Hurricanes Katrina and Rita: Federally Funded Programs Have Helped to Address the Needs of Gulf Coast Small Businesses, but Agency Data on Subcontracting Are Incomplete
Published: 2010-07-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Hurricanes Katrina and Rita wreaked havoc on small businesses in the Gulf Coast, and much federal assistance has been provided to help these businesses. GAO was asked to describe (1) the amount of assistance provided to Gulf Coast small businesses through the Small Business Administration's (SBA) disaster and Gulf Opportunity (GO) loans, state-administered business assistance programs funded by the Department of Housing and Urban Development's (HUD) Community Development Block Grants (CDBG), and the Economic Development Administration's (EDA) Revolving Loan Fund (RLF) program; (2) the extent to which Gulf Coast small businesses received federal contract funds; and (3) the current state of and improvements in the region's economy. GAO analyzed data on SBA and EDA loans and states' use of supplemental CDBG appropriations, data on prime and subcontracts awarded for hurricane recovery activities, and economic indicators both before and after the hurricanes.
section_title: What GAO Found
paragraphs: Several federal programs provided assistance to Gulf Coast small businesses after the 2005 hurricanes; however, despite this assistance, some small businesses still face recovery challenges. Of the programs we reviewed, SBA provided the greatest amount of assistance to small businesses. SBA approved about $1.4 billion in loans through its Disaster Loan and GO Loan programs to assist with the repair or replacement of damaged property and to address economic losses suffered after the hurricanes. In addition, Louisiana expended about $179 million and Mississippi targeted $3 million in CDBG disaster relief funds for small business assistance grant, loan, and other programs to further assist businesses that in some or all cases, may not have been eligible for SBA loans. EDA did not receive supplemental appropriations after the hurricanes, but Gulf Coast small businesses did receive about $36 million in loans from EDA's RLF grantees, which provide gap financing to small businesses to start or expand their business. Even with federal assistance, however, some small business owners with whom GAO met have encountered recovery challenges. For example, a few of these small business owners told GAO that they had problems applying for SBA loans because the hurricanes destroyed needed financial records. Other owners face higher expenses, especially the cost of commercial insurance and added debt from these loan programs, which has made recovering difficult. Gulf Coast small businesses received almost $2.9 billion in federal contracts awarded in response to the hurricanes. The Federal Acquisition Regulation requires that agency contracting officials monitor prime contractors' performance under subcontracting plans. However, the U.S. Army Corps of Engineers (Corps) and the rest of the Department of Defense (DOD)--two of four agencies that awarded the most in federal contracts for hurricane recovery--could not demonstrate that they were consistently monitoring subcontracting accomplishment data for 13 of the 43 construction contracts for which subcontracting plans were required. Without such monitoring, the Corps and the rest of DOD are limited in their ability to determine the extent to which contractors are following their subcontracting plans. Indicators--including population estimates, number of small businesses, unemployment rates, and housing prices--suggest that the hurricanes' effects on local economies varied across the Gulf Coast. From 2005 to 2006, some heavily damaged areas experienced steep declines in population and number of small businesses, while less-damaged areas experienced steady increases in these indicators. Since that time, the population and number of small businesses in heavily damaged areas have increased, but they both still remain below prehurricane levels. House prices have shown some steady increases from 2005 to 2008 in heavily damaged metropolitan areas. The impact of the recent oil spill in the Gulf of Mexico on small businesses is uncertain.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Secretary of Defense should take steps to ensure that contracting officials with the Corps and other DOD departments consistently comply with requirements to monitor the extent to which contractors are meeting subcontracting plan goals. DOD did not concur with the implication that its contracting personnel do not enforce requirements.

section_title: Letter
paragraphs: Within a 2-month period in 2005, Hurricanes Katrina and Rita struck the  Gulf Coast, causing billions of dollars in damage and displacing millions of  individuals. Louisiana and Mississippi were the two states most affected,  but these hurricanes also caused damage in Alabama, Florida, and Texas.  The size and scope of the devastation presented the nation with  unprecedented recovery and rebuilding challenges. Small businesses in the  region were adversely impacted by the hurricanes and faced many barriers  to recovery. Some businesses were completely destroyed, while many  others suffered an almost complete loss of inventory, equipment, and  records. Additionally, many business owners who employed local  residents lost employees when they fled the hurricanes, and businesses  that did reopen after the hurricanes faced a smaller customer base  because of reduced population levels. The federal government has  provided billions of dollars in the form of grants, loans, and contracts to  assist in the recovery of the region and its economy. A portion of these  funds has been utilized to assist small businesses in rebuilding and  reestablishing themselves in a changed marketplace.
Nearly 5 years have passed since the hurricanes, and small businesses in  the area are still recovering from the damages they suffered. As part of this  committee’s efforts to monitor small business recovery in the Gulf Coast,  you asked us to provide information on assistance small businesses in the  Gulf Coast received from programs administered by the Small Business  Administration (SBA), Department of Housing and Urban Development  (HUD), and Economic Development Administration (EDA); on federal  contract funds received by small businesses; and on the small business  economy in the Gulf Coast region. More specifically, this report describes  (1) the amount of assistance small businesses in the Gulf Coast received  through SBA’s Disaster and Gulf Opportunity (GO) Pilot Loan programs,  state-administered business assistance programs funded by HUD’s  Community Development Block Grants (CDBG), and EDA’s Revolving  Loan Fund (RLF) Program; the benefits and challenges experienced by  participants in these programs; and the performance of loans extended to  small businesses using assistance from these programs; (2) the extent to  which Gulf Coast small businesses received federal contract funds for  recovery efforts; and (3) the current state of and improvements in the  region’s economy, with a focus on the small business economy.
Our work focused on small business recovery efforts in four states  impacted by Hurricanes Katrina or Rita: Alabama, Louisiana, Mississippi,  and Texas. To address our first objective, we obtained data extracts from  SBA’s Disaster Credit Management System (DCMS) and Loan Accounting  System and computed descriptive statistics on the number, dollar amount,  and performance of disaster and GO loans provided to small businesses,  and we interviewed SBA officials knowledgeable about these data. We also  performed various tests of the information in the data extracts we  obtained to ensure the completeness of the data and concluded that SBA’s  data were sufficiently reliable for the purposes of our report. To describe  the amount of assistance Gulf Coast small businesses received through  state-administered business assistance programs that utilized CDBG  disaster relief funds, we reviewed Federal Register notices and  interviewed officials from HUD to obtain information on CDBG disaster  recovery supplemental appropriations Congress enacted following  Hurricanes Katrina and Rita. We also obtained information from state  agencies in Alabama, Louisiana, Mississippi, and Texas and interviewed  state officials regarding their use of these funds to assist small businesses  in recovering from the hurricanes. We determined that information  provided by the states was sufficiently reliable for the purposes of our  report. To describe the amount of assistance small businesses received  through EDA’s RLF Program, we analyzed semiannual reports on loans  made by EDA’s RLF grantees in the four states within the scope of our  review and interviewed EDA officials who oversee RLF grantees in these  states. These data are self-reported by RLF grantees; therefore, in this  report we attribute these findings to the RLF grantees. Furthermore, we  contacted selected RLF grantees in the areas most impacted by the  hurricanes to determine the extent to which loans that they made  following the hurricanes were utilized by small businesses for hurricane  recovery efforts. We also interviewed officials at Small Business  Development Centers (SBDC) and chambers of commerce in areas heavily  impacted by the hurricanes in each state to discuss the assistance each  provided to small businesses after the hurricanes. Finally, to obtain the  perspectives of small business owners regarding the benefits and  challenges they experienced in participating in these programs, we  conducted focus groups of small business owners in New Orleans,  Louisiana, and Gulfport, Mississippi.
To address our second objective, we obtained data from the Federal  Procurement Data System-Next Generation (FPDS-NG), the  governmentwide database of contracting activity, to determine the extent  to which federal agencies contracted directly with small businesses in Gulf  Coast states. Using FPDS-NG data, we identified the top four agencies that  awarded the greatest amount of Katrina- and Rita-related contract dollars  between fiscal years 2005 and 2009. These agencies were the U.S. Army  Corps of Engineers (Corps); Department of Homeland Security (DHS);  Department of Defense, excluding the Corps (DOD); and the General  Services Administration (GSA). Although we could not independently  verify the reliability of these data, we reviewed system documentation,  conducted electronic data testing for inconsistency errors and  completeness, and compared it with supporting documentation when  available. On the basis of these efforts, we determined the data on the  amount of federal contract dollars received directly for Hurricanes Katrina  and Rita recovery efforts to be sufficiently reliable for the purposes of this  report. We also identified all Corps, DHS, DOD, and GSA construction- related contracts awarded between fiscal years 2005 and 2009 for Katrina-  and Rita-related recovery efforts that, according to FPDS-NG, had a  subcontracting plan. For contracts that had subcontracting plans, we  asked the agencies for documentation of prime contractors’  subcontracting award reports in the Electronic Subcontracting Reporting  System (eSRS), a governmentwide database for capturing this information,  or for copies of the paper subcontracting accomplishment reports. These  plans include information on, among other things, goals for the use of  small businesses, expressed as a percentage of the total planned  subcontracting dollars. In addition, we interviewed officials from each of  the four agencies to gather additional information relating to  subcontracting award reports.
To address our third objective, we identified the counties most impacted  by the hurricanes in each of the four states and also identified various  economic indicators that provide a proxy for the state of the small  business economy. These indicators include the population,  unemployment rate, number of small business establishments, and  housing price index. We collected and analyzed data for each indicator,  including population estimates from 2000 to 2008, unemployment rates  from 2000 to 2009, number of small business establishments from 2000 to  2007, and housing price index estimates from 2000 to 2009. We used these  data to identify trends more likely associated with the hurricanes than  other economic events within the areas most heavily impacted. In doing  so, we also analyzed and compared trends at the state level with trends in  the counties most heavily impacted by the hurricanes, where comparable  data were available. We determined that the economic indicator data we  used were of sufficient reliability for the purposes of our report. To  describe the potential impact of the recent Gulf Coast oil spill on the small  business economy in the Gulf Coast region, we obtained and analyzed  information on the size of the fishing and travel industries; new SBA  economic injury disaster loans approved as a result of the oil spill; as well  as existing SBA disaster loans in declared areas and the number of  deferments SBA has granted on those loans. In addition, we met with Gulf  Coast small business owners impacted by the oil spill. We also interviewed  organizations assisting these small businesses and organizations studying  the economic impacts of the oil spill. Finally, we reviewed assessments by  other organizations regarding the posthurricane economic recovery in the  Gulf Coast region. Appendix II contains a summary of these organizations’  findings.
We conducted this performance audit from September 2009 to July 2010 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives. See appendix I for more detailed  information on the scope and methodology of this report.
subsections: section_title: Background
subsections: section_title: SBA Disaster Assistance
paragraphs: The Robert T. Stafford Disaster Relief and Emergency Assistance Act of  1974 (Stafford Act) sets forth requirements for the federal response to  presidentially declared disasters. A presidential disaster declaration puts  into motion long-term federal recovery programs, including SBA’s Disaster  Loan Program. While SBA is known primarily for its financial support of  small businesses, the agency also plays a critical role in assisting the  victims of natural and other declared disasters. SBA’s Disaster Loan  Program is the primary federal program for funding long-range recovery  for private-sector, nonfarm disaster victims and is the only form of SBA  assistance not limited to small businesses. For an SBA disaster loan to be  approved, a disaster victim must demonstrate an ability to repay the loan  and must provide collateral for loans over a certain value. The Small  Business Act authorizes SBA to make available the following two types of  disaster loans to small businesses:    Physical disaster loans: These loans are for permanent rebuilding and  replacement of uninsured or underinsured disaster-damaged property.  They are available to homeowners, renters, businesses of all sizes, and  nonprofit organizations. These loans are intended to repair or replace the  disaster victims’ damaged property to its predisaster condition. Almost any  business concern or charitable or other nonprofit entity whose property is  damaged in a declared disaster area is eligible to apply for a physical  disaster loan; however, small businesses in agriculture-related industries— also known as agricultural enterprises—are not eligible.
