[Senate Hearing 111-1173]
[From the U.S. Government Publishing Office]
S. Hrg. 111-1173
OVERSIGHT OF THE SBA DISASTER ASSISTANCE PROGRAM
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
MAY 19, 2010
__________
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED ELEVENTH CONGRESS
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MARY L. LANDRIEU, Louisiana, Chair
OLYMPIA J. SNOWE, Maine, Ranking Member
JOHN F. KERRY, Massachusetts CHRISTOPHER S. BOND, Missouri
CARL LEVIN, Michigan DAVID VITTER, Louisiana
TOM HARKIN, Iowa JOHN THUNE, South Dakota
JOSEPH I. LIEBERMAN, Connecticut MICHAEL B. ENZI, Wyoming
MARIA CANTWELL, Washington JOHNNY ISAKSON, Georgia
EVAN BAYH, Indiana ROGER F. WICKER, Mississippi
MARK L. PRYOR, Arkansas JAMES E. RISCH, Idaho
BENJAMIN L. CARDIN, Maryland
JEANNE SHAHEEN, New Hampshire
KAY R. HAGAN, North Carolina
Donald R. Cravins, Jr., Democratic Staff Director and Chief Counsel
Wallace K. Hsueh, Republican Staff Director
C O N T E N T S
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Opening Statements
Page
Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana. 1
Snowe, Hon. Olympia, a U.S. Senator from Maine................... 2
Vitter, Hon. David, a U.S. Senator from Louisiana................ 4
Witnesses
Rivera, James, Associate Administrator, Office of Disaster
Assistance, U.S. Small Business Administration................. 5
Shear, William, Director, Office of Financial Markets and
Community Investments, U.S. Government Accountability Office... 12
Bergeron, Jaimie, Owner, Fleur-de-Lis Car Care Center............ 29
Alphabetical Listing and Appendix Material Submitted
Bergeron, Jaimie
Testimony.................................................... 29
Prepared statement........................................... 31
Landrieu, Hon. Mary L.
Opening statement............................................ 1
Rivera, James
Testimony.................................................... 5
Prepared statement........................................... 7
Responses to post-hearing questions from Chair Landrieu...... 46
Shear, William
Testimony.................................................... 12
Prepared statement........................................... 14
Snowe, Hon. Olympia
Opening statement............................................ 2
Vitter, Hon. David
Opening statement............................................ 4
OVERSIGHT OF THE SBA DISASTER ASSISTANCE PROGRAM
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WEDNESDAY, MAY 19, 2010
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The committee met, pursuant to notice, at 11:11 a.m., in
Room 428A, Russell Senate Office Building, Hon. Mary L.
Landrieu, Chair of the Committee, presiding.
Present: Senators Landrieu, Hagan, Snowe, and Vitter.
OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, AND A U.S.
SENATOR FROM LOUISIANA
Chair Landrieu. Good morning. I would like to call this
Oversight Committee of the Small Business Committee together
for the purposes of our ongoing work in the oversight of the
Disaster Assistance Program.
I am very pleased to have this panel before us today to
provide some updates and insights into that effort. We have
with us SBA Associate Administrator James Rivera, we have
William Shear from the GAO, and, most especially, we have Ms.
Jaimie Bergeron from New Orleans, owner of Fleur-de-Lis Car
Care Center.
I welcome you, especially Ms. Bergeron, this morning. The
Bergerons are an example of one of the pioneer businesses that
I have spoken of so often since this disaster, and I think her
testimony is going to be extremely meaningful to the Committee
and our work today.
We are focused today on the advancements that we have made
in our response to disasters. I believe one of the most
important responsibilities of this Committee is to ensure that
the SBA is fully staffed, better prepared and ready to provide
quick assistance to businesses following disasters. We,
obviously, have one continuing to unfold in the Gulf of Mexico,
putting some of the same businesses that were at risk after the
Katrina/Rita devastation and the breaking of our Federal levee
system. Some of those same businesses are being tested now. We
have had unprecedented floods in Tennessee and in Rhode Island.
So I hope that our new efforts are going to pay off.
Unfortunately, in the past, there have been some terrible
stops and starts. After the 2005 storms, it took 90 days to
process a home loan, 70 days to process a business loan, even
longer for disbursements for disaster funding. SBA used to
required disaster victims to supply mountains of tax records
when the SBA and the Federal government should obviously have
been able to get some of these tax records themselves. That
process has been changed.
As we sit here today, we are less than two weeks away from
the 2010 Atlantic hurricane season. I also mentioned what we
have already seen in Rhode Island and Tennessee.
So I want to say in conclusion that I am proud to have
helped to lead the efforts of some reforms that have been put
into place to date. We are looking forward, Mr. Shear and Mr.
Rivera, to your testimony. But I am also going to continue to
press for additional relief and support for our small
businesses when they are faced with not just the economic
pressures of the current underlying weak economy in our
Country, but in addition to that, they are faced with these
immediate situations before them. Please try to provide some
testimony this morning in that regard.
So I am going to turn it over to Ranking Member Snowe.
OPENING STATEMENT OF HON. OLYMPIA J. SNOWE, A U.S. SENATOR FROM
MAINE
Senator Snowe. Thank you very much, Chair Landrieu, for
holding this oversight hearing on SBA's Disaster Assistance
Program, which is certainly timely given what is occurring in
the Gulf.
As Ranking Member of the Committee, I join the Chair in
welcoming our panelists here today, the SBA Associate
Administrator for Disaster Assistance, James Rivera; Government
Accountability Office Director Bill Shear; and Ms. Jaimie
Bergeron, from Fleur-de-Lis Car Care Center in New Orleans,
Louisiana.
We thank you for taking time away from your business, Ms.
