[StBernard] Melancon Addresses Problems with SBA's Response to Katrina and Rita

[Westley Annis]

	WASHINGTON, DC- U.S. Rep. Charlie Melancon testified today before
the House Committee on Small Business regarding the Small Business
Association's faulty response to victims of Hurricanes Katrina and Rita.
Rep. Melancon focused on the need for commonsense reforms and waivers of
regulations that create unnecessary hurdles for small business owners trying
to recover from the two devastating storms.  
	 
	"We may never be able to pinpoint an exact number of jobs lost to
inaction or a lack of assistance," said Rep. Melancon.  "However, I have
witnessed many  instances where small business owners have been frustrated
to the  point of giving up on the SBA, and I hope that we can work  together
to change the negative perception that currently exists towards SBA's
programs and the entire Federal response."
	 
	Rep. Melancon continued, "SBA's unwillingness to immediately and
effectively delegate responsibility to qualified lenders created a critical
choke point in loan disbursements following the hurricanes."  To address
this issue, Rep. Melancon has signed on as an original co-sponsor for Rep.
Richard Baker's (R-LA) Small Business Disaster Response and Loan
Improvements Act of 2007.  This legislation, introduced today, will allow
for larger maximum loan amounts and create a more streamlined application
process by allowing private, SBA-approved banks to administer SBA loans.  
	 
	Rep. Melancon made several other recommendations for improving the
SBA's response to catastrophic disaster during his testimony today.  These
include:
	 

	*	Encouraging Congress to examine the laws and regulations
that currently govern the SBA's disaster loan programs in order to provide
maximum flexibility in the administration of disaster loans.   Specifically,
home-grown and family-run businesses, such as those in the shrimping
industry in South Louisiana, often do not fit the mold of current SBA loan
qualifications and are denied assistance.

	 

	*	Increasing the flexibility of SBA regulations following
catastrophic disasters so that small businessowners can apply for loans to
expand or re-focus their existing businesses to adapt to the new environment
and meet post-storm demands.  Some businesses along the Gulf Coast were
denied loans because the SBA judged their applications solely based on their
pre-storm capabilities - not on the new realities they were trying to adjust
to.

	 

	*	Stop penalizing business owners who receive both SBA loans
and homeowner assistance grants.  Under current rules, if these homeowners
qualify for Louisiana's Road Home rebuilding grants and loans from the SBA,
they must use the Road Home money to pay back their SBA loans.  Our
homeowners need capital to rebuild their homes.  Forcing them to repay loans
with grant proceeds does not give them capital, it forces them to go
elsewhere.   

	 A copy of Rep. Melancon's testimony is below.
	 
	# # #
	 
	House Small Business Committee
	Full Committee Hearing:   SBA's Response to the 2005 Gulf Coast
Hurricanes
	  
	Good morning Chairwoman Velazquez and Members of the Committee.
Thank you for the opportunity to speak about SBA's response to Hurricanes
Katrina and Rita.
	 
	My Congressional district spans the destructive path of both these
storms. Early on the morning of August 29, 2005, Hurricane Katrina made
landfall in South Plaquemines Parish. Subsequent levee breeches flooded much
of Plaquemines and St. Bernard Parishes, along with the City of New Orleans,
and the communities of Lafitte and Grand Isle.  Less than one month later,
Hurricane Rita made landfall in Southwest  Louisiana with much of the
coastal areas already affected by Katrina  receiving yet another un-needed
and damaging blow, and then creating storm surges though all the coastal
Louisiana parishes and into east Texas.
	 
	Today's hearing focuses on one of many facets of federal government
failures, both before and after these storms. In the weeks and months
following the storms, critical small business grant and loan assistance was
delayed.  Our economy continues to suffer as a result. 
	 
	We may never be able to pinpoint an exact number of jobs lost to
inaction or a lack of assistance.  However, I have witnessed many  instances
where small business owners have been frustrated to the  point of giving up
on the SBA, and I hope that we can work  together to change the negative
perception that currently exists towards SBA's programs and the entire
Federal response.
	 
