Mr. President, I come to the floor today to speak on an issue that is of great importance to my home State of Louisiana-- Federal disaster preparedness. As you know, along the Gulf Coast, we keep an…
Mr. President, I come to the floor today to speak on an issue that is of great importance to my home State of Louisiana-- Federal disaster preparedness. As you know, along the Gulf Coast, we keep an eye trained on the Gulf of Mexico during hurricane season. This is following the devastating one-two punch of Hurricanes Katrina and Rita of 2005 as well as Hurricanes Gustav and Ike last year. Our communities and businesses are still recovering from these disasters-- some from a disaster that devastated the Gulf Coast almost 5 years ago. For this reason, as Chair of the Senate Committee on Small Business and Entrepreneurship disaster preparedness is one of my top priorities. While the Gulf Coast is prone to hurricanes, other parts of the country are no strangers to disaster. For example, the Midwest has tornadoes, California experiences earthquakes and wildfires, and the Northeast sees crippling snowstorms. So no part of our country is spared from disasters--disasters which can and will strike at any moment. With this in mind, we must ensure that the Federal Government is better prepared and has the tools necessary to respond quickly, effectively following a disaster.
As I mentioned, everyone around the country is familiar with the impact of Hurricanes Katrina and Rita on the New Orleans area and the southeast part of our state. Images from the devastation following these storms, and the subsequent Federal levee breaks, were transmitted around the country and around the world. This is because Katrina was the deadliest natural disaster in United States history, with 1,800 people killed--1,500 alone in Louisiana. Katrina was also the costliest natural disaster in United States history with over $81.2 billion in damage. In Louisiana, we had 18,000 businesses catastrophically destroyed and 81,000 businesses economically impacted. I believe that, across the entire Gulf Coast, some estimates ran as high as 125,000 businesses impacted by Katrina and Rita. While we have made significant progress in rebuilding infrastructure, housing, and our economy, I continue to hear from individual business owners who are struggling to fully recover. These business owners tell me that they have not been hit by one disaster but three: Hurricane Katrina in 2005, Hurricane Gustav in 2008, and the economic downturn. Louisiana was slow to feel the brunt of the credit crunch and economic meltdown but last year we began to see the drying up of investments and the shrinking of consumers' pocketbooks.
One business owner that I have met with is Charles R. ``Ray'' Bergeron. He and his wife own Fleur de Lis Car Care Center in New Orleans, Louisiana. Small Business Administration, SBA, Administrator Karen Mills and I toured Mr. Bergeron's business during a visit to New Orleans on June 30, 2009. As a result of Hurricane Katrina, Mr. and Mrs. Bergeron found themselves having to take out two loans, one for their house and another for their small business. Pre-Katrina, Fleur de Lis Car Care Center had 8 employees. As of our visit in June, they were down to 2 employees not including Mr. Bergeron. They have a $225,000 SBA disaster loan with a standard 30-year term. According to Mr. Bergeron, he will not pay it off until he is 101 years old. The business was back at about 40 percent of pre-Katrina sales, due in large measure to the population not being back. Their neighborhood is mostly empty homes. He attributes part of slow population recovery to high flood insurance premiums, high property taxes and high homeowner's insurance. These are the type of businesses that we must ensure keep their doors open: businesses that took the initiative to re-open right after the disaster. These ``pioneer'' businesses serve as anchors to the community in the early days of recovery. If residents see their favorite restaurant open or the local gas station, they are more likely to come back to rebuild their homes.
In order to help ongoing recovery efforts in the Gulf Coast, and to give the SBA more tools to respond after a future disaster, I am introducing the Small Business Administration Disaster Recovery and Reform Act of 2009. This legislation builds off of SBA disaster reforms enacted last year and also provides targeted assistance for Gulf Coast recovery. My bill also includes an important provision authorizing SBA to help families impacted by defective drywall manufactured in the People's Republic of China.