Bergeron, to fly here to Washington. I know that you have had
your share of experiences with the SBA's disaster programs, and
we thank you for your willingness to provide your accounts in
terms of your experiences. I know you have also had to deal
with numerous disasters, between Hurricanes Katrina, Rita and
Wilma in 2005, the Hurricanes Gustav and Ike in 2008, and now
the Deepwater Horizon oil spill which is fast becoming the
worst off-shore environmental disaster in the history of this
Nation.
I know in future hearings we hope to hear from the CEO of
BP, Mr. McKay, who was present at the Commerce Committee, on
which I serve, yesterday. But certainly we need to know how the
company is going to be compensating small businesses for their
losses and what the level of liability BP is committed to as
this bill continues, and the economic impact, not to mention
the environmental impact, continues to grow.
I assure that as former Chair, now Ranking Member, of this
Committee, I have witnessed the good, bad and the ugly when it
comes to the SBA's response to natural disasters. In the days
and months and even a year after Hurricanes Katrina and Rita
devastated the Gulf Coast back in 2005, I saw the worst side of
the Federal Government--slow, inefficient and incompetent.
At the time I was Chair of this Committee and through our
tireless efforts, including trips to the Gulf, as my colleagues
will recall and the Chair will, convening aggressive oversight
hearings and forging numerous pieces of legislation, we were
ultimately successful in including into the 2008 Farm Bill key
provisions to address many of the fundamental flaws in the
SBA's Disaster Assistance Program, which was important to both
of my colleagues who of course represent the State of
Louisiana, and Senator Vitter as well. This legislation was
critical, learning from all of that experience how essential
these reforms were, such as ensuring that the SBA maintain
adequate loan processing staff and reserve employees who can be
called upon to respond to these disasters in a timely fashion.
I am very pleased that our aggressive oversight and reforms
resulted in a streamlined, improved Agency that is much better
prepared today to help victims of natural disasters recover and
rebuild. But unfortunately, the job certainly is not complete,
and according to the testimony, I am sure we are going to hear
from Mr. Shear today regarding this.
According to the GAO, the SBA has only fully met 15 of the
26 requirements of the 2008 Farm Bill and has missed deadlines
on 5 of the major components of this law. With the SBA
currently responding to disasters in Tennessee, where very few
people have flood insurance, in addition to Rhode Island,
Mississippi, California, Kentucky, Massachusetts, New Jersey,
West Virginia and American Samoa, the Agency must show more
urgency in fully implementing all of the reform requirements.
The GAO has been generally positive about the SBA's initial
response after the 2008 Midwest floods and Hurricane Ike, the 2
largest disasters since the 2005 Gulf hurricanes.
And I hope that we hear today that the SBA is fully
equipped to mount an effective and rapid response to the next
catastrophic disaster, not to mention the one that is currently
underway, and how that is going to work with BP, and making
sure we extend assistance to small businesses in an effective
and efficient way.
I also look forward to hearing from Mr. Rivera and the SBA
about the Agency's response to these recent and ongoing
disasters, and specifically:
How many SBA disaster reserves have been activated
nationwide?
Has the SBA improved the application process and simplified
the burdensome paperwork requirements?
Why has the SBA not implemented the private Disaster Loan
Program which was created in the 2008 Farm Bill?
What are the capabilities of the Disaster Credit Management
System and is it ready for another disaster the size of
Katrina?
At the current pace of disaster declarations, how much of
the disaster loan fund does the SBA expect to spend by the end
of this fiscal year?
In addition to these issues, I also hope, Mr. Rivera, that
you address the SBA's response to reports issued by the
Agency's Inspector General last fall, indicating that the SBA
is failing to protect taxpayers' dollars by not ensuring
compliance with insurance requirements on collateral used to
secure loans and for not correctly applying insurance offsets
to loan balances. As the Federal Government takes increasing
responsibility from the States when it comes to disaster
recovery and response, as has been the trend in recent years,
we must ensure that taxpayer dollars are protected and used
efficiently.
Today's hearing represents an opportunity to look ahead,
and ensure the SBA is prepared for the hurricane season and is
able to mount a more comprehensive and aggressive response to
future disasters. It is paramount that we do not relent in our
oversight of these programs.
Thank you, Madam Chair.
Chair Landrieu. Thank you.
Senator Vitter.
OPENING STATEMENT OF HON. DAVID VITTER, A U.S. SENATOR FROM
LOUISIANA
Senator Vitter. Thank you, Madam Chair, for calling this
hearing. It is very important, and I welcome all of our
witnesses, particularly Jaimie Bergeron from Lakeview in New
Orleans. I am very interested to hear all your testimony.
I also want to thank Administrator Mills. I talked with her
in the last few weeks about an aggressive SBA response to the
current crisis in the Gulf, and we have gotten significant
action that I have suggested, and Senator Landrieu and others
have suggested, including the deferral of loan payments of
Katrina and Rita loans by people who are now underwater because
of this current crisis and also new loan opportunities that
many others need.
In addition to that, I would ask that we make part of this
discussion the not just authority, but mandate that the
President set up a quick loan program for fishermen and others
in the fisheries industry, under the OPA bill. Again, that is
not just an authority or a possibility. That is a mandate that
he do that. I think that would give additional quick relief to
folks hard hit in that industry as they deal with the BP claims
process, and I would ask when that is going to happen because
again, that is not simply a possibility open to the President.
It is a mandate under OPA.
And I look forward to all of your testimony. Thank you.
Chair Landrieu. Thank you.
Let me begin just briefly introducing the panel. Our first
witness, James Rivera is Associate Administrator, as has been
said. He started his career in 1989 as a disaster loan
specialist in one of the regions. So he comes with a great deal
of experience this morning.
