So we are doing all of those things: we are hiring

them; we are training them——

Chair SNOWE. I know, but could it not have happened sooner? I

think that is the point here. A lot of this could have happened

sooner. I mean, we were talking about this in early September.

Mr. BARRETO. We have doubled the size of the agency——

Chair SNOWE. That is the problem.

Mr. BARRETO [Continuing]. Twice already.

Chair SNOWE. Yes, it does not matter if you double them; if you

have to triple that, I mean, that is the point. Solve the problem.

Mr. BARRETO. I would be happy to if I could find those experienced loan processors. That is what I need. I need experienced loan

processors.

Chair SNOWE. That is one part of the equation. You need other

additional offices as well in different capacities.

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Mr. BARRETO. Well, if we want to approve loans——

Chair SNOWE. The point is, you reached out to the private sector

once you exhausted your other sources——

Mr. BARRETO. I have.

Chair SNOWE [Continuing]. For additional help and other agencies, for that matter.

Mr. BARRETO. Right.

Chair SNOWE. You know, we want to solve this problem.

Mr. BARRETO. Me, too.

Chair SNOWE. And the sooner the better.

Mr. BARRETO. Absolutely.

Chair SNOWE. It’s 70 days, and we are counting.

Mr. BARRETO. We agree.

Chair SNOWE. And the applications are piling up.

Mr. BARRETO. Yes.

Chair SNOWE. And we do not want to see these charts here, because the gap is tremendous——

Mr. BARRETO. It is.

Chair SNOWE [Continuing]. Between what has been received and

what has been approved.

Mr. BARRETO. Fifty-five percent in the last 3 weeks.

Chair SNOWE. Senator Kerry.

Senator KERRY. Fifty-five percent of what?

Mr. BARRETO. Fifty-five percent of the applications that we are

processing right now have been received in the last 3 weeks.

Senator KERRY. Fifty-five percent of the ones you are processing

now were received in the last 3 weeks?

Mr. BARRETO. That is correct.

Senator KERRY. Or have been processed?

Mr. BARRETO. Fifty-five percent of the 225,000 applications that

we are processing have been received in the last 3 weeks?

Senator KERRY. What does that tell us?

Mr. BARRETO. It is something in excess of 140,000; 150,000.

Senator KERRY. Right, it tells us there are a lot of applications.

It does not tell us——

Mr. BARRETO. Absolutely.

Senator KERRY. Right, it does not tell us that a lot of them have

been approved.

Mr. BARRETO. Well, we have approved 6,000 of them, and we are

approving more every single day.

Senator KERRY. It just tells us you have received a lot of applications in the last few weeks.

Mr. BARRETO. Absolutely, yes it has.

Senator KERRY. And it says 55 percent of them came in in the

last 3 weeks; big deal.

Mr. BARRETO. Well, the point is that these are not applications

that have been sitting there for months. They have just been received, and we are staffing up every single day to be able to address those applications.

Senator KERRY. Are you finished?

Chair SNOWE. Yes, Senator Kerry, you can continue.

Senator KERRY. Well, first of all, can you explain to me how you

are processing home loans faster than business loans?

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Mr. BARRETO. Well, 10 times of the applications; in other words,

the ratio right now, Senator Kerry, is 10 to 1, OK? We have received 10 percent or less of all the applications have been for businesses, and that is very unusual, by the way. Usually, for any disaster that we have had before, it is usually a ratio of two to three

to one, which you would expect, because obviously, more people

that own homes than own businesses.

But this has been off the charts. And the way we process these

applications is on a first-in, first-out basis. We are not, you know,

discriminating about, you know, applications. As they come in, we

process them.

Senator KERRY. Yes, but for instance, I mean, that is sort of

again—frankly, I think this is a phony chart, and I will tell you

why it is a phony chart: this is a single event, this big one where

you show huge amounts of times.

Mr. BARRETO. Right.

Senator KERRY. That is a single event. Here, you have all hurricanes of 2005 lumped together.

Mr. BARRETO. Well, there were two hurricanes that occurred

right next to each other.

Senator KERRY. I understand that, but what we are talking

about here is Katrina. You do not have a Katrina line. You do not

have a Katrina line compared to Northridge, do you?

Mr. BARRETO. Well, I will be happy to provide you with a Katrina

line and a Rita line.

Senator KERRY. But the point is that, you know, you are trying

to sort of say all of the hurricanes’ response somehow mitigates

what we are here to talk about which is Katrina, and it does not.

Katrina is Katrina.

Mr. BARRETO. Absolutely, and what I have been asked to do is

to provide an unprecedented response, and we have provided an

unprecedented response.

Senator KERRY. Do not give us an unprecedented phony chart,

because it is not a one-to-one comparison.

Mr. BARRETO. Actually, the lines there actually make it even

more significant that it was over a year period. We are dealing

with this in 70 days.

Senator KERRY. Mr. Barreto, it is not a comparison of Katrina to

Northridge, No. 1, and Katrina is what we are here to talk about.

Mr. BARRETO. I would be happy to provide you with a line for

Katrina, and the line——

Senator KERRY. Are you going to tell me——

Mr. BARRETO [Continuing]. And the line is going to be a lot

smaller than what it was for Northridge or those other hurricanes

that we dealt with.

Senator KERRY. Well, let me ask you this: you have 197,000

loans that have been received on home loan approvals?

Mr. BARRETO. One hundred ninety-seven thousand applications.

Senator KERRY. Correct.

Mr. BARRETO. Not loans but applications we have received.

Senator KERRY. Applications.

Mr. BARRETO. Yes.

Senator KERRY. And you have 4,888 that have been approved

thusfar. It is a 2.5 percent approval rate. Is that adequate?

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Mr. BARRETO. Absolutely not.

Senator KERRY. OK; in business loans, you have got 28,540 applications received. You have got 840 loans approved. That is a 3 percent approval rate. Is that adequate?

Mr. BARRETO. Absolutely not.

Senator KERRY. Now, with respect to this philosophy you have

put forward in your opening statement that SBA has been criticized for its response, do you think it should have been?

Mr. BARRETO. Well, what I think should be is that we should be

reporting accurate information, and I never read an article that

has accurate data or accurate information.

Senator KERRY. That is not what I am asking you. Do you think

SBA should be criticized for its response?

Mr. BARRETO. Well, I cannot speak for the people that are criticizing us. Everybody has different reasons for criticizing us.

Senator KERRY. Well, do you self-criticize yourself? Do you——

Mr. BARRETO. Every day.

Senator KERRY [Continuing]. Come here with any humility——

Mr. BARRETO. Every day.

Senator KERRY [Continuing]. That suggest you have not done the

job?

Mr. BARRETO. Every day.

Senator KERRY. Well, the question I am asking you is you suggest that SBA disaster loans—this is a defense—that everybody, we

all misunderstand what you are doing, you said in your previous

testimony SBA disaster loans were always designed for long-term

recovery.

Mr. BARRETO. That is right.

Senator KERRY. What is in the Snowe-Kerry-Vitter-Landrieu

Small Business Hurricane Relief and Reconstruction Act?

Mr. BARRETO. A number of different items are in there.

Senator KERRY. Can you tell me? What they are?

Mr. BARRETO. Well, I think the items that we are in concurrence

with is the expansion of the budget authority of the SBA; we think

that would be very important; the increasing of the surety bond

levels; we think that would be important; the incentives to bring

small businesses back into the area, we think that would be important; realizing that people are going to need more time to pay back

these loans, and we are going to have to be more flexible with our

terms, we think that that would be important.

Senator KERRY. What about bridge loans?

Mr. BARRETO. We are not in support of bridge loans right now.

Senator KERRY. Why not?

Mr. BARRETO. Well, one of the reasons is that we have just put

forward a proposal today that we think is going to be able to help

these folks a lot quicker than what we could do with bridge loans.

SBA does not do bridge loans. We have never done bridge loans before.

Senator KERRY. So you are telling me that a proposal that you

have put forward today is going to help people more than a bridge

loan we could have given 6 weeks ago?

Mr. BARRETO. Well, you know, some bridge loans——

Senator KERRY. I do not understand that logic.

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Mr. BARRETO. Some bridge loans have been given, and they have

been given by the States. The States have put funds forward.

Senator KERRY. Well, if the States are doing it, and it is a good

idea for them, why is it not a good idea for us to help them?

Mr. BARRETO. Well, you know, the SBA has never done bridge

loans before.

Senator KERRY. I do not care if they have never done it. Is it a

good idea to help people in Katrina, or is it not?

Mr. BARRETO. It is a good idea to help those folks in every way

possible.

Senator KERRY. And that is a way that is possible, is it not?

Mr. BARRETO. That is one of the ways that is possible.

Senator KERRY. Why do you oppose it?

Mr. BARRETO. We just do not feel that that is the best way to

do it for us; I mean, the States may do it; other folks may do it,

banks may want to do it, but for us to be involved with it; right

now, what our disaster program is intended for is long-term recovery, and we also have loans that can provide working capital, and

we want to make those available.

Senator KERRY. Is that why the SBA put a hold on this bill?

Mr. BARRETO. Well, as I said, I think that we agree on the majority of the items.

Senator KERRY. Why do you not negotiate in good faith to try to

work a compromise to get it through?

Mr. BARRETO. We have been negotiating.

Senator KERRY. We have not had a serious negotiation.

Mr. BARRETO. We have been negotiating.

Senator KERRY. You have? With whom?

Mr. BARRETO. Our folks have been in conversations with all the

Members of this Committee——

Senator KERRY. No, all they do is sit there and say what they

oppose. They do not offer any solution. They do not talk about a

compromise. They just say we are opposed to this. That is not a

negotiation. We have met with OMB; we have met with SBA; no

progress. I do not understand it. Are you just opposed? Is that it?

Mr. BARRETO. No, I think we are in concurrence with the majority of the provisions that are a part of that legislation, and we

would love to work with you to move those forward, because we

agree, I think they could have a lot of benefit to the folks who are

in the affected States.

Senator KERRY. When are you going to start working with us to

do that?

Mr. BARRETO. I promise that we will work with you every day.

We can meet on this every day. We can discuss any ideas that you

have. We would like some support for the GO Loans.

Senator KERRY. Are you empowered to negotiate for the Administration?

Mr. BARRETO. We are empowered to discuss any options that you

might have on this legislation.

Senator KERRY. Are you empowered to negotiate for the administration?

Mr. BARRETO. We are the representatives of the Administration.

Senator KERRY. I do not want to have a discussion. I want to negotiate it and get it done.

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Mr. BARRETO. I am happy to take any information that you

would like me to take back directly to the White House and discuss

what you would like to do on that.

Senator KERRY. Well, let me ask you with respect to this Lend

a Hand program that you have put forward, the lenders that you

have asked to lend a hand do not think it is a very good idea. Do

you see a conflict of interest at all in your having lenders come in

and work for the SBA somehow as temporary employees when you

are supposed to have oversight over them?

Mr. BARRETO. We would love to have those lenders come and

work with the SBA. We think that there is a lot of lenders——

Senator KERRY. How would you do that? Who is going to pay

them?

Mr. BARRETO. We are going to pay them. The SBA is going to

pay them.

Senator KERRY. What happens to their benefit programs? Do

they transfer to the SBA?

Mr. BARRETO. Remember, these are going to be short-term situations. You know, the banking employees will not become permanent SBA employees. They will be detailed over to the SBA over

a period of time. We think that it could be a big help for us if we

had some of these folks even for periods as short as 90 days. We

think that could help us to get——

Senator KERRY. Would it not be simpler——

Mr. BARRETO [Continuing]. Through a lot of this, a lot of the

overflow of the applications.

Senator KERRY. Would it not be simpler and perhaps more effective and less conflict of interest if there were actually a lender fee

program where they, in fact, engage in it, and you simply supervise

the process?