In terms of immediate recovery assistance, Title I of the bill includes three provisions which I believe will help both Gulf Coast businesses as well as families nationwide dealing with toxic drywall in their homes. First, this bill amends Section 12086 added by SBA disaster reforms in the 2008 Farm Bill. This provision created a Gulf Coast Disaster Loan Refinancing Program. The intent of the program, as I understand it from my colleagues in the House of Representatives, was to allow Gulf Coast businesses and homeowners to defer for up to 4 years, payments on SBA disaster loans. This provision certainly had good intentions, however, we are a year on and the program has yet to be implemented. That is because in practice the program would likely be re-amortizing the same debt and, under the Credit Reform Act, to refinance a $1,000,000 disaster loan would require $1,000,000 in additional funding. To try to salvage this program, my bill would require SBA to report back to Congress in 30 days with recommendations on improving this program. These recommendations could include such additional options as modifying the end of the deferment date of loans, reducing interest payments on loans, extending out the term of loans to 35 years or other changes to the program that might make it more workable. I believe this program is on the right track, Congress just needs advice from the SBA on how we can make it work better to actually help people in the Gulf Coast.
The next provision in Title I relates to minority businesses in the Gulf Coast that were impacted by Hurricanes Katrina and Rita. Everyone is familiar with the images and the cost of these storms, but they may not be too familiar with the impact on individual businesses. In particular, I am speaking about the affects of Hurricanes Katrina and Rita on minority firms in the Gulf Coast. As a result of these storms, many minority firms in the Gulf Coast were disrupted and thus lost valuable time for participating in the 8(a) program. The 8(a) business development initiative, created under the Small Business Administration, helps minority entrepreneurs access Federal contracts and allows companies to be certified for increments of three years. These contracts are vital to the revival of these impacted areas. However, as currently structured the program allows businesses to participate for a limited length of time, 9 years, after which they can never re-apply nor get back into the program. It is imperative that we provide contracting assistance to our local minority businesses.
My bill includes a provision which would tackle this problem in three important ways. First, the bill extends 8(a) eligibility for program participants in Katrina/Rita-impacted areas in Louisiana, Mississippi, and Alabama by 24 months. The bill would also apply to any areas in the state of Louisiana, Mississippi and Alabama that have been designated by the Administrator of the Small Business Administration as a disaster area as a result of Hurricanes Katrina or Rita. Lastly, the bill would require the administrator of the Small Business Administration to ensure that every small business participating in the 8(a) program before the date of enactment of the Act is reviewed and brought into compliance with this act. This requirement would ensure that any eligible previous 8(a) participants will be allowed back into
the program. As such, these key provisions would ensure that these businesses continue to play a vital role in rebuilding their communities. I note that I introduced a similar provision as part of S. 3285, the Disadvantaged Business Disaster Eligibility Act during the 110th Congress. Last Congress, the proposal passed the House of Representatives but we were unable to pass the legislation here in the Senate before we adjourned for the year. I look forward to renewing my fight this Congress as I believe that this is a commonsense proposal which would not cost a great deal. It would, however, make a huge difference for these businesses impacted by Katrina and Rita.
The last recovery-related provision in Title I of the bill is focused on families impacted by defective drywall manufactured in the People's Republic of China. Since 2006, more than 550 million pounds of drywall have been imported to the United States from China. This drywall was used because at the time there was a shortage of product by domestic drywall producers and there was increased demand due to recovery from the 2004/2005 hurricanes and the housing boom. In the last 20 months, however, countless homeowners across the country have reported serious metal corrosion, noxious fumes, and health concerns. Reported symptoms have included bloody noses, headaches, insomnia, and skin irritation. Preliminary testing has confirmed that imported defective drywall is the problem, but these tests have not been able to pinpoint the problem substance in the drywall.
Just last week, the Consumer Product Safety Commission, CPSC, released additional preliminary results of this drywall which did not identify the exact cause but did outline areas for concern. First, CPSC tested Chinese drywall and compared it with U.S.-made drywall. Chinese drywall contained elemental sulfur and higher levels of strontium--both not in domestic drywall. These findings are similar to May 2009 test results from the Environmental Protection Agency, EPA. Strontium and sulfur, in increased levels, have been linked to possible health problems. CPSC also carried out chamber testing on emissions from samples of Chinese-made and domestic drywall. Early results show that Chinese drywall emits volatile sulfur compounds at a higher rate than U.S. drywall. Further testing is underway to determine the specific compounds being emitted. Lastly, Federal officials analyzed indoor air results from 10 homes in Florida and Louisiana. This study led to a preliminary finding of detectable concentrations of two known irritants: acetaldehyde and formaldehyde. The concentrations were at levels that could worsen asthma or other conditions, especially when air conditioners were off/not working. Later this month, the CPSC is expected to release more comprehensive information on Chinese drywall. This includes results of a 50-home air sampling project and a preliminary engineering analysis of potential electrical/fire safety issues related to metal corrosion. Key to any results would be Federal recommendations on testing and remediation protocols for Chinese drywall. This would be crucial for homeowners who currently have no definitive way to prove they have Chinese drywall in their homes or procedures to remove the product for good.