Mr. Shear joins us today from GAO. Mr. Shear is Director of
the Office of Financial Markets and Community Investment. He is
overseeing numerous reports addressing the SBA, Federal Housing
Administration as well as the Rural Housing Service.
And last, but certainly not least, at my specific request,
Ms. Jaimie Bergeron is here. And I want to say, besides her
experience as an insurance adjuster and her own professional
experience as a small business owner, her personal story as the
Katrina saga unfolded was extremely moving to me, having
visited her place of business on any number of occasions, and
her husband, Ray Bergeron. And what they went through, I mean
Senator Snowe, to try to just reestablish their business is
truly an amazing and moving business.
So I am thrilled that you are here, Ms. Bergeron, to really
put a face and the fabric and the texture behind what we talk
about today.
So let us begin with, Mr. Rivera, with your testimony.
STATEMENT OF JAMES RIVERA, ASSOCIATE ADMINISTRATOR, OFFICE OF
DISASTER ASSISTANCE, U.S. SMALL BUSINESS ADMINISTRATION
Mr. Rivera. Good morning, Chair Landrieu, Ranking Member
Snowe and members of the Committee. Thank you for inviting me
to discuss the SBA efforts with disaster assistance and
recovery.
The SBA is responsible for providing affordable, timely and
accessible financial assistance following a disaster to
businesses, homeowners and renters. This is available in the
form of low interest loans. Since the SBA was created in 1953,
we have provided 1.9 million disaster loans for more than $48.5
billion.
Today, we have about 1,300 employees with a reserve force
of over 2,000. These staff members help provide disaster loans
of up to $200,000 to help homeowners rebuild. We also make
loans to nonprofits and businesses of all sizes for up to $2
million, to assist with any uninsured or otherwise
uncompensated physical loss sustained during a disaster.
More importantly, we offer Economic Injury Disaster Loans
to small businesses, small agricultural cooperatives and
nonprofit organizations who cannot find credit in the
conventional markets. If a business is unable to meet its
obligation and pay its ordinary and necessary operating
expenses due to a disaster, these working capital loans help
provide a low interest rate of 4 percent for up to 30 years.
The maximum loan amount is $2 million combined for both
physical and economic injury disaster loans.
In 2009, SBA successfully responded to 25 presidential
individual assistance declarations, 40 agency declarations, 15
economic injury declarations and 148 Secretary of Ag
declarations. In total, we approved over 21,000 disaster loans
for over $1.1 billion.
This year, as a result of the Deepwater Horizon BP oil
spill, small business owners in the Gulf Region who work in
fishing, seafood retail, boatyards, shipping companies,
processing plants and other coastal small businesses may face
financial losses from having to shut down or interruptions in
their operations due to the oil spill. While small businesses
harmed by the BP Horizon oil spill disaster should seek
compensation from responsible parties, SBA has a role in
helping small businesses affected by the disaster, particularly
if there is any delay in receiving payments for claims. SBA is
ready to assist these businesses by making Economic Injury
Disaster Loans for them in the States of Louisiana,
Mississippi, Alabama and Florida. This provides vital bridge
financing.
Currently, SBA has 25 loan outreach centers in the impacted
areas to meet the small business owners and answer questions
about SBA loans. Small business owners can visit one of these
centers or can apply online through our electronic loan
application, which was introduced in August of 2008 and now
accounts for one-third of all applications submitted.
We are also supported by the Small Business Development
Centers who provided staff to assist fishermen and other small
businesses impacted by the Deepwater Horizon BP oil spill in
filing potential claims.
In addition, we are allowing existing SBA disaster
borrowers to request a deferment, and we are strongly
encouraging our private lending partners to consider deferment
relief for borrowers with SBA traditional non-disaster loans.
I should also note that SBA is currently responding to 38
other disaster declarations, including flooding in Tennessee
where we currently have 17 disaster locations responding to the
event.
Furthermore, I want to emphasize that we have made dramatic
improvements to our disaster operations since 2005 and Katrina.
For example, we are currently meeting our processing goal by
turning around applications within 7 days for disaster home
loans and within 14 days for disaster businesses. To put this
into perspective, the average processing time during the 2005
Gulf Coast hurricanes was 74 days for disaster home loans and
66 days for businesses.
We have also increased the number of work stations for our
disaster employees from 360 to 1,750, and we have brought an
online surge capacity of 350 additional work stations in
Sacramento.
We have also improved the Disaster Credit Management System
which now gives us the technology to serve up to 10,000
concurrent internal users, up from 1,500.
Finally, we have invested in more front-end training,
marketing and outreach to improve our preparedness for and our
response to disasters. We have even brought together focus
groups of Americans who have been directly affected by
disasters to help us learn what works and what does not.
I appreciate the opportunity to share with the Committee
the role SBA plays in recovery. We believe that we are prepared
to effectively and efficiently respond to the needs of the
disaster victims, and I look forward to your questions. Thank
you.
[The prepared statement of Mr. Rivera follows:]
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Chair Landrieu. Thank you very much.
Mr. Shear.
STATEMENT OF WILLIAM SHEAR, DIRECTOR, OFFICE OF FINANCIAL
MARKETS AND COMMUNITY INVESTMENTS, U.S. GOVERNMENT
ACCOUNTABILITY OFFICE
Mr. Shear. Thank you, Chair Landrieu, Ranking Member Snowe
and members of the Committee. It is a pleasure to be here today
to discuss our work at the Small Business Administration.
To complete my statement, we reviewed and updated our
report, ``Small Business Administration: Additional Steps
Should Be Taken to Address Reforms to the Disaster Loan Program
and Improve the Application Process for Future Disasters.'' We
issued this report in July of 2009.