Mr. BARRETO. Well, again, you know, we are talking about different kinds of loans. The kinds of loans——

Senator KERRY. Why would that not be faster? Do they not bring

that expertise to the table?

Mr. BARRETO. Who does?

Senator KERRY. Lenders.

Mr. BARRETO. If they have experience doing business loans, they

could be a big help to us.

Senator KERRY. Well, why not simply engage them to do this on

an emergency basis?

Mr. BARRETO. We have engaged them on the GO Loans. We

think that would be a significant opportunity. I mentioned to you

in my testimony that we have already done $100 million in our regular working capital loans, and we think we could do a lot more

through these GO Loans. In fact, the GO Loans are actually a response to a lot of the lenders in the Gulf community who were asking us for a program that would expedite the paperwork, that

would increase the guarantee. And that is why we think that these

GO Loans are going to be a way for us to get a lot of money a lot

quicker in people’s hands.

Senator KERRY. Well, let me just say, I know my time is up: the

lenders we have talked to say that even if they wanted to do this,

the initiative is largely unworkable as described. Many of them believe in a longer term approach in which you have them actually

72

process those loans, and you guys would have an oversight role. Let

me ask you this: has the SBA compared the cost of paying lender

fees to process loans versus hiring the lenders?

Mr. BARRETO. I am not sure if that analysis has been done, but

I would be happy to follow up on it.

Senator KERRY. Do you not think it would be worth doing

that——

Mr. BARRETO. Absolutely.

Senator KERRY [Continuing]. Before you engage in this program?

Mr. BARRETO. Sure; whatever we can do, whatever makes sense,

whatever is the most efficient, that is what we want to be doing.

But we think that if we got some of these folks—again, remember,

it may not just be employees that are currently at the lender. It

may be an ex-employee of a lender. It may be somebody who is

transitioning out. It may be somebody who worked for the SBA before. You know, we have had some of our previous SBA employees

come back to us wanting to volunteer to help us process these

loans. So we are going to take the help from wherever we can get

it.

Senator KERRY. Thank you, Madam Chair.

Chair SNOWE. Thank you, Senator Kerry.

Senator Vitter.

Senator VITTER. Thank you, Madam Chair, and thank you, Mr.

Administrator, for being here.

In my mind, it is very simple what we need to focus on two

things: the speed of the current SBA activity, No. 1; and gaps, significant gaps and unmet needs that the current SBA menu does

not address, No. 2. So I really want to focus on those two things,

following up on many of the other questions.

First of all, timeline, current SBA activity. As I understand it,

today, there are about 188,000 SBA hurricane loan applications

outstanding, correct?

Mr. BARRETO. That is correct.

Senator VITTER. And as I understand it today, those are being

processed, the most current number, which has been building up,

at about 1,600 per day; is that correct?

Mr. BARRETO. I think it is a little bit more than that that we are

actually processing. I can get you an exact number on it. And that

processing is increasing every single day as we get more and more

of our people online. I have said this a couple of times already, we

have literally doubled the size of the disaster operation twice already, and we will continue increasing more and more people.

The reason I mention that is because as more people come on

board that have this experience, we can process more loans, and we

can process them quicker.

Senator VITTER. Sure, if 1,600 is not the accurate number, what

is the accurate number?

Mr. BARRETO. I will get that for you immediately, but we are

processing more loans every single day. I think just over this

weekend——

Senator VITTER. Surely, in preparation for this hearing you

know——

Mr. BARRETO. No.

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Senator VITTER [Continuing]. The current number. I mean, surely, you know what the number is today.

Mr. BARRETO. Sure.

Senator VITTER. I really want to do the math——

Mr. BARRETO. Absolutely.

Senator VITTER [Continuing]. And see if there is any solution in

sight.

Mr. BARRETO. And I think I provided you a chart——

Senator VITTER. If the number is 1,600, it will take, at those

numbers, and I realize they are changing arguably, but the other

number is changing, too. So at those numbers, it will take about

4 months, correct?

Mr. BARRETO. I cannot tell you how many we are going to process more in the weeks to come.

Senator VITTER. I can tell you what 188,000 divided by 1,600 is.

It is about 4 months.

Mr. BARRETO. Well, it will not exactly be that, because one of the

things that I have provided is a chart that shows the increasing velocity of those processes and of the approvals that we are doing. It

is a line that is going straight up. It is not going to be a static

number. It will not be a static number that we will process 1,600

every single day.

Senator VITTER. That will not be a static number.

Mr. BARRETO. That is correct.

Senator VITTER. Nor will the 188,000 be a static number.

Mr. BARRETO. That is correct.

Senator VITTER. That is going up, too.

Mr. BARRETO. That will go up.

Senator VITTER. In fact, you are saying that 55 percent in the

last 3 weeks—I hate to tell you, that is not the good news. That

is the bad news, because that means 188,000 is continuing to go

up significantly.

Mr. BARRETO. Could be 400,000.

Senator VITTER. So the question is, where do you expect both

numbers to end up, and when you do the math, what is the timetable.

Mr. BARRETO. I cannot tell you that. It would be a product——

Senator VITTER. If you cannot tell us that, you do not have a solution identified that we know will work. That is my concern. If you

cannot tell us where the 188,000 is headed roughly, and if you cannot tell us where the 1,600 a day is headed roughly, then, we have

no assurance that we have identified a solution.

Mr. BARRETO. Well, the solution is for us to get more business

loan processors as soon as possible.

Senator VITTER. Correct, and you have also testified that you

have exhausted the market for business loan officers.

Mr. BARRETO. That is right. That is why we are going to the

lending community. That is why we are redirecting SBA employees.

That is why we are calling people out of retirement, that is why

we are going to the other agencies to see if we can get loan processors for them. We are exhausting every possible option that we

have. If somebody has a better idea of where we can get those loan

processors, we would love to talk to them.

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Senator VITTER. Well, it seems to me you are saying you have

exhausted the market for business loan officers. You are looking at

these other options. We have no idea if these other avenues will

produce anything significant.

Mr. BARRETO. That is right.

Senator VITTER. So we do not have a solution in sight; that is my

concern. If we do not have a solution in sight, we need to blow past

this traditional box and do something significantly different like

engaging the private bank community in a newer way. But surely,

we should discuss this now; should have discussed it at least a

month ago. But surely, we should discuss it now and not 3 months

from now.

Mr. BARRETO. Absolutely; that is why we have proposed that we

have this new loan program that engages the lending community

in the Gulf States to do more of our working capital loans. Again,

I want to emphasize that the loans that we do—and again, please

remember 10 that times more homeowners have applied to us than

businesses have applied to us at this point. But the loans that we

do are for long-term rebuilding. They are not short-term cash infusions. They are not grant programs. They are not bridge loans.

Long-term rebuilding is what those loans are intended for.

Senator VITTER. Well, I am going to get to that in a minute in

terms of point No. 2.

What I would like in terms of a plan is a projection from you,

and I understand it cannot be exact; we do not have a crystal ball,

but a projection from you where you think this 188,000 will go, No.

1, a projection from you where you think this 1,600 a day will go

and how it is going to get there——

Mr. BARRETO. OK.

Senator VITTER. That is a simple——

Mr. BARRETO. Sure.

Senator VITTER [Continuing]. Division equation that is going to

yield the average time. Right now, it is 4 months.

So if those projected numbers do not divide into each other and

yield something below a month, we still have a problem with no solution in sight. So either it is going to be solved by looking for these

new loan officers in non-traditional avenues, and quite frankly, I

do not think there is any chance on the face of the earth that it

is going to be solved that way based on these numbers, or we need

to do something different right now.

So can you get us those projections——

Mr. BARRETO. Sure, absolutely.

Senator VITTER [Continuing]. And tell us what that would yield

in terms of——

Mr. BARRETO. No problem at all.

Senator VITTER [Continuing]. The average times? Because right

now, it is 4 months.

Mr. Barreto.—Senator, and again, some of the charts that we

have provided today are showing you the trend lines that we have

seen over—from the beginning of the disaster to right now, and you

see that, and we are going to use that information to also be projecting forward, and I will make sure that you have that immediately.

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Senator VITTER. OK; what I see in the trend lines is that the

loan application trend line is growing quicker than the resolution

trend line.

Mr. BARRETO. What you see on the charts is that actually, the

applications that we have received spiked up, and they are actually

starting to go down now. Now, we cannot assume that they will

continue to go down, because the point is there are a lot of people

out there who have not decided to apply yet. There are hundreds

of thousands of people who could be eligible for these loans, but

they have not decided what they are going to do yet.

The reason I give you that number is because usually, for a disaster, usually for a disaster, we see a 20 percent return rate. A 20

percent return rate on 2 million applications is 400,000 applications that we could receive. We have sent out 2 million applications. Now, we have only received 10 percent of those back, but a

regular return rate is 20 percent, so we could see more. We have

not seen it yet, and we have seen some of the volume starting to

go down; especially on the business loans, we have seen that to

start go down. But again, we have to prepare for the onslaught of

a lot more applications.

Senator VITTER. Well, let us just take the figure 400,000. If it

reaches that, it seems to me there is no way that we are going to

get the average time down to anything reasonable based on adding

loan officers in an environment where you have, quote, ‘‘Exhausted

the market for business loan officers’’, close quote. Am I missing

something?

Mr. BARRETO. I think it is a product of how many people we can

get on board to process these loans. I agree with that.

Senator VITTER. Let me quickly move on to the second topic,

which is the need for bridge loans or something like that. What is

the difference between our bill’s bridge loans and your pilot GO

Loans?

Mr. BARRETO. Well, one of the things is that we can do the GO

Loans immediately. One of the other things is——

Senator VITTER. What is the difference in terms of requirements,

demands, ability to get money to businesses?

Mr. BARRETO. Yes; the lenders have said to us, ‘‘Look, we want

to do loans up to $150,000. We want an 85 percent guarantee. We

want to use our own form. We want to expedite the decisionmaking

process. We want to transmit information to you electronically. If

you do those things, we can do these loans a lot quicker, and those

loans will be profitable to us.’’ What they have said to us is, ‘‘We

are not philanthropic organizations. We have got to make money

on our loans. This is the best way that we think we can do that.’’

That is what we did with SBA Express. That is the reason that the

loans that the SBA has done over the last few years have doubled.

The number of loans and the dollars have doubled.

Senator VITTER. You’re describing process, the difference between

the process of bridge loans and GO Loans.

Mr. BARRETO. Right.

Senator VITTER. What is the difference between the substance of

the bridge loans and the GO Loans? Because I do not care what

we call it.

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Mr. BARRETO. Yes, exactly, and, you know, again, look: I have

been down to the Gulf States four times in the last 6 weeks, and

every time I go down there, somebody will tell me something different. I mean, the truth of the matter is some of these small businesses are not even sure that they want loans. They are applying

for loans, but they are not sure they even want to go into debt.

Some folks would rather we just give them grants. We explained

to them we cannot give them grants. We explained to them that

our loans are not working capital and are not intended to be working capital.

And so, you know, when we——

Senator VITTER. Is a GO Loan a working capital loan?

Mr. BARRETO. Yes, it is.

Senator VITTER. So it is, again——

Mr. BARRETO. It is, it is.

Senator VITTER [Continuing]. I want to understand what a GO

Loan looks like substantively, not process——

Mr. BARRETO. It is our——

Senator VITTER [Continuing]. Compared to what we are calling

bridge loans.

Mr. BARRETO. It is our 7(a) loan up to $150,000 with an 85 percent guarantee and streamlined processing so they can do these

loans quicker.

Senator VITTER. Would significantly fewer businesses be eligible

for your GO Loans than for our bridge loans?

Mr. BARRETO. I do not know. I do not know what the actual criteria of the bridge loans that you are describing. We are going to

use our criteria that we have for our working capital loans, but we

think a lot of folks are going to be able to qualify for those loans.

Twenty billion dollars——

Senator VITTER. Why did you call the GO Loans a pilot? What

is the size and the parameters of the pilot?