In total, as of last week the CPSC had received 1,900 incident reports from 30 States, the District of Columbia and Puerto Rico. The majority of these reports, 1,317, came from Florida, with Louisiana next, 339, followed by Virginia, 69, Mississippi, 63, and Alabama, 32. These figures demonstrate that this problem is not just an obstacle to Gulf Coast recovery efforts but may also pose a threat to homeowners across the country.
To help homeowners struggling with this defective product, I have worked closely over the past few months with my Senate colleagues from Florida and Virginia. This summer, Senator Bill Nelson and I were successful, along with the leadership of the Senate Appropriations Committee, in pushing the CPSC to allocate $2,000,000 in unobligated funds to help the Chinese drywall investigation. Senator Nelson and Senators Mark Warner and Jim Webb from Virginia also wrote to the Internal Revenue Service inquiring if they could assist homeowners. The IRS indicated in July that homeowners may be able to claim a casualty loss on their tax returns if they have Chinese drywall that emits an unusual or severe concentration of chemical fumes that causes extreme and unusual damage. We have also written to the Federal Emergency Management Agency, FEMA, inquiring if the agency could provide emergency rental assistance as it has done in the past.
In July, my Senate colleagues and I wrote to the SBA asking what they could do under existing authority to help these families. In its October 29, 2009, response to this letter, SBA indicated that it did not currently have the authority to assist homeowners impacted by drywall. This is because, under the current law, SBA's definition of a disaster only includes typical natural disasters such as tornadoes, hurricanes, wildfires, or snowstorms. However, it is my understanding that for previous disasters, there is a precedent in Congress authorizing SBA to respond to a specific disaster and one instance where Congress tasked $25,000,000 in existing funds to help ongoing recovery efforts. Manufacturers of this product should bear the majority of the financial burden for remediation but I believe there is a limited role for SBA to play in assisting homeowners with toxic drywall.
For this reason, the legislation I am introducing today includes an authorization for the SBA Administrator to provide disaster home loans in States in which a Governor declares a disaster because of defective drywall. The provision would cover drywall which entered the United States from China from 2004 to 2008 and is demonstrated to cause corrosion or property damage. I note that this provision would not provide SBA funds for losses or damage covered by insurance or other sources. This authorization also caps the funding at this program at no more than 25 percent of the funds appropriated for SBA disaster assistance. In a normal Appropriations cycle, this would equate to about $25,000,000 in funds or $250,000,000 in actual disaster loans. If enacted, this provision would go a long way towards helping these struggling families.
While it is important to respond to ongoing recovery-related needs across the country, we must also ensure that the SBA is better prepared for future disasters. To these ends, my committee held a field hearing in Galveston, Texas on September 25, 2009. This hearing focused on the initial Federal response and ongoing recovery efforts from Hurricane Ike in 2008. The hearing was the first Congressional hearing held in Galveston since Hurricane Ike struck the Texas Gulf Coast last year. With this in mind, we were able to hear firsthand Federal, State, and local officials on the progress of rebuilding Galveston Island. My committee also heard from business owners on the challenges that emerged in the year that passed since Ike made landfall.
This hearing highlighted improvements in SBA's disaster programs since the 2005 storms. For example, after Katrina and Rita, the Federal response was slow; planning was insufficient, and staff and funding came up short. Following the 2005 storms, it took SBA 90 days to process a home loan and 70 days to process a business loan. After this woeful performance, I pushed for a change in SBA leadership and changes in the way they respond to disasters. In 2006, a new SBA Administrator, Steve Preston, took over and, at my request, he implemented a new SBA Disaster Response Plan in time for the 2007 hurricane season. This plan was a major improvement over the unwieldy, bureaucratic procedures that guided SBA post-Katrina/Rita. SBA will also be submitting to Congress in the next few weeks 2009 revisions to the Disaster Response Plan. I look forward to reviewing these changes in the event that additional improvements are needed.