After the 2005 Gulf Coast hurricanes, many deficiencies
were exposed in the Agency's Disaster Loan Program and
demonstrated the need for reform. Since then, SBA has taken
several steps to reform its Disaster Loan Program, which
includes creating an online loan application and increasing the
capacity of its Disaster Credit Management System.
In June, 2008, Congress enacted the Small Business Disaster
Response and Loan Improvements Act, which placed new
requirements on SBA to ensure that the Agency is prepared for
future catastrophic disasters.
In my statement today, I will summarize first the extent to
which SBA has addressed the requirements of the Act and,
second, how SBA's response following the major disasters of
2008 aligned with key components of its June, 2007 Disaster
Recovery Plan.
First, with respect to addressing the requirements of the
Act, the SBA has met 15 of 26 requirements of the Act and
partially addressed 6. The remaining 5 provisions do not
require action. You can see the figure on Page 5 of my
statement which shows, I say, a lot of small print about
summarizing SBA's progress.
Since July, 2009, when we issued our report, SBA has taken
a number of actions. For example, the Agency issued an updated
DRP in November, 2009. In addition, SBA issued regulations on
coordinating with FEMA on timely submission of disaster
assistance applications.
With respect to provisions that have been partially
addressed, SBA has taken steps to address the Act's
requirements for region specific marketing and outreach. For
example, SBA has begun a dialogue with the SBDC State Directors
in the Gulf Coast about disseminating disaster planning
information in the five most hurricane-prone States before the
hurricane season begins. However, these steps have not been
discussed in public documents or venues, such as in the DRP or
on the SBA web site, which would make the information more
transparent and easily accessible to the public and Congress.
In our July, 2009, we recommended that SBA develop
procedures for regional entities that would enable SBA to meet
all region specific requirements of the Act. SBA officials told
GAO the Agency has not yet completely addressed some provisions
that require new regulations because to do so the Agency must
make extensive changes to current programs or implement new
programs. For two requirements that will involve private
lenders, SBA plans to implement pilots before finalizing
regulations. One pilot for the Intermediate Disaster Assistance
Program is expected to be in place by September of this year.
In our July, 2009 report, we recommended that SBA develop
an implementation plan and report to Congress on the Agency's
progress in addressing all requirements within the Act. Such a
plan could improve transparency, thereby making it clear how
well prepared SBA is to manage catastrophic disasters.
Now I will briefly address our second objective, addressing
how SBA's response to major disasters in 2008 aligned with key
components of its June, 2007 Disaster Recovery Plan.
SBA's initial response after the 2008 Midwest floods and
Hurricane Ike aligned with certain components of its initial
DRP, such as using technology and outreach efforts to ensure
timely assistance. The individuals GAO interviewed and results
from SBA's 2008 Disaster Loan Program Customer Satisfaction
Survey provide some positive feedback about SBA's performance
following recent disasters.
However, interviewees and survey results indicated areas
for improvement. In particular, both indicated that application
paperwork was burdensome and that the application process
needed improvements. SBA officials told GAO that they have been
taking steps to improve the application process, but did not
provide documentation of such efforts. As a result, it did not
appear to have any formal process for identifying problems in
the application process and making needed improvements.
It is a pleasure to testify before this Committee. I would
be pleased to answer any questions.
[The prepared statement of Mr. Shear follows:]
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Chair Landrieu. Thank you very much.
Ms. Bergeron.
STATEMENT OF JAIMIE BERGERON, OWNER, FLEUR-DE-LIS CAR CARE
CENTER
Ms. Bergeron. Thank you for inviting me to speak here,
Senator Landrieu and Senator Snowe and other members of the
Committee.
My husband, Ray Bergeron, and I have operated Fleur-de-Lis
Car Care Center in the Lakeview neighborhood of New Orleans
since 1988, and I would like to speak on behalf of Senator Bill
2986.
We are a family business that, prior to Hurricane Katrina,
employed 9 people. On August 29th, my husband and I enjoyed a
measure of financial security. We owned an unencumbered home
and a successful business.
By August 29th, we were homeless, jobless and in debt. In a
few hours, the flooding caused by the levee failures wiped out
over 20 years of work and savings.
In early 2005, we were negotiating for the sale of the
business, and my husband, who turned 70 years old a few weeks
after the flood, was looking forward to retirement. Today,
there are no purchase offers. We are working 12-hour days, and
the SBA holds a $250,000 mortgage on our home which we will be
force to sell if the business fails.
Prior to the flood, we served an average of 250 customers a
day. Our business was one of the few in the city to offer full-
service gasoline. We were the largest tire dealer in the
neighborhood, and we offered a full range of mechanical
services.
As soon as the flood waters receded, we began to clean up
and plan to reopen. Many businesses held off, waiting to see if
residents would return before they made that commitment. We
believed it was up to businesses to provide essential services,
so residents could come back. And they have, but not in the
numbers required for us to keep our doors open.
Today, our business is about half of what it was, averaging
less than 100 customers a day. We have cut hours and eliminated
many of the services we used to provide because we cannot cover
the necessary payroll. We had hoped to be fully staffed by now,
but since the recession we have been forced to lay off three
employees. We have only two left, and our SBA funds have run
out. We cannot afford to borrow more.
We applied for an SBA disaster loan in September, 2005.
After approving our loan, SBA sent us to closing in December,
2005, without providing us with the necessary mortgage
documents. When we asked for a new closing date, we were told
that that would delay the process, and we were encouraged to
sign the loan agreement. We did so with the understanding the
funds would be disbursed as soon as the mortgage documents were
returned to SBA; that did not happen.
SBA advanced us $10,000 in January, 2006. We received no
additional funds until April of that year, and then only after
we agreed to take less money than we had been approved for and
to pay 2 different title companies $305 each for title searches
on the same piece of property.