Mr. BARRETO. Well, it is for the Gulf States. It will be over, you

know, a period of time. We are going to use the existing PLP lenders and the express lenders. We are willing to bring more lenders

onto the equation as well. But, you know, we think this could go

a long way to getting money in people’s hands immediately.

Senator VITTER. Do you have a maximum dollar amount that is

devoted to this?

Mr. BARRETO. No, we do not. We do not have a maximum dollar

amount. One of the reasons that we are also supportive of the legislation that we have talked about in the past is because we think

we ought to increase the lending into the Gulf States by an additional $10 billion on our 7(a) loans and $5 billion on the 504 loans.

We think that would go a long way. So we are asking for $15 billion that could just be dedicated to the Gulf States. A lot of that

could go through these GO Loans.

Senator VITTER. Would you support the same amount of money

devoted in our bill to your GO Loan concept as we have it calling

it bridge loans?

Mr. BARRETO. Well, I think that what we are talking about is a

much larger amount in our GO Loans. I mean, we are not putting

a cap on it. It could be billions of dollars that could go into these

loans, billions of dollars.

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Senator VITTER. Where is that money coming from? Do you have

it in your budget?

Mr. BARRETO. It is part of our budget authority. It is our budget

authority that we have. And of course, we are hoping that we are

going to get a much larger budget authority; again, we are asking

for an additional $10 billion just for the Gulf States on the working

capital loans and $5 billion on the——

Senator VITTER. As a way to break the impasse on this bill, can

we consider looking at the same amount we have in the bill for the

bridge loans going toward your GO Loan concept to be a guaranteed minimum that would be used for this purpose?

Mr. BARRETO. Now, remember, our loans are a zero subsidy loan,

so the fees that are generated on our loans pay for the program.

But I would be happy to look at that, and we can run, you know,

whatever numbers that we need to run and see what we can do on

it. I would be happy to talk to you about it. I do not know what

the implications of that would be. I know with the GO Loans, we

can do those immediately. We can get money in people’s hands. I

know that the lending community in the Gulf States want these

loans. They want this legislation. This is a way to get them engaged.

Senator VITTER. I did not understand your responses before. Why

are you opposed to the bridge loans in the bill?

Mr. BARRETO. We just think that there are two different things.

You know, the SBA Disaster Program has never done bridge loans.

We would rather use the regular——

Senator VITTER. Is the point not that they are two different

things?

Mr. BARRETO. Yes, they are.

Senator VITTER. Is not the point not that there is a gap and a

need——

Mr. BARRETO. Yes.

Senator VITTER [Continuing]. That is not currently addressed by

the traditional SBA menu?

Mr. BARRETO. Well, and we think that these GO Loans go a long

way toward filling that gap.

Senator VITTER. So these GO Loans are short-term working capital loans.

Mr. BARRETO. Absolutely.

Senator VITTER. If it is different versions of the same thing,

again, why are you so opposed to the bridge loans?

Mr. BARRETO. Again, we just did not feel in our disaster program

that we should be adding bridge loans to that. We think that we

can fill that gap with the regular loans that we have. These GO

Loans, again, and this is in consultation with the lending industry.

This is what the lending industry has told us that they want. And

so, we believe this is the better way for us to go. We can get money

a lot quicker, a lot more money.

We have had a lot of success with these kinds of loans over the

last 4 years. We have doubled the number of loans that we do, precisely because we have made these kinds of changes. These kinds

of loans now represent 60 percent of the portfolio of the SBA, 60

percent now is what these kinds of loans represent for us. So we

have a lot of experience doing these. We understand these. We can

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work with the lending industry. The lending industry wants this.

We think this is a great way to fill that gap.

Senator VITTER. Thank you, Madam Chair. I would love to come

back if we have the opportunity for more questions.

Chair SNOWE. Oh, yes, absolutely.

Just to clarify something, because I think it is very important for

the record: we have had a bill pending since September that passed

the Commerce, Justice, State Appropriations. Now, did SBA oppose

that?

Mr. BARRETO. Oppose what?

Chair SNOWE. Oppose our bill as an amendment to the CJS? Because it was lost in conference. I just want to know if you were

seeking expanded budget authority. We have expanded budget authority and more in this legislation, and it was unfortunate it was

dropped out at conference. It is pending as a unanimous consent

request in the Senate so that we can get it through as well as in

the House so that we could move forward in giving you the tools

that are necessary.

I just want to make sure we clarify for the moment right here

that we are seeking considerable expanded budget authority, and

there were bridge loans. And the SBA opposed the bridge loans,

which would have been an efficient way. So on one hand, you cannot say, well, we do not have this authority; we do not have this

ability; ours are long-term recovery disaster loans and then on the

other hand oppose the bridge loans.

Now, you have come up with a new modification in these recent

days. That is well and good, but we have lost 70 days in the meantime. So, I just want to be sure that we understand what we are

talking about here, because we were long on the road for giving you

the tools that you needed months ago, and as a matter of fact, it

passed on September 15th, OK? So here we are, and we have now

lost it in conference.

So I just want to be clear on that subject. We could have been

way ahead of the game by now. And for whatever reasons, you and

the Administration opposed this bill. And I simply do not understand why. I simply do not understand why there any objections to

this legislation. I simply do not. But we are where we are today.

Mr. BARRETO. We are actually in agreement with most of it.

Chair SNOWE. But you have, at least as I can count up, I would

say about 10 provisions that you are opposed to from what I understand, OK? And I see it goes on ad infinitum here. I mean, we can

sit here and pass around different projects and everything. The bottom line is we need to get it done. And we tried to. We tried to

through the appropriations process. We tried through unanimous

consent, and all we heard are objections, so we cannot move it. And

one was the bridge loans. I kept hearing, well, you have been down

there, and people are asking you for things that we cannot do as

the SBA.

So we gave you the tools, tried to give you the tools, and you did

not want these tools, and you are objecting to these tools. And so,

here we are.

Mr. BARRETO. We want most of the tools.

Chair SNOWE. You know, 70 days plus later. I just want to be

clear——

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Mr. BARRETO. Sure.

Chairman SNOWE. Because we have attempted in many ways.

Senator Landrieu.

Senator LANDRIEU. Let me follow-up with that, and the reason

I think our Members seem exacerbated [sic] or exasperated—I cannot even think, I am so aggravated.

Mr. BARRETO. Exacerbated.

Senator LANDRIEU. Or whatever.

Mr. BARRETO. Frustrated.

Senator LANDRIEU. We are losing—we are frustrated. We are losing our patience.

Mr. BARRETO. Yes.

Senator LANDRIEU. Because for Senator Vitter and for myself,

this is more than just the politics of Washington. I mean, this is

really whether our State is going to be able to pull itself up with

partnerships and with help and move on, because the disaster is

of such a magnitude, Mr. Administrator, as you know, 81,000 business have been affected, 41 percent of all of the businesses in our

State.

So if this does not work, in large measure, the rebirth of South

Louisiana is not possible. If you assume, which we understand,

that small business is the heart and soul of the economy, entrepreneurship is where it begins and ends, we agree with that. We are

trying to help you get these entrepreneurs stood back up.

We understand that your current design does not meet the immediate needs of businesses, but as Senator Vitter pointed out so

appropriately, if we do not come up with a design, these 81,000

businesses may go away and not come back. And that causes our

long-term recovery to be more difficult.

So this is what we are pressing you for: the Chairman said 7

weeks ago, we gave you more authority. You have rejected it. Now,

7 weeks later, you have come back with a program that is a pilot,

not been tested, and you do not have the money in the supplemental, I understand, the $15 billion that we need to get it done.

Mr. BARRETO. That will not require——

Senator LANDRIEU. So we need no money to do this.

Mr. BARRETO. That is right.

Senator LANDRIEU. We need no money to do it.

Mr. BARRETO. That is correct.

Senator LANDRIEU. This is another pilot program——

Mr. BARRETO. Yes.

Senator LANDRIEU [Continuing]. That does not cost the Federal

Government any money.

Mr. BARRETO. Absolutely.

Senator LANDRIEU. So it does not cost the Federal Government

any money. It can be done. The question is if it did not cost us any

money, why did we not do it 7 weeks ago? That is No. 1: if it did

not cost us any money, and it is basically painless, and you could

get it implemented, and it cost nobody any money, why did we not

do it 7 weeks ago?

Mr. BARRETO. Well, as I mentioned before, we have been doing it over the last 7 weeks. We put $100 million through our regular

loans into the Gulf area over the last couple of months, $100 million working with the lenders. We did $10 million just last week

80

working with the lenders. But as we work with the lenders, and

we say, ‘‘What else can we do? What else do you want? How can

we get you to even do more?’’ They keep coming back and saying,

‘‘Increase that loan up to $150,000. Make it an 85 percent guarantee. Streamline the process, let us make the decisions ourselves

just like we do with our express loans.’’

And that is why we are coming back. This is a direct response

to what the lending community is telling us that they want. So we

have been responsive. We have done $100 million of these kinds of

loans, and now, we are enhancing the program to make it even a

better situation for the lenders and for the small businesses.

Senator LANDRIEU. Because time is of the essence, we may want

to consider doing both, trying to pilot a bridge loan program or, because this is what our State is really asking for, and there are limits, because the State is putting up $10 million. It is not a lot of

money, but because the State’s budget is $1 billion short, scrounging for every State dollar we can, but the State is making some attempt to put up money. Perhaps following on what Senator Vitter

suggested, we could do a bridge loan program and this new GO

Loan program and see which one works best. I do not see how one

does not cost anything and the other one does.

Mr. BARRETO. Well, the bridge loan program actually would require funding in the bill. The GO Loan would require no funding

in the bill.

Senator LANDRIEU. I want to just say for the record that the

bridge loan program is a partnership between the 20 regional

banks, and it is, you know, something that the Department of Economic Development not just in our State but throughout the Gulf

Coast have really asked for, because it is quick, and within the

first week, they exhausted——

Mr. BARRETO. I know.

Senator LANDRIEU. You know, within 1 week, they exhausted the

money that we had.

But again, not just to stand on the point, but we have to get

some help immediately. So if it is this GO Loan program that does

not cost the Federal Government anything, that can get money out

there, we might be willing, Madam Chair, to redirect our effort.

But again, we have 20 provisions in the bill that was passed 7

weeks ago, and the Small Business Administration, instead of saying we can pass these 10 and not the others, or we will change it,

has basically been saying no. So meanwhile, our businesses are not

getting the help.

And this is not about the reputation of the Small Business Administration. We are part of a Committee that wants you to be

good. The better you are, the better it is for our business. But this

is about survival for businesses along the Gulf Coast, and once

they go away, it is going to be very hard to get them back.

So let us get on with making whatever compromises are necessary to get the job done. Thank you, Madam Chair.

Chair SNOWE. Thank you, Senator Landrieu.

Senator Thune.

Senator THUNE. Thank you, Madam Chair, and I appreciate

being able to listen to the discussion.

81

Obviously, the Senators from Louisiana are the folks who are

most impacted by all this, and we obviously want to be as responsive as we can to their needs and to the needs of the people that

they represent, and I know they have more first hand knowledge

than any of us about what the needs in the region are and how

some of these programs are currently working.

I guess I would just ask a couple of questions, Administrator

Barreto, with respect to some of the contracting down there. I know

that there has been a lot of focus on some of the larger contracts

in the hurricane recovery efforts that are going to larger companies. Is there evidence that small, local businesses are being used

as subcontractors in some of these larger contracts as well?

Mr. BARRETO. Yes, there is Senator. I mentioned in my testimony

that we have had significant announcements made by FEMA; for

example, last Friday, we made an announcement that $1.5 billion

was going to be set aside just for small businesses, half of that to

minority small businesses. Of course, we have new numbers from

GSA. We have new numbers from the Corps of Engineers. We believe as much as 45 percent of the contracting so far has gone to

small businesses and minority businesses, so well in excess of the

23 percent.