Last year, as part of the 2008 Farm Bill, Congress also passed legislative reforms to SBA's disaster programs. These reforms, along with other key improvements: Increased SBA loan limits from $1.5 million to $2 million; created new tools such as bridge loans or private disaster loans following catastrophic disasters; required coordination between FEMA, SBA, and the IRS; and allowed nonprofits, for the first time, to be eligible for SBA economic injury disaster loans. Earlier this year, our committee heard testimony from
local officials in southwest Louisiana that SBA was better prepared and more responsive following Gustav and Ike. As evidence of this, I note that it took 5 days to process a home loan following Ike, compared to the 90 days after Katrina and Rita. Business loans averaged a little over a week to process, compared to the 70 days in 2005.
However, although we heard about improvements to SBA's disaster response at the Galveston hearing, we also learned of additional areas that SBA could further improve its operations. While SBA is processing loans faster, there are still complaints from disaster victims on paperwork and bureaucracy. For example, as of August 31, SBA had received about 2,400 business applications for disaster assistance in Galveston County. 536 of those applications were approved for $84 million but, to date, only $24 million has been disbursed for 280 of these loans. In light of these facts, I am concerned that 2008 disaster reforms might not have gone far enough in giving SBA the tools it needs to help businesses and homeowners after a future disaster. Title II of my legislation dovetails upon the reforms from last year to improve SBA coordination with other disaster response agencies. This section also makes SBA disaster loans more effective in reaching disaster victims most in need of assistance.
As indicated above, when Katrina hit, our businesses and homeowners had to wait months for loan approvals. I do not know how many businesses we lost because help did not come in time. Because of the scale of this disaster, what these businesses needed was immediate, short-term assistance to hold them over until SBA was ready to process the tens of thousands of loan applications it received. That is why in last year's SBA disaster reforms, I included a provision--the Expedited Disaster Assistance Loan Program--to allow the SBA Administrator with the ability to set up a program to make short-term, low-interest loans to keep them afloat. These loans will allow businesses to make payroll, begin making repairs, and address other immediate needs while they are awaiting insurance payouts or regular SBA Disaster Loans.
This provision also directed SBA to study ways to expedite disaster loans for those businesses in a disaster area that have a good, solid track record with the SBA or can provide vital recovery efforts. We had many businesses in the Gulf Coast that had paid off previous SBA loans, were major sources of employment in their communities, but had to wait months for decisions on their SBA Disaster Loan applications. I do not want to get rid of the SBA's current practice of reviewing applications on a first-come-first-served basis, but there should be some mechanism in place for major disasters to get expedited loans out the door to specific businesses that have a positive record with SBA or those that could serve a vital role in the recovery efforts. Expedited loans would jump-start impacted economies, get vital capital out to businesses, and retain essential jobs following future disasters.
While I am proud of this provision, I believe that with a few additional revisions, this program could be more successful. For this reason, Section 201 of this bill increases the loan limit from $150,000 to $250,000 and allows the SBA Administrator to utilize this program, as needed, in either a catastrophic or a major disaster. Currently, the program is limited only to a catastrophic disaster, despite the fact that another bridge loan program from the 2008 Farm Bill--the Immediate Disaster Assistance Loan Program--is available for both catastrophic and major disasters. I realize that every disaster is different and could range from a disaster on the scale of Hurricane Katrina or 9/11, to an ice storm or drought. The modification in my bill would allow SBA additional options and flexibility in the kinds of relief they can offer a community. When a tornado destroys 20 businesses in a small town in the Midwest, SBA can get the regular disaster program up and running fairly quickly. You may not need short-term loans in this instance. But if you know that SBA's resources would be overwhelmed by a storm--just as they were initially with Katrina--these expedited business loans would be very helpful. This section also changes the name of the program to the ``Pioneer Business Recovery Program'' as the intent of the program is to help ``second responder'' or ``pioneer'' businesses that want to reopen immediately following a storm.
The next provision of my bill, Section 202, increases SBA disaster loan limits. In particular, it is my understanding that SBA's disaster home loan limits have not been adjusted since the 1990s. The current limit for SBA disaster loans to replace personal property is $40,000, and the limit for SBA disaster loans to repair damaged homes is $200,000. My legislation would increase the limits to $80,000 and $400,000, respectively. The bill also increases the SBA disaster business loan limit from $2,000,000 to $4,000,000. I believe that these increases would allow SBA to better address the needs of disaster victims in the future.