SBA based our payments on the amount approved rather than
the amount borrowed, but later agreed to reduce our payments by
$200 per month. However, we were forced to begin paying the
loan back on the anniversary of the closing date, December,
2006. As a result, we barely had eight months to restart the
business before we were required to begin making payments on
the loan.
Although individual SBA employees I dealt with worked hard
for us, there seemed to be no sense of urgency and no system in
place to process disaster loans efficiently.
Recently, the streets surrounding our business were closed
for repairs. New roads mean better access, and we hope more
customers. In the meantime, two of the three points of entry
are blocked. We are told that repairs will not be complete
until December, 2010 at the earliest.
In February, we received a six-month deferment from SBA to
help us deal with this major business interruption. We are
grateful for the assistance, although we know that interest
continues to accrue and there will be a large balloon payment
due at the end of the term of the loan. That is a bridge we
will have to cross when we come to it.
A few months, Senator Landrieu and SBA Administrator Karen
Mills visited our business, and I had an opportunity to tell
them how much the small businesses affected by Hurricane
Katrina need loan relief to stay in business and create more
jobs. Even in our current situation, we need one more employee.
As things improve, we hope to add more jobs, but as of now the
debt service does not leave us with enough funds to hire even
that one employee and be confident we can make our payroll. The
bill before this Committee could help us do that.
Small businesses in our area are dealing with the twin
burdens of a prolonged recovery and the effects of the worst
recession in decades, and now South Louisiana has been hit with
another disaster off our coast. Nearly five years later, our
business and others like it are still in need of the relief
this bill will provide, and I ask you to support it.
[The prepared statement of Ms. Bergeron follows:]
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Chair Landrieu. Thank you, Ms. Bergeron. Let me just begin
with you because it is important I think to put, as I said, a
face and texture on what this Committee deals with, so that the
administrators here understand that Ms. Bergeron is speaking
for at least 12,000 small businesses on the Gulf Coast that
have loans similar to her loans and similar situations. And we
are trying to desperately to provide some relief to these
current 12,000 disaster loan holders, in addition,
understanding the new pressures that have come to bear on this
particular region because of the unfolding disaster.
Ms. Bergeron, when you and your husband, Ray, decided to go
back into Lakeview, would you just take 30 seconds or a minute
to describe what Lakeview and your neighborhood looked like,
how it felt and who was there?
Ms. Bergeron. There was no one there.
Chair Landrieu. This was six months after?
Ms. Bergeron. Yes.
Chair Landrieu. Could you describe what it looked like?
Ms. Bergeron. When we first came back, we started cleaning
up in October of 2005, and there was no one there, literally.
There were no birds. There were no--it was unbelievable. It was
very, very unbelievable. It was us, the National Guard, the
NOPD and the Associated Press, and there was not much else.
We just felt like the neighborhood would come back. We just
really believed people--if you are not familiar with New
Orleans or the Lakeview neighborhood, people have very, very
deep roots. A disaster like that happening some place else
might have turned it into a ghost town. But in New Orleans, and
particularly in Lakeview, people have lived there, generation
after generation, and they come back. And they have, but right
at first, no.
And we were the only business on the block for a very long
time. We stayed in business initially with the funds that we
got, obviously, from SBA and also because of the cleanup, the
contractors, with the trucks. We began selling diesel,
something we had not done before because there was no demand
for it, but we switched that around because we could see what
was coming.
Chair Landrieu. Can you tell me what some of the neighbors
said when they drove up to your gas station in those first few
months or even the first year, what they shared with you?
Ms. Bergeron. Oh, it was amazing. We have pictures on the
wall of our first customer that came back, pictures of the
first full-serve customer and the first self-serve customer.
People were just like, we are so glad you came back. We are so
glad that you are here.
It did give a lot of people confidence. We had people tell
us that, where they said if you are coming back, I am coming
back. And that was something that we heard often.
Chair Landrieu. Let me ask you this. There was almost one
million people displaced by the storm, and many of them were in
Baton Rouge which is 90 miles away from the city, and some of
them were in Houston, and some of them were in other parts of
the Country. Was there any other gas station that you knew of
in that first couple or six months to a year that was open
within 20 miles of your station?
Ms. Bergeron. Not too many. No, not very many. I know there
were none in Lakeview for quite some time. We were pretty much
it. There may have been a few in Jefferson Parish adjacent,
where they had some flooding, but it was not of the severity
that we had in our neighborhood.
But we did. We had people coming from all over the city,
people we had never seen before, people coming from further
east, from Gentilly and from New Orleans East and places like
that, where they had nobody that had yet reopened.
Chair Landrieu. I would just end this line of questioning.
I have one more question to each, and then I am going to turn
it over to my colleagues.
This is true of many neighborhoods in the Gulf Coast, but
basically the routine would be people would drive in for hours,
fill up their gas tank at this one gas station that was open,
stand outside under an oak tree and have mass on Sunday, to see
their neighbors, and then the next week would start all again.
Without churches conducting services and these pioneer
businesses opened, I do not know how this city and this region
would have come back.
And that is the purpose of this hearing is to see what we
can do to help them expedite their openings, relieve their
burden and give them the support because they are actually
leading the recovery. Not the Federal Government, not the State
government, it is the small businesses that start to breathe
immediate life back into the community that has been so
devastated.
So, Mr. Rivera, what would you like add just to this
testimony briefly? I have some other follow-up questions I can
submit in the record. But what have you done or what are
reviewing that can help Ms. Bergeron?
And are you all supporting the loan relief that I have
requested, along with Senator Cochran and others, for this
current group of holders of this debt?