But we are not complacent about this. We are doing a number

of different things down there right now. We have introduced our

business matchmaking initiative down there to identify companies

that can do contracts, and, you know, they do not have to be large,

complicated contracts. Some of these small businesses just need

something, you know, to keep going.

Because, you know, one of the things that—listen, I know, and

I understand, because I have gone down there, and I have met with

officials at every level. There is a tremendous amount of frustration

and a tremendous amount of fear, because a lot of these businesses

do not know what they are going to do. They do not have places

to live. There are places that do not have electricity yet. They have

lost all their employees. They have lost their vehicles. There is still

debris and ships in the roads. There are areas where they still cannot go back to.

All of these things compound the issue. A lot of these small businesses are saying look: I do not want to go into debt. I do not want

to take on a loan that I cannot pay back. Help me get some business. So these contracting initiatives are critically important, and

they are going to be important for a long, long time. That is one

of the best ways, I think, that we can help to save some of these

small businesses.

You know, they are going to have to change the way they do

business, simply because two-thirds of the people are gone, and we

do not know when they are coming back.

Senator THUNE. Following up on the line of questioning that you

were hearing from the Senators and from the Chair is that obviously, capital and being able to recover and having bridge financing

and these sorts of things to get back on their feet, but it also would

seem to me that a critical component of that would be creating

business and work for them to do.

Mr. BARRETO. That is right.

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Senator THUNE. Because that, as much as anything, in an area

where everything has been wiped out, if we can help them recovery

by providing a good scope of work and contracts that they could

participate in, along with some of these other larger contractors

down there, and there perhaps are a lot of things, I think, that the

small businesses could perform.

And right now, as it was noted earlier, so much of the economy

not only in that area, across the country, and my State of South

Dakota is no exception, is driven by small businesses. When the

small business sector starts to come back and is able to get back

on its feet again, I think that is going to be so critical to the recovery of the economy of the region.

Now, my understanding is that at least in terms of the broader

perception that we view from here that there is a pretty good evidence that the Federal agencies involved in the recovery efforts are

coordinating somewhat well in that effort and are presenting a

united front to small businesses. My guess is that from a small

business standpoint, they do not always care to know the intricacies of the way that Washington works.

But they are dealing with kind of one entity, and I guess my

question is what is happening beneath the surface reflective of sort

of what we see, and that is the agencies seem to be working pretty

well together.

Mr. BARRETO. There is no doubt about it. There has been so

much attention that has been paid to this over the last couple of

months, I do not think you can go to any agency right now and find

them not to be doing something within their own operation to try

to find opportunities for the small businesses in the affected area.

And some of that has been evidenced by some of the numbers that

we are starting to see. Again, as much as 45 percent of it could

have gone to small business already.

By the way, we get those numbers off of FPDS. This is the contracting data base where all of the Government agencies report

into. So this is the most current, accurate information that we

have. It is showing as much as 45 percent of it is going. And again,

this is not something that is going to go away. One of the things

we have also done, as you probably are aware, is that we are working with the Department of Commerce on the Hurricane Contracting Information Center, HCIC, as kind of a focal point, a onestop to facilitate all these opportunities, to bring these opportunities in and try to get them connected in with the small businesses.

So, I mean, of course, SBA is doing its own work through its Government contracting. I have got everybody in my agency focused on

this. Last week, I took every one of my district directors and all

my senior managers into New Orleans, and this was the biggest

topic of our meeting that we did there over 21⁄2 days is how can

each one of those district directors, even in South Dakota or wherever they are from, help identify contract opportunities for the

small businesses that are there?

So there is a high level of interest and focus on this, and we will

make sure that that continues ongoing, not just for 1 month, or

this year but ongoing until we get some of those small businesses

back on their feet.

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Senator THUNE. Regarding the legislation that was passed in the

Senate and that was referenced here this morning and some of the

changes that are being made to it—and I go back to what Senator

Snowe said earlier about the Administration’s resistance to adopting that—if that is not the model, are there tools, powers, authorities that you could let us know what you need?

Mr. BARRETO. Sure.

Senator THUNE. It seems to me at least that we have tried to

come up with what we think is a solution that will enable you to

better fulfill the tasks that we have down there. But we have not

yet seen final action on that, and I think the reason that was

noted, that has been dropped out of different conference settings is

that there is resistance from the Administration to that.

So I know you have covered some of this ground already prior to

my arrival here, but could you elaborate a little bit more on

what——

Mr. BARRETO. Sure, absolutely.

Senator THUNE [Continuing]. You could use that we could enact?

Mr. BARRETO. There is a tremendous amount that we agree on,

Senator, and we have talked a little bit about that. We would like

expanded budget authority, as much as $15 billion additional budget authority for us to make our regular SBA loans into that area.

We have already done $100 million into that area over a very short

period of time. We guaranteed $10 million of it just last week.

This GO Loan legislation—not legislation but GO Loan change

that we are making we think can help us increase that number

even more, and again, as Senator Vitter said, that will help us fill

a gap. The disaster loans are long-term recovery. They are not intended for short-term cash infusions. I think there is a lot of confusion about that.

Another confusion is that oftentimes, people confuse our regular

SBA budget with our disaster operation, and as you well know,

having worked at SBA and being part of the House Committee and

the Senate Committee, is those are two different funding sources.

We have enough resources right now. We had a significant amount

of money that was carried over from last year into this fiscal year.

So we have enough money to hire all the people that we need to

hire, to buy all the technology, to do everything that we need to

do. We also have enough budget authority on the disaster loan side

to do a couple of billion dollars worth of loans. We have only done

$400 million to this point, and we think that we are going to do

close to $2 billion in this area.

So the thing that we would like to focus in on are those areas

of the legislation where we agree: the expansion in budget authority in our regular loans, the expansion of our surety bonds, incentives to bring small businesses back, to allow small businesses a

longer timeframe to pay these loans back, some tax credits that

could be part of that. Those are things that we agree on and we

would like to move on immediately.

With regards to the things we can do short term, I think utilizing

the tools that we already have that we know are successful, our

regular working capital loans, and the enhancements that we have

made through these GO Loans that we just introduced today I

think could go a long way to filling a lot of those gaps.

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Senator THUNE. Well, I appreciate your answer on that, and I

guess I would just simply add that everyone, of course, is watching.

And we want to make sure that we get this right, and as I say,

folks in my State, like I think most Americans, feel great compassion and great sympathy toward the victims of that area, and to

the degree that we have programs here that work, we want to

make them work. But to the degree that they do not work or need

additional authority, we want to make that available.

And I certainly would defer to my colleagues like Senator Vitter,

who as I said, are intimately acquainted with what those needs are

on the ground, and I hope that we can take steps legislatively that

will give you those tools, because it is absolutely critical that we

get the small business sector up and going again and creating jobs

if we are going to revive that economy in that region.

So I thank you, Madam Chair.

Chair SNOWE. Thank you.

Just a couple of questions of Mr. Rothwell and Mr. Johnson. Administrator Barreto, before I move to them, on this whole issue of

contracting claims, as I mentioned in my initial statement, Secretary Gutierrez said it was 72 percent back in October being

awarded to small businesses. You are saying 45 percent, and yet,

as I understand, the Federal Procurement Data System excludes

Defense and Homeland Security. So how could you get even 45 percent? There is no documentation of these numbers anywhere that

I can foresee, and the two agencies are being excluded. And Gutierrez is saying 72 percent in October. You are saying 45 percent.

This Committee would like to have documentation of all of these

numbers.

Mr. BARRETO. Sure, be happy.

Chair SNOWE. Because we have no documentation. So how do you

get——

Mr. BARRETO. We would be happy to provide you with that.

Chair SNOWE. With Defense and Homeland Security excluded

from those numbers, how do you get 45 percent? It is 45 percent

of the rest of the agencies.

Mr. BARRETO. These are the numbers coming out of the FPDS.

Chair SNOWE. Yes, but they do not include Defense and Homeland Security, so many of the contracts that go out to small

businesses——

Mr. BARRETO. Right.

Chair SNOWE [Continuing]. Are not included in those numbers.

Mr. BARRETO. Right.

Chair SNOWE. So it is 45 percent, I assume, of the rest of the

agencies, excluding two major agencies.

Mr. BARRETO. I would be happy to provide you with that documentation.

Chair SNOWE. OK; well, we certainly should, because——

Mr. BARRETO. We will.

Chairman SNOWE [Continuing]. There are major disparities in

these numbers.

Mr. BARRETO. Yes, I will make sure you have it.

Chair SNOWE. I think we all should be speaking from the same

numbers and what it is.

Mr. BARRETO. I agree.

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Chair SNOWE. Because ultimately, it is the victims and the small

businesses that are not going to be able to get back on their feet

if we are not giving them the assistance, and certainly in the billions of dollars that are being administered by the Federal Government through the contracting process.

And I think that they are doing an end run around small business. I mean, I think it is pure and simple. And that is regrettable.

We have to get to the bottom of that. It is unacceptable. Small

business has to be part and parcel, front and center——

Mr. BARRETO. We agree.

Chair SNOWE [Continuing]. Of delivering, that’s right, and administering these contracts, and they are not.

Mr. BARRETO. Well, on Friday, we announced a $1.5 billion setaside for small business.

Chair SNOWE. The question was the totality is $1.5 billion. I

mean, that is $1.5 billion—of what?

Mr. BARRETO. $1.5 billion from FEMA on housing and maintenance and some other contracting issues related to the recovery.

And that is just one. But we made that announcement on Friday.

Chair SNOWE. Well, I will be interested in seeing all of those figures.

Mr. BARRETO. Sure.

Chair SNOWE. And I will ask Mr. Rothwell and Mr. Johnson.

Mr. BARRETO. Sure.

Chair SNOWE. Because I think this is a critical part——

Mr. BARRETO. We agree.

Chair SNOWE [Continuing]. Of the overall recovery program for

the Gulf region, because small business is going to be the lifeline,

and I think that is without question.

Now, Mr. Johnson, let me just start with you and the Army

Corps of Engineers. As I understand it, they recently awarded a

$47 million contract for delivery and installation of temporary

classrooms for the Alaska Native Corporation that is based in

North Carolina. Our Committee asked the Government Accountability Office to investigate this contract, and our review has been

provided to you this morning.

It appears that the Alaska firm was given a sole-source award

for over twice the price offered by a Mississippi-based company,

which was one of the few firms licensed to perform the installation

of temporary classrooms in the State of Mississippi. How did this

happen? How was it that an award was given to this corporation,

based in North Carolina, when there was a company that could

have provided it in the area which was devastated, and second, for

far less money; in fact, this is going to be a net cost to the Government, a net increased cost of $27 million. How did that happen?

General JOHNSON. Senator, thank you for the question.

I have read the preliminary findings of the GAO report, and I believe the substantive issue was the fact that we may have done

what you described as, well, as we may have paid more for this

service than we should have.

I have details I would like to submit for the record, but to summarize, the Alaska District of the Army Corps of Engineers, using

the Federal Acquisition Regulation and taking into account the urgency of the situation and the need to have these classrooms, and

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they are not classrooms for students and schools; some of these

were classrooms for the fire department and the police department

as well.

We needed to have these things in place in 18 days, and the

other competitors could not meet those requirements in one case,

and in another case, we could only lease those trailers for 90 days,

and we did not know whether 90 days would be sufficient before

we would have to give those back. We thought the fire department,

police department, the customer, indeed, would need to have those

trailers for longer, so we did not know.

So in essence, we ended up probably paying a little bit more than

we should have, but we adhered to the Federal Acquisition Regulation. We have learned in the process that maybe our paperwork

needs to be a little bit more cleaned up and maybe our processes,

as well.

Chair SNOWE. Well, how is the Army Corps working with respect

to providing preferences for local small businesses? We are very

concerned about the fact, that the Small Business Act, the Stafford

Act, they are all being bypassed in giving preferences to small businesses, and these are requirements under the law.