Economic injury disaster loans: These loans provide small businesses  that are not able to obtain credit elsewhere with necessary working capital  until normal operations resume after a disaster declaration. They cover  operating expenses the business could have paid had the disaster not  occurred. The Small Business Act restricts economic injury disaster loans  to small businesses. Agricultural enterprises are also not eligible for  economic injury disaster loans.
Table 1 provides a description of the characteristics of each of these loans.
SBA procedures generally require small businesses to submit an  application for a physical disaster loan no later than 60 days following the  disaster declaration and no later than 9 months after this date for an  economic injury disaster loan. SBA may authorize an extension of the  filing period. SBA procedures also generally require small businesses to  arrange for and obtain all loan funds within 6 months from the date of the  loan authorization and agreement.
Due to the overwhelming need for moderate-sized small business loans in  severely distressed Gulf Coast communities following Hurricanes Katrina  and Rita, SBA implemented the GO Loan Pilot in November 2005  specifically to encourage lenders to lend in these communities and to  assist small businesses that could not obtain credit elsewhere with  working capital and other general-purpose business loans. The pilot  program was originally intended to last less than 1 year; however, because  of the continuing and substantial needs of small businesses in the area,  SBA has extended the program until September 30, 2010. As part of the  program, SBA may provide an 85 percent guaranty to qualified lending  partners, such as banks, that agree to make expedited loans available  under SBA’s 7(a) Loan Program of up to $150,000 to small businesses  located in communities affected by the disasters. Small businesses apply  directly to qualified lenders under the program, who evaluate their  creditworthiness and determine whether they require an SBA guaranty to  make the loan. SBA agrees to make a decision on whether to apply a  guaranty to a loan within 24 hours. While SBA prescribes the maximum  interest rate lenders can charge, the lender and borrower negotiate the  actual rate. Lenders can charge a maximum interest rate of 6.5 percentage  points over the prime rate for loans of $50,000 or less and a maximum rate  of 4.5 percentage points over the prime rate for loans over $50,000.
section_title: HUD’s CDBG Disaster Recovery
paragraphs: HUD’s CDBG Program, created in 1974, is the most widely available  source of federal assistance to state and local governments for  neighborhood revitalization, housing rehabilitation activities, and  economic development. Eligible activities include housing assistance,  historic preservation, real property acquisitions, mitigation, demolition,  and economic development. Because of the funding mechanism that the  CDBG Program already has in place to provide federal funds to states and  localities, the program is widely viewed as a convenient tool for disbursing  large amounts of federal funds to address emergency situations. Over the  past two decades, CDBG has repeatedly been adapted as a vehicle to  respond to federal disasters, such as floods, hurricanes, and terrorist  attacks. When the CDBG Program is used to provide disaster relief funds,  many of the statutory and regulatory provisions governing the use of  CDBG funds may be waived or modified, thereby providing states with  even greater flexibility and discretion.
Following Hurricanes Katrina and Rita, Congress enacted three  supplemental appropriations between December 2005 and November  2007, under which a total of $19.5 billion was made available in CDBG  disaster relief funds to Alabama, Louisiana, Mississippi, and Texas.  Louisiana received the largest amount of these funds—$13.4 billion (69  percent)—and Mississippi received about $5.5 billion (about 28 percent).  Alabama and Texas received a combined $599 million—about 3 percent of  the total. (See table 2.)
Once HUD allocated CDBG disaster relief funds to the affected states,  state-level development agencies were responsible for the administration  and management of the funds. States are traditionally afforded broad  discretion regarding how they decide to allocate CDBG funds to specific  projects and programs. In the aftermath of the hurricanes, Congress  provided additional flexibility to the states in their use of CDBG disaster  relief funds. For example, lawmakers permitted HUD to waive certain  regulations and statutes that would otherwise have been applicable,  including, among other things, income targeting provisions and public  service expenditure caps. Specifically, HUD was allowed to waive the  threshold outlined in statute that 70 percent of total funds must be  allocated to activities that primarily benefit low- and moderate-income  persons. Instead, only 50 percent of the total funds had to be targeted on  this basis, unless the Secretary of HUD found a compelling need to waive  the targeting provision altogether. Specific language in the supplemental  appropriations acts required states to develop and submit action plans to  HUD detailing the proposed use of all funds. Upon submission, HUD  reviewed the action plans for acceptance. These action plans served as  state proposals for how states would use their share of CDBG disaster  relief funds and included descriptions of eligibility criteria and how the  funds would be used to address both urgent needs and long-term recovery  and infrastructure restoration. For example, states can use CDBG disaster  relief funds to help businesses retain or create jobs in disaster-impacted  areas as an eligible economic development activity.
Following Hurricanes Katrina and Rita, Louisiana and Mississippi  implemented small business assistance programs using CDBG disaster  relief funds. Louisiana implemented the following three programs:    Bridge Loan Program: This program provided temporary working capital  loans to businesses located in specified areas affected by the hurricanes.  The loans generally had 6-month terms, but extensions were granted to  some borrowers. They also contained an interest-free period of 180 days  under certain circumstances. No new loans were originated after March  2006, as the state implemented the Business Recovery Grant and Loan  Program.
Business Recovery Grant and Loan Program: This program, launched in  January 2007, targets assistance to small firms that are deemed to have a  chance to survive, contribute to the economy, and maintain and create  jobs. Small businesses receive low-cost loans on flexible terms, small  grants to reimburse businesses for tangible losses, and technical  assistance. Program eligibility has changed over time. For example, when  the program was originally structured, only businesses with fewer than 25  employees were eligible; however, according to state officials, the need for  these grants and loans was too great, and they increased the employee  limit to businesses with fewer than 100 employees. Additionally, state  officials told us that they changed the eligibility requirements to allow  start-up companies to participate in the program. They explained that this  change was made to ensure that entrepreneurial opportunities were  encouraged in the state. Small businesses may use grant and loan funds for  business operating costs, such as leases; insurance; or debt payment on  new equipment, utilities, or inventory. When the program was initially  implemented, the interest rate for loans was 0 percent for the term of the  loan. Since then, the interest rate has been revised and is 0 percent for the  first 2 years of the loan and 4 percent for the remainder of the loan term.  Loan terms range from 5 to 7 years.
Technical Assistance Program: Louisiana developed this program to help  small businesses adjust to the posthurricane business environment.
Through the program, small businesses, including nonprofits, that have  been adversely impacted by the hurricanes can receive technical  assistance in areas such as business management, strategic planning,  accounting, insurance, marketing, and legal matters. Additionally,  entrepreneurs or individuals seeking to start a new firm in the impacted  area are eligible for the program. State officials told us that the program  was designed to complement the Business Recovery Grant and Loan  Program, and that it provides assistance to small businesses that received  grants or loans to help ensure that the funds are utilized effectively by  small businesses.
In 2009, Mississippi implemented one program specifically for small  businesses, the Hancock County Job Generation Fund Program, with  CDBG disaster relief funds. The program grew out of a grassroots effort by  the Hancock County Chamber of Commerce to address the extraordinary  needs of small businesses in Hancock County that sustained the most  powerful forces of Hurricane Katrina and suffered unprecedented  destruction. The program offers loans at a 2 percent interest rate to small  businesses that were located in Hancock County 6 months prior to  Hurricane Katrina and are committed to remaining there for at least 5  years. Unlike SBA disaster loans or loans made through Louisiana’s  Business Recovery Grant and Loan Program, loans made through the Job  Generation Fund Program can be converted into forgivable loans if the  loan recipient meets certain requirements. For example, a small business  owner who purchases and rehabilitates a building in the county to meet  current area building codes (if necessary) and maintains business  operations in that building for a minimum of 5 years is eligible for a  portion of the loan to be forgivable.
section_title: EDA Disaster Assistance
paragraphs: EDA was established in 1965 within the Department of Commerce to  generate jobs, help retain existing jobs, and stimulate industrial and  commercial growth in economically distressed areas of the United States.  According to EDA, its statutory mandate, as applied to postdisaster  assistance, is to help formulate and implement economic recovery  strategies to restore, replace, and expand economic activity in disaster- impacted regions and prioritize projects that will diversify the economic  base and lead to a stronger, more globally competitive and disaster- resilient regional economy. In the past, Congress enacted supplemental  appropriations for EDA to use in response to natural disasters. For  example, following Hurricane Andrew in 1992, Congress appropriated  approximately $75 million to EDA under the Supplemental Appropriations,  Transfers, and Rescissions Act, 1992. In addition, EDA received an initial  supplemental appropriation of $100 million for use in regions covered by a  major disaster declaration under the Stafford Act, as a result of recent  natural disasters, under the Military Construction, Veterans’ Affairs, and  Related Agencies Appropriations Act, 2008. Congress enacted a second  supplemental appropriation for EDA in the amount of $400 million as part  of the Consolidated Security, Disaster Assistance, and Continuing  Appropriations Act, 2009.
EDA did not receive a supplemental appropriation for postdisaster  recovery assistance following Hurricanes Katrina and Rita. However, the  agency used its existing programs, including the RLF Program, to assist  with small business recovery efforts in the Gulf Coast region. Under the  RLF Program, EDA awards grants on a competitive basis to eligible  applicants to establish revolving loan funds. RLF grantees provide loans to  small businesses or businesses that cannot otherwise borrow capital from  private lending institutions. When making loans, RLF grantees must  partner with private lending institutions to leverage additional capital for  borrowers. Consistent with EDA’s mission to attract private capital  investment, RLF grantees generate additional investments for small  businesses and entrepreneurial ventures to diversify the regional  economy. As borrowers repay loans, RLF grantees use a portion of the  interest earned to pay administrative expenses and add the remaining  principal and interest repayments to the fund’s capital base to make  additional loans. Following the hurricanes, EDA recapitalized four of its  RLF grantees in Louisiana for a total of $2 million to make loans to  businesses affected by the disasters.
section_title: Contracting by Federal Agencies Following Disasters
paragraphs: In addition to the federal assistance programs that we have previously  discussed, many federal agencies carry out emergency response activities  through contracts with private businesses, including those for debris  removal, reconstruction, and the provision of supplies. Federal agencies’  contracts with private businesses, whether made in the normal course of  agency operations or specifically related to a natural disaster declaration,  in most cases, are subject to certain goals to increase participation by  various types of small businesses. The Small Business Act requires that the  President set a governmentwide goal each fiscal year for small business  participation for the total value of all prime contracts awarded directly by  an agency. Additionally, the Small Business Act sets annual prime  contract dollar goals for participation by five specific types of small  businesses: small businesses, small disadvantaged businesses, businesses  owned by women, businesses owned by service-disabled veterans, and  businesses located in historically underutilized business zones  (HUBZone). The Stafford Act also requires federal agencies to give  contracting preferences, to the extent feasible and practicable, to  organizations, firms, and individuals residing in or doing business  primarily in the area affected by a major disaster or emergency.
The Federal Acquisition Regulation (FAR) implements many federal  procurement statutes and provides executive agencies with uniform  policies and procedures for acquisition. For example, the FAR generally  requires that executive agencies report information about procurements  directly to FPDS-NG, a governmentwide contracting database that  collects, processes, and disseminates official statistical data on all federal  contracting activities that are greater than the micro-purchase threshold  (generally $3,000). This system automatically obtains from other systems  or online resources additional information that is important to the  procurement, such as the contractor’s location.