Section 203 of the bill authorizes SBA to create a State Bridge Loan Guarantee Program. This program would enhance existing partnerships between SBA and States which administer bridge loan programs following disasters. Currently, SBA consults with States pre-disaster on the structure of their program. This is to ensure that these programs run effectively and do not duplicate assistance provided by the SBA disaster assistance program. There are various States, including Louisiana and Florida, which have successful bridge loan programs, and other States which would consider this type of program if there was better Federal-State coordination. Section 203 would allow the SBA Administrator to issue guidelines on an SBA-approved bridge loan program. After issuing these guidelines, SBA could then review State applications and, if necessary, guarantee bridge loans from approved States following a disaster. I would note that this provision was part of S. 3664, the Small Business Disaster Recovery Assistance Improvements Act of 2006 which I introduced in the 109th Congress.
Another provision which I would like to highlight in this bill is Section 205. This section amends the Small Business Act to make aquaculture businesses eligible for SBA Economic Injury Disaster Loans. Currently, such businesses, including crawfish farmers, oyster farmers, shellfish farmers, are excluded from eligibility for these loans. In Louisiana, our aquaculture businesses in the southern part of the State were hit hard by both Hurricane Katrina and Rita. These businesses, many crawfish far ers or those with fish farms, were ineligible for U.S. Department of Agriculture, USDA, disaster assistance, but were also ineligible for SBA disaster loans. We also learned that similar problems followed Hurricanes Gustav and Ike in 2008. I believe that the commonsense fix in my bill will give these businesses the help they need to recover from future disasters.
I am concerned about the larger problem which was raised by aquaculture businesses in my State being caught in limbo between USDA and SBA disaster programs. SBA for example provides physical and economic injury disaster loan assistance to businesses that are victims of a declared disaster. However, the Small Business Act excludes agricultural enterprises from eligibility. The act defines ``agricultural enterprises'' as ``those businesses engaged in the production of food and fiber, ranching, and raising livestock, aquaculture, and all other farming and agricultural related industries.'' Thus, if a business is an agricultural enterprise, SBA is prohibited from providing disaster loan assistance. Prior to 1976, agricultural enterprises were covered by USDA only, and between 1976 and 1986, several statutes allowed agricultural enterprises to be eligible for SBA assistance under certain conditions. As a result of a couple of factors though including duplication of benefits, disparity of service between SBA and USDA and loan shopping, Public Law. 99-272 repealed agricultural eligibility for SBA disaster loans. Since then, all agricultural enterprises have been referred to USDA for disaster loans.
Though USDA has several disaster programs, most are related to production loss of crops. The Farm Service Agency's Emergency Loan Program covers some agriculture related disaster losses, but operates under different eligibility rules from SBA. They
are limited to production on agriculture operations and restrict eligibility to ``family farm'' operations. The disparity between eligibility requirements for the SBA and USDA has resulted in many agricultural businesses being ineligible for disaster assistance at all. Included in that category are horse-related businesses, feedlots, animal breeders and sellers, nurseries, floriculture, tree farms, fish or shellfish business, seed producers, along with others. That is because, to currently be eligible for an SBA disaster loan, a primarily agricultural enterprise must have a separable non-agricultural component, which may be eligible for physical disaster loan assistance provided that it is a separate part of the agricultural enterprise, with separate income, operations, expenses, assets, etc. For economic injury disaster loan assistance, the Small Business Act limits eligibility to small businesses, small agricultural cooperatives, producer cooperatives, and private non-profit organizations. Therefore, the business must meet the eligibility requirements for a small business, and for purposes of EIDL eligibility, the activity of a business must be nonagricultural.
To try to identify some of these gaps between USDA and SBA disaster assistance, Section 209 would require SBA, in consultation with USDA, to report to Congress within 120 days. This report would identify gaps in assistance and provide recommended legislative/administrative changes to fix these problems. For my part, I would like to get these agencies on the same page to ensure that businesses in need--whether they be small businesses or agricultural businesses--are not deprived of assistance if a disaster happens in their area.
In closing, the legislation I am introducing today is an important first step for the Small Business Administration. That is because I am hopeful that, at the appropriate time, my committee can send to the full Senate legislation which will both reform SBA's disaster programs and address ongoing recovery needs across the country. With that goal in mind, I plan to work with my colleagues on both sides of the aisle in the coming months to identify their priorities on these issues.
Mr. President, I ask unanimous consent that the text of the bill and letters of support be printed in the Record.