And the fact is many of the areas have not—almost all of the

areas in the devastated areas of Alabama, Mississippi and Louisiana, are eligible and certainly would qualify in conformance with

the criteria that are stipulated under those two acts alone. So,

what is the plan of the Army Corps in giving preferences? Because

the awarding of these contracts are essential.

And many numbers are being tossed around here today, but

what we do know are that there are no plans for subcontracting,

and we do not know what the real problems are with respect to the

subcontracting and giving preferences for small businesses. In fact,

we believe that these numbers are overstating small businesses’ access to these contracts, because we do not have any information to

suggest otherwise.

And so, we need to get to the bottom of it. So this disparity between 72 percent, 45 percent of some agencies, we have a real

problem on our hands. And small business is given a preference

under the law, in several different statutes. And so, we want to

know what is the plan for including small businesses in the contracting and subcontracting?

General JOHNSON. Yes, ma’am, good question.

I think I will answer the question by telling you what our performance has been to date, understanding that the denominator for

these performance metrics changed daily, and as those performance

metrics are measured each day, we have to be aware that we are

doing this each and every day, as is the culture of the U.S. Army

Corps of Engineers.

We are only restricted in one way of not setting aside for small

businesses, and so, we do not do it. Specifically, under the Small

Business Competitiveness Demonstration Program, we cannot do

setasides for construction. Typically, the small business community

competes very well in head to head competitions in the construction arena.

I am going to rattle off some numbers, but again, I will submit

them for the record. To date, the U.S. Army Corps of Engineers has

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awarded in direct contracts about $1.2 billion worth of contracts.

Our goal, of course, is 23 percent to small business. We have

awarded 34.83 percent, or about $416.6 million. Our goal for small

and disadvantaged businesses, including 8(a) and minority-owned,

is 5 percent. To date, we have awarded 16.91 percent.

For women-owned businesses, the goal is 5 percent. We are lagging. We have only accomplished 0.38 percent. For Hub Zone, our

goal is 3 percent, and we are hovering at about 2.7 percent as of

6 November. Service-disabled veteran owned, the goal is 3 percent;

and we have awarded about 0.84 percent.

But what I need to say about that is what we have learned over

the years with a goal of 3 percent for normal operations is that the

market really only has about 0.7 percent of these folks in this category. So we probably need to look at our metric and adjust it accordingly.

Overall, I can tell you that for local businesses, not just including small businesses, we have awarded about $348 million or about

29.1 percent. And these statistics I am quoting you, I think it is

very important to state that we are talking about monies that have

been obligated, because we are concerned that you could measure

yourself by commitments, and you could have these hollow contracts that just sit there and do not get used, so no one is really

getting business.

We think this is a tighter metric, and we know we can improve

the process; we know we can improve how we track. We will continue to work with FEMA, Small Business, HCIC, because we

know that this is a fleeting—it is either fleeting good news or fleeting bad news each and every day. And the U.S. Army Corps of Engineers, not only for these operations but in its daily operations aspire, because we understand the value of the small business community. They do all of our work.

Chair SNOWE. According to one of the charts that Senator Kerry

had, 99 percent of the small, disadvantaged contracts went to the

Alaska Native Corporation. Is that true?

General JOHNSON. Ma’am, I do not believe that to be true, but

I do not have the numbers sitting here in front of me.

Chair SNOWE. Why do you not do that, and I think it is important, because we really want to concentrate these contracts in the

areas that have been hit.

General JOHNSON. I could probably do the math, but with a $1.2

billion total direct awards——

Chair SNOWE. I believe that is troubling if that is true. Why

would SBA Administrator Barreto approve this contract to the

ANC? What is your knowledge about it?

Mr. BARRETO. I am not sure we were there when the contract

was let. Obviously, the ANCs are an approved small business segment, and my understanding is that some of those contracts now

have come back. And so, we are working now with FEMA to identify small businesses that can do this work, especially small businesses in the area and if possible minority small businesses.

Chair SNOWE. According to our charts, it is three different occasions on which SBA did approve it. I think the point is, we have

to get back to the intent and purpose of the law—the laws, I should

say, because small business is being excluded from this process,

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and second, you have to really give focus to those small businesses

located in the damaged areas.

Mr. BARRETO. We agree. We absolutely agree. And one of the

things——

Chair SNOWE. It is not illustrated by this contract.

Mr. BARRETO. One of the other things that is very important to

recognize is the fact that at the very beginning of the disaster,

there was a tremendous pressure and rush to find companies that

could save people, that could remove bodies, that could remove debris, that could provide housing. Those were the critical needs immediately after.

As time has gone by, and you have less of those critical needs,

there has to be opportunities for small business. There is [sic] opportunities for small business, and there will continue to be. And

our role is to help facilitate that and help small business. Something that was said, I think, by the Congressman which is also

true: you have got some small businesses there who have lost

equipment. You have small businesses who lost employees. And

now, they may not have the same capacity that they had before.

But they should still have an opportunity to participate in these

contracts. One of the things that we think is going to be important

is mentoring opportunities, partnership opportunities, bringing

small businesses together and maybe, if you put two or three small

businesses with a little bit larger business, they will be able to do

some of these contracts.

So we are looking for every way for that to happen. Just because

somebody has been damaged or affected should not prevent them

from being able to go after these contracts, and we have to find

every way to make that happen.

Chair SNOWE. Mr. Rothwell——

General JOHNSON. Ma’am, I hate to interrupt.

Chair SNOWE. Yes.

General JOHNSON. But if I could, I did the math. We think that

contract was awarded at $47 million or thereabouts. I am going to

give you a range. So it was between $40 or $60 million. If I do the

math, I get a percentage based on total direct contracts of one over

30 percent, which is about 0.03 percent. It is a small amount of the

total amount of contracts we have awarded directly.

Chair SNOWE. On this case, it was on the disadvantaged. Are you

talking overall?

General JOHNSON. Yes, I am talking total contract awards. Now,

of the total disadvantaged and small business, I do not have the

statistics.

Chair SNOWE. Yes, that is what we were saying in reference was

that—of the overall totals for the small business, the disadvantaged small businesses.

Mr. Rothwell, I understand that at least three companies, it was

actually four, but three of which were given $1.6 billion in contracts that were to companies that were recently cited in the May

2005 GAO report for overstating small business subcontracting

achievements in Department of Energy facilities management

projects. According to the GAO, these companies employed accounting gimmicks and generated misleading achievement data that did

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not provide a true picture of their performance with respect to

small business subcontracting.

So because of these overstatements, these companies may not

have been entitled to get the Katrina contracts in the first place

due to their poor subcontracting accountability. Can you shed any

light on these contracts of $1.6 billion?

Mr. ROTHWELL. Yes, ma’am.

Chair SNOWE. Bechtel and CH2M?

Mr. ROTHWELL. With regard to the GAO report, we are aware of

that report. Our Inspector General is aware of it, and the companies are aware of it. And that report covered contracts prior to this

Katrina matter. But the point is that since everyone is aware of it,

and GAO has brought it to our attention, we are looking at this

very, very carefully to make sure that this data is correct.

I would separate that fact from the reason that they were given

the contracts. They were given the contracts because of the impending storm, and there was an ongoing procurement in process.

They were competitors on that, and they were deemed to have the

technical capability of actually performing.

Now that they have these verbal contracts, and we are in the

process of definitizing them, we are in the process of negotiating

the subcontracting plans with an eye to what the GAO has said so

to make sure that they do not overstate them.

Chair SNOWE. You are not recompeting these bids, but I gather

you are recompeting other bids.

Mr. ROTHWELL. I guess the nuance is that we are competing the

requirement, which is a requirement for about $1.5 billion worth

of work, that will be awarded to about 15 companies, 8 of which

would be 8(a) firms, small disadvantaged firms, the other 7 of

which would be small businesses. So the requirement is what is

being recompeted. Yes, ma’am, that is it.

Chair SNOWE. But in the future, but in these recompete nationwide, I understand they are going to be bundled contracts except

for in the Gulf region; is that true?

Mr. ROTHWELL. That acquisition strategy is not final. We are

looking at that. We are trying——

Chair SNOWE. I hope not.

Mr. ROTHWELL. No, what we are trying to do is figure out what

is the right acquisition strategy. If we just recompete an acquisition

strategy nationwide in anticipation of something that might happen on the West Coast, it is not going to take care of today’s needs

in the Gulf region. So we are actually still looking at the acquisition strategy, and we are very sensitive to the issue of bundling.

Chair SNOWE. Well, I hope you will look very carefully at the

GAO’s findings and give due regard to the compliance with the

acts, the Small Business Act, the Stafford Act, and every other consideration to small business.

Mr. ROTHWELL. Yes, ma’am.

Chair SNOWE. Senator Vitter.

Senator VITTER. Thank you, Madam Chair.

Mr. Rothwell, just to go back to that compete, I would say recompete, but it was never competed, so initial compete of the four big

megacontracts, when will that be done by?

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Mr. ROTHWELL. I just want to make sure—are you talking about the ones that I talked about, the $1.5 billion with the 15 firms? We

are looking at 100 days until completion, so it would be sometime

in February. And again, we have to do two things. It is between

doing it urgently, as it was done before, and doing it under the normal process, which would take a long time for a $1.5 billion program. We are trying to get it done in 100 days, realizing that when

we do get it finished, there will be companies that we have to debrief as to why they did not get the awards. So even when we

award the 15, we just need to do it——

Senator VITTER. And this will replace the current four big noncompete megacontracts under FEMA.

Mr. ROTHWELL. It will supplement them, sir.

Senator VITTER. So they will continue?

Mr. ROTHWELL. They will continue until we have—if you all

think of it as 2 things, there is going to be a competition that will

replace those 4, and then, there will be a competition for the $1.5

billion, which will be for the 15 firms. And the idea is to make sure

that we have capability to do anything that is required in the Gulf

region.

Senator VITTER. So those four noncompete megacontracts are

being replaced with a different competition.

Mr. ROTHWELL. Yes, sir.

Senator VITTER. And when will that competition be done?

Mr. ROTHWELL. We are looking at 120 days for that. We figure

that is going to take a little bit longer, so 120 days for the small

and disadvantaged, about 120 for the full and open.

Senator VITTER. And for the 120 day process, is there any requirement of participation by small business?

Mr. ROTHWELL. Yes, sir, absolutely. We are looking at subcontracting goals of about 40 percent.

Senator VITTER. And how will that be phrased in the contract?

In other words, what do you mean by goal? Is it a mandate or a

goal?

Mr. ROTHWELL. Well, it is a goal, but it is going to be looked at

very, very seriously. Everyone realizes the importance of this issue.

Senator VITTER. Under the contract terms, what will happen if

a company does not meet the goal?

Mr. ROTHWELL. Well, basically, what happens is that the company has to come in and meet with either the head of FEMA’s procurement organization or with me, and we basically work with

them to make sure that they do meet the goal. It is not insignificant, I would just point out. I mean, that is a significant step that

we would take.

Senator VITTER. Have you considered using any more definitive

consequences for not meeting to goal, i.e., money off the contract

price, et cetera?

Mr. ROTHWELL. We are. We are actually working with our legal

department to see if we can do that, yes, sir.

Senator VITTER. And what sort of mechanisms like that are you

considering?

Mr. ROTHWELL. It has not really been decided. I would not even

want to mention it here. I mean, basically, but looking at something more disciplined than just the goal concept.

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Senator VITTER. I would certainly encourage that, and we have

talked about that before. It is great to have goals, but consequences

for not meeting the goal that have to do with profit or contract

price get people’s attention a whole lot quicker.

Mr. ROTHWELL. Basically, in Federal procurement, we are not

really allowed to do penalties. We are supposed to do something

that is actually more of a liquidated damages thing, but we are

looking at that. I understand the point, and we are definitely looking at it.