The FAR also requires agencies to measure small business participation in  their acquisition programs. A small business may participate via prime  contracts—which are contracts awarded directly by a federal agency—or  through subcontracts. Any business receiving a contract directly from a  federal executive agency for more than the simplified acquisition  threshold must agree in the contract that small businesses will be given  the “maximum practicable opportunity” to participate in the contract  “consistent with its efficient performance.” Additionally, for acquisitions  (or modifications to contracts) that (1) are individually expected to  exceed $550,000 ($1 million for construction contracts) and (2) have  subcontracting possibilities, the solicitation shall require the apparently  successful offeror in a negotiated acquisition to negotiate a subcontracting  plan that is acceptable to the contracting officer, and each invitation for  bid shall require the bidder selected for award to submit a subcontracting  plan to be eligible for award. The subcontracting plan must include  certain information, such as a description of the types of work the prime  contractor believes it is likely to award to subcontractors, as well as goals,  expressed as a percentage of total planned subcontracting dollars, for the  use of small businesses. Generally, contracts that offer subcontracting  possibilities and are expected to exceed the monetary thresholds that we  have previously mentioned are to include certain clauses. These clauses  require that for contracts that have individual subcontracting plans, prime  contractors generally must semiannually and at project completion report  on their progress toward reaching the goals in their subcontracting plans.  Generally, contractors that have individual subcontracting plans are  required to report on their subcontracting goals and accomplishments  twice a year to the federal government through eSRS, which is a  governmentwide database for capturing this information. Furthermore, the  agencies’ administrative contracting officers are responsible for  monitoring the prime contractors’ activities and evaluating and  documenting contractor performance under any subcontracting plan  included in the contract. The contracting officer is tasked with  acknowledging receipt of the reports submitted to eSRS.
section_title: Federally Funded Programs Have Helped to Address Different Needs of Small Businesses, but Some Small Businesses Still Face Challenges, and the Performance of Federally Funded Loans Has Varied
paragraphs: Federal funds were used for a number of different small business  assistance programs following Hurricanes Katrina and Rita. While the SBA  Disaster Loan Program is the primary federal program for funding long- range recovery for the private sector, two states—Louisiana and  Mississippi—also developed small business assistance programs using  CDBG disaster relief funds that Congress provided in response to the  hurricanes. Additionally, although EDA did not receive supplemental  disaster appropriations, the agency provided funds to Gulf Coast small  businesses for new business start-ups and business expansion through its  Revolving Loan Fund Program. However, despite the assistance provided,  some small businesses have struggled with recovering from the  hurricanes, and loan performance has varied for the various federally  funded loan programs.
subsections: section_title: SBA Provided Gulf Coast Small Businesses with Assistance to Repair Disaster-Damaged Property and Address Economic Losses
paragraphs: SBA provided about $1.4 billion in loans to Gulf Coast businesses of all  sizes following Hurricanes Katrina and Rita through its Disaster Loan and  GO Loan programs to assist with the repair or replacement of disaster- damaged property, mitigate economic losses that small businesses  incurred as a result of the hurricanes, and provide working capital loans to  businesses in severely distressed areas. The Disaster Loan Program  accounted for about $1.2 billion of the $1.4 billion SBA provided in loans  to Gulf Coast businesses. As table 3 shows, SBA approved over 13,400  disaster loans for businesses of all sizes affected by the hurricanes from  fiscal years 2005 through 2009, and more than 10,700 of these loans were  identified as having assisted small businesses (economic injury disaster  loans, and physical and economic injury disaster loans). Also, an  unidentifiable number of small businesses received physical disaster  loans. SBA approved about 96 percent of these loans in fiscal year 2006.
As table 4 shows, approved SBA disaster loans identified as going to small  businesses totaled over $578 million for small businesses in Louisiana and  more than $197 million for small businesses in Mississippi.
In focus groups that we conducted, several small business owners told us  about the benefits associated with receiving SBA disaster loans. For  example, one small business owner who operates three grocery stores in  New Orleans that sustained severe wind and water damage in Hurricane  Katrina noted that the SBA physical and economic injury loans she  received gave her a little flexibility in paying her vendors because the  vendors were more confident knowing that federal funds were involved  and were willing to wait on payments until she received the loan funds.  Another small business owner, who operates a Mardi Gras supply store in  New Orleans, lost over $1 million in inventory as a result of Hurricane  Katrina. She also received both an SBA physical loan and an economic  injury loan and said that when she received the loan funds, she was able to  pay off her bank line of credit, which prior to receiving the funds, she had  not been able to do in 3 years. Another small business owner in New  Orleans explained that the SBA physical disaster loan she received  allowed her to purchase equipment, and that without the loan her business  would be closed today. She added that the loan also made her more aware  of the resources that are provided through the local SBDC. Finally, a New  Orleans small business owner who operates an automobile service center  explained that her center was flooded by 10 feet of water when the levees  broke, which destroyed all of the equipment. She said that the SBA  physical and economic injury loans she received were the only way she  was able to get the business restarted.
SBA also approved about 1,600 GO loans for small businesses in the Gulf  Coast states, totaling about $116 million from fiscal years 2005 through  2009 (table 5).
SBA awarded Mississippi small businesses the greatest number of these  loans, but Louisiana small businesses received the greatest amount of  funds. According to officials from three local SBA district offices, the GO  Loan Program has been popular with lenders and has helped with recovery  efforts, as well as offsetting some of the effects of the tightening of the  credit markets. Additionally, one local SBDC director stated that he  believes the GO Loan Program should be considered a best practice in  helping small businesses recover from disasters. Others with whom we  spoke also expressed positive views of the program, including lender  support for the program and the stability the program helped provide to  the region.
section_title: Louisiana and Mississippi Used CDBG Disaster Relief Funds to Implement State- Run Programs to Further Assist Gulf Coast Small Businesses
paragraphs: As of December 31, 2009, Louisiana had used about $179 million in CDBG  disaster relief funds for three programs to specifically assist small business  recovery efforts. Mississippi had developed one program specifically to  assist small businesses to which it targeted $3 million in CDBG disaster  relief funds; however, as of April 2010, the state was in the process of  developing program details and no funds had been spent. The three  programs that Louisiana developed are discussed in the following text.
Bridge Loan Program: Louisiana used about $5.7 million in CDBG disaster  relief funds to provide about 800 small businesses with temporary working  capital loans. State officials told us that money was not disbursed for this  program after March 2006, and that remaining funds were transferred to  the Business Recovery Grant and Loan Program.
Business Recovery Grant and Loan Program: As of December 31, 2009,  Louisiana had used about $164 million in CDBG disaster relief funds and  provided over 4,500 Louisiana small businesses grant and loan  assistance. Under this program, the state has assisted small businesses  that applied for conventional or SBA loans but either had not received  them or still needed additional assistance. Additionally, state program  officials told us that the program helped to provide assistance to certain  businesses that were not eligible for SBA disaster loans. For example,  a  state official explained that some fishermen’s boats were completely  destroyed during the hurricanes, and that the fishermen did not have the  collateral needed to obtain SBA disaster loans. However, because  collateral was not needed for this program, these fishermen were eligible.  In fact, over 25 percent of the small businesses that are participating in  this program is in the fishing industry.
Technical Assistance Program: As of December 31, 2009, Louisiana had  used almost $8.9 million in CDBG disaster relief funds to assist about 3,800  small businesses with adjusting to the posthurricane business  environment. Over 2,200 of these small businesses were entrepreneurs or  start-up companies looking to open businesses in the areas impacted by  the hurricanes.
During focus groups that we conducted, Louisiana small business owners  also told us about the benefits associated with assistance provided  through these programs. For example, one small business owner who  operates two retail shoe and accessory stores located in New Orleans  explained that her participation in the Business Recovery Grant and Loan  Program allowed her to pay down lines of credit that had higher interest  rates. Another small business owner who owns a tourist-related gift shop  in New Orleans explained that as a result of her small business recovery  loan, she was able to purchase merchandise in time for the National  Football League Super Bowl in 2010, which helped to boost her sales. She  stated that without the $80,000 loan she received from the program, she  would not have been able to stay in business. Another small business  owner who operates a bridal shop stated that the assistance she received  from the Business Recovery Grant and Loan Program allowed her, among  other things, to pay 3 months of operating expenses and reduce the debt  owed to some of her manufacturers, which allowed her to buy new  product. Finally, one small business owner who prior to Hurricane Katrina  was a self-employed consultant to minority business owners stated that  the Technical Assistance Program had been extremely helpful. She  explained that many small businesses had utilized this program, and that  for many of her previous non-English-speaking clients, the program  provided the only technical assistance they received after the hurricanes.
According to SBA data we reviewed, the agency determined that 76 small  businesses approved for loans under Louisiana’s Business Recovery Grant  and Loan Program received duplicate benefits under SBA’s Disaster Loan  Program. The Stafford Act prohibits disaster victims from receiving  duplicate federal benefits for the same loss. SBA and the State of  Louisiana developed a process to identify approved Business Recovery  Grant and Loan Program applicants who might receive duplicate benefits.  A senior-level Louisiana state official told us that having an SBA disaster  loan did not necessarily disqualify a small business from the state’s  program; rather, the state looked specifically at how the business intended  to use the funds and compared that with how the small business used the  SBA loan funds. If the intended use of the funds was not the same, then a  small business could still receive assistance under both programs. The 76  small businesses determined to have received duplicate benefits for the  same loss were required to pay off or pay down their SBA disaster loans  with the funds they received under the Business Recovery Grant and Loan  Program. These businesses returned about $1.3 million to SBA.
As of April 2010, 42 small businesses located in Hancock County,  Mississippi, were approved for loans under the Hancock County Job  Generation Fund Program. The state targeted $3 million in CDBG disaster  relief funds for this program. However, according to a program official, no  loans had been closed because they were working with HUD on remaining  program compliance issues. State officials told us that the towns in  Hancock County are based around a small business community, and that  the bulk of the businesses were located in Hurricane Katrina’s surge area;  therefore, there has been a need to provide additional working capital to  these businesses until infrastructure repair in the area is complete. During  focus groups that we conducted, one Mississippi small business owner  who owns a brewery stated that he expects that the funds for which he has  been approved will allow him to hire four or five additional employees. He  added that he believes that the program is well focused and has the  potential for doing a lot of good for the county.
Alabama, Louisiana, and Mississippi also utilized CDBG disaster relief  funds for other efforts that benefited small businesses following the  hurricanes. For example, while Alabama did not develop programs  specifically for small business recovery, state officials noted that small  businesses did benefit from the contracts that the state issued for the  infrastructure programs funded with CDBG disaster relief funds because  the state utilized mostly small and local businesses for such projects. In  addition, a senior-level HUD official told us that Louisiana utilized $200  million to subsidize state energy rates, which prevented a large rate  increase after the hurricanes and benefited all state residents, including  small business owners. Furthermore, Mississippi state officials told us that  they used $30 million in CDBG disaster relief funds to subsidize the state’s  commercial insurance wind pool between fiscal years 2007 and 2008,  which directly benefited small businesses. According to state officials, this  subsidy lowered insurance premiums for small businesses, which in turn  had increased significantly following the hurricanes. Additionally, state  officials noted that the state’s use of CDBG disaster relief funds to repair  bridges, roads, and other public infrastructure was critical for small  business recovery because this work allowed people to move back to the  coastal area, which in turn helped small businesses rebuild their customer  base.
section_title: EDA RLF Grantees Have Provided Gulf Coast Small Businesses with Loans to Start New Businesses or Expand Existing Businesses
paragraphs: EDA RLF grantees made approximately $36 million in below-market-rate  loans to Gulf Coast small businesses following the hurricanes, primarily  for new business start-ups, existing business expansion, and job retention.  According to RLF grantee reports we reviewed, these investments  generated approximately $196 million in private investment. Table 6 shows  the amount EDA invested across the four states in the Gulf Coast region,  as well as the total amount of private investments.
As we have previously noted, EDA awarded $2 million in program funds to  recapitalize—or provide additional funding to—four RLF grantees in  Louisiana specifically to assist small businesses impacted by the  hurricanes (see fig. 1).
For example, the New Orleans Regional Loan Corporation, an RLF  grantee, received $600,000 in additional program funds and made loans to  seven small business owners for disaster recovery purposes. One small  business owner who operated a restaurant received a loan of $75,000 to  help cover uninsured expenses, including new equipment and clean-up  costs. In addition, an operator of a service station that sustained flood  damage received a loan of $250,000 to purchase new gasoline pumps.  Another RLF grantee, the Jefferson Parish Economic Development  Commission, received $500,000 in additional program funds; officials told  us that they made loans to three small business owners impacted by the  hurricanes, including a $340,000 loan to a printing company to purchase  new equipment. Finally, the Acadiana Regional Development District used  their recapitalization amount of $600,000 to make loans to 14 small  businesses.