Mr. Rivera. Regarding the loan relief, we have the
servicing office that has worked pretty effectively with the
Bergerons. They provided a six-month deferment. My
understanding of the discussion was if there is a need at the
end of the six-month period--we clearly understand her
situation--we can take a look at doing another six-month
deferment and just working with. We work with all our disaster
borrowers. I mean there is no doubt about it.
One of the things that I would like to just comment on, we
were well aware of the fact of the numerous contacts that the
borrowers had to make once they received a loan from us, and we
have actually reengineered that entire legal department, the
account department. We actually have a case manager now, one
person that is a point of contact for all the SBA borrowers. So
anytime that your loan is approved, you only deal with that one
case manager from the time you get your initial disbursement,
from the loan closing documents to your initial disbursement
until it is fully closed. That seems to have been a much more
effective process instead of having to deal with different
individuals through that process. We hope that that is a
successful improvement.
Chair Landrieu. All right, Mr. Shear, just one for you. In
your testimony, you indicated that 26 of the requirements that
this Committee has put in the reform legislation which was, as
Senator Snowe said, inserted in the 2008 Farm bill. In your
testimony, you said the SBA has met 15, partially addressed 6.
Could you talk about the top three that have not been yet
implemented, why they have not in your mind and what we need to
do, either additional deadlines to be submitted or additional
legislation that needs to be passed, or is it a rule,
expediting the rule process?
Mr. Shear. The 3 I would put at the top as the most
challenging for SBA, among the 26 provisions, are the ones
dealing with lending through private lenders, and those are the
3 that stand out. We understand that by September there will be
a pilot with one of the programs which is probably the simplest
of the three to roll out, and we strongly encourage pilots when
going into a new activity like this.
As far as legislative proposals, I think the best thing
that can happen now is to make sure that SBA moves forward
judiciously, at least on the two where they plan to have
pilots, and to assess the results of those pilots, so that
there are some lessons learned, so that these programs can be
tailored and delivered on a timely basis. So I think it is an
oversight issue.
Chair Landrieu. Thank you.
Senator Snowe.
Senator Snowe. Thank you, Chair Landrieu.
Ms. Bergeron, I am so sorry for all that you have endured
and experienced. I mean I can see across the board the pain and
the hardship that you have had to confront, you and your
husband, in such a horrendous ordeal and for so long. We truly
appreciate the fact that you are here today to share your
experiences.
Hopefully, there is some way that we can help to make this
better. I know there are some things beyond your control and
our control when we have these types of disasters, but
hopefully we can get you through, you and your husband through,
in this terrible ordeal.
One of the issues I wanted to ask you about, have you
requested a deferment from the SBA with respect to your
payments, they are allowed to do up to 12 months?
Ms. Bergeron. We received a six-month deferment because of
the business interruption issue when they--our business is
located on a corner. Because with the stimulus package and part
of it is the Submerged Roads Program, they worked on both roads
at the same time. So we had a period of time there where there
was no access at all. You could not get in and out. Now three
of the four, I am sorry, two of the three access points are
closed, but one is open now.
We did request a six-month deferment. We requested and
received a six-month deferment back in February. We have to
resume payments in August with a balloon note at the end.
However, Mr. Rivera was mentioned re-looking, looking at it
again.
I do not have it with me, but as I recall from reading the
letter I received from SBA, it said this is one time only. You
can have a six-month deferment, but please understand that we
will not do this again. So the idea that it will be looked at
again is something I have not heard before, and I appreciate
that. That would be wonderful, but it is not something that I
was aware was even a possibility based on what they sent me.
Senator Snowe. I am going to ask a question in a moment to
why it was not 12 in her circumstance. I mean it seems to me
that every hurdle, I mean every impediment, had been thrown
your way, certainly over a protracted period of time.
I know the State of Louisiana, I know that through Chair
Landrieu and Senator Vitter that it has borne the brunt of
unprecedented disasters in such a short period of time. So we
have to do everything we can to extend assistance to you.
So, Mr. Rivera, why would it not be 12 months in her case,
and why is it a 1-time only situation?
Mr. Rivera. The initial request, it is my understanding,
pre-dated obviously the oil spill, and the time her request was
six months. Had she requested 12 months, I am sure we would
have taken a look at a 12-month deferment because of the
dynamics of the road closures and stuff. But we will definitely
take a look as a result of the recent BP oil spill. We will
take a look if she wants a further deferment after the six
months expires.
Senator Snowe. Yes, we ought to decide, certainly for our
purposes too, what we need to do to change the law in that
regard, to make sure that that is an option under extenuating
circumstances and the contingencies that arise from these kinds
of events. That is hard to determine. When you make a 6-month
request, how do you know it is going to be 6 months or up to
12? You should have the options depending on the circumstances.
Mr. Rivera. Okay. We understand.
Senator Snowe. Does that require a statutory change?
Mr. Rivera. No, ma'am.
Senator Snowe. It does not, okay. But it is certainly
something that we would want to incorporate into law at some
point, to make sure that that flexibility is available.
See, something positive happened when you came to
Washington.
[Laughter.]
Senator Snowe. See how quickly that happened?
Ms. Bergeron. I see how quickly that happened.
Senator Snowe. You just have to endure a hearing. In any
event, we get things done.
[Laughter.]
Senator Snowe. See what you did, Chair Landrieu,
instantaneously?
So your interaction with SBA, has it been generally
positive or negative, any difficulties?
Ms. Bergeron. My interaction with the individuals at SBA
was positive. They really, the people that I spoke with all
seemed like they wanted to help, with the exception of the
people who were initially at the Disaster Assistance Office.
But beyond that, the people that I spoke with in the legal
department, whatever, they were all very, very helpful.
They tried, but it was a constantly changing requirement.
They would say: Yes, this is all we need; yes, this is it. And
two weeks later I would get the phone call: Well, we need this
now; we need that now.