Senator VITTER. Well, I am not sure exactly what you mean by

liquidated damages, but it sounds like you mean substantively the

same thing, so it would not matter.

Mr. ROTHWELL. Yes, sir, yes, sir.

Senator VITTER. Within that 40 percent goal, that is for any

small business. Is there anything specific to small business in the

disaster area?

Mr. ROTHWELL. The way we read the Stafford Act is that we are

going to put an evaluation criterion in the proposal that will give

extra points for their commitment to basically award contracts in

the local area.

Senator VITTER. OK; and General Johnson, let me tell you what

I hear from virtually every local government leader in Louisiana in

the disaster area regarding debris removal: what I hear is that

they either have ongoing, or could have in a very short period of

time, a contract for a very fair price with a local debris removal

company that they can get going immediately, but generally, what

they are told is that if they want to be guaranteed 100 percent payment by the Feds, they need to abandon that, work through the

Corps, work through a major contractor who is inevitably from out

of State, and then, maybe the locals can subcontract under that

local, maybe not. And by the way, that bigger contract through the

Corps is always for a higher price than what they could do locally.

Tell me why that is a good system.

General JOHNSON. Sir, I do not believe it is, and I do not believe

that we are the ones who are telling those contractors to do that.

We traditionally, by law, provide FEMA’s engineering capability for

emergency support function No. 3. That includes debris removal.

When FEMA has an emergency, the Corps mobilizes, deploys, and

in this case, where one of our districts was affected, we can reach

out to the entire nation or entire assets in the Corps, and we deploy people down, and we get contracts in place to do debris removal.

Senator VITTER. I do not mean to interrupt, but I just want to

pursue this. But the contracts that you employ are with these very

large firms, inevitably from out of State, so it does, unless I am

missing something, it does create the scenario I am describing.

General JOHNSON. Sir, what happens is when we first go in, we

use the advance contracts to respond immediately. And I think you

already know, as we reach a stage, and we still have not cleared

all the rights of way, we will get to a point where all those rights

of way are cleared, and then, we will not issue task orders on those

big contracts. And as we are doing that, we are developing new

contracts that include small business, local business, to include

working on setasides for those folks.

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Senator VITTER. Are you saying that as you make that transition,

you can and will go directly to the local contractors who, in literally

every situation I know about, do it for less than the prime?

General JOHNSON. Sir, typically, we will use the prime where the

district—when we get to steady state, for example, and this is no

longer an emergency operation, and the district is operating the

way a district works, it is easy to go directly from a district to the

contractor.

Senator VITTER. Well, I am not sure what you mean by steady

state, but anything approaching that description to me is a long

ways off, so I still have this concern: why not, if you have a municipality that can identify a local contractor, even get multiple bids,

and get it at a price well below your big megacontract, why

wouldn’t you go directly to that local contractor?

General JOHNSON. Sir, we consider price, we consider operational

capability; it is a best value thing. It is also a challenge for us, I

think, from my experience to manage 161 contracts as opposed to

one. Quality assurance, quality control becomes an issue for us, because we are required to make sure that whoever is delivering that

service is delivering what the Government is paying for.

Senator VITTER. Well, I think you have put your finger on the

issue, that the Corps has decided it is a lot easier or better or some

combination to manage a big megacontract. I am just telling you

what the result is: the result is that these local contractors are all

ready to go, who often have a pre-existing contract with the local

government is kicked out and asked to maybe try to be a sub for

the big guy, the big out of State guy, who is always charging way

above what they would do the work for to begin with.

General JOHNSON. Sir, that is an unintended consequence. There

are some States, if you look at what is happening in Florida, Florida does not come through us. Florida opts to do its own debris removal. And so——

Senator VITTER. I would encourage you to look at other options,

look at other ways to get help either in house or by contracting it

out to manage more contracts, because I think if you have that capacity, you can greatly increase local participation, and you can get

the work done for less.

General JOHNSON. Sir, I do not disagree with you.

Senator VITTER. And Mr. Administrator, one final question for

you: going back to these GO Loans, do I understand right that

under this GO Loan concept, it is an 85 percent Federal Government guarantee?

Mr. BARRETO. Yes.

Senator VITTER. And do I understand right that you do not expect it to cost the SBA or the Government anything?

Mr. BARRETO. Yes.

Senator VITTER. OK; then, my question is how does that work,

unless you are giving out these loans basically to people who do not

need them?

Mr. BARRETO. It works the way that the $20 billion in guarantees that we did this year works, on a zero subsidy, going through

our regular underwriting process, except in this case, the underwriting process is streamlined so we can give a decision much,

much quicker.

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Senator VITTER. My point is if you have an 85 percent Government guarantee and no cost to the Government——

Mr. BARRETO. Right.

Senator VITTER [Continuing]. You are administering the loans in

a way that has a minuscule failure rate.

Mr. BARRETO. That is correct.

Senator VITTER. Let me suggest that a loan designed like that

with that small a failure rate—I am not proposing we, you know,

try to maximize the failure rate, but a loan like that with that

small a failure rate is not meeting significant needs in the disaster

area following a disaster of this size.

Mr. BARRETO. We are going to use what these business were

doing before. We are not going to be using what their current condition is or what their prospects are going forward. And so, we believe that we are going to be able to make a lot of these loans. I

mentioned already, we have done $100 million of loans in a very

short period of time. The lenders in these communities, they know

these businesses. They have relationships with these businesses.

They know who has the best opportunity to get going again and become viable.

And we will work through our lending community to make those

loans. The lending community, by the way, is making a lot of loans

on their own, as you know, without an SBA guarantee. The State

is also making some loans through some funds that they have put

forward, so there’s a number of different, you know, responses to

the needs that are out there.

This GO Loan and the SBA disaster loan and the bridge loan,

any of those by themselves is not going to fill all the gaps. But if

we have enough of these things going, if we do enough of these disaster loans, if we do enough of these economic injury loans, if we

do enough of these GO Loans, if we do enough of our regular loans,

if we do enough of the 504 loans, we get a lot closer to start filling

these gaps.

Senator VITTER. Well, again, just to summarize the point: if these

GO Loans have an 85 percent Government guarantee——

Mr. BARRETO. Yes.

Senator VITTER [Continuing]. And no cost to the Government——

Mr. BARRETO. Yes.

Senator VITTER [Continuing]. That means that they are not

reaching all sorts of businesses which are on the cusp which can

be saved, and so, there is still a huge gap in terms of the need following this disaster.

Mr. BARRETO. I mentioned before that many of the people that

apply for loans to SBA actually do not even want a loan. They want

to go back to FEMA and be able to get a grant. Of course, FEMA

has made an announcement last week that they are going to make

that $26,200 available on a much wider scale. That might be able

to fill some of these short-term needs that people have.

Senator VITTER. Thank you, Madam Chair.

Chair SNOWE. Thank you, Senator Vitter, and thank all of you

and Administrator Barreto and Mr. Rothwell and Mr. Johnson. We

appreciate your cooperation here today, and most importantly, I

hope that we have a plan to address in a proactive fashion the seriVerDate 11-MAY-2000 14:29 Jul 18, 2006 Jkt 027288 PO 00000 Frm 00097 Fmt 6633 Sfmt 6601 C:\DOCS\27288.TXT DianeA PsN: DianeA
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ous and significant issues that we continue to confront in responding to this disaster of unparalleled magnitude.

So I would like to see a plan in all respects from the contracting

to you, Administrator Barreto, I would like to see a timetable——

Mr. BARRETO. OK.

Chair SNOWE [Continuing]. Submitted to this Committee on how

the SBA intends to respond in a timely fashion with the 180,000-

plus applications that are still pending and what the timetable is,

what the resources you have and will require in the future. But we

need to get it done.

Mr. BARRETO. We will provide it as soon as possible.

Chair SNOWE. And I think that is the purpose of this hearing.

I know it is an unusual circumstance, but nonetheless, we have to

measure up to the task at hand. So I thank you, and I appreciate

it.

Mr. BARRETO. Thank you very much.

Chair SNOWE. Thank you. I appreciate it.

Chair SNOWE. And now, we will have the third panel come forward.

Mr. BARRETO. Thank you, ma’am.

Chair SNOWE. OK; would the hearing please come to order?

Thank you. OK; our third panel, and I thank you for your forbearance and patience here this morning. I am sorry that it has taken

so long, but you can see there are so many issues that we are trying to explore with respect to this response, so I certainly appreciate the fact that you are both here.

First, I would like to introduce Walter Isaacson, Vice-Chairman

of the Louisiana Recovery Authority. The LRA was created by Governor Blanco to assist with the planning and coordination of Louisiana’s recovery. I want to thank you, Mr. Isaacson, for being here

today. It is good to see you again. I know we have had the ability

to talk about all of these issues, and I am delighted to see you in

the capacity that you are in. I think you will be a great resource

and benefit to the State of Louisiana.

Mr. Isaacson. Thank you.

Chair SNOWE. And I would also like to introduce David Cooper,

Director of Acquisition and Sourcing Management for the Government Accountability Office. And Mr. Cooper’s responsibilities include oversight of the Department of Defense, NASA, Homeland

Security, and the Department of State, and I thank you for the

work that you have done with respect to this report that we requested, and it is going to be very helpful to us as we continue to

explore some of the dimensions of the subcontracting, contracting

issues with Defense and Homeland Security in particular. So I

thank you, Mr. Cooper, as well.

Mr. Isaacson, would you begin? Thank you.

STATEMENT OF WALTER ISAACSON, VICE-CHAIRMAN,

LOUISIANA RECOVERY AUTHORITY

Mr. ISAACSON. Sure, thank you very much, and I will provide a

copy of my remarks, which if you would give me permission, we can

insert into the record so I do not have to read them all to you, and

I am sure it would be easier.

Chair SNOWE. Without objection, so ordered.

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Mr. ISAACSON. Thank you, Madam Chair, and Senator Vitter for

all your help.

I want to actually talk from the heart for a moment, which is

what you are doing is awesomely important. I know you all know

that, because that is why you are on this Committee, and Senator

Vitter knows it because of being on this Committee and being from

Louisiana. But this is what we need the most. We need to be able

to bring ourselves back, not ask for handouts, and it really means

getting small businesses back.

And I know, Senator Snowe, that that has been some passion of

yours for some long time, but that is why we are all here now, and

I am somewhat astonished, having listened this morning at the defensiveness, the excuses, and the stuff, and the ability to say, well,

how does this plan differ from that, and you cannot get the plan

together, when I would have assumed that anybody from the SBA

would say this is why we were put on this planet. This disaster

may happen. This is why we go into the issue of helping small

businesses. Let us be creative and do all that we possibly can.

And I know that there are some complexities between the GO

Loan program and the bridge loan programs and various things

and what the State of Louisiana has already done with all of the

money it could scrounge together, but this is a real emergency.

Thanks. This is a great Committee here. That was not the—and it

is just—latte. But I just cannot emphasize enough that there are

really two priorities we have in Louisiana now: one is to get our

levees back so that we can start building again and the restoration

of the coast that goes with it, and the other is just small businesses.

And I cannot tell you how frustrating it was listening to some of

what you had to do. So thank you both, and thank Senator Kerry

and Senator Landrieu and Senator Thune and others for just really

pushing this. Do not let it go. The fact that it is pulled out of, you

know, that it has been pulled out of the reconciliation and stuff,

this is an emergency, and I think this is why there is such a Committee as this. This is why, you know, when the founders created

Congressional oversight, they had this thing in mind.

And with the SBA needing some real oversight in this case and

some juicing up and some push so that we can get this thing out

and not just lose it is so important to me. I do want to thank the

Administration for extending the SBA loan deadline. That is a first

step.