Although EDA did not recapitalize RLF grantees in Alabama, Mississippi,  and Texas, RLF grantees in heavily impacted areas of these states told us  that they provided other forms of assistance to small businesses for  disaster recovery efforts. For example, in Gulfport, Mississippi, an RLF  grantee official reported they offered borrowers 2-month loan payment  deferments. Similarly, in Beaumont, Texas, an RLF grantee offered 3- month payment deferrals after the hurricanes, but loan borrowers’  accounts continued to accrue interest, and principal was not waived.
section_title: Despite Federal Assistance, Small Business Owners Reported Several Challenges to Recovery Efforts
paragraphs: Despite the assistance that federal and state-run programs have provided  to small businesses, some small business owners in focus groups that we  conducted and others with whom we spoke cited challenges with  participating in some of these programs, particularly the SBA Disaster  Loan Program.
Timeliness of assistance received: Several small businesses commented  that they did not receive assistance in a timely manner, particularly under  SBA’s Disaster Loan Program. One Mississippi small business owner of a  storage facility told us it took him 9 months to receive funding from his  SBA physical and economic injury disaster loans, during which he had to  operate off of $50,000 of his savings and take outside employment to  support himself. A wholesale trade small business owner in New Orleans  told us that she applied for an SBA disaster loan in the middle of  September 2005, received approval in August 2006, and received the final  portion of the loan in December 2007. She added that during that period,  she invested all income into the business and paid herself a minimum  salary. Additionally, SBDC representatives and representatives of local  chambers of commerce with whom we spoke stated that the length of time  it took to receive SBA Disaster Loans caused difficulties for small  businesses trying to sustain in the immediate aftermath of the hurricanes.
In July 2006, we reported that SBA faced an unprecedented demand for  disaster loans while also confronting a significant backlog of applications;  as a result, hundreds of thousands of loans were not disbursed in a timely  way. We also concluded that SBA had not fully planned for the  implementation of its new disaster loan processing system—DCMS— which restricted the number of staff that could access the system and  process the large volume of applications. Since then, SBA has taken  several steps to reform its Disaster Loan Program, including creating an  online loan application, increasing the capacity of DCMS, and developing a  Disaster Recovery Plan.
Application process and requirements: Two Mississippi small business  owners with whom we spoke discussed that they had difficult experiences  in applying for SBA disaster loans. They both stated that they had  problems with the SBA adjustment process, and that the damage to both  of their properties was severely undervalued. Both also said that they had  to work with several different SBA case managers throughout the  application process, which contributed to their difficult experience  because the new case manager was not familiar with actions that had  previously occurred on their applications. Another small business owner  in New Orleans explained that he needed a lot of financial records to apply  for a SBA disaster loan, which presented problems. He said that all of his  records sat in over 7 feet of water for 12 weeks and were completely  destroyed. Local SBDC officials and officials from chambers of commerce  also told us that in some instances, small business owners found the  application process so complicated that they decided not to complete it,  and that, in some cases, the business owners did not have the proper  educational background to complete the application.
Local SBDC officials and officials from state and federal development  agencies explained that some small business owners faced difficulty in  meeting some of the loan program underwriting requirements for  collateral. For example, some small businesses affected by Hurricanes  Katrina and Rita were completely destroyed, and all that remained after  the storm was the concrete slab on which their business had been located;  many of these business owners also lost their homes. In these instances,  some small business owners were unable to meet the collateral  requirements for loans.
In addition to the program-related challenges previously listed, many small  business owners told us in focus groups that we conducted and others  with whom we met reported more general challenges that have hindered  small business recovery efforts, including an increased debt load;  difficulties in receiving commercial insurance payouts, reduced insurance  availability, and increased insurance costs; and difficulty in accessing  capital.
Increased debt load: Several small business owners with whom we spoke  stated that the federal assistance loans have increased their debt burden  and are creating significant challenges for recovery. For example, one  New Orleans small business owner explained that the business she  operates has five times the level of debt it had before Hurricane Katrina.  She stated that although her sales are back to pre-Katrina levels, because  of the added debt, the company needs higher sales now to remain as  profitable as it was prior to the hurricane. Another small business owner  who operates two retail stores that were destroyed during Hurricane  Katrina explained that his business was debt free prior to the hurricane.  He now has an SBA physical disaster loan, GO loan, and a loan from the  Louisiana Business Recovery Grant and Loan Program. His current  employee level is significantly lower than the pre-Katrina level, and  because of the large amount of debt he is carrying, he told us that he is  unable to hire any additional employees. Others with whom we spoke also  discussed the difficulties being faced by small business owners because of  the debt resulting from federal assistance loans. For example, a local  planning and development district official stated that many small business  owners were afraid to expand because they did not want to take on the  additional debt needed to do so. A representative from a local chamber of  commerce also told us that the heavy debt affects small businesses’ access  to capital and businesses’ viability.
Commercial insurance: Small business owners and other local officials  told us that many small business owners faced difficulties in receiving  insurance payouts for damages suffered, and that this situation has  stymied recovery efforts by stalling businesses from reopening. One small  business owner in New Orleans told us that he has been in court  proceedings with his insurance company for over 3 years working to settle  claims. He explained that had he received insurance payouts earlier, he  would have been able to reopen his business sooner and create jobs to  help stimulate the local economy. Additionally, a restaurant owner in New  Orleans told us that it took 16 months to receive a payout from his  insurance company, and that he had to hire an attorney and sue the  insurance company to get the payout. Another small business owner  stated that although her business was well insured, she did not receive  payment until November 2009.
Several small business owners in Louisiana and Mississippi also stated that  the cost to insure their businesses has significantly increased since the  storms. Two small business owners told us that their commercial  insurance rates at least doubled after the hurricanes. A small business  owner in Mississippi who operates a retail store out of her home stated  that her insurance costs (for her home and business) increased by 400  percent after Hurricane Katrina, and that the building being insured was  significantly smaller than the one she owned prior to the hurricane. She  explained that the cost of insurance was so high that it was difficult to  make a profit without significantly raising prices. Another business owner  stated that the wind and hail insurance on her wholesale trade company  for durable goods increased from about $2,600 to $14,000 a year.  Additionally, a local chamber of commerce official told us that increased  insurance premiums remain a major reason why some small businesses  have not been able to reopen, and a local planning and development  district official told us that some small businesses in the area had closed  because the increased cost of insurance had made it unaffordable to stay  in business.
Some small business owners also mentioned that the availability of  insurance was significantly reduced after the hurricanes. For example, one  small business owner who operates three grocery stores in New Orleans  told us that there were certain types of insurance that she can no longer  purchase, such as spoilage and excess flood coverage. Another New  Orleans small business owner told us that since the hurricanes, there were  very few insurance companies from which to choose to purchase  insurance policies. Additionally, local SBA district office officials, a local  chamber of commerce official, and a local business research foundation  told us that the availability of insurance had significantly decreased,  particularly for businesses located in coastal areas.
Difficulty in accessing capital: SBA district and branch office officials  and officials from several local chambers of commerce also mentioned  that small business owners have had difficulty in accessing capital for  business loans due to the current economic environment. Some stated that  lenders’ reluctance to provide small business capital was prohibiting  recovery efforts, and that the elimination of credit lines for small  businesses has had a dramatic impact on business growth. Additionally, a  local SBDC Director told us that accessing additional capital had proven  even more difficult for small business owners with SBA disaster loans.
section_title: Performance of Federal and State-Run Business- Assistance Loans Varied
paragraphs: Overall, we found that the performance of the loans small businesses  received for the various federal assistance programs we reviewed varied.  For example, about 70 percent of the 10,710 disaster loans that the agency  approved for small businesses in the Gulf Coast region was current, and  about 15 percent was paid in full. In addition, the default rate for disaster  loans made to small businesses was 9.4 percent, and 2.8 percent of loans  was either past due or delinquent. For GO loans, about 54 percent of the  1,573 loans SBA approved for small businesses was current, and about 17  percent was paid in full. The default rate for GO loans was 6 percent, and  about 13.4 percent was in delinquent status. Loans provided to small  businesses through the Louisiana Business Recovery Grant and Loan  Program experienced a default rate of about 4.1 percent and a delinquency  rate of about 8.5 percent as of fiscal year 2009. Finally, 1 of the 27 loans  made by RLF grantees in Louisiana using additional program funds  targeted for disaster recovery was delinquent and 3 had defaulted. In  summary, the percentages of loans categorized as in default or delinquent  were about 12 percent for SBA disaster loans, 19 percent for SBA GO  loans, about 12 percent for Louisiana small business loans, and about 15  percent for the small number of EDA RLF loans made specifically for  disaster recovery purposes. Differences in the characteristics of the  various loan programs we reviewed—such as year of origination, interest  rates, loan terms, types of small business served, and the use of loan  funds—are among the variables that could have an impact on loan  performance.
section_title: Gulf Coast Small Businesses Directly Received Billions of Federal Contracting Dollars, but Reporting of Subcontracting Dollars Awarded Remains Incomplete
paragraphs: Gulf Coast small businesses directly received almost $2.9 billion in total  federal contract funds awarded for Hurricanes Katrina- and Rita-related  recovery projects between fiscal years 2005 and 2009. However, we found  that the Corps and DOD could not demonstrate that they were consistently  monitoring subcontracting accomplishment information as required for 13  of the 43 construction contracts awarded directly to large businesses for  Katrina- and Rita-related recovery efforts during that time. Without  monitoring, the Corps and DOD are limited in their ability to determine the  extent to which their prime contractors are following their subcontracting  plans.
subsections: section_title: Federal Agencies Awarded a Significant Amount of Contract Dollars Directly to Small Businesses in Gulf Coast and Other States
paragraphs: Federal agencies directly awarded a total of $20.5 billion nationwide in  contracts between August 2005 and September 2009 for recovery efforts  related to Hurricanes Katrina and Rita. Of this $20.5 billion, small  businesses located in Gulf Coast states received almost $2.9 billion (13.9  percent), and small businesses in the rest of the United States received  about $2.7 billion (see fig. 2).
Among the four Gulf Coast states in our review, Louisiana small  businesses directly received the greatest amount of federal contract funds,  about $1.5 billion. However, Alabama small businesses saw the largest  proportion (49 percent) of total prime contract dollars awarded within a  particular state (see fig. 3).
The amount of federal contract funds directly awarded to specific types of  small businesses for Hurricanes Katrina- and Rita-related recovery efforts  varied (see fig. 4).
Small disadvantaged businesses: Of the almost $2.9 billion in contracting  dollars that went directly to small businesses in the Gulf Coast, about  $839.5 million (almost 30 percent) was awarded to small disadvantaged  businesses. Louisiana small disadvantaged businesses received the  greatest amount of the prime contract funds awarded to disadvantaged  businesses in Gulf Coast states (over $456 million).
HUBZones: Gulf Coast small businesses located in HUBZones directly  received a total of about $598 million in federal contract funds (21 percent of  federal contract funds directly awarded to Gulf Coast small businesses). Of  the contract funds directly awarded to small businesses in HUBZones,  Louisiana small businesses received the greatest amount (over $335 million).
Women-owned small businesses: About $382 million in federal contract  funds were directly awarded to women-owned small businesses in the Gulf  Coast (about 13 percent of all federal contract funds directly awarded to  Gulf Coast small businesses for Katrina- and Rita-related recovery efforts).  Women-owned small businesses in Louisiana were directly awarded the  greatest amount of the federal contracts (approximately $184 million).
Veteran-owned small businesses: Gulf Coast small businesses owned by  veterans were directly awarded about $289 million in federal contract  funds (about 10 percent of all the Katrina- and Rita-related federal  contracts directly awarded to Gulf Coast small businesses). Veteran- owned Louisiana small businesses were directly awarded about $205  million of the $289 million, the most in the Gulf Coast states.