We reached a point where we were getting ready to open. It
was several months past when we had closed.
Senator Snowe. So what year would this be?
Ms. Bergeron. 2006.
Senator Snowe. 2006, okay.
Ms. Bergeron. 2006. We were trying to get open. So finally,
we had to reduce the amount of money we had been approved for
in order to get the loan because they came back and said we
want you to buy a title policy, which would have cost several
thousand dollars, and they had already made me pay twice for a
title search.
We just said we have got equipment coming. We have no way
to pay for it. How much can we borrow that you do not need a
title policy? They told us, and that is what we did.
Senator Snowe. I see. So has that all improved, Mr. Rivera
and Mr. Shear, that process that she just described?
Mr. Rivera. We have completely reengineered the legal
aspect of it. I mean as I mentioned earlier, one of the
challenges we had is a disaster borrower would contact a bank
of 20 attorneys, and the possibility of dealing with a
different response when you deal with those individuals goes up
exponentially.
So what we have done is again we have a case manager. Once
your loan is approved, you go to one individual from the loan
closing documents to the initial disbursement. If you have any
questions, you call the processing center and the disbursement
center, and you will deal with that one individual.
We have seen it much more. It has made it a much more
effective process since we have gone at this new approach. We
heard a lot of those stories, and obviously I mean we empathize
with the situation, and that is why we went to this
reengineering effort.
Senator Snowe. Mr. Shear, do you have anything to say in
that regard?
Mr. Shear. Yes, not to the legal requirement itself. While
we acknowledge that the Agency has become more responsive to
the needs of victims of disasters over time, we are still
looking for a more structured approach to react to problems
that are reported, from work that we have done and have
reported, information coming to SBA, information coming to SBA
from its customer satisfaction survey. A more structured or
formal process is needed to try to improve difficulties in just
the day-to-day dealings with victims of disaster.
Senator Snowe. Mr. Rivera, I just want to ask one question
in your coordination with BP on assistance to small businesses,
and I know Senator Vitter raised the fisheries issue as well.
In order to get funding for fisheries, you have to go through a
disaster declaration, though I gather in this instance
assistance could be given through the Oil Spill Trust Fund.
What are you doing, the SBA specifically, to coordinate with BP
to make sure they are receiving assistance and also through the
Economic Disaster Loan Program?
Mr. Rivera. Yes, ma'am. We have, Administrator Mills has,
the authority under the SBA Act to do a governor's
certification, to declare a governor's certification. Five
small businesses have to sustain substantial economic injury in
that case.
In the State of Louisiana, we received the first request
from the governor there, and we started with 6 primary
parishes, and then we expanded it to 12 primary parishes. Then
we received subsequent requests. And we received the requests
on a Monday or Tuesday as a result of the fisheries closure on
Sunday, and then we turned around and were able to declare the
disaster area on Wednesday. So we had a 24-hour turnaround.
We had the same situation for Mississippi, Alabama and
Florida as a result of the BP oil spill.
The way we are responding to this event, if there is a
business that has had a direct impact as a result of this
disaster, they can go ahead and file an Economic Injury
Disaster Loan application with us. As another condition in our
loan agreement, we will say in the event that there is a like
kind claim that they file with BP, that we will use those that.
We will use those proceeds to pay down the loan.
But there is no requirement that they go to BP first. I
mean we are being very proactive, and we are leaning forward as
much as we can.
We have received about 100 applications so far in the State
of Louisiana, and we started processing those loans, and then
we have some approvals already.
Senator Snowe. We are going to make sure that BP repays all
that assistance, correct?
Mr. Rivera. Absolutely, but they have other types of
assistance for physical damage that we may not loan out in this
specific case to. But correct, they will.
Senator Snowe. Thank you.
Chair Landrieu. Well, I wanted to follow up with that
because I think this is very, very important for the businesses
that are being stressed with this current situation in the Gulf
Coast. Specifically, does the SBA have authority to use the
assignment of a BP claim as collateral?
And let me just finish the question. And if not, what are
you requiring for collateral for these loans to be made, and
what are your limits?
Mr. Rivera. Right. The Economic Injury Disaster Program
will not change in its substance. What we will do is we will
make a loan as we always do. We will take best available
collateral in this case.
We are not going to take an assignment of insurance for the
BP claim. What we are going to do is we are going to put
another condition in the loan document. It is an easier,
simpler process. There is not filing that has to occur. So,
once they get the claim, they will just use that claim to pay
down the loan.
Chair Landrieu. Okay. But let me be clear. You are
requiring collateral. You are requiring collateral for the
loan.
Mr. Rivera. Yes, ma'am.
Chair Landrieu. And give us some specifics about options.
People could put up what? Their house?
Mr. Rivera. We take best available collateral.
Chair Landrieu. Which means what in English?
Mr. Rivera. If you have a chattel, we can take a chattel
mortgage on your boat. It does not matter if it is a first or
second lien position. We can take a second or third lien
position on somebody's home. We will take whatever collateral
is available.
Chair Landrieu. And suppose no collateral is available?
Mr. Rivera. Then we just do not secure the loan. I mean
that is what we do.
Chair Landrieu. You do not make the loan or you do not
secure the loan?
Mr. Rivera. No, we do not secure the loan. What we will do
is we will just----
Chair Landrieu. You will make an unsecured loan.
Mr. Rivera. Well, we will put a lien on--we will just put a
blanket lien on available assets, but there is no real
security. We will just do a public filing.
Chair Landrieu. The idea would be to create, Senator, some
kind of avenue for this loan to be paid in full according to
the law, which is BP's obligation to these individuals. In
other words, if we cannot get funding advanced directly from
BP, if we do this correctly, there is a way that these loans
can be made, but no principal and interest paid, hopefully for
a while until BP can make this whole.