I also want to thank the Administrator, Hector Barreto. He came

down to Louisiana. I think he cares. It is just frustrating to listen,

though. And I was down in Plaquemines Parish 3 weeks ago, and

they were looking forward so much to his visit. I mean, this is a

lifeline to all these businesses. And I know he has got problems,

but I was up and down from Empire to Port Sulphur to every other

place in that parish, and there were not boats blocking the way on

all of the highways. There were people getting back to work, but

they could not get the SBA loans.

And the reason you are not getting the SBA loans is not because

boats are blocking the highways, as I think he said, because we

certainly got all over the place, including with great respect, the

Guam National Guard replacing the North Dakota National Guard

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down there, which is a true sight to behold in Plaquemines Parish,

Louisiana.

[Laughter.]

Mr. ISAACSON. So I also want to thank Al Hubbard. We met with

him at the White House, and he said that he is going to get a daily

monitoring of SBA loans, because he was, well, I will not speak for

him, but he was concerned to be on top of this case. So I am glad

that the White House is really on top of this case as well.

And all of this, you know, is why this is of such importance to

us. We did a bridge loan program down in Louisiana. Governor

Blanco, Senator Vitter, and Senator Landrieu understand what it

was. It was funded by as much money as we could get out of the

entire rapid response fund, which is $10 million. That type of

bridge loan is what is desperately necessary. As I kept hearing

today, the SBA is not prepared for disaster assistance. They do not

respond to short-term emergency needs.

Well, that is why you have an SBA. That is why you have this

Committee. Let us figure out how to get this done. We need these

interest-free, 180-day short-term loans, and the State’s $10 million

is not enough to do the needs, so we were hopeful that it was going

to come out of the provision that Senator Vitter and you, Madam

Chair, and Senator Kerry and Senator Landrieu put in, and that

provision has not been retained during the conference. I do not understand what you can do, but I just hope you can do something,

because we need the bridge loan thing to keep going.

And as I kept hearing this morning, the SBA disaster loan programs just are not working. Well, we cannot wait to fix them. I

mean, we have people, my cousin, my uncles, but everybody I know

down there waiting to get their businesses back, and even if they

do not need the loans, they need the people, their neighbors, to get

the loans. Otherwise, they cannot be opening up shops, selling the

computers, doing the things that, you know, my friends do.

So I am not going to summarize all the statistics in here, because

you have heard them, and certainly, you have come down hard on

them. I will just skip right to our priorities, which is please allocate, if you can, somehow figure out how to get it out of the conferences and stuff, the $200 million for a bridge loan program. That

is just a lifeline. You do not let people sit there in the choppy

waves after a hurricane without throwing them a life vest.

And they will be able to swim. They will be able to get themselves back on their feet. But just help with this bridge loan program to continue the State of Louisiana’s existing bridge loan program, because you have not yet come up with a way to do that yet

at the Federal level. Obviously, you want to expedite loan processing. We do need a business recovery fund, and I would suggest

that it is just the exact same thing that you did after 9/11 when

I lived in Manhattan.

I mean, if you can do those type of grants, I know it may seem

somewhat expensive, but what it does is it brings an economy back.

We are not talking about money flushed down the toilet. We are

talking about getting businesses started so that they are paying

taxes again, so they are employing people again. And so, if you can

do—just model it over the exact same thing that happened for the

city of New York. We are not asking anything more than that. But

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it is business retention grants and technical assistance programs

and stuff.

And New York officials, I was there: they will tell you, that saved

them. It was that sort of thing. So I do not quite understand why

we cannot just say we do not have to reinvent the wheel. Let us

just use the wheel we used after 9/11 through HUD and everything

else.

And the President suggested the Gulf Opportunity Zone. I assume these GO Loans are probably a part of that or whatever. But

this is great. Let us do the Gulf Opportunity Zone. The GO Loans

are not—they are a pilot program. They are at above interest rates.

I think Senator Vitter kept pointing out, and, I mean, everybody

can see, it is not for the people right on the brink and on the cusp.

But if you want to put that as part of the package, fine. Give us

the Opportunity Zone.

We are not asking for handouts. We are just asking to bring our

businesses back. We are focused really on getting the businesses

back. That is our priority with the levees. We need the loans, the

grants, and the other opportunities that are just in the normal

course of business. I think, and I will admit, that we in the State

all made a mistake by asking for everything at once at the beginning, and it may have hurt our credibility a little bit.

So we set the priorities, and the priorities are very clear: this is

one of the top two priorities, this and levees, small business loans

and levees, and then, we will pick ourselves up and get ourselves

working.

I want to thank you for the opportunity. I know this is more impassioned. I have a much more reasonable and dry testimony here

which I am sure will be entered into the record, but I wanted you

to know how much we feel this partnership is necessary and how

much we feel it is imperative that you keep doing what the two of

you have been doing, which is the role of Congressional oversight

that the founders so carefully put into our constitutional system

and pushing them, getting them back to do things.

[The prepared statement of Mr. Isaacson follows:]

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Chair SNOWE. Thank you. Thank you very much.

Mr. Cooper.

STATEMENT OF DAVID E. COOPER, DIRECTOR OF ACQUISITION AND SOURCING MANAGEMENT, U.S. GOVERNMENT

ACCOUNTABILITY OFFICE

Mr. COOPER. Madam Chair, thank you for the opportunity to be

here today to discuss GAO’s work on Federal efforts to respond to

the disasters on the Gulf Coast.

Let me first begin by saying that you can be assured that GAO

is placing a very high priority on this work. The Comptroller General is personally involved in GAO’s efforts, and we are working

very closely with other accountability agencies at the Federal,

State, and local levels to make sure that we look at all significant

issues that need attention.

As provided for in our Congressional protocols, we are conducting

this work under the Comptroller General’s statutory authority

since it is an issue of interest to the entire Congress and to Committees in both Houses. Numerous questions are being asked about

the Government’s ability to effectively respond to the disasters.

Many of those questions, as we have heard here this morning, relate to whether small businesses and local firms are getting a fair

share of the Federal contracts.

Ultimately, we need to understand what went right and what

went wrong and to apply these lessons to strengthen the Government’s response and recovery operations now and in the future.

GAO has already had teams in the hurricane stricken areas collecting information and gaining the insight that will be necessary

to identify lessons learned and improvements needed for future

emergencies.

In that regard, I would like to share some insights that we have

gained in reviewing the contract you mentioned earlier about classrooms for Mississippi schools. While this is only one contract, I believe there is a lot to be learned from the way it was done. It offers

valuable insights for improving Federal contracting efforts and

being better prepared to respond to future emergencies, particularly as it affects local companies and small businesses.

GAO received a tip through its fraud hotline that the Government was paying highly inflated costs for the classrooms. In response to that tip, we are reviewing the contract that the Army

Corps of Engineers awarded on behalf of FEMA to purchase 450

portable classrooms.

Our work over the years has shown that three key conditions

must exist if agencies are to get good acquisition outcomes: to ensure successful contracting outcomes, agencies must have sound acquisition plans and plans that incorporate and consider small businesses and local firms when a disaster occurs; significant knowledge, sufficient knowledge to make good business decisions; and an

adequate means to monitor contractor performance and ensure accountability.

Planning and knowledge are particularly important in responding to disasters, because there is a premium on responding quickly

and effectively. Agencies cannot wait for disasters to happen; the

planning and the knowledge collection has to be done ahead of

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time, and we have heard from several witnesses today that initiatives are now being undertaken to address small business and local

firms. What I am trying to emphasize is those plans need to be in

place before the disaster occurs.

In reviewing the classroom contract, we found acquisition planning was absent. We found no information in the contract files like

supplier lists or pricing histories that would have helped the Corps

contracting staff purchase the classrooms. Absent that information

and faced with a very short timeframe to buy the classrooms, the

Corps contracting staff found themselves in a very difficult situation.

To meet the requirement, they placed an order without competition, as you have previously noted, on a previously existing contract established by the Army Contracting Agency in Fort Eustis,

Virginia. The agreement was not intended to be used for buying

classrooms; rather, it was intended to be used to acquire and install portable buildings on Army installations. Not surprisingly, the

agreement did not include information that would have been useful

in purchasing the classrooms; specifically, it did not include prices,

designs, or specifications for the classrooms that were needed.

Our review of the contract documents and discussions with the

contracting officials in Vicksburg clearly indicates to us that they

were unprepared to buy the classrooms and lacked the knowledge

needed to do so. We found that a local firm approached the Corps

contracting staff about providing the classrooms. The Corps staff,

however, because of time pressures, decided to use the pre-existing

agreement and awarded an order to buy the classrooms for $39.5

million.

As part of our review of the Federal efforts to respond to the hurricanes, we will continue to review this contract and others to determine how Federal agencies identified, selected, and are managing contractors to meet their response and recovery responsibilities, including how they are considering small businesses and local

firms in their acquisition decisions.

Madam Chair, that concludes my statement, and I would be glad

to answer any questions you have.

[The prepared statement of Mr. Cooper follows:]

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Chair SNOWE. Thank you. I appreciate it. Thank you very much.

I appreciate both of you being here, and I thank you for your patience.

Obviously, these are critical issues, and we are trying to sort

through them and determine fact from fiction so that we can rectify

some of the problems to move this program forward in a more timely fashion. Walter, what is your sense on the ground there in Louisiana, on the front lines, about what are the impediments to small

businesses getting access to loans from the SBA? What do you

think is happening there?

Mr. ISAACSON. I think that they are not using our local banks.

I mean, one of the things that we did at the LRA when we heard

from the bankers, and I heard the complex discussion this morning,

so I am not going to untie that Gordian knot for you, but there are

a lot of banks in the State of Louisiana doing very well and those

should be used in the process of handing out loans.

There is a sense that it is an enormous bureaucratic and slow

and lethargic nightmare and that people just do not get it. And

every day that a business cannot operate, you know, that they do

not have the capital, that they are shut down means it is less likely

that those persons will ever have a business again; you know, that

that business will just be destroyed.

And I would say that the highest amount of frustration comes

when we just cannot get a bridge loan or a grant or an emergency

thing. And people do not really feel that is a handout. They feel

that is what happened after 9/11. That is what happens in big disasters. That is why we have an SBA. And I think they would be

astonished to hear testimony that, well, the SBA really is not

geared to do this sort of thing. Well, you know, pray tell, we are

going to be judged, and we are going to judge ourselves by how well

we do that sort of thing.

So it is a sense that maybe you should use the local banks a little

bit more; maybe you should find some more creative solutions instead of everybody saying no to a solution that somebody else

comes up with and maybe just go down there, and it is like right

after the hurricane: somebody should have just said let us go in

there and get some things sorted out. You have to have another

month or two to try to do that, and all of a sudden, money is being

pulled out of whatever you call it, the conference or the reconciliation.

Chair SNOWE. Yes, and they have been down there a number of

times. I mean, the Administrator himself has been down there on

four different occasions. I know the staff, our staff, has been down

there, and we have identified what we think the issues are and

what needs to be done. It is just not happening. And I agree with

you. I think there is a lethargic response to this whole issue. You

have to really give impetus to the bureaucracy to respond to the

urgency of the circumstances. You have got to move it, and you

have got to——

Mr. ISAACSON. I will give them credit, though.

Chair SNOWE. You have to amass the respect to ensure it occurs,

and it is just not happening. And that is our frustration, too, because one of the issues we did identify early on was the bridge

loans as part of the entire package, which we thought would be

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very useful. In fact, it was reinforced by the testimony of small

businesses that were represented here more than a month ago from

the various States in the Gulf region that indicated they needed

that bridge loan.

And so, but we had included it in our package, and that is what

is so disappointing, because I am not sure whether or not what

this—it may be fine; who knows. But again, we are sort of having

to sort of try it out.

Mr. ISAACSON. But, I mean, I am going to go down Thursday for

the big meeting down in New Orleans of the LRA and a big AIA

conference down there on rebuilding; I mean, can I bring some

word back that we are going to try to get the bridge loans, or is

that—that is what people need the most, the bridge loans and

the——

Chair SNOWE. You are not getting a modification, I know, and

you know, that is our frustration because of what happened in the

House-Senate conference on the entire package that we have now

also pending concurrently in the Senate in hopes of being able to

pass it under unanimous consent.