Contracting dollars awarded directly to businesses can be counted in more  than one category, so the dollars awarded to various types of small  businesses are not mutually exclusive.
section_title: Corps of Engineers and DOD Could Not Demonstrate Consistent Monitoring of Subcontracting Information for Selected Contracts
paragraphs: The Corps and DOD could not demonstrate that they were consistently  monitoring subcontracting accomplishment information as required. As  we have previously discussed, subcontracting plans are generally required  for construction contracts (or modifications to contracts) that are  expected to exceed $1 million and that have subcontracting possibilities.  The FAR states that subcontracting plans must include assurances that  prime contractors will report on their progress toward reaching their  subcontracting goals. Generally, contracts that offer subcontracting  possibilities and are expected to exceed the monetary thresholds above  are to include certain clauses. In general, these clauses require contractors  to submit these reports semiannually and at project completion. The Corps  and DOD use these reports to monitor contractor performance under  subcontracting plans.
We reviewed the 57 construction contracts that the Corps, DHS, DOD, and  GSA awarded directly to large businesses between fiscal years 2005 and  2009, and that were listed in FPDS-NG as having subcontracting plans. The  Corps awarded 29 of these contracts but was unable to provide  subcontracting accomplishment report information for 11 contracts. DOD  awarded 14 of the contracts and was unable to provide subcontracting  accomplishment information for 2 contracts (see table 7).  Without these  reports, either in eSRS or paper form, contracting officials lack a key tool  used to monitor contractors’ performance under subcontracting plans.
As of 2005, all contractors with subcontracting reporting requirements  related to contracts with civilian agencies were generally required to  submit, with some exceptions, summary subcontract reports into eSRS, a  Web-based govermentwide subcontracting system that allows contractors  to submit and agency officials to review subcontracting accomplishment  reports electronically rather than using paper forms. DOD implemented  eSRS incrementally and, as of 2009, began primarily relying on eSRS for  subcontract reporting. The development of eSRS was intended to create  more visibility and transparency into the process of gathering information  on federal subcontracting accomplishments.
In addition to requirements for contractors to submit subcontracting  accomplishment information, the FAR requires that agency contracting  officers review subcontracting plans for adequacy and take action to  enforce the terms of the contract if notified that the contractor is failing to  meet its commitments under their subcontracting plan. Agency  administrative contracting officials are required to provide information to  the contracting officer on the extent to which the contractor is meeting  subcontracting plan goals and to notify the contracting officer if the  contractor is failing to comply in good faith with the subcontracting plan.  In determining whether a contractor failed to make a good-faith effort to  comply with its subcontracting plan, a contracting officer must look to the  totality of the contractor’s actions, consistent with the information and  assurances provided in its plan. When considered in the context of the  contractor’s total effort in accordance with its plan, failure to submit  contracting accomplishment reports may be considered an indicator of a  failure to make a good-faith effort. These requirements were in place  prior to the 2005 hurricanes and have continued in the eSRS environment.  New requirements were added to the FAR in April 2008 that additionally  require that contracting officers acknowledge receipt of or reject the  subcontracting accomplishment reports submitted by contractors in  eSRS. In addition, GSA, DOD, and the Corps have agency guidance that  spells out the contract administration duties necessary to monitor  contractor compliance with subcontracting plan reporting requirements.  Without subcontracting accomplishment information, contracting officials  at the Corps and DOD lack a key tool used to monitor contractor  performance under subcontracting plans.  In the absence of these reports,  the Corps and DOD could not demonstrate that they were consistently  monitoring contractor performance under the plans.
As we have previously noted, the Corps did not provide subcontracting  accomplishment report information for 11 of these contracts and was unable  to provide a reason for why subcontracting information was unavailable for  these contracts. DOD did not provide us with subcontracting information on 2  of the 14 construction contracts that we reviewed, and DOD officials told us  that after searching retained records, it could not find any paper or electronic  subcontracting accomplishment reports. Without monitoring, the Corps and  DOD are limited in their ability to determine the extent to which their prime  contractors are following their subcontracting plans.
section_title: Economic Conditions Have Varied Across the Gulf Coast Region Following Hurricanes Katrina and Rita and Appear to Be Related in Part to the Level of Damage Sustained in Different Areas
paragraphs: Indicators of economic conditions in the Gulf Coast—including population  estimates, the number of small businesses, unemployment rates, and  housing prices—suggest that the effects of Hurricanes Katrina and Rita on  local economies have varied across the region. Some areas experienced  decreases in the number of small businesses and population and increases  in unemployment after the hurricanes. While some areas experienced  economic decline immediately after the storms, the whole Gulf Coast  region eventually began to experience economic growth (as measured by  these four indicators) until the national economy went into a recession in  late 2007. The impact on small businesses from the April 20, 2010,  explosion of the Deepwater Horizon oil rig is still uncertain.
subsections: section_title: The Gulf Coast Region Experienced Shifts in Population Levels and Number of Small Businesses
paragraphs: Louisiana and Mississippi, the two states most affected by Hurricanes  Katrina and Rita, experienced varying shifts in population and number of  small businesses at the state level. For example, in Mississippi, the  population decreased 1 year after the hurricanes (see table 8). However,  by 2007, the statewide population increased to more than 2.9 million,  higher than pre-Katrina levels. In Louisiana, the population declined by  more than 250,000 in the year following the hurricanes; the statewide  population has since increased but has not achieved prehurricane levels.  Additionally, in Louisiana and Mississippi, the total number of small  business establishments declined in the year following the hurricanes but  exceeded prehurricane levels by 2007. For example, in Louisiana, the total  number of small businesses with 50 or fewer employees decreased from  about 97,200 in 2005 to over 96,100 in 2006 (about 1 percent) but then  increased to about 98,900 in 2007. Unlike Louisiana and Mississippi,  Alabama and Texas experienced steady statewide growth in population  and the number of small businesses following the hurricanes.
At the county and parish level, population shifts remained uneven among  the affected areas within states in the Gulf Coast. Specifically, between  2005 and 2006, counties more heavily impacted by the hurricanes  experienced sharp decreases in population and in the number of small  businesses, while adjacent counties with less damage experienced steady  growth (see figs. 5 and 6).
In St. Bernard and Orleans Parishes in Louisiana—two of the most heavily  damaged parishes—from 2005 to 2006 the populations decreased by  approximately 79 percent and approximately 54 percent, respectively, and  the numbers of small businesses declined by 40 percent and 18 percent,  respectively. As of 2008, the populations in St. Bernard and Orleans  Parishes had increased slightly but were still 42 percent and 32 percent  below pre-Katrina population levels, respectively. Conversely, between  2005 and 2006, St. Charles and St. John the Baptist Parishes in Louisiana— parishes that were less damaged by the hurricanes—increased in  population by 3 percent and 5 percent, respectively, and the numbers of  small businesses also increased by 4 percent and 6 percent, respectively.
In Hancock County, Mississippi—where the eye of Hurricane Katrina  made landfall—the population declined by 16 percent, and the number of  small businesses declined by 14 percent from 2005 to 2006. Concurrently,  the population in Stone County, Mississippi, which is located just north of  Hancock County, increased by approximately 5 percent, while the number  of small businesses increased less than 1 percent.
In Mobile County, Alabama, and Harris County, Texas—two counties that  sustained less damage as a result of the hurricanes—the populations  increased by about 1 percent and about 3 percent, respectively, and the  numbers of small businesses increased by less than 1 percent and about 2  percent, respectively, from 2005 to 2006.
At the focus groups we conducted, small business owners in New Orleans,  Louisiana, and Gulfport, Mississippi, told us that populations and tourist  levels were lower than what they were prior to Hurricane Katrina,  resulting in a smaller customer base that has had a negative impact on new  small businesses relocating to the areas. For example, a small business  owner of a brewery in Gulfport, Mississippi, told us that prior to  Hurricanes Katrina and Rita, 80 percent of his customer base stemmed  from the Mississippi Gulf Coast. However, after the hurricanes, he lost  most of his customer base and has had to develop a new business strategy  focusing on out-of-state sales to remain operational. Additionally, a small  business owner who owns a restaurant located in the French Quarter in  New Orleans told us that the lower levels of tourists since the hurricanes  have caused him to find innovative ways to market the restaurant to  expand the customer base. Others with whom we spoke, including SBA  officials and representatives of local chambers of commerce, believed that  the lower population levels have created recovery challenges for small  businesses operating in these areas. For example, officials from one local  SBA district office said that small businesses in the coastal counties along  the Gulf Coast region still face tough economic conditions because of the  extended period after the hurricanes during which businesses operated  with a significantly reduced customer base.
section_title: Increases in Unemployment in Some States May Be Correlated with Changes in the Labor Market Immediately Following the Hurricanes, While More Recent Increases Could Be Associated with Broader National Economic Conditions
paragraphs: Although unemployment rates in Louisiana and Mississippi increased  immediately following Hurricanes Katrina and Rita, it appears that the  impact of the hurricanes on unemployment rates was temporary. For  example, unemployment rates at the state level in Louisiana and  Mississippi increased in the 2 months following the hurricanes from 5  percent to 11 percent and from 7 percent to 9 percent, respectively;  however, by January 2006, the unemployment rates in both states returned  to about the pre-Katrina levels. In comparison, between August 2005 and  January 2006, the unemployment rate in Alabama declined slightly and  remained about the same in Texas. Between January 2008 and December  2009, unemployment rates in all four states generally increased, which  state officials attributed to current economic conditions in the nation  more broadly (see fig. 7).
Additionally, as we have previously discussed, residents relocated out of  some states, such as Louisiana and Mississippi, as a result of the  hurricanes. This population migration decreased the size of labor force,  which may have increased the unemployment rate even as the number of  unemployed persons did not change. Therefore, the increase in the  unemployment rate could have been the result of a decrease in the labor  force, an increase in the number of unemployed persons, or both.
section_title: Housing Prices in Selected Heavily Damaged Areas Have Shown Some Steady Increases
paragraphs: From 2005 to 2008, the Federal Housing Finance Agency’s housing price  index—a nationally recognized housing price index—increased in four  metropolitan statistical areas (MSA) heavily damaged by the hurricanes.  Since the housing price index is a broad measure of the movement of  single-family house prices, the increase suggests that average housing  prices increased across the areas immediately following the hurricanes.  Housing prices are generally determined by the supply and demand of  housing units. To the extent that the hurricanes’ effect on the stock of  housing units and population varied among counties and parishes within  es within  the MSAs, housing prices could also behave differently (see fig. 8).  the MSAs, housing prices could also behave differently (see fig. 8).
For example, in the New Orleans-Metairie-Kenner MSA in Louisiana, the  housing price index increased by approximately 22 percent between the  fourth quarters of 2004 and 2006. One local SBDC director who lost her  house as a result of Hurricane Katrina stated that these price increases  prohibited her from rebuilding in Orleans Parish because property was too  expensive immediately following the hurricane. Therefore, she had to  relocate to a neighboring parish. Similarly, the price index increased by 31  percent during this time in the Gulfport-Biloxi MSA in Mississippi. In the  Mobile MSA in Alabama, housing prices increased by approximately 24  percent between 2004 and 2006, while the Beaumont-Port Arthur MSA in  Texas experienced a smaller increase of 13 percent during this time. Since  2007, housing prices varied in the four areas affected by the hurricanes  and have started to decrease in some metropolitan areas, such as Gulfport- Biloxi, Mississippi, and New Orleans-Metairie-Kenner, Louisiana. However,  the decrease in housing prices may be due to factors affecting the national  housing market, such as the overall decline in housing prices. The housing  price index data are limited in that they only show the average housing  prices at the MSA level, which may not reflect the housing prices in the  smaller constituent counties and parishes within them. As a result,  averaging the housing prices across the counties within an MSA could  obscure the varying movement of housing prices in counties and parishes  within the MSAs.
section_title: Impact of Deepwater Horizon Oil Spill on Gulf Coast Economy Is Uncertain
paragraphs: Representatives of state and local organizations and organizations that  assist small businesses, as well as small business owners with whom we  met, expressed uncertainty regarding the impact on the small business  economy that will result from the recent oil spill in the Gulf of Mexico. On  April 20, 2010, the Deepwater Horizon oil rig exploded off the coast of  Louisiana; the resulting oil spill has led to the closure of waters to  commercial and recreational fishing and has threatened the shoreline  across the Gulf Coast region. Two industry sectors that have been and will  likely continue to be heavily impacted are commercial and recreational  fishing and travel. As of July 13, 2010, almost 84,000 square miles of federal  waters in the Gulf of Mexico, which represents about 35 percent of these  waters, were closed to commercial and recreational fishing as a result of  the oil spill (see fig. 9).