Now I want to ask you, Mr. Shear, do we have to change any
laws to allow that to happen in your opinion, or can it be done
administratively?
Mr. Shear. We have not examined that situation. We would be
glad to talk to Committee staff about it and see what we could
do to try to answer your question and to look into it, but we
have not addressed that question.
Chair Landrieu. Okay, because I do think that this is sort
of the most important issue right before this Committee right
now--the fishermen and other businesses. It could be hotels,
tourism, restaurants, seafood processors. I mean there are a
number of businesses that are more directly, more immediately
affected than others in this region. And depending on how long
this situation goes on and how grave the environmental impacts
have been, which have not yet been determined, this could be a
very serious situation for businesses along the Gulf Coast,
from Texas all the way to parts of Florida.
We want to make sure that the laws are adhered to, and one
of the laws overriding this is that BP is responsible under the
Oil Pollution Act to pay for economic injury to individuals, to
businesses, to governments, both local, State and Federal. They
are even picking up the tab, I understand, for the National
Guard that is on the coast right now. So what we want to make
sure is that we eliminate any possibility that businesses in
the Gulf Coast would go belly-up either waiting for the SBA to
process or BP.
And I will turn this over to you. I know you have to go.
Senator Snowe. I just want to raise a question that you
raised, to address that, the question of collateral. There has
to be some way for BP to assume the responsibilities for that
because if the business is going to SBA and does not have the
necessary collateral to back up that loan, I mean this is the
difficulty that they are going to, the individual owner is
going to, have to assume for a crisis that they did not create.
And BP is responsible for it. So it seems to me that we have to
get some clarity on those issues because the person should or
the business owner should be made whole.
And if they have to go to SBA to get the loan because they
are not getting that immediate reimbursement from BP, and they
have to put up collateral, and they may not have adequate
collateral, then clearly there has got to be some
responsibility on the part of BP to make that, correct that
situation, to mitigate that, because why should they be in the
position--the small business owner to be in a position of not
being able to access a loan immediately, to rectify the
situation.
Chair Landrieu. Well, one of the things we are going to do,
and our time has run out today, but I do plan to have a hearing
on this, more directly on this subject, probably next week. The
date has not yet been set, but we are pulling the panel
together because it is very, very important.
And just for the record, I wanted to state, Senator Snowe,
that there are currently 11,745 disaster loans, business loans
outstanding relative to Gustav, Ike, Katrina and Rita, from
Louisiana, Mississippi and Texas. The bulk of course being in
Louisiana, over 7,000 loans currently outstanding, not for this
current disaster but for past.
I am also going to submit for the record that these are not
insignificant sums for some of these fishing communities.
Calcasieu, on the western part of our State, has 263 loans
outstanding for a total of $21 million.
In Orleans, one of the parishes, not right on the coast but
sort of the hub of the southeast region, there are 3,000
business owners that currently have loans outstanding, these
same kinds of businesses--restaurants, seafood processors,
small mom and pop hotels, maybe seeing some cancellation,
marine operators, boat captains, $26 million outstanding.
In Saint Bernard Parish, which you have seen all over the
news, Saint Bernard and Plaquemines, there are 682 current
loans for $78 million, outstanding.
My fishermen and my constituents are telling me: ``We are
loaned up to the hilt on the Gulf Coast. We have got everything
we ever owned, mortgaged, from the last disasters, and now we
are facing a potentially significant slowdown in business.''
Some people are actually completely out of business because
they are fishing and their fishing waters have been closed.
So I appreciate, in conclusion, the progress that we have
made over the last couple of years, but the Ranking Member and
I are going to be very focused in the next weeks to make sure
that we are expediting, streamlining every process and
proposing any new legislation necessary to make sure we do not
have hundreds, dozens, hundreds of thousands of businesses
collapse, waiting for help to come either from us or from BP.
Does anybody want to give a 30-second answer or response?
Mr. Rivera, just 30 seconds of anything you would like to
add to the record before we close?
Mr. Rivera. From the perspective of looking at the disaster
operation of the Agency a couple years ago, compared to today,
we have really done a lot of process improvements. We continue
to strive hard. Customer service is very key from that
perspective. And we will continue to keep you and your staff
informed as we go through all these developments.
Chair Landrieu. Mr. Shear.
Mr. Shear. As you know, at the request of you and Senator
Snowe, we are looking at basically the 5-year anniversary of
the 2005 hurricanes, and we are writing that report. We are
nearing completion on that.
But on these issues, and obviously the oil spill is a huge
issue, we really would welcome any interaction with you and
Committee staff, if you wanted to us to kind of like act to
that body of work.
Chair Landrieu. Well, I most certainly do, and if you could
that would be extremely helpful.
Ms. Bergeron.
Ms. Bergeron. I think I would just say with respect to the
SBA disaster loans in particular, since that is kind of about
what I know about this, it is just to think about it in terms
of the individuals. In our particular case, we could be
homeless if this business fails. It is not just oh, well, my
business failed; I guess I have to go get a job.
I told Administrator Mills, you probably remember. In 2005,
I owned my house. You own it now.
It is a very, very difficult thing when you are speaking
about collateral for these fishermen, taking their boats and
mortgaging their boats. Some of them already have tons of loans
and mortgages and whatever. They cannot pay it. They just
cannot pay it.
It just seems like there must be a more creative way to
come up with collateral for a disaster loan. For a regular SBA
loan, of course, it is different. But for collateral, it just
seems like there has got to be a better way.
Chair Landrieu. Thank you. We are going to look for one,
Ms. Bergeron.
Thank you very much. Meeting adjourned.
[Whereupon, at 12:06 p.m., the Committee was adjourned.]
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