But as I indicated earlier, there are 10 objections from the SBA

and the Administration within the bill. There are 10 provisions

that they are objecting to, including the bridge loans. So they have

come up with this modification. Whether or not that is going to address the issue remains to be seen.

Mr. ISAACSON. But the modification seems to be for loans that

are with higher interest rates and that are only incredibly safe and

are not going to cost anything. Well, heck, you do not need—that

is not what you need.

Chair SNOWE. Exactly.

Mr. ISAACSON. I mean, heck, I could give those loans.

So I would just say that what people cannot quite get, and I am

so astonished, I am not sure I am going to be able to explain it to

them—everybody realizes you need the bridge loan program, which

Louisiana already has, but it scraped together every bit of money.

I will say something I probably should not say: I was able to get $200 million for loans for the Gaza Strip, because, you know, everybody knows we have got to build the Gaza Strip. That is easy. You

have people coming in like crazy on that. Why you cannot act as

fast when it is, you know, our folks in Mississippi and Louisiana

and the Gulf Coast is astonishing to me.

So we need the bridge loans and grants, and maybe it will come

out that neither Congress nor the Administration can figure it out,

but that would—that is really bad in the long run. It is not just

a matter of cost. You are creating unemployed people and destroyed businesses. This does not make economic sense. We are not

saying please build, you know, flower gardens for us or something.

We are saying just give us a bridge loan so our businesses come

back.

Chair SNOWE. I know. That was the single most important recommendation made by the small business owners who were here.

Mr. ISAACSON. And I did not hear the answer.

Chair SNOWE. I know, it is, and you are right about the GO

Loans. I mean, the interest rate is going to be market rate, and so,

it is similar to a regular loan. That may help in some instances,

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but clearly not in a number of them and also for the processing of

these applications.

So we are going to continue to try to address these issues and

these objections, because we still have the entire package pending

in the Senate in hopes of moving it on a unanimous consent basis.

In fact, we thought that we were pretty close to getting unanimous

support for it so that we could just move it through and have it

signed by the President. But obviously, there are objections even

within the SBA, and so, it is beyond me as well, because we need

to get to the heart of the situation and get small businesses up and

running in the final analysis.

Mr. ISAACSON. I mean, can you just give us a little to keep the

State program going? You know, is it——

Chair SNOWE. How much is the total that you have given? Is it

$10 million for that?

Mr. ISAACSON. Well, it was $10 million.

Chair SNOWE. Was it $10 million?

Mr. ISAACSON. I feel like I could just go around to a rich individual to just do that for us. It is certainly something that in our

overseas, we are always giving hundreds of millions of loan guarantees.

I would think, I mean, what we are looking for is a $200 million

bridge loan to continue the existing one that is up and running and

has the offices in place, has the people there ready. If we could just

do that, just get that going, that would tide us over until you all

sorted out GO Loans versus whatever loans.

Chair SNOWE. Right. We will have to work it through. I agree,

and we will do everything we can, because I know it is the basis

of your recovery. That is the essence of all of this.

Mr. ISAACSON. It is going to cost more in the long run if all of

these businesses go under. I mean, ever since our founding, we

have had as our backbone small businesses, shopkeepers. I mean,

it is a Nation of shopkeepers that keep our economy going. If you

want to destroy those shopkeepers, just wait another 2 months and

do not give them the bridge loans. But then, you will have a real

devastated economy, not just in Louisiana, but all across the region, and it will affect the United States.

Chair SNOWE. I know. It is exactly right, so it will reverberate.

And so, we are going to try to do everything we can to see if we

can get this assistance in the final analysis and see if we can overcome the objections, because it clearly should happen.

Mr. ISAACSON. You know, New York got, what was it, $2.7 billion

in just pure business recovery grant programs? Now, this is not

something I was against. I think it was fine. But that was a much

smaller area for a one-time event that was kind of manageable. I

mean, I was there. I have been in both of these places. There is

a difference in some ways.

That is a $2.7 billion grant program. So, just something comparable to New York, or even treat us half as good as New York,

but just something along those lines, just do the same type of program. And then, keep our bridge loans going until you sort out the

Go versus no-Go ones.

[Laughter.]

Chair SNOWE. If that is possible around here, Go, no-Go.

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From the experience that you have had thusfar in Louisiana, has

there been a noticeable difference at all with respect to small businesses getting up and running, I mean, any impact from SBA in

the application process? Have you seen any discernible difference

in the economy?

Mr. ISAACSON. The SBA should be the backbone or the help for

small businesses. Small businesses are getting back. I mean, in

Plaquemines Parish, I don’t know what the Administrator saw, but

I went all over there: they are working like crazy. People are not

just sitting there waiting for either the Red Cross or the SBA to

show up or something. I was astonished at how hard people are

working.

When I would go back to New Orleans or to Plaquemines or to

Jefferson Parish or Calcasieu, you would see businesses really just

working. But they are not getting the business loans, so about a

third of them just cannot make it.

So it is happening, but not because of the SBA, and that is almost retarding it, because they do not have access to capital. So it

is the biggest crisis. You heard from them when they came up here,

but every time I am walking around, they just—that is the thing

people grab me on. Two things people grab me on: you have to

make sure the levees do not just break on us next time, you know,

the shoddy construction or whatever, and No. 2, can’t we get the

same thing everybody thought you were supposed to get in disasters, which is emergency loans, bridge loans, disaster grants, whatever you want to call them?

That is the only two things they say. And I am kind of sorry that

the State—it is our fault. We kind of asked in our original thing,

we kind of squandered some of the good will by saying we need

this, this, this, this, and this and that. Let me tell you: we need

two things: we need levees that do not break, and we need small

business loans.

Chair SNOWE. Well, the small business loans are a reasonable request.

Mr. ISAACSON. So are the levees, but that is——

[Laughter.]

Chair SNOWE. No, that is true, and also the tools to help them

do their job. We were in that situation 2 months ago where we

could have given them the tools if they were prepared to receive

them.

Mr. ISAACSON. Everybody is kind of writing the history of this.

Chair SNOWE. And so we will just figure another way, because

it is critical.

Mr. ISAACSON. There are more books being written about this. I

keep saying get focused. It is on, you know, it is not Red Cross type

stuff. It is how do you get businesses back and the infrastructure

back? And I think history is going to judge us pretty harshly if we

do not get focused real quick.

Chair SNOWE. I agree, and the other part of this with respect to

small business is the awarding of contracts to small business. Mr.

Cooper, I think that you have made some very good suggestions

and recommendations in your review and report. It is clear that the

Homeland Security Department and the Army Corps did not have

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any acquisition or accountability plans. Do you think they have

them in place now?

Mr. COOPER. Not yet.

Chair SNOWE. Not yet? How long does that take, do you think?

Mr. COOPER. Well, it is probably going to take a long time to do

that.

Chair SNOWE. A long time?

Mr. COOPER. We have heard this morning that they are going to

break out some contracts for small businesses. That is kind of an

afterthought. It was not anticipated in the planning. I think what

is needed, you know, we are going to have hurricanes in that area

again. It is inevitable. And I think in terms of contracting, we need

to identify those local firms that have capabilities that can clean

up debris, can provide classrooms, and I think classrooms are a

classic example of where the company that came to the Corps was

one of two companies in the State of Mississippi that was certified

by the State Department of Education to provide and install classrooms.

Chair SNOWE. You heard the answer today by Mr. Johnson.

What is your answer to that?

Mr. COOPER. I am not sure it was as complete as I would like

to see.

Chair SNOWE. Yes.

Mr. COOPER. But I talked to the contracting people at Vicksburg.

I went down there personally. I talked to the companies, people in

the companies that were there. And, I mean, it is just

unexplainable why we did not use a local firm. In fact, I think the

intent was to use a local firm, at least in a subcontract manner.

And then, that did not even materialize. That went away.

Chair SNOWE. It sounded to me like they had not even made, you

know, they had not specified the qualifications for this particular

contract, did not decide how long it was going to be, so on and so

forth. So it just seemed easier.

Mr. COOPER. Well, things were done very, very quickly. I mean,

negotiations virtually took place in 3 days, and negotiations is a

loose term. The Government accepted whatever price the contractor

provided here so——

Chair SNOWE. Do you think that is true across the board right

now?

Mr. COOPER. You know, this is one example, and I have seen this

kind of thing happen in a lot of other Federal contracting situations, even in nondisasters, you know, the best of time situations,

and it is a concern to us. GAO has several Federal agencies on its

high risk list for not getting good contracting outcomes. There is

just a lot of work ahead of us.

Chair SNOWE. What do you think this Committee could do with

respect to enforcing the Small Business Act and the Stafford Act

in designating small businesses for contracts and subcontracts?

Mr. COOPER. I think you need to hold those agencies’ feet to the

fire. I am talking about FEMA. I am talking about the Corps, DHS,

and have them come back and explain to you what they are able

to achieve. I mean, you have talked about some numbers here this

morning that are almost phenomenal to me, because I have done

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ments. Information on small business participation in Federal contracts, either at the prime or the subcontract level, is hard to come

by. And when I see a number of 72 percent, that cannot be right.

Chair SNOWE. Well, that was our reaction, too, 72 percent. That

is three times the rate of awarding contracts in the——

Mr. COOPER. The other point I would make, and it kind of struck

me when the SBA Administrator said that he used FPDS data for

the 45 percent, FPDS data is not accurate and reliable. We have

made two reports in the last 2 years to OMB to try to get better

data, more reliable data, so we know where Federal contracting

dollars are going, and, I mean, I have testified before you on contract bundling, and I have provided information about large companies getting contracts intended for small businesses and report it

as a small business award, I mean, the data is just not good.

Chair SNOWE. Well, we have a lot of work ahead of us.

Mr. COOPER. Clearly.

Chair SNOWE. That is clear to me when you think about the

amount of money, and the fact is it is, again, a key to the economic

restoration of the region and, you know, making sure that many of

these contracts are awarded to local contractors, small contractors,

small businesses, and that is simply not happening to the degree

that it should and is required under the law and plus the fact that

is even more—above and beyond everything else is that it is costing

the taxpayers more money, and we are seeing waste and inefficiencies, and unfortunately, it is coming down to more dollars on the

part of the taxpayer than is otherwise necessary or required. So

that’s disconcerting to say the least.

Mr. COOPER. That is a concern of ours.

Chair SNOWE. Yes, it is a concern, and these numbers are not accurate. That is unfortunate. There is no data to document what

they suggested here today in terms of the awards to small businesses, either prime or subcontracting. And that is the frustration,

and we have got to get to the bottom of it again because of the fact

that they have no standards for acquisition, no accountability within the Defense and the Homeland Security Department.

Mr. COOPER. Right.

Chair SNOWE. I mean, we are talking about significant agencies

that are responsible for billions of dollars.

Mr. COOPER. They spend the most.

Chair SNOWE. Hundreds of billions of dollars.

So, in any event, that is very disturbing. So we will have to continue. I really appreciate your work and your guidance, and our

staff will be following up with you, because we really want to see

if we can pinpoint some specific issues that we can call them to account for, you know——

Mr. COOPER. OK.

Chair SNOWE [Continuing]. And develop the accountability and

transparency that is essential in making sure that these programs

are being done in an efficient fashion.

Mr. COOPER. We look forward to working with you.

Chair SNOWE. Thank you, Mr. Cooper, and Walter, too. Thank

you for being here. We appreciate it, and hopefully, we can give you

some good news on this score, because small business is central, we

think, to the revitalization of the region. We want to make sure

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that small business and the Small Business Administration can be

shining at this moment that is so pivotal to our Nation and to the

Gulf region.

So thank you. This hearing is adjourned.

[Whereupon, at 1:10 p.m., the Committee was adjourned.]

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