Alabama, Florida, Louisiana, and Mississippi have also closed state waters  to commercial and recreational fishing as a result of the oil spill. For  example, about 4,300 square miles of state waters in Louisiana were closed  to commercial and recreational fishing as of July 13, 2010. In Florida,  approximately 23 miles of coastal state waters offshore of Escambia  County were closed to the harvest of saltwater fish, crabs, and shrimp  effective June 14, 2010.
According to the National Oceanic and Atmospheric Administration  (NOAA), in 2008 commercial fishermen in Alabama, Florida (West Coast),  Louisiana, and Mississippi harvested approximately 1.2 billion pounds of  finfish and shellfish that generated about $523 million in total revenue,  which represented 14.4 percent of the U.S. domestic landings of finfish  and shellfish (in pounds) and 11.9 percent of the domestic landings  revenue generated (see fig. 10). Louisiana led all four states in pounds  harvested and revenue generated; nationally, Louisiana was second in  pounds harvested and fourth in revenue generated. Additionally, Louisiana  led all four states in landings of shrimp, followed by Alabama, Florida  (West Coast), and Mississippi.
In addition to commercial fishing, recreational fishing is also a significant  activity in the Gulf Coast. According to NOAA, in 2008 nearly 3.2 million  Gulf Coast residents participated in marine recreational fishing. All  participants, including visitors, took 25 million trips and caught nearly 194  million fish, representing almost 30 percent and about 42 percent of the  national totals, respectively. Over 67 percent of these trips were made in  West Florida, followed by 18 percent in Louisiana, almost 7 percent in  Alabama, and nearly 4 percent in Mississippi.
Travel is another key industry that has been and will likely continue to be  heavily impacted by the oil spill. According to the U.S. Travel  Association, in 2008 domestic and international travelers spent more than  $94 billion in travel expenditures in Alabama, Florida, Louisiana, and  Mississippi (see table 9). In addition, these travel expenditures directly  generated more than 1 million jobs in these four states. Table 9 also shows  that both Louisiana and Mississippi experienced declines in travel  expenditures and associated employment in 2006, following Hurricanes  Katrina and Rita. By 2008, Louisiana was approaching its prehurricane  level of travel expenditures, and Mississippi had surpassed its  prehurricane level, yet neither state had returned to its 2004 level of travel- generated employment.
An October 2009 U.S. Travel Association report on the economic impact of  travel on Louisiana parishes also showed that in 2008 five parishes  (Caddo, East Baton Rouge, Jefferson, Lafayette, and Orleans) accounted  for about 67 percent (over $6 billion) of the travel expenditures (domestic  travelers only) and 71 percent (more than 72,000 persons) of the travel- generated employment in the state. Orleans Parish, which constitutes the  City of New Orleans, generated about 37 percent (about $3.5 billion) of the  state total for travel expenditures in 2008 and 46 percent (roughly 47,000  persons) of travel-generated employment.
Accommodation and food services constitute one component of the travel  industry. According to the U.S. Census Bureau, in 2007 there were about  55,800 accommodation and food services establishments across the four  Gulf Coast states that employed about 1.2 million persons. Of the about  55,800 accommodation and food services establishments, about 14,200  (about 25 percent) were located in SBA’s current disaster declaration area  for the oil spill in Alabama, Florida, Louisiana, and Mississippi. These  establishments employed over 290,000 persons. In most of these counties  and parishes, the number of establishments and employees in 2007  exceeded pre-Hurricanes Katrina and Rita levels. However, in Orleans  Parish, Louisiana, the number of accommodation and food services  establishments declined from about 1,250 in 2004 to about 960 in 2006 and  then grew to about 1,050 in 2007. The number of persons employed in the  industry in the parish was about 37,000 in 2004 and approximately 19,100  in 2006. While industry employment grew to about 24,200 in 2007, it still  remained significantly below its prehurricane level. In Harrison County,  Mississippi, in 2004 there were about 450 accommodation and food  services establishments, which dropped to about 350 in 2006 after the  hurricanes and, as of 2007, remained at about 350. As of 2007, employment  levels in Harrison County also had not rebounded to prehurricane levels.
In response to the oil spill, SBA has offered economic injury assistance to  small businesses in counties and parishes in Alabama, Florida, Louisiana,  and Mississippi included in SBA’s disaster declarations (see fig. 11).
Those eligible for this assistance include small businesses engaged in  shrimping, crabbing, and oyster fishing in the waters closed as a result of  the spill; small businesses dependent on the catching or sale of shrimp,  crabs, and oysters; suppliers of fishing gear and fuel; docks, boatyards,  processors, wholesalers, shippers, retailers, and other small businesses  dependent on revenue from fishing; recreational and sports fishing small  businesses; and coastal small businesses. In addition, small businesses in  areas included in the declaration that are currently repaying an existing  SBA disaster loan can request a deferment. Also, homeowners who have  existing SBA disaster home loans can request a deferment if their business  or employment has been impacted by the oil spill. As table 10 shows, SBA  had approved 181 economic injury disaster loans totaling $15.2 million as  of July 22, 2010.
SBA also has granted deferments to 707 businesses and homeowners with  existing disaster loan balances totaling about $86.9 million. According to  SBA officials, the agency tailors loan deferments on the basis of the need  of the borrower and can defer payments on loans up to 12 months.  However, interest on the loan continues to accrue during the deferment  period. Finally, SBA had opened about 30 business recovery centers  throughout the affected areas to provide information, answer questions,  and assist with the loan application process.
A number of businesses in the areas impacted by the oil spill had existing  SBA disaster loans related to Hurricanes Katrina and Rita. For example,  more than 9,300 businesses in Alabama, Louisiana, and Mississippi that  were located in SBA’s current disaster declaration area for the oil spill had  existing disaster loan balances totaling about $918 million for damages or  losses incurred following these hurricanes. In addition, over 600  businesses in Alabama, Florida, Louisiana, and Mississippi that were  located in SBA’s current disaster declaration area for the oil spill had  existing GO loan balances totaling $38 million.
Small business owners with whom we met in Louisiana and Mississippi  also expressed uncertainty regarding the impact of the spill on their  businesses, including the following examples:  In Louisiana, the owner of a charter boat business told us that he began to  experience cancellations of scheduled charters 1 week following the oil  spill; he subsequently canceled all scheduled charters from May to  September because of the uncertainty regarding which areas of the Gulf  Coast would be closed to recreational fishing due to the oil. He added that  May to July represents the busy season for the charter boat business in the  region. To mitigate the economic losses he has incurred, he signed up for  the Vessels of Opportunity Program implemented by BP to provide local  boat operators with an opportunity to assist with response activities,  including transporting supplies, assisting wildlife rescue, and deploying  containment and sorbent booms. The owner indicated that the program  provides him with the opportunity to generate a comparable income while  waters remain closed to recreational fishing, but he expressed uncertainty  about how long the BP Vessels of Opportunity Program would use his  services and about when he might resume normal business operations.
In Mississippi, the owner of a seafood restaurant told us that she had  already started to see the impacts of the oil spill on her business. She  explained that it was difficult to obtain fresh oysters, and that the price of  fresh shrimp had increased in recent months. She noted that the restaurant  was currently absorbing the increased costs and not passing them on to its  customers. She added there was a negative perception regarding eating  seafood from the Gulf Coast, which also had negatively impacted her  business. She further explained that her restaurant currently operates out  of a temporary location because Hurricane Katrina had completely  destroyed their former coastal location, including infrastructure provided  by local government. She planned to start rebuilding at a new coastal site  in 2010 now that the infrastructure has been restored along the coastal  areas, but she noted that the oil spill has added to the uncertainty of  returning the restaurant to a coastal site.
In Louisiana, a co-owner of a family-owned oyster processing business  told us that the business had to completely shut down operations in mid- June. She explained that the business purchased oysters from commercial  fishermen and oyster farmers and pasteurized the oysters for sale to  restaurants. She added that the business also owned their oyster boats.  She noted that the closure of waters off the Gulf Coast to commercial  fishing following the oil spill significantly impacted the amount of oysters  that their business could purchase. She stated that the three oyster boats  the business owned now participate in the Vessels of Opportunity Program  that we have previously described, but she stated that her family-owned  oyster processing business had high fixed costs. She also expressed  uncertainty about the long-term viability of the business, which has been  in her family for four generations.
Representatives of state and local organizations and organizations that  assist small businesses also expressed uncertainty regarding the impact on  the small business economy that will result from the oil spill. For example,  significant uncertainty exists surrounding the long-term environmental  impact of the oil spill on the marine environment in the Gulf of Mexico and  how it will impact the fishing industry. In addition, researchers at the  Louisiana State University’s Agricultural Center stated that it is too early  to provide estimates of the economic losses expected to be incurred as a  result of the oil spill. They explained that numerous factors must be  considered, including, among others, the volume of the spill and duration  of the leak, the extent of the geographic spread, the intersection of  commercial and recreation fishing areas in relation to the spill, and  species-specific and season-specific variables related to reproduction and  harvest.
Additionally, much uncertainty exists regarding how businesses that are  indirectly impacted by the spill will be compensated for potential losses.  For example, in addition to commercial fishermen who are directly  impacted by the spill, there are many other fishing industry participants— such as seafood processors; packing plants; and brokers, as well as  trucking and air freight companies—that all may be impacted by the  closure of commercial fishing waters. Other businesses in the areas also  could be adversely impacted by the oil spill because they could experience  a decline in revenue as a result of reduced number of tourists (e.g.,  restaurants) or a decline in the need for their services as a result of the oil  spill (e.g., childcare services). Small business owners and others with  whom we met also stated that uncertainty exists about which types of  businesses will be compensated through the Gulf Coast Claims Facility,  which will draw on a portion of the $20 billion escrow fund created by BP.  While the process and eligibility are being determined for claims, much  uncertainty exists for the small businesses that may be indirectly impacted  by the oil spill. For example, as publicly stated by the Administrator of the  Gulf Coast Claims Facility, there may be questions concerning whether  small businesses that experience a decline in tourism revenues resulting  from public perception of the oil spill, but that have not actually  experienced any physical damage, are eligible for compensation through  the Claims Facility. According to SBA officials, small business eligibility  for an economic injury disaster loan as a result of the oil spill is  established by a physical presence in the declared disaster area (primary  and contiguous counties) and a connection between the oil spill and  reduction in working capital. SBA officials noted that both direct impact  and indirect impact could be eligible. For example, the direct impact could  be to a sport fishing charter operation that is unable to book clients due to  the fishing grounds being closed. In addition, an indirect impact could be  to the hotel/motel that has reduced occupancy because charter fishing  clients are not coming to the area and to restaurants whose business is  slow because charter fishing clients are not eating out during their normal  stays in the area. Restaurants may also incur additional costs to purchase  seafood that is being shipped into the area as a result of local fishing  grounds being closed because of the oil spill. Therefore, eligibility  requirements for compensation from the Claims Facility and economic  injury disaster loans from SBA may differ, thus adding another element to  the uncertainties faced by small businesses, as well as federal and state  entities providing assistance to such businesses.
section_title: Conclusions
paragraphs: Nearly 5 years after the hurricanes, many Gulf Coast small businesses are  still recovering, and federal programs have provided various amounts of  assistance. Despite the resources provided, many small businesses in the  Gulf Coast states still face barriers to recovery, including increased  operating expenses and a greater debt burden, including the increased  debt associated with disaster assistance loans. In addition, economic  conditions vary throughout the region. For example, many of the heavily  damaged areas saw substantial losses in population and in the number of  businesses after the hurricanes, while less damaged areas saw an increase  in the population and business levels. The current national economy also  has most likely had an effect on small business recovery efforts, which can  make the rebuilding process for small businesses even more challenging.