	As time moves on, we are beginning to quantify some of the missed
opportunities following the 2005 hurricane season.  For instance, nine
months after Katrina and Rita, in May 2006, the SBA had disbursed only 14%
of the $9.7 billion in loan dollars that were approved for disaster
assistance. Even today, only 38% of loan applications have been approved and
funded. After Hurricane Andrew, over 60% were approved.
	 
	Immediately following the storms an understaffed, poorly managed,
and poorly trained -- particularly in customer service - SBA effectively
discouraged small business owners from applying for business or home loans.
	 
	In December 2005, the backlog for loan verification and processing
exceeded on average one and a half months.  In most instances, the wait was
much longer.  Inadequate and inaccurate communication from SBA employees
kept many customers from finishing applications. Furthermore, many clients
lost paper business records in the storms, creating an additional hurdle for
SBA employees that were not able to adjust for these storm-inflicted
realities.
	 
	How do we make SBA better?  One of the first issues that must be
addressed is staffing.  SBA's unwillingness to immediately and effectively
delegate responsibility to qualified lenders created a critical choke point
in loan disbursements following the hurricanes.  To address this issue,
today I am joining my colleague Congressman Richard Baker in introducing the
"Small Business Disaster Response and Loan Improvements Act of 2007."  This
legislation will improve upon the less successful Gulf Opportunity Loan
pilot program administered by the SBA, allowing for larger maximum loan
amounts and creating a more streamlined application process that will be
administered by SBA-approved lenders.
	 
	Beyond staffing problems, Congress must take a close look at the
laws and regulations that currently govern the SBA's disaster loan programs.
SBA's unwillingness or inability to provide maximum flexibility in the
administration of disaster loans continues to hamper recovery efforts in
Louisiana. Specifically, home-grown and family-run businesses, such as those
in the shrimping industry in South Louisiana, often do not fit the mold of
current SBA loan qualifications.  In the resourceful, self-sufficient
economy in South Louisiana, oftentimes the best and only mechanic or
tow-boat operator for these shrimping vessels are the owners themselves or
their family members and fel! low shrimpers. However, following Hurricanes
Katrina and Rita, the SBA did not allow payments to family members or fellow
shrimpers for the expense of removing the vessels from dry land. The money
the SBA loaned shrimpers for mechanical repair, hull repair, net repair, and
acquiring the needed fuel and supplies for shrimping was all important, but
it didn't do owners much good if they didn't have the money to also get
their vessels back into the water. Commercial fishermen should be able to
apply for community express loans so they can get back to work. 
	 
	In addition, SBA's current Physical Disaster Loan program allows for
a waiver of the $1.5 million loan limit.  This waiver is reserved for
businesses that are deemed to have been a major source of employment before
the disaster. However, in disasters the magnitude of Katrina or Rita, SBA
should also allow for waivers for businesses that will become a major source
of employment following the storm.  I am aware of instances where existing
business owners could have greatly expanded or re-focused their existing
businesses to meet strong post-storm demand.  However, because these
businesses did not fit the normal SBA disaster rules, they were turned away
when they applied for loans, causing untold hardship on many busine! sses
and even forcing many to close.  

	 
	A final recommendation for making the current and future disaster
recoveries better would be to allow more flexibility for loan use in
conjunction with the Homeowners Assistance Grants.  Homeowners in South
Louisiana who took the initiative to apply for SBA loans following the
hurricanes are now being penalized for this action.  Under current rules, if
these homeowners qualify for Louisiana's Road Home rebuilding grants and
loans from the SBA, they must use the Road Home money to pay down their SBA
loans.  This leaves these storm victims with a larger financial burden than
they would have otherwise, and no better off, if not worse off, than before
they applied t! o SBA for the loan.
	 
	In closing, I want to thank you, Chairwoman Velazquez and the
Committee for the opportunity to testify this morning. I look forward to
working with you and our colleagues to enact common sense, meaningful reform
to current SBA disaster loan programs.