In addition to assistance from federal programs, federal contracting  opportunities have provided a mechanism to assist with small business  recovery efforts. The FAR implements the Small Business Act requirement  that small businesses be given the opportunity to participate in certain  federal contract awards. Gulf Coast small businesses were awarded almost  $3 billion in prime contracts for hurricane recovery efforts. However, the  Army Corps of Engineers and DOD could not demonstrate that they were  consistently monitoring subcontracting accomplishment information as  required. In particular, the Corps was unable to provide subcontracting  accomplishment information for 11 of their 29 construction contracts we  reviewed. Accomplishment reports are submitted by contractors and  reviewed by agency contracting officials to monitor contractor  performance, and they contain information on the extent to which small  business subcontracts have been awarded. Without subcontracting  accomplishment information, either in eSRS or paper form, contracting  officials at the Corps and DOD lack a key tool used to monitor contractors’  performance under subcontracting plans. Without a consistent process for  making sure that subcontracting accomplishment reports are submitted,  maintained, and reviewed, the Corps and DOD are limited in their ability  to determine whether contractors are following their subcontracting plans.
section_title: Recommendation for Executive Action
paragraphs: For contracts awarded by the Corps and other DOD departments, the  Secretary of Defense should take steps to ensure that contracting officials  consistently comply with requirements to monitor the extent to which  contractors are meeting subcontracting plan goals, including requirements  for contractors with subcontracting plans to submit subcontracting  accomplishment reports. Once these reports are submitted, contracting  officials should maintain and regularly review them to determine whether  contractors are following their subcontracting plans. To ensure consistent  compliance, DOD and the Corps small business offices should monitor  such actions by contracting officials, as deemed appropriate.
section_title: Agency Comments and Our Evaluation
paragraphs: On June 14, 2010, we provided a draft of this report to the Department of  Commerce, the Department of Defense, the Department of Homeland  Security, the Department of Housing and Urban Development, the General  Services Administration, and the Small Business Administration for review  and comment. We also provided relevant sections of this report to state  officials in Louisiana and Mississippi. DHS, HUD, and GSA did not provide  comments. Commerce and SBA provided us with technical comments by  e-mail, which we have incorporated into the report as appropriate. DOD  provided us with comments, which we have reprinted in appendix III.
The Acting Director of the DOD Office of Small Business Programs stated  that DOD nonconcurred with the implication that DOD contracting  personnel do not enforce requirements. In our draft report, we concluded  that DOD was unable to demonstrate that it was monitoring  subcontracting accomplishment information because it was unable to  provide us with documentation of subcontracting accomplishment reports  for 26 of the 31 Corps contracts selected for our review. We recommended  in this report that at a minimum, contracting officials should enforce  requirements for contractors with subcontracting plans to submit  subcontracting accomplishment reports. We also stated in our  recommendation that once reports are submitted, contracting officials  should regularly review them to determine whether contractors are  complying with their subcontracting plan goals. DOD explained that the 31  construction contracts that GAO selected for review were awarded by the  U.S. Army Corps of Engineer’s Galveston and New Orleans District  Contracting Offices. DOD further explained that the individual responding  to our original request for subcontracting information for these 31  contracts indicated that subcontracting accomplishment reports were not  available in eSRS for 26 of the contract files. We made our original request  for this information in March 2010. However, DOD noted in its comment  letter that this individual did not consult the contracting offices to obtain  paper copies of these reports from the contract files. In its comment letter,  DOD also apologized for the delay in providing this documentation to  GAO. DOD added that following a subsequent GAO request in May 2010  and investigation by the Corps National Contracting Organization, the  Corps identified that 24 of the 26 contract files contained a subcontracting  plan and subcontracting accomplishment report. DOD noted that 2 of the  contracts did not include a subcontracting plan because limited or no  subcontracting possibilities existed due to the exigent circumstances of  Hurricane Katrina. Based on the existence of this documentation, DOD  concluded that the Corps’s Galveston and New Orleans Districts did  monitor small business subcontracting plans and accomplishments.
Shortly after we received DOD’s comments on our draft report, the official  from DOD’s Office of Small Business Programs responsible for following  up with us on matters in its comment letter provided GAO with copies of  the subcontracting accomplishment reports for 13 Corps contracts. We  made revisions in our report to acknowledge the receipt of these  additional subcontracting accomplishment reports. On July 22, 2010, we  spoke with this official from DOD’s Office of Small Business Programs to  discuss the 11 remaining accomplishment reports that we had not received  from the Corps. The official told us that the accomplishment reports we  received on July 19, 2010, represent the full extent of what DOD and the  Corps are able to provide to GAO. In addition, DOD did not provide us  with the subcontracting accomplishment reports for the 2 contracts  included in our review for other DOD agencies and did not address these   2 contracts in its written response. DOD’s inability to provide us  subcontracting accomplishment reports for 13 of the 43 contracts included  in our review raises concerns with DOD’s process to consistently collect,  maintain, and review such information. Therefore, we revised our report  to recommend that the Secretary of Defense should take steps to ensure  that contracting officials consistently comply with requirements to  monitor the extent to which contractors are meeting subcontracting plan  goals, including requirements for contractors with subcontracting plans to  submit subcontracting accomplishment reports. Once these reports are  submitted, contracting officials should maintain and regularly review them  to determine whether contractors are following their subcontracting plans.  To ensure consistent compliance, DOD and the Corps small business  offices should monitor such actions by contracting officials, as deemed  appropriate.
DOD also indicated in its written comments that eSRS was fully  implemented by the Corps in 2009. This system replaces paper contract  files for subcontracting accomplishment repots. DOD added that it plans  to conduct small business training regarding small business  subcontracting plans and evaluation of small business subcontracting  plans within the next several months. We believe that this training, along  with full implementation of eSRS by the Corps will assist the Corps in  ensuring that contracting officials are complying with requirements to  monitor subcontracting accomplishment information in the future.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies of this report to interested  congressional committees, the Secretary of the Department of Commerce,  the Secretary of the Department of Defense, the Secretary of the  Department of Housing and Urban Development, the Secretary of the  Department of Homeland Security, the Administrator of the General  Services Administration, the Administrator of the Small Business  Administration, and other interested parties. This report will also be  available at no charge on GAO’s Web site at http://www.gao.gov.
Please contact me at (202) 512-8678 or shearw@gao.gov if you or members  of your staffs have any questions about this report. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report. See appendix IV for key contributors to this report.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to describe (1) the amount of assistance provided to  Gulf Coast small businesses as a result of Hurricanes Katrina and Rita  through the Small Business Administration’s (SBA) Disaster and Gulf  Opportunity (GO) Pilot Loan programs, state-administered business  assistance programs funded by the Department of Housing and Urban  Development (HUD) Community Development Block Grants (CDBG), and  the Economic Development Administration’s (EDA) Revolving Loan Fund  (RLF) Program; the benefits and challenges experienced by participants in  these programs; and the performance of loans extended to small  businesses using assistance from these programs; (2) the extent to which  Gulf Coast small businesses received federal contract funds for recovery  efforts; and (3) the current state of and improvements in the region’s  economy since the hurricanes, with a focus on the small business  economy. Our work focused on small business recovery efforts in four  states impacted by Hurricanes Katrina or Rita: Alabama, Louisiana,  Mississippi, and Texas.
To address our first objective, we obtained and analyzed data extracts  from SBA’s Disaster Credit Management System (DCMS) and Loan  Accounting System (LAS). The data contained in the DCMS data extract  were as of March 8, 2010, and the data in the LAS extract were as of   March 30, 2010. We used the data extracts to compute descriptive  statistics on the number and dollar amount of disaster loans and GO loans  SBA approved for businesses affected by the hurricanes. We could not  determine the total number and dollar amount of disaster loans that SBA  approved for small businesses because DCMS does not capture this  information for physical disaster loans, which businesses of all sizes are  eligible to receive. We also used the data extracts to compute descriptive  statistics on the performance of these loans, including the percentages of  loans paid in full, loans that were current, loans that were delinquent, and  loans that defaulted (which we defined as loans that were either charged  off or liquidated). We assessed the reliability of the DCMS and LAS data by  reviewing information about the data, including recent GAO assessments,  interviewed SBA officials knowledgeable about these data, and also by  conducting various tests of the information in the data extracts to ensure  the completeness of the data. We concluded that SBA’s data were  sufficiently reliable for the purposes of our report. To determine how SBA  identified duplicate benefits received by small businesses that also  participated in state-administered business assistance programs funded by  CDBG supplemental appropriations, we reviewed relevant SBA Office of  Inspector General reports, SBA’s standard operating procedures on  duplication of benefits, statutory requirements, and information provided  by SBA and the states that administered business assistance programs,  and we interviewed SBA officials. Finally, we interviewed key SBA  officials—including officials in SBA’s Office of Disaster Assistance, Office  of Disaster Planning, and Office of Capital Access, as well as officials  located in SBA’s district and branch offices in the Gulf Coast states—on  the role that SBA played in helping small businesses recover from the  hurricanes.
To describe the amount of assistance that small businesses received  through state-administered business assistance programs funded by HUD  CDBG funds, we reviewed Federal Register notices and interviewed  officials from HUD to obtain information on the CDBG disaster recovery  supplemental appropriations Congress enacted following Hurricanes  Katrina and Rita. To determine how each state utilized these funds among  various hurricane recovery efforts, we interviewed officials from state  agencies in Alabama, Louisiana, Mississippi, and Texas responsible for  administering the funds. We also obtained information on the amount of  the funds allocated and expended on economic development and other  programs, including any programs that were targeted for small businesses.  To determine the reliability of the data we obtained from states that  implemented programs specifically for small businesses, we interviewed  knowledgeable state officials to discuss the method by which the data  were prepared, as well as the steps the state agencies take to ensure the  reliability of their own data. We determined that information provided by  the states was sufficiently reliable for the purposes of our report.
To describe the amount of federal assistance small businesses received  through EDA’s RLF Program, we interviewed officials at the agency’s  Atlanta and Austin Regional Offices and obtained the most recent  semiannual reports that these offices had received from RLF grantees  located in Alabama, Louisiana, Mississippi, and Texas. We used these  reports to compute descriptive statistics on the amount of loans RLF  grantees made to small businesses and the amount of private investment  associated with these loans as reported by the RLF grantees from  September 1, 2005, to the date of the latest data available. These data are  self-reported by RLF grantees; therefore, we attribute these findings to the  RLF grantees. We also contacted officials from four RLF grantees in  Louisiana that received additional capital from EDA following Hurricanes  Katrina and Rita to obtain information on the number of loans each RLF  grantee made to small businesses specifically for disaster recovery  purposes, as well as the performance of these loans. Finally, we  interviewed RLF grantee officials in Beaumont, Texas; Gulfport,  Mississippi; and Mobile, Alabama, to discuss their efforts to assist small  businesses following the hurricanes.
To describe the benefits and challenges faced by small businesses  participating in the programs we reviewed, as well as overall recovery  challenges, we conducted two focus groups of small business owners in  New Orleans, Louisiana, and one focus group in Gulfport, Mississippi.  Participants for the focus groups held in New Orleans were recruited by  representatives of a local Small Business Development Center. We  recruited small business owners for the Gulfport focus group using similar  criteria, assisted by the Mississippi SBA District Office and the Hancock  County Chamber of Commerce. In New Orleans, we met with 19 small  business owners, and we met with 4 small business owners in Gulfport.  Nearly all of the small business owners in each group had participated in  one of the programs included in our review, although this was not a  requirement to participate in the focus groups. The small business owners  in each group represented a variety of industries. We analyzed the content  of focus group transcripts to identify common themes for benefits and  challenges associated with hurricane recovery. While the information from  the focus groups is not generalizable to the entire Gulf Coast small  business population, it provides valuable context regarding small business  owners’ perceptions about the benefits and challenges they have  experienced. Finally, we also interviewed officials from local small  business development centers and chambers of commerce in areas heavily  impacted by the hurricanes in each state to discuss their roles and  experiences in assisting small businesses with recovery efforts.
To address our second objective, we obtained data from the Federal  Procurement Data System-Next Generation (FPDS-NG), the  governmentwide database of contracting activity, to determine the extent  to which federal agencies contracted directly with small businesses in Gulf  Coast states. Using FPDS-NG data, we identified the top four agencies that  awarded the greatest amount of Katrina- and Rita-related contracts  between October 1, 2004, and September 30, 2009. These agencies were  the U.S. Army Corps of Engineers (Corps); Department of Homeland  Security (DHS); Department of Defense, excluding the Corps (DOD); and  General Services Administration (GSA). We analyzed data that were  reported into FPDS-NG as of January 15, 2010. Although we could not  independently verify the reliability of these data, we reviewed system  documentation, conducted electronic data testing for inconsistency errors  and completeness, and compared it with supporting documentation when  available. On the basis of these efforts, we determined the data on  amounts received directly from federal contracts to be sufficiently reliable  for the purposes of this report. We also identified all Corps, DHS, DOD,  and GSA construction-related contracts that, according to FPDS-NG, had a  subcontracting plan. For these contracts, we asked the agencies for  documentation of prime contractors’ subcontracting award reports in the  Electronic Subcontracting Reporting System (eSRS), a governmentwide  database for capturing this information. For contracts that were awarded  prior to the agencies’ implementation of eSRS, we asked for copies of the  paper contract file forms SF-294 or SF-295, which contain the same  information as that maintained in eSRS. In instances in which an agency  could not provide subcontracting accomplishment reporting information,  we contacted agency officials to obtain an explanation for why the  information was missing.
To address our third objective, we identified the counties and parishes and  metropolitan statistical areas most heavily damaged by Hurricanes Katrina  and Rita in each of the four states, using housing unit damage estimates  from HUD’s Current Housing Unit Damage Estimates: Hurricanes  Katrina, Rita, and Wilma. We assumed that the areas that suffered the  most housing damage were, most likely, the areas in which small  businesses also suffered the most damage. We identified various economic  indicators that provide a proxy for the state of the small business  economy. These indicators include population, unemployment, number of  small business establishments, and the housing price index. We analyzed  the U.S. Census Bureau’s annual county- and state-level population  estimates from 2000 through 2008. In addition, we analyzed the Census  Bureau’s annual County and State Business Patterns data from 2000  through 2007 and identified small businesses with 50 employees or fewer.  We also analyzed the Bureau of Labor Statistics’ monthly local area  unemployment statistics by county and state from January 2000 through  December 2009. Finally, we analyzed the Federal Housing Finance  Agency’s quarterly house price index based on sales prices and appraisal  data from the first quarter of 2000 through the fourth quarter of 2009. We  used these data to identify trends most likely associated with the  hurricanes, rather than other economic events, within the areas most  heavily damaged. We also analyzed and compared trends at the state level  with trends in the counties most heavily damaged by the hurricanes,  where comparable data were available. We reviewed the relevant data  sources to ensure the reliability of the indicators and determined that the  data were sufficiently reliable for the purposes of this report. To describe  the potential impact of the recent Gulf Coast oil spill on the small business  economy in the Gulf Coast region, we obtained and analyzed information  on the size of the fishing and travel industries from the National Oceanic  and Atmospheric Administration and the U.S. Travel Association,  respectively. To identify the counties and parishes impacted by the oil  spill, we reviewed SBA’s disaster declarations and identified all primary  and contiguous counties and parishes listed in the declarations. As a result  of the oil spill, SBA declared economic injury disasters in Alabama,  Florida, Louisiana, and Mississippi; therefore, our analysis on the potential  impact of the oil spill involves only these four states. We also obtained  data from SBA on new economic injury disaster loans approved as a result  of the oil spill, as well as existing SBA disaster loans in declared areas and  the number of deferments SBA has granted on those loans. Additionally,  we met with small business owners in Venice, Louisiana, and Bay St.  Louis, Mississippi, to discuss the impact of the oil spill on their businesses.  Furthermore, we met with other organizations assisting small businesses,  including representatives of a local small business development center in  Louisiana and a local chamber of commerce in Mississippi, to obtain their  views and discuss the assistance they are providing to small businesses.  Finally, we met with representatives of a local organization in Louisiana  that is studying the economic impacts of the oil spill on the Gulf Coast and  with representatives of the Louisiana State University Agriculture Center,  which is studying the long-term impact of the oil spill on the fishing  industry. We also reviewed assessments by other organizations regarding  the posthurricane economic recovery in the Gulf Coast region. Appendix II  contains a summary of these organizations’ findings.
We conducted this performance audit from September 2009 through July  2010 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Summary of Selected Reports from Research Organizations Studying the Economic Recovery of the Gulf Coast Region Following Hurricanes Katrina and Rita
subsections: section_title: Louisiana State University, E.J. Ourso College of Business, Division of Economic Development (2007)
paragraphs: Immediately before the hurricanes, the entire state of Louisiana had  97,639 employers. After the hurricanes, the state initially lost 5,192  employers. By the fourth quarter of 2006, Louisiana had 892 fewer  employers (0.9 percent) than before the hurricanes, which represents  a significant recovery.
From the second quarter of 2005 to the fourth quarter of 2006,  Louisiana had an overall business failure rate of 20.9 percent; the  Southeast and Southwest regions had failure rates of 28.3 percent  and 18.6 percent, respectively.
Small businesses experienced the highest failure rates. During the  fourth quarter of 2006, 25.3 percent of employers in the state that had  1 to 5 employees in the second quarter of 2005 failed, while only 16.3  percent of those with more than 50 employees failed during the same  period.
Department of Labor, Bureau  of Labor Statistics (August  2006)
Approximately 38 percent of business establishments in Louisiana  and Mississippi were within a 100-mile corridor of the path of  Hurricane Katrina’s center.
St. Bernard, Orleans, and Jefferson Parishes had the largest declines  in employment between September 2004 and September 2005—38  percent, 27 percent, and 24.5 percent, respectively.
In Mississippi, employment in Jackson, Harrison, and Hancock  Counties declined by approximately 9 percent to 14 percent from  September 2004 to September 2005.
The unemployment rate for Louisiana rose sharply after Hurricane  Katrina, from about 5 percent to 12.1 percent. The rate began falling  in December, and in June 2006, it was near its prehurricane level.
The unemployment rate for Mississippi rose from about 6 percent to  10.4 percent after Hurricane Katrina but declined afterward. In June  2006, the unemployment rate was comparable to its prehurricane  level.
RAND Gulf States Policy  Institute (2007)
Report provides recommendations regarding the most effective  organizational and strategic approaches to revitalizing the city’s  economy. Researchers noted that city officials should build its  economic development program in three phases: a design phase, an  organizational phase, and an implementation phase.
One recommendation for the design phase included targeting the  city’s economic development efforts at certain groups of industrial  clusters. One of these groups includes the city’s small business  sector.
The small business sector played a vital role in the city’s pre-Katrina  economy, supplying about 40 percent of the city’s jobs and providing  entrepreneurial opportunities for the city’s residents, especially its  minority residents. However, this sector was devastated by Katrina  and will need assistance to get back on its feet. According to the  report, the focus should be on the principal problems that small  businesses are likely to face (e.g., technical assistance, access to  capital, and business incubators to try out new ideas). Each of these  issues is a significant institutional challenge.
RAND Gulf States Policy  Institute (2007)
Overall, researchers found that after the 2004 and 2005 hurricanes,  the cost of wind insurance spiked drastically and coverage became  less available in areas most prone to substantial wind risk.
Of those interviewed for the study, it was widely believed that  compared with large firms, smaller firms faced more severe price  increases and had more difficulty in finding coverage following the  2005 hurricane season.
Department of Labor, Bureau  of Labor Statistics (May 2007)
In the Gulf Coast, Hurricane Katrina caused the most extensive job  losses in two large parishes in Louisiana—Jefferson and Orleans— and in one large county in Mississippi—Harrison.
As of August 2006, the recovery of jobs had been the weakest in  Orleans Parish, where employment had recovered to only 63 percent  of its pre-Katrina level.
Jefferson Parish rebounded more quickly and had experienced a  much stronger recovery. August 2006 employment had recovered to  91 percent of the pre-Katrina level in Jefferson Parish and to 90  percent in Harrison County.
Department of Commerce,  Economics and Statistics  Administration (December  2007)
Two years after Hurricanes Katrina and Rita, federal aid continued to  flow to the Gulf Coast, and significant economic recovery in Louisiana  and Mississippi was evident. However, economic conditions in the  New Orleans, Louisiana, and Gulfport-Biloxi, Mississippi,  Metropolitan Statistical Areas (MSA) continued to lag behind.
By 2006, the overall population (annual average) in Louisiana and  Mississippi had recovered to pre-Katrina levels, but levels in the New  Orleans and Gulfport-Biloxi MSAs had not.
Two years after the hurricanes, unemployment rates had fallen to the  pre-Katrina levels in most areas of the Gulf Coast. The overall size of  the labor force had yet to recover, however, because many people  who left the region, especially from the New Orleans and Gulfport- Biloxi MSAs, had not returned.
University of Southern  Mississippi (2007)
As of October 2007, across the Mississippi Gulf Coast, there were  very encouraging signs of recovery, including many repaired and new  homes, as well as new developments under way or planned. A  number of the destroyed schools had been reopened in repaired or  temporary facilities; at least two of the community libraries had been  reopened; most businesses that had reopened were doing well; and  a number of residents and small businesses had relocated further  inland, spreading yet further economic growth.
Obtaining affordable property insurance remained a major barrier to  both homeowners and businesses. For example, rates for wind  insurance skyrocketed dramatically—about 90 percent for  homeowners and about 200 percent for business owners.
University of New Orleans,  Division of Business and  Economic Research (August  2008)
Although job growth preceded the population return in the months  following Hurricane Katrina, both employment and population were  about 87 percent of pre-Katrina levels at the time of the study (August  2008). Population and jobs had been recovering at similar rates.
With Katrina, New Orleans lost about 30 years of population growth.
At the time of the study, the population was still recovering, but the  rate had slowed from the more rapid rate of return right after the  storm.
Political and Economic  Research Council (August  2008)
Study is a survey of small businesses in the New Orleans and Biloxi- Gulfport MSAs on the progress of recovery from the 2005 hurricanes.  This study is a follow-up to a survey conducted in 2007.
As of August 2008, sales performance had improved or stayed  constant for the majority of small businesses since 2007 but had not  yet reached pre-Katrina levels.
The key challenges to small business owners centered on the  fundamentals of labor, capital, and demand.
The perceived magnitude of some challenges associated with small  business recovery had declined significantly. For example, small  business owners’ satisfaction with the Small Business Administration  has increased since 2007.
There remained disparities in business recovery according to the  ethnicity of owner or operator.
Gulf Coast Business Council  (Second Quarter 2009)
During the second quarter of 2009, the overall employment level for  the Mississippi Gulf Coast stabilized after falling in the last quarter of  2008 and the beginning of the first quarter of 2009. In aggregate,  overall jobs located along the Gulf Coast were down 2 percent from  June 2008 and 4 percent from June 2005.
Sales tax diversions—the portion of the state sales tax rate that cities  receive—received by 6 of the 11 municipalities in the Mississippi Gulf  Coast region exceeded pre-Katrina levels. When comparing the  aggregate totals collected for all 11 cities on the Mississippi Gulf  Coast, total sales tax diversions for the second quarter fell short of  2005 levels for the first time since the third quarter of 2005.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Marshall Hamlett, Assistant  Director; Alexandra Martin-Arseneau; Aglae Cantave; William Chatlos;  Peter Del Toro; Swetha Doraiswamy; Stephanie Gaines; Christine Houle;  Julia Kennon; Terence Lam; Triana McNeil; John Mingus; Marc Molino;  Susan Offutt; Linda Rego; Jennifer Schwartz; Alyssa Weir; and William  Woods made key contributions